-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GGo20RtVeyrdu5FPWWZSRPjb9xzQEQRgVikLFgKHS1+tmtxPQzWLBEvrUpzlFsgz zA0SR6F7yl4xHkS5xG0vPA== /in/edgar/work/20000616/0001035704-00-000443/0001035704-00-000443.txt : 20000919 0001035704-00-000443.hdr.sgml : 20000919 ACCESSION NUMBER: 0001035704-00-000443 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20000616 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONTANGO OIL & GAS CO CENTRAL INDEX KEY: 0001071993 STANDARD INDUSTRIAL CLASSIFICATION: [6770 ] IRS NUMBER: 954067606 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-56993 FILM NUMBER: 656576 BUSINESS ADDRESS: STREET 1: 3700 BUFFALO SPEEDWAY SUITE 960 CITY: HOUSTON STATE: TX ZIP: 77098 BUSINESS PHONE: 7139601901 MAIL ADDRESS: STREET 1: 3700 BUFFALO SPEEDWAY SUITE 960 CITY: HOUSTON STATE: TX ZIP: 77098 FORMER COMPANY: FORMER CONFORMED NAME: MGPX VENTURES INC DATE OF NAME CHANGE: 19981013 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN UTE INDIAN TRIBE DBA SUITE GROWTH FUND CENTRAL INDEX KEY: 0001116555 STANDARD INDUSTRIAL CLASSIFICATION: [ ] FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 135 EAST 9TH STREET SUITE H CITY: DURANGO STATE: CO ZIP: 81301 BUSINESS PHONE: 9703752199 SC 13D 1 0001.txt SC 13D (SUIT GROWTH FUND) 1 SCHEDULE 13D CUSIP NO. 2107-5N-105 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (RULE 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13D-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13D-2(a) (AMENDMENT NO. ___)* CONTANGO OIL & GAS COMPANY -------------------------- (NAME OF ISSUER) COMMON STOCK, PAR VALUE $0.04 PER SHARE --------------------------------------- (TITLE OF CLASS OF SECURITIES) 2107-5N-105 (CUSIP NUMBER) ROBERT SANTISTEVAN, DIRECTOR SOUTHERN UTE INDIAN TRIBE d.b.a. SUIT GROWTH FUND 135 EAST 9TH STREET, SUITE H DURANGO, COLORADO 81301 (970) 375-2199 -------------------------------------------------------- (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS) JUNE 8, 2000 -------------------------------------------------------- (DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT) IF THE FILING PERSON HAS PREVIOUSLY FILED A STATEMENT ON SCHEDULE 13G TO REPORT THE ACQUISITION THAT IS THE SUBJECT OF THIS SCHEDULE 13D, AND IS FILING THIS SCHEDULE BECAUSE OF RULE 13d-1(e), 13d-1(f) OR 13d-1(g), CHECK THE FOLLOWING BOX. / / NOTE: SCHEDULES FILED IN PAPER FORMAT SHALL INCLUDE A SIGNED ORIGINAL AND FIVE COPIES OF THE SCHEDULE, INCLUDING ALL EXHIBITS. SEE RULE 13d-7(b) FOR OTHER PARTIES TO WHOM COPIES ARE TO BE SENT. (CONTINUED ON FOLLOWING PAGES) (PAGE 1 OF 5 PAGES) *THE REMAINDER OF THIS COVER PAGE SHALL BE FILLED OUT FOR A REPORTING PERSON'S INITIAL FILING ON THIS FORM WITH RESPECT TO THE SUBJECT CLASS OF SECURITIES, AND FOR ANY SUBSEQUENT AMENDMENT CONTAINING INFORMATION WHICH WOULD ALTER DISCLOSURES PROVIDED IN A PRIOR COVER PAGE. THE INFORMATION REQUIRED ON THE REMAINDER OF THIS COVER PAGE SHALL NOT BE DEEMED TO BE "FILED" FOR THE PURPOSE OF SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 ("ACT") OR OTHERWISE SUBJECT TO THE LIABILITIES OF THAT SECTION OF THE ACT BUT SHALL BE SUBJECT TO ALL OTHER PROVISIONS OF THE ACT (HOWEVER, SEE THE NOTES). 2 SCHEDULE 13D CUSIP NO. 2107-5N-105 PAGE 2 OF 5 PAGES 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Southern Ute Indian Tribe, dba SUIT Growth Fund - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] Not applicable. - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS* OO - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION Federally recognized Indian tribe organized under the Indian Reorganization Act of 1934 - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER NUMBER OF 5,000,000 SHARES ---------------------------------------------------- 8. SHARED VOTING POWER BY 0 EACH ---------------------------------------------------- 9. SOLE DISPOSITIVE POWER REPORTING 5,000,000 PERSON WITH ----------------------------------------------------- 10. SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,000,000 - -------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 28.6% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* 00 - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! 3 SCHEDULE 13D CUSIP NO. 2107-5N-105 PAGE 3 OF 5 PAGES ITEM 1. SECURITY AND ISSUER This Statement relates to the Common Stock, par value $0.04 per share ("Common Stock"), of Contango Oil & Gas Company (the "Issuer"). The address of the principal executive office of the Issuer is 3700 Buffalo Speedway, Suite 960, Houston, Texas 77098. ITEM 2. IDENTITY AND BACKGROUND (a)-(c), (f) This Statement is filed on behalf of the Southern Ute Indian Tribe, dba SUIT Growth Fund (the "Tribe"). The Tribe is a federally recognized Indian tribe organized under the Indian Reorganization Act of 1934. The Tribe performs various investment activities under the dba of SUIT Growth Fund. The address of the principal business and principal office for SUIT Growth Fund is 135 East 9th Street, Suite H, Durango, Colorado 81301. The Tribe is governed by a tribal council. The Tribe has appointed a Director to oversee its SUIT Growth Fund. The members of the tribal council and the Fund's Director are listed below. The positions held and duties performed by each person listed below represents such person's principal occupation and employment. The principal business address for the Tribe and each Tribal Council member is 116 Capote Drive, Ignacio, Colorado 81137. Each person is a citizen of the United Sates of America. TRIBAL COUNCIL MEMBERS AND FUND DIRECTOR - ------------------ John E. Baker, Jr. Chairman Howard Richards Vice Chairman Corliss Taylor Treasurer Pearl Casias Council Member Vida Peabody Council Member Byron Frost Sr. Council Member Dewitt Baker Council Member Robert Santistevan Director of the Fund (d)-(e) During the last five years, neither the Tribe (dba SUIT Growth Fund) nor, to the best of its knowledge, any of its respective tribal council members or the director of its SUIT Growth Fund (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors); or (ii) has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceedings was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION As of the close of business on June 8, 2000, the Tribe had purchased in the aggregate 2,500,000 shares of Common Stock (the "Shares") and an option to purchase an additional 2,500,000 shares of Common Stock at $1.00 per share (the "Warrant"). The Shares and the Warrant were purchased for an aggregate 4 SCHEDULE 13D CUSIP NO. 2107-5N-105 PAGE 4 OF 5 PAGES total consideration of $2,500,000, which amount was obtained from funds reserved for investments on behalf of the Tribe. ITEM 4. PURPOSE OF TRANSACTION The Shares and the Warrant described herein were acquired for investment purposes. Based on continuing evaluation of the Issuer's businesses and prospects, alternative investment opportunities and all other factors deemed relevant, additional shares of the Issuer's Common Stock may be acquired in the open market or in privately negotiated transactions, or some or all of the shares of the Issuer's Common Stock may be sold. Except as set forth in elsewhere in this Schedule 13D, the Tribe has made no proposals and have entered into no agreements which would be related to or would result in any of the matters described in Items 4(a)-(j) of Schedule 13D; however, as part of their ongoing review of investment alternatives, the Tribe may consider further investment opportunities with management or the Board of Directors of the Issuer or other stockholders of the Issuer. ITEM 5. INTEREST AND SECURITIES OF THE ISSUER (a) As of the date of this Schedule 13D, the Tribe beneficially owns 5,000,000 shares of Common Stock of the Issuer (approximately 22.23% of the Issuer's shares of Common Stock), 2,500,000 of which are issued and outstanding and an additional 2,500,000 of which the Tribe has the right to acquire upon exercise of the Option. (b) Except for the purchases by the Tribe described herein, neither the Tribe and to the best its knowledge, none of its respective council members or the Fund's director has effected transactions involving the Issuer's Common Stock during the last 60 days. (c)-(e) Not applicable ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER The Issuer and the Tribe entered into a Securities Purchase Agreement in connection with the issuance of the Shares and the Option. The Securities Purchase Agreement provides that the Tribe may transfer its securities of the Issuer, subject to compliance with the federal and any applicable state securities laws. The Securities Purchase Agreement, among other things, provides: o that the Issuer's Board of Directors shall consist of no more than seven members and that one member of the Board of Directors of the Issuer may be elected by the Tribe so long as the Tribe holds five percent or more of the Issuer's Common Stock; o that the Tribe also has the right of first refusal to purchase its pro rata share of the issuance of any capital stock, or rights, options or warrants to purchase capital stock, of the Issuer; provided, however, that such right of first refusal does not pertain to capital stock issued pursuant to the Issuer's stock option plan or existing options, and furthermore, the right of first refusal expires upon the completion of a public offering of the Issuer's Common Stock which raises at least $10 million in proceeds; and o customary "demand" and "piggyback" registration rights. 5 SCHEDULE 13D CUSIP NO. 2107-5N-105 PAGE 5 OF 5 PAGES The Issuer has also indicated that it intends to appoint John Jurrius, Financial Adviser to the Tribes' SUIT Growth Fund, as a board member, although there is no formal agreement between the parties as to this appointment. The Issuer and the Tribe entered into the Co-Sale Agreement (as described above) with respect to shares of Common Stock of the Issuer. The Co-Sale Agreement provides that the Tribe may also tag-along its shares of Common Stock with certain sales by the Issuer's president. Pursuant to the Securities Purchase Agreement, the Tribe received an option to purchase 2,500,000 shares of the Issuer's Common Stock. The option is exercisable at any time for 90 days after June 8, 2000 at an exercise price of $1.00 per share. The Issuer and the Tribe also entered into a Participation Agreement dated June 8, 2000. Under the Participation Agreement, the Tribe has the right but not the obligation to participate, on an acquisition by acquisition basis, in oil and gas prospects and reserves in which the Issuer acquires an interest. The interest the Tribe has the right to acquire in such prospects and reserves will be 18.75% of the interest acquired by the Issuer; however, if the Issuer elects to acquire less than the full interest that it was entitled to acquire in a prospect or reserve, then in addition to the Tribe's 18.75% interest, the Tribe will have the right but not the obligation to acquire all or a part of the interest that the Issuer had elected not to acquire. The oil and gas prospects and reserves that are initially expected to be the subject of the Participation Agreement are those presented to the Issuer under the Agreement dated effective as of September 1, 1999, between the Issuer and Juneau Exploration, L.L.C., which was attached to the Issuer's Form 10-QSB for the quarter ended September 30, 1999. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS The following are filed herewith as Exhibits to this Schedule 13D: Exhibit 1 -- Securities Purchase Agreement dated as of June 8, 2000 by and between the Issuer and the Tribe. Exhibit 2 -- Co-Sale Agreement dated as of June 8, 2000 by and between the Issuer and the Tribe. Exhibit 3 -- Stock Option Agreement dated as of June 8, 2000. Exhibit 4 -- Participation Agreement dated as of June 8, 2000 by and between the Issuer and the Tribe SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, the undersigned certify that the information set forth in this Statement is true, complete and correct. Dated as of this 14th day of June, 2000. SOUTHERN UTE INDIAN TRIBE, dba SUIT GROWTH FUND By: /s/ John E. Baker, Jr. --------------------------- Name: John E. Baker, Jr. Title: Chairman 6 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- EX-99.1 Securities Purchase Agreement EX-99.2 Co-Sale Agreement EX-99.3 Option EX-99.4 Participation Agreement
EX-99.1 2 0002.txt SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 99.1 THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS ("STATE LAWS") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE OFFER AND SALE IS REGISTERED UNDER THE SECURITIES ACT OR THE ISSUER RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT THE OFFER AND SALE IS EXEMPT FROM SECURITIES ACT REGISTRATION. SECURITIES PURCHASE AGREEMENT This agreement is made and entered into as of the 8th day of June, 2000, by and between Contango Oil & Gas Company (the "Issuer") and the Southern Ute Indian Tribe, a federally recognized Indian tribe organized under the Indian Reorganization Act of 1934, doing business as the Southern Ute Indian Tribe Growth Fund (the "Purchaser"). 1. AGREEMENT TO PURCHASE SECURITIES. On the terms and subject to the conditions set forth in this agreement, the Purchaser hereby agrees to purchase from the Issuer 2,500,000 shares of the Issuer's common stock (the "Shares") for an aggregate purchase price of $2,500,000 (the "Purchase Price"), payable by wire transfer to the account of the Issuer. The Issuer will also grant Purchaser a 90-day option to purchase an additional 2,500,000 shares of the Issuer's common stock (the "Option") for an aggregate purchase price of $2,500,000. The shares of Issuer's common stock that may be issued upon exercise of the Option are referred to herein as the "Option Shares" and the Shares, the Option and the Option Shares are collectively referred to herein as the "Securities". 2. WIRE TRANSFER OF PAYMENT FOR AND DELIVERY OF THE SECURITIES. Immediately after the Purchaser has wired the Purchase Price for the Securities as instructed by Issuer, the Issuer shall issue and deliver a certificate representing the Shares, and the Options in the form attached hereto as Exhibit A and Exhibit B, in the name and to the address specified by the Purchaser in the registration and delivery instructions on the signature page of this agreement. 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES. The Purchaser hereby represents and warrants to the Issuer that: 3.1 Investment Intent. The Purchaser is acquiring the Securities solely for the Purchaser's own account for investment purposes, and not with a view to, or for offer or sale in connection with, any distribution of the Securities in violation of the Securities Act. 3.2 Access to Information. The Purchaser has received a copy of the Issuer's annual report on Form 10-KSB for the year ended June 30, 1999 (the "Annual Report") and quarterly report on Form 10-QSB for the quarter ended March 31, 2000 (the "Quarterly Report") and has reviewed them, including the risk factors set forth under the heading, "Management's Discussion and Analysis of Plan of Operation -- Risk Factors." In addition, the Purchaser has received and reviewed a copy of the Issuer's proxy statement for its annual meeting of stockholders held on September 28, 1999 (the "Proxy Statement"). If desired, the Purchaser has also sought and obtained from management of the Issuer such additional information concerning 2 the business, management and financial affairs of the Issuer as the Purchaser has deemed necessary or appropriate in evaluating an investment in the Issuer and determining whether or not to purchase the Securities. 3.3 Accredited Investor. By completing the Accredited Investor Certification attached as Exhibit C, the Purchaser represents and warrants that it is an accredited investor, as defined by Rule 501(a) of Regulation D under the Securities Act. 3.4 Knowledge and Experience. The Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Securities and of protecting its interests in connection with an acquisition of the Securities. 3.5 Suitability. The Purchaser has carefully considered, and has, to the extent the Purchaser deems it necessary, discussed with the Purchaser's own professional legal, tax and financial advisers the suitability of an investment in the Securities for the Purchaser's particular tax and financial situation, and the Purchaser has determined that the Securities are a suitable investment for the Purchaser. 3.6 Ability to Bear Risk of Loss. The Purchaser is financially able to hold the Securities subject to restrictions on transfer for an indefinite period of time, and is capable of bearing the economic risk of losing up to the entire amount of its investment in the Securities. 3.7 Private Offering. The offer of the Securities was directly communicated to the Purchaser by the Issuer. At no time was the Purchaser presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general advertising or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such directly communicated offer. 3.8 Truth and Accuracy. All representations and warranties made by the Purchaser in this agreement are true and accurate as of the date hereof and shall be true and accurate as of the date the Issuer issues the Securities. If at any time prior to the issuance of the Securities any representation or warranty shall not be true and accurate in any respect, the Purchaser shall so notify the Issuer. 3.9 Authority. The individuals executing and delivering this agreement on behalf of the Purchaser have been duly authorized to execute and deliver this agreement on behalf of the Purchaser, the signature of both such individuals is binding upon the Purchaser, the Purchaser is a federally recognized Indian tribe organized under the Indian Reorganization Act of 1934 and the Purchaser was not formed for the specific purpose of acquiring the Securities. 3.10 No Violation. The execution and delivery of this agreement and the consummation of the transactions or performance of the obligations contemplated by this agreement do not and will not violate any term of the Purchaser's organizational documents. 3.11 Enforceability. The Purchaser has duly executed and delivered this agreement and (subject to its execution by the Issuer) it constitutes a valid and binding agreement of the Purchaser enforceable in accordance with its terms against the Purchaser, except as such enforceability may be limited by and subject to laws of general application 2 3 relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 3.12 Reliance on Own Advisers. In connection with the Purchaser's investment in the Securities, the Purchaser has not relied upon the Issuer or its advisers for legal or tax advice, and has, if desired, in all cases sought the advice of the Purchaser's own legal counsel and tax advisers. 3.13 Scope of Business. The Purchaser has been advised and understands that the Issuer will be exposed to numerous investment opportunities in all areas of the oil and gas industry and may therefore pursue various types of opportunities, even if they do not fit within the primary focus of the Issuer's current business plan. For example, such opportunities could include both onshore and offshore United States investments and also international investments. Potential opportunities could also include such things as downstream investments in oil and gas service companies, pipelines, and gas processing and gas storage facilities. 4. ISSUER'S REPRESENTATIONS AND WARRANTIES. The Issuer hereby represents and warrants to the Purchaser that: 4.1 Corporate Existence; Authority. The Issuer is a corporation duly organized, validly existing and in good standing under the laws of Nevada and is duly qualified and in good standing in each jurisdiction in which such qualification is required by law, except where the failure to be so qualified would not have a material adverse effect on the Issuer. The Issuer has all requisite power and authority to own or hold under lease the properties it purports to own or hold under lease and to carry on its business as it is being conducted and to execute and deliver this agreement and to perform the provisions hereof. The individual executing and delivering this agreement on behalf of the Issuer has been duly authorized to execute and deliver this agreement on behalf of the Issuer and the signature of such individual is binding upon the Issuer. 4.2 Enforceability. The Issuer has duly taken all requisite action necessary to authorize the execution and delivery by it of this agreement and to authorize the consummation of the transactions contemplated hereby and the performance of its obligations hereunder. The Issuer has duly executed and delivered this agreement and (subject to its execution by the Purchaser) it constitutes a valid and binding agreement of the Issuer enforceable in accordance with its terms against the Issuer, except as such enforceability may be limited by and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 4.3 Capitalization. (a) The Issuer has no outstanding capital stock other than common stock as of the date of this agreement. The Issuer is authorized to issue 50,000,000 shares of common stock, of which (prior to giving effect to the transactions set forth herein) 17,496,661 shares are issued and outstanding, and 125,000 shares of preferred stock, none of which are issued and outstanding. All of the Issuer's outstanding shares of common stock have been duly and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights. The Shares have been duly authorized and when issued and delivered to the Purchaser against payment therefor as provided by this agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or 3 4 similar rights. If and when issued, the Option Shares will have been duly authorized and when issued and delivered to the Purchaser against payment therefor as provided by in the Option, will be validly issued, fully paid and non-assessable, and the issuance of such Option Shares will not be subject to any preemptive or similar rights. (b) Prior to giving effect to the transactions set forth herein, there are no outstanding subscriptions, options, warrants, convertible securities, calls, commitments, agreements or rights to purchase or otherwise acquire from the Issuer any shares of, or any securities convertible into, the capital stock of the Issuer except as set forth on Schedule 4.3(b), including (i) outstanding options to purchase 814,167 shares of the Issuer's common stock under the Issuer's 1999 Stock Incentive Plan, under which 5,000,000 shares of common stock are reserved for issuance, (ii) warrants exercisable for 2,830,370 shares of the Issuer's common stock at the exercise price of $1.00 per share, and (iii) outstanding options to purchase an aggregate of 275,000 shares of the Issuer's common stock pursuant to certain agreements between the Issuer and various third parties. (c) Except as set forth on Schedule 4.3(c), no shareholders of the Issuer have any right to require the registration of any securities of the Issuer or to participate in any such registration. 4.4 No Conflicts. The issuance and sale of the Securities to the Purchaser as contemplated hereby and the performance of this Agreement and the Option will not violate or conflict with the Issuer's Articles of Incorporation or By-laws or any agreements to which the Issuer is a party or by which it is otherwise bound or, to the Issuer's knowledge, any statute, rule or regulation (federal, state, local or foreign) to which it is subject. 4.5 SEC Documents. The Issuer has provided the Annual Report, the Quarterly Report and the Proxy Statement to the Purchaser. As of the date hereof, the Annual Report, the Quarterly Report and the Proxy Statement do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Issuer included in the Annual Report have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the financial position of the Issuer as of the dates thereof and the results of its operations and cash flows for the periods then ended. The Issuer has included in the Annual Report all material agreements, contracts and other documents that are required to be filed as exhibits to the Annual Report. 4.6 Litigation. There is no litigation or other legal, administrative or governmental proceeding pending or, to the knowledge of the Issuer, threatened against or relating to the Issuer or its properties or business, that if determined adversely to the Issuer may reasonably be expected to have a material adverse effect on the present or future operations or financial condition of the Issuer. 4.7 No Material Adverse Change. Since the date of the Quarterly Report, there has not been any material adverse change in the business, operations, properties, prospects, 4 5 assets, or condition of the Issuer, and no event has occurred or circumstance exits that may result in such a material adverse change. 4.8 Environmental Matters. (a) Except as would not be reasonably likely to have a material adverse effect change in the business, operations, properties, prospects, assets, or condition of the Issuer: (i) to Issuer's knowledge, Issuer has complied with all applicable Environmental Laws (as defined in Section 4.8(b)); (ii) to Issuer's knowledge, Issuer is not subject to liability for any Hazardous Substance disposal or contamination on any third party property; (iii) to Issuer's knowledge, Issuer has not been associated with any release or threat of release of any Hazardous Substance; (v) Issuer has not received any notice, demand, letter, claim or request for information alleging that Issuer may be in violation of or liable under any Environmental Law; (vi) Issuer is not subject to any orders, decrees, injunctions or other arrangements with any Governmental Entity or is subject to any indemnity or other agreement with any third party relating to liability under any Environmental Law or relating to Hazardous Substances; and (vii) there are no circumstances or conditions involving Issuer that could reasonably be expected to result in any claims, liability, investigations, costs or restrictions on the ownership, use or transfer of any property of Issuer pursuant to any Environmental Law. (b) For purposes of this agreement, the term "Environmental Law" means any federal, state, local or foreign law, regulation, order, decree, permit, authorization, opinion, common law or agency requirement relating to: (A) the protection, investigation or restoration of the environment, health and safety, or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance or (C) noise, odor, wetlands, pollution, contamination or any injury or threat of injury to persons or property. (c) For purposes of this agreement, the term "Hazardous Substance" means any substance that is: (A) listed, classified or regulated pursuant to any Environmental Law; (B) any petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon; or (C) any other substance which is the subject of regulatory action by any governmental entity pursuant to any Environmental Law. 4.9 Juneau Agreement. Issuer has delivered a true and correct copy of the agreement dated as of September 1, 1999 (the "Juneau Agreement") by and between the Issuer and Juneau Exploration, Inc. to Purchaser, and since the date received by Purchaser, the Juneau Agreement has not been amended or modified in any respect orally or in writing, is in full force and effect and has not been terminated. 4.10 No Subsidiaries. Except as set forth on Schedule 4.10, the Issuer has no Subsidiary, owns no stock in any other person, and is not a member of any general or limited partnership, joint venture or association of any kind. For purposes of this agreement, the term Subsidiary of a specified person means any corporation, association, partnership, joint venture, or other business or corporate entity, enterprise or organization which is directly or indirectly (through one or more intermediaries) controlled by or owned fifty percent or more by the specified person, provided that associations, joint ventures or other relationships (i) which are established pursuant to a standard form operating agreement or similar agreement or which are 5 6 partnerships for purposes of federal income taxation only, (ii) which are not corporations or partnerships (or subject to the Uniform Partnership Act) under applicable state law, and (iii) whose businesses are limited to the exploration, development and operation of oil, gas or mineral properties and interests owned directly by the parties in such associations, joint ventures or relationships, shall not be deemed to be "Subsidiaries" of the specified person. 4.11 Compliance with Laws, Other Instruments. The execution, delivery and performance by the Issuer of this agreement will not (a) contravene, result in any breach of, or constitute a default under or result in the creation of any lien in respect of any property of the Issuer under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or bylaws, or any other material agreement or instrument to which the Issuer is bound or by which the Issuer or any of its respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or governmental authority applicable to the Issuer or (c) violate any provision of any statute or other rule or regulation of any governmental authority applicable to the Issuer. 4.12 Government Authorization. No consent, approval or authorization of, or registration, filing or declaration with a governmental authority is required in connection with the execution, delivery or performance by the Issuer of this agreement. 4.13 Observance of Agreements, Statutes and Orders. The Issuer is not in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or governmental authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation environmental laws) of any governmental authority which default or violation could have a material adverse effect upon the business or operations of the Issuer. 4.14 Taxes. The Issuer has filed all tax returns that are required to have been filed by it in any jurisdiction, and has paid all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges or levies levied upon it or its properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate material in relation to the business, operations, affairs, financial condition, assets, properties or prospects of the Issuer, or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Issuer has established adequate reserves in accordance with generally accepted accounting principles. The Issuer knows of no basis for any other tax or assessment with respect to itself that could reasonably be expected to have a material adverse effect. The charges, accruals and reserves on the books of the Issuer in respect of federal, state or other taxes for all fiscal periods are adequate. 4.15 Licenses, Permits, etc. (a) the Issuer owns or possesses all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto necessary for the conduct of its business, without known conflict with the rights of others; 6 7 (b) no product of the Issuer infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other person; and (c) there is no material violation by any person of any right of the Issuer with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Issuer. 4.16 ERISA. The Issuer has not had nor does it have any plans subject to ERISA. 4.17 Insurance. The Issuer maintains, with financially sound and reputable insurers, insurance with respect to its properties and businesses against such casualties and contingencies, of such types, on such terms, and in such amounts (including deductibles, coinsurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or similar business and similarly situated. Set forth in Schedule 4.17 is a list as of the date hereof of all of the Issuer's policies of insurance, containing in each case the name of the insurer, the policy number, coverage amounts, deductible, premium and expiration date. 4.18 Commissions. The Issuer has not entered into any agreement or incurred any obligation which might result in the obligation to pay a brokerage commission or finder's fee with respect to the sale and issuance of the Securities. 4.19 Election. At a meeting of the Board of Directors of the Issuer held on May 30, 2000, Robert Zahradnick was elected to the Board of Directors of the Issuer subject to the consummation of the transactions pursuant to this agreement. 5. RESTRICTIONS ON TRANSFER. 5.1 Resale Restrictions. The Purchaser understands that the offer and sale of the Securities to the Purchaser has not been registered under the Securities Act or under any State Laws. The Purchaser agrees not to offer, sell or otherwise transfer the Securities, or any interest in the Securities, unless (i) the offer and sale is registered under the Securities Act, (ii) the Securities may be sold in accordance with the applicable requirements and limitations of Rule 144 under the Securities Act and any applicable State Laws and, if the Issuer reasonably requests, the Purchaser delivers to the Issuer an opinion of counsel to such effect, or (iii) the Purchaser delivers to the Issuer an opinion of counsel reasonably satisfactory to the Issuer that the offer and sale is otherwise exempt from Securities Act registration. Notwithstanding the foregoing subsections (ii) and (iii), no opinion shall be required for transfers by Purchaser to Purchaser's affiliates. 5.2 Restrictive Legend. The Purchaser understands and agrees that a legend in substantially the following form will be placed on the certificates or other documents representing the Securities: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY 7 8 NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS (i) THE OFFER AND SALE IS REGISTERED UNDER THE SECURITIES ACT, OR (ii) THE OFFER AND SALE IS EXEMPT FROM SECURITIES ACT REGISTRATION AND THE TERMS OF SECTION 5.1 OF THE SECURITIES PURCHASE AGREEMENT PURSUANT TO WHICH THE SECURITIES WERE ORIGINALLY PURCHASED HAVE BEEN COMPLIED WITH. (A COPY OF THE SECURITIES PURCHASE AGREEMENT IS ON FILE AT THE CORPORATE OFFICE OF THE ISSUER.)" 5.3 Illiquid Investment. The Purchaser acknowledges that it must bear the economic risk of its investment in the Securities for an indefinite period of time, until such time as the Securities are registered or as an exemption from registration is available. The Purchaser acknowledges that the soonest that the Rule 144 exemption from registration could become available would be after the Purchaser has paid for and held the Securities for one year. 6. RIGHT TO ADDITIONAL SECURITIES. 6.1 First Refusal Rights. Subject to the terms and conditions of this Article 6, the Issuer hereby grants to the Purchaser a right of first refusal to purchase its Pro Rata Share (as defined below) of any issue of New Securities (as defined below) that the Issuer (or any subsidiary whose capital stock will not be wholly owned, directly or indirectly, by the Issuer upon completion of any such issuance) may from time to time after the date of this agreement propose to issue. 6.2 New Securities. "New Securities" shall mean any capital stock, any rights, options or warrants to purchase or subscribe for capital stock, and any securities or other instruments of any type whatsoever that are, or may become, convertible into or exchangeable for capital stock, which are issued for cash; provided, however, that "New Securities" shall not include: (i) up to 5,000,000 shares of the Issuer's common stock (or related options or rights) issued to the Issuer's employees, directors and consultants pursuant to a plan adopted by the Board of Directors; (ii) shares of the Issuer's capital stock issued in connection with any warrant, option or right, stock split or stock dividend by the Issuer outstanding on the date hereof; (iii) shares issued to Glenn Dillon, the Issuer's controller, in an amount not to exceed 1,250 per month; (iv) shares issued to William Gibbons, the Issuer's treasurer and assistant secretary, in an amount not to exceed 2,000 per month through December 2000; and (v) shares issued to Billy Jack Corbell in connection with the acquisition of leases in Shelby County, Texas, in an amount not to exceed 5,000. 6.3 Notice and Allocation Periods. If the Issuer or, when applicable, its subsidiary, proposes to undertake a bona fide issuance of New Securities, then it shall give the Purchaser written notice, at the address set forth on the signature page hereof or any substitute address delivered to Issuer in writing by Purchaser, of its intention, describing the type of New Securities, the price, the number of shares to be offered, and the general terms upon which such securities are proposed to be offered. The Purchaser shall be given at least 20 days' prior written notice within which to agree to purchase all or any part of its Pro Rata Share (as hereinafter defined) of such issuance of New Securities for the price and upon the general terms specified in said notice by giving written notice to the issuer within such period and stating therein the quantity of New Securities to be purchased by it. "Pro Rata Share" shall mean that portion of the number of shares of New Securities proposed to be issued that equals the proportion that (a) the 8 9 number of shares of common stock held by the Purchaser immediately prior to the proposed issuance, plus the number of shares of common stock that would then be issuable to the Purchaser assuming that the Option had been fully exercised, bears to (b) the total number of shares of common stock issued and outstanding immediately prior to the proposed issuance. 6.4 Right of Issuer to Sell New Securities. If the Purchaser fails to exercise in full its rights of first refusal within the applicable period set forth above, then the Issuer or, when applicable, its subsidiary shall have 120 days thereafter to sell the New Securities respecting that the rights set forth herein were not exercised at a price and upon general terms no more favorable to the purchaser thereof than specified in the notice to the Purchaser. If such New Securities have not been sold within such 120-day period, then the Issuer or, when applicable, its subsidiary shall not thereafter issue or sell any New Securities without first offering them to the Purchaser in the manner provided above. 6.5 Expiration of First Refusal Rights. Notwithstanding anything to the contrary in the foregoing, the right of first refusal granted to the Purchaser pursuant to this Article 6 shall expire upon completion of a public offering of the Issuer's common stock pursuant to a registration statement declared effective by the SEC in connection with the sale by the Issuer of at least $10.0 million of the Issuer's common stock. 7. REGISTRATION PROCEDURES. 7.1 Initial Filing. Within 180 days after the issuance of the Shares, the Issuer shall prepare and file or cause to be filed with the SEC a registration statement (the "Initial Registration Statement") with respect to the Shares. The Issuer shall thereafter use diligence in attempting to cause the Initial Registration Statement to be declared effective by the SEC and shall thereafter use diligence to maintain the effectiveness of the Initial Registration Statement until the earlier to occur of (i) the date which is one year from the effective date of the Initial Registration Statement, (ii) the date on which all of the Shares have been sold by the Purchaser or (iii) the date on which the Shares can be resold in full over a three-month period pursuant to SEC Rule 144. 7.2 Demand Registration Rights. If at any time the Initial Registration Statement is no longer effective, Purchaser shall be entitled to make a request for registration under the Securities Act of Shares or Option Shares (together, "Registerable Securities") in an aggregate amount of at least 2,500,000 shares (a "Demand Registration"). Within 120 days of the receipt of a written request for a Demand Registration, the Issuer shall file with the SEC and use its best efforts to cause to become effective under the Securities Act a registration statement with respect to such Registerable Securities (a "Demand Registration Statement"). Any such request will specify the number of Registerable Securities proposed to be sold and will also specify the intended method of disposition thereof. The Issuer shall be required to register Registerable Securities pursuant to this Section 7.2 on a maximum of two separate occasions; provided, the Issuer shall not be required to register Registerable Securities pursuant to this Section 7.2 more than once in any twelve month period. Subject to Section 7.2(b) hereof, no other securities of the Issuer except securities held by Purchaser, any persons with "demand" registration rights pursuant to a contractual commitment of the Issuer ("Demand Right Holder"), and any Person entitled to exercise "piggy 9 10 back" registration rights pursuant to contractual commitments of the Issuer shall be included in a Demand Registration. (a) In a registration pursuant to Section 7.2(a) hereof involving an underwritten offering, if the managing underwriter or underwriters of such underwritten offering have informed, in writing, the Issuer and the Purchaser that in such underwriter's or underwriters' reasonable opinion the total number of securities which the Purchaser and any other person desiring to participate in such registration intend to include in such offering is such as to adversely affect the success of such offering, including the price at which such securities can be sold, then the Issuer will be required to include in such registration only the amount of securities which it is so advised should be included in such registration. In such event, securities shall be registered in such registration in the following order of priority: (i) first, the Registerable Securities which have been requested to be included in such registration by the Purchaser and person(s) exercising demand registration rights (whether pursuant to this Agreement or otherwise) (pro rata based on the amount of securities sought to be registered by such Persons), (ii) second, provided that no securities sought to be included by the Purchasers and the Demand Right Holders have been excluded from such registration, the securities of other persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Issuer (pro rata based on the amount of securities sought to be registered by such Persons) and (iii) third, securities the Issuer proposes to register. (b) A Demand Registration Statement will not be deemed to have been effected as a Demand Registration unless it has been declared effective by the SEC and the Issuer has complied in a timely manner and in all material respects with all of its obligations under this Agreement with respect thereto; provided, however, that if, after such Demand Registration Statement has become effective, the offering of Registerable Securities pursuant to such Registration Statement is or becomes the subject of any stop order, injunction or other order or requirement of the SEC or any other governmental or administrative agency or court that prevents, restrains or otherwise limits the sale of Registerable Securities pursuant to such Demand Registration Statement for any reason not attributable to Purchaser and such Demand Registration Statement has not become effective within a reasonable time period thereafter (not to exceed 60 days), such Demand Registration Statement will be deemed not to have been effected. If (i) a registration requested pursuant to this Section 7.2 is deemed not to have been effected or (ii) a Demand Registration does not remain effective under the Securities Act until at least the earlier of (A) an aggregate of 90 days after the effective date thereof or (B) the consummation of the distribution by the Purchaser of 80% of Purchaser's Registerable Securities covered thereby, then the Company shall continue to be obligated to effect a Demand Registration pursuant to this Section 7.2. For purposes of calculating the 90-day period referred to in the preceding sentence, any period of time during which such Demand Registration Statement was not in effect shall be excluded. 7.3 Piggy-Back Registration Rights. (a) If at any time the Initial Registration Statement is no longer effective the Issuer proposes to file a registration statement under the Securities Act with respect to an offering by the Issuer for its own account or for the account of any of its securityholders of any class of its common stock in a firmly underwritten public equity offering (other than (i) a registration statement on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC) or (ii) a registration statement filed in connection with an exchange offer or offering of securities solely to the Issuer's existing securityholders), then the Issuer shall 10 11 give written notice of such proposed filing to the Purchaser as soon as practicable (but in no event fewer than 30 days before the anticipated filing date), and such notice shall offer Purchaser the opportunity to register such number of Registerable Securities as Purchaser may request in writing within 15 days after receipt of such written notice from the Issuer (which request shall specify the shares intended to be disposed of by Purchaser) (a "Piggy-Back Registration"). The Issuer shall use its best efforts to keep such Piggy-Back Registration continuously effective under the Securities Act until at least the earlier of (A) the 90th day after the effective date thereof or (B) the consummation of the distribution by the holders of all of the securities covered thereby. The Issuer shall use its best efforts to cause the managing underwriter or underwriters, if any, of such proposed offering to permit the Registerable Securities requested by Purchaser to be included in a Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Issuer or any other securityholder included therein and to permit the sale or other disposition of such Registerable Securities in accordance with the intended method of distribution thereof. Purchaser shall have the right to withdraw its request for inclusion of its Registerable Securities in any Registration Statement pursuant to this Section 7.3 by giving written notice to the Issuer of its request to withdraw. The Issuer may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective or the Issuer may elect to delay the registration; provided, however, that the Issuer shall give prompt written notice thereof to Purchaser. No registration effected under this Section 7.3, and no failure to effect a registration under this Section 7.3, shall relieve the Issuer of its obligation to effect a registration upon the request of Purchaser pursuant to Section 7.2 hereof, and no failure to effect a registration under this Section 7.3 and to complete the sale of securities registered thereunder in connection therewith shall relieve the Issuer of any other obligation under this Agreement. (b) In a registration pursuant to Section 7.3 hereof involving an underwritten offering, if the managing underwriter or underwriters of such underwritten offering have informed, in writing, the Issuer and the securityholders requesting inclusion in such offering that in such underwriter's or underwriters' reasonable opinion the total number of securities which the Issuer, the Purchaser and any other persons desiring to participate in such registration intend to include in such offering is such as to adversely affect the success of such offering, including the price at which such securities can be sold, then the Issuer will be required to include in such registration only the amount of securities which it is so advised should be included in such registration. In such event: (x) in cases initially involving the registration for sale of securities for the Issuer's own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities which the Issuer proposes to register and (ii) second, the securities which have been requested to be included in such registration by persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Issuer (pro rata based on the amount of securities sought to be registered by such persons); and (y) in cases not initially involving the registration for sale of securities for the Issuer's own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities of any Demand Right Holder whose exercise of a demand registration right is the basis for the registration, (ii) second, securities of other persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments (pro rata based on the amount of securities sought to be registered by such Persons) and (iii) third, the securities which the Issuer proposes to register. 11 12 7.4 Following effectiveness of any registration statement filed by Issuer pursuant to Sections 7.1, 7.2 or 7.3 of this Agreement ("a Registration Statement"), the Issuer shall furnish to the Purchaser a prospectus as well as such other documents as the Purchaser may reasonably request. 7.5 Without the written consent of the Purchaser, the Issuer shall not grant to any person the right to request the Issuer to register any securities of the Issuer under the Securities Act unless the rights so granted are subject to the prior rights of the Purchaser set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement. 7.6 The Issuer shall use diligent efforts to (i) register or otherwise qualify the common stock covered by the Registration Statement for sale under the securities laws of such jurisdictions as the Purchaser may reasonably request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements as may be required, (iii) take such other actions as may be necessary to maintain such registrations and/or qualifications in effect at all times while the Registration Statement is likewise maintained effective and (iv) take all other actions reasonably necessary or advisable to qualify the Shares for sale in such jurisdictions; provided, however, that the Issuer shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 7.6, (B) subject itself to general taxation in any such jurisdiction, (C) file a general consent to service of process in any such jurisdiction, (D) provide any undertakings that cause more than nominal expense or burden to the Issuer or (E) make any change in its certificate of incorporation or bylaws, which in each case the Board determines to be contrary to the best interests of the Issuer and its stockholders. 7.7 The Issuer shall, following effectiveness of the Registration Statement, as promptly as practicable after becoming aware of any such event, notify the Purchaser of the happening of any event of which the Issuer has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to the Purchaser or as the Purchaser may reasonably request. The Issuer may voluntarily suspend once the effectiveness of a Registration Statement for a limited time, which in no event shall be longer than 90 days, if the Issuer has been advised by legal counsel that the offering of common stock pursuant to the Registration Statement would adversely affect, or would be improper in view of (or improper without disclosure in a prospectus), a proposed financing, a reorganization, recapitalization, merger, consolidation, or similar transaction involving the Issuer or its subsidiaries, in which event the one year period referred to in clause (i) of Section 7.6 shall be extended for an additional period of time beyond such one year period equal to the number of days the effectiveness thereof has been suspended pursuant to this sentence. 7.8 Following effectiveness of a Registration Statement, the Issuer, as promptly as practicable after becoming aware of any such event, will notify the Purchaser of the issuance by the SEC of any stop order or other suspension of effectiveness of the Registration Statement at the earliest possible time. 12 13 7.9 Following effectiveness of a Registration Statement, the Issuer will use diligence either to (i) cause all the common stock covered by the Registration Statement to be listed on each national securities exchange on which similar securities issued by the Issuer are then listed, if any, if the listing of such common stock is then permitted under the rules of such exchange, or (ii) secure the quotation of all the common stock covered by the Registration Statement on The Nasdaq SmallCap Market, if the listing of such common stock is then permitted under the rules of such The Nasdaq SmallCap Market, or (iii) if, despite the Issuer's best efforts to satisfy the preceding clause (i) or (ii), the Issuer is unsuccessful in satisfying the preceding clause (i) or (ii) and without limiting the generality of the foregoing, to use its best efforts to arrange for at least two market makers to register with the National Association of Securities Dealers, Inc. as such with respect to such common stock. 7.10 It shall be a condition precedent to the obligations of the Issuer to take any action pursuant to this Article 7 that the Purchaser shall furnish to the Issuer such information regarding itself as the Issuer may reasonably request to effect the registration of the common stock and shall execute such documents in connection with such registration as the Issuer may reasonably request. 7.11 The Purchaser agrees to cooperate with the Issuer in any manner reasonably requested by the Issuer in connection with the preparation and filing of a Registration Statement hereunder. 7.12 The Purchaser agrees that, upon receipt of any notice from the Issuer of the happening of any event of the kind described in Section 7.7 or 7.8, the Purchaser will immediately discontinue disposition of Shares pursuant to an effective Registration Statement until the Purchaser's receipt of notice from the Issuer that sales may resume and copies of the supplemented or amended prospectus and, if so directed by the Issuer, shall deliver to the Issuer (at the expense of the Issuer) or destroy (and deliver to the Issuer a certificate of destruction) all copies in the Purchaser's possession of the prospectus covering such common stock current at the time of receipt of such notice. 7.13 All expenses, other than (i) underwriting discounts and commissions, (ii) other fees and expenses of investment bankers and (iii) brokerage commissions, incurred in connection with registrations, filings or qualifications pursuant to this Article 7, including, without limitation, all registration, listing and qualification fees, printing and accounting fees and the fees and disbursements of counsel to the Issuer, shall be borne by the Issuer. 7.14 To the extent permitted by law, the Issuer will indemnify and hold harmless the Purchaser, its directors, officers, agents and each person, if any, who is under common control with the Purchaser within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any underwriter (as defined in the Securities Act) for the Purchaser, the officers and directors of such underwriter and each person, if any, who controls any such underwriter within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person"), against any losses, claims, damages, expenses or liabilities (joint or several) (collectively, "Claims") to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements, omissions or violations in a Registration Statement, or any post 13 14 effective amendment thereof, or any prospectus included therein: (i) any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or any post effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of a Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Issuer files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading or (iii) any violation or alleged violation by the Issuer of the Securities Act, any state securities law or any rule or regulation under the Securities Act, the Exchange Act or any state securities law (the matters in the foregoing clauses (i) through (iii) are hereinafter collectively referred to as the "Violations"). Subject to the restrictions set forth in Section 7.16 with respect to the number of legal counsel, the Issuer shall reimburse the Purchaser and each such underwriter or controlling person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnity contained in this Section 7.13 (A) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Issuer by any Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of a Registration Statement or any such amendment thereof or supplement thereto; and (B) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Issuer, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Shares by the Purchaser. 7.15 To the extent permitted by law, the Purchaser agrees to indemnify and hold harmless, to the same extent and in the same manner set forth in Section 7.14, the Issuer, each of its directors, each of its officers who signs a Registration Statement, each person, if any, who controls the Issuer within the meaning of the Securities Act or the Exchange Act, any underwriter and any other stockholder selling securities pursuant to a Registration Statement or any of its directors or officers or any person who controls such stockholder or underwriter within the meaning of the Securities Act or the Exchange Act (each such person and each Indemnified Person, an "Indemnified Party"), against any Claim to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is based upon any Violation by the Purchaser, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Issuer by the Purchaser expressly for use in connection with such Registration Statement or such prospectus; and the Purchaser will reimburse any reasonable legal or other expenses reasonably incurred by any Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnity contained in this Section 7.16 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld; provided, further, that the Purchaser shall be liable under this Section 7.15 for only that amount of a Claim as does not exceed the net proceeds to the Purchaser as a result of the sale of Shares pursuant to any such Registration Statement or such prospectus. Such indemnity shall remain in full force and effect 14 15 regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Shares (or underlying securities) by the Purchaser. Notwithstanding anything to the contrary contained herein the indemnity contained in this Section 7.15 with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. 7.16 Promptly after receipt by an Indemnified Person or Indemnified Party under Section 7.14 or 7.15 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is made against any indemnifying party under this Article 7, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, assume control of the defense thereof with counsel mutually satisfactory to the indemnifying parties; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. Except as provided in the preceding sentence, the Issuer shall pay for only one separate legal counsel for the Indemnified Persons. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Article 7, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. The indemnity required by this Article 7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 8. TRANSFER AGENT INSTRUCTIONS. The Issuer will instruct its transfer agent to, concurrently with the delivery by the Purchaser of the Purchase Price, issue one or more certificates representing the Shares purchased, bearing the restrictive legend specified in Section 5.2 of this agreement, registered in the name of the Purchaser or its nominee and in such denominations as shall be specified by the Purchaser. The Issuer warrants that no instruction other than to issue the shares and stop transfer instructions to give effect to Section 5.1 and 5.2 hereof will be given by the Issuer to the transfer agent and that the Shares shall otherwise be freely transferable on the books and records of the Issuer as and to the extent provided in this Agreement. Nothing in Article 5 herein shall affect in any way the Purchaser's obligations and agreement to comply with all applicable federal and state securities laws upon resale of the Shares. If the Purchaser provides the Issuer with an opinion of counsel reasonably satisfactory in form, scope and substance to the Issuer that registration of a resale by the Purchaser of any of the Shares in accordance with Section 5.1 is not required under the Securities Act or applicable state securities laws, the Issuer shall permit the transfer agent to issue one or more share certificates in such name and in such denominations as specified by the Purchaser. 9. BOARD OF DIRECTORS. The Issuer's board shall consist of not more than seven members. From and until the earlier of five (5) years from the date hereof and the date Purchaser holds less than five (5) percent of the Issuer's outstanding common stock, the Issuer shall use its 15 16 best efforts to cause one of the directors to be an individual selected by Purchaser in its discretion. Such board member, if any, shall have all the rights and privileges of each other outside board member of the Issuer, including rights to compensation as established by the Issuer, except that such board member shall not receive the automatic grant of stock options provided to other outside board members of the Issuer. Rather, for so long as Robert Zahradnick or any other individual elected or appointed for election by Purchaser is serving as a director of Issuer, Purchaser shall receive options on a quarterly basis at the same time and on the same terms and conditions as the other outside board members pursuant to a stock option agreement substantially in the form set forth as Exhibit B. If at any time Purchaser has not appointed or nominated for election at least one of the members of the Issuer's Board and Purchaser holds at least five percent (5) of the Issuer's outstanding common stock, Purchaser shall be entitled to appoint one observer to the Issuer's Board (the "Observer"). Such Observer shall have the right to attend, and receive all materials distributed for or at, all meetings (telephonic and otherwise) of the Board (including committees thereof) and shall be entitled to the same rights and privileges as directors of the Issuer, except that such Observer shall not be entitled to vote on matters presented to or discussed by the Board. The Observer will receive no compensation from the Issuer for his services as observer, but shall be entitled to be reimbursed by the Issuer for all reasonable costs and expenses incurred in connection with his participation in meetings or other activities of the Board. 10. RELIANCE. Each of the Purchaser and the Issuer understand and agree that the other party and its respective officers, directors, employees and agents may, and will, rely on the accuracy of the other party's respective representations and warranties in this agreement to establish compliance with applicable securities laws. Each of the Purchaser and the Issuer agree to indemnify and hold harmless all such parties against all losses, claims, costs, expenses and damages or liabilities which they may suffer or incur caused or arising from their reliance on such representations and warranties. 11. MISCELLANEOUS. 11.1 Survival. The representations and warranties made in this Agreement shall survive the closing of the transactions contemplated by this Agreement. 11.2 Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity not a party to this Agreement. No assignment of this Agreement or of any rights or obligation hereunder may be made by either party (by operation of law or otherwise) without the prior written consent of the other and any attempted assignment without the required consent shall be void, but no such assignment by Purchaser or Issuer of their rights or obligations hereunder shall relieve Purchaser or Issuer of any of their obligations under this Agreement to the other. 11.3 Execution and Delivery of Agreement. The Issuer shall be entitled to rely on delivery by facsimile transmission of an executed copy of this agreement, and acceptance by the Issuer of such facsimile copy shall create a valid and binding agreement between the Purchaser and the Issuer. 16 17 11.4 Titles. The titles of the sections and subsections of this agreement are for the convenience of reference only and are not to be considered in construing this agreement. 11.5 Severability. The invalidity or unenforceability of any particular provision of this agreement shall not affect or limit the validity or enforceability of the remaining provisions of this agreement. 11.6 Entire Agreement. This agreement constitutes the entire agreement and understanding between the parties with respect to the subject matters herein and supersedes and replaces any prior agreements and understandings, whether oral or written, between them with respect to such matters. 11.7 Waiver and Amendment. Except as otherwise provided herein, the provisions of this agreement may be waived, altered, amended or repealed, in whole or in part, only upon the mutual written agreement of the Purchaser and the Issuer. 11.8 Counterparts. This agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. 11.9 Governing Law and Venue. This agreement is governed by and shall be construed in accordance with the laws of the State of Nevada. Venue for the resolution of disputes relating to this agreement shall be limited to the United States District Court for the District of Nevada, and the parties agree not to contest such court's jurisdiction to adjudicate such disputes and not to seek the prior exhaustion of remedies in any other judicial, administrative or other forum; provided however, if such court determines that it lacks jurisdiction to adjudicate such dispute, venue shall instead be limited to another federal court of competent jurisdiction sitting in Colorado or Texas, and further provided that the selection of governing law and venue in this agreement shall not preclude the assertion of claims, rights or remedies that any party may elect relating to matters other than governing law and venue. 11.10 Fees. The Issuer agrees to pay or reimburse the Purchaser for the reasonable fees and expenses of counsel to the Purchaser in connection with investigation, review, negotiation, execution and delivery of this agreement. 11.11 Mr. Jurrius. The Issuer and Purchaser agree that Mr. John Jurrius may maintain a relationship with the Issuer as a director, officer, consultant and/or participant in oil and gas prospects from time to time and maintain a relationship with the Purchaser as an advisor or consultant. Both parties waive any conflict of interest that may arise from any such relationships. 11.12 Press Releases, Public Announcements. The Issuer will not make any public announcement or press release respecting the transactions contemplated hereby or the transactions contemplated under the Participation Agreement between the Purchaser and the Issuer without the Purchaser's prior permission; provided, however, that the Issuer shall make such disclosures without the prior permission of the Purchaser as may be necessary upon advice of counsel to Issuer in order for it to comply with applicable law. 17 18 IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as of the date first above mentioned. THE "ISSUER" THE "PURCHASER" CONTANGO OIL & GAS COMPANY Southern Ute Indian Tribe, doing business as the Southern Ute Indian Tribe Growth Fund By:________________________________ By:_______________________________ Kenneth R. Peak President and Chief Executive Officer By:_______________________________ Address: 3700 Buffalo Speedway Address: 135 East 9th Street Suite 960 Suite H Houston, Texas 77098 Durango, Colorado 81301 18 19 EXHIBIT A FORM OF STOCK OPTION AGREEMENT THIS OPTION AGREEMENT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. CONTANGO OIL & GAS COMPANY STOCK OPTION AGREEMENT Name of Optionee: Southern Ute Indian Tribe Address: 135 East 9th Street, Suite H Durango, Colorado 81301 Number of Options Granted: 2,500,000 shares of common stock Date Option Granted: June 8, 2000 THIS AGREEMENT (the "Agreement") is made as of the date set forth above between Contango Oil & Gas Company, a Nevada corporation (the "Company"), and the optionee named above (the "Optionee"). RECITAL In connection with the Securities Purchase Agreement dated as of June 6, 2000 (the "Purchase Agreement") by and between the Company and the Optionee, the Board of Directors of the Company (the "Board") has determined that it is to the advantage and interest of the Company and its stockholders to grant the option provided for herein to the Optionee. The option provided for herein is being granted in connection with the investment by Optionee in the Company. In consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee the right and option (the "Option") to purchase on the terms and conditions hereinafter set forth all or any part of an aggregate of 2,500,000 shares (the "Shares") of the presently authorized and unissued common stock of the Company, par value $0.04 (the "common stock"), at the purchase price of $1.00 per share, for an aggregate purchase price of $2,500,000. The Option is fully vested and immediately exercisable. 2. Exercise. The right to exercise the Option granted hereunder, to the extent unexercised, shall remain in effect for a period of ninety (90) days from the date of grant of this Option. A-1 20 3. Method of Exercise. The Option may be exercised from time to time by written notice to the Company, stating the number of Shares with respect to which the Option is being exercised, together with payment in full, in cash or by certified or cashier's check payable to the order of the Company, of the purchase price for the number of Shares being exercised. If requested by the Board, prior to the delivery of any Shares the Optionee, or any other person entitled to exercise the Option, shall supply the Board with a representation that the shares are not being acquired with a view to distribution and will be sold or otherwise disposed of only in accordance with applicable federal and state statutes, rules and regulations. As a condition to the exercise of the Option in whole or in part the Board may, in its sole discretion, require the Optionee to pay in addition to the purchase price for the Shares being exercised an amount equal to any federal, state or local taxes that the Board has determined are required to be paid in connection with the exercise of the Option in order to enable the Company to claim a deduction in connection with the exercise of the Option or otherwise. As soon after the notice of exercise as the Company is reasonably able to comply, the Company shall, without transfer or issue tax to the Optionee or any other person entitled to exercise the Option, deliver to the Optionee or any such other person, at the main office of the Company or such other place as shall be mutually acceptable, a certificate or certificates for the Shares being exercised. Notwithstanding the foregoing, the Company shall have the right to postpone the time of delivery of the Shares for such period as may be required for it with reasonable diligence to comply with any applicable listing requirements of any national securities exchange or any federal, state or local law. The Optionee may exercise the Option for less than the total number of Shares for which the Option is exercisable, provided that a partial exercise may not be for less than 100 shares and shall not include any fractional shares. 4. Termination of Option. The Option shall terminate and expire upon the last date for exercise of the Option as provided in Section 2 of this Agreement. 5. Adjustments. In the event the Company (i) pays a dividend in shares of its common stock or makes a distribution in shares of its common stock, to holders of its shares of common stock, (ii) subdivides its outstanding shares of common stock, (iii) combines its outstanding shares of common stock into a smaller number of shares of common stock, or (iv) issues, by reclassification or reorganization, other securities or property of the Company to holders of its shares of common stock generally, then the Shares granted to Optionee hereunder shall be adjusted so that Optionee shall be entitled to receive the number of shares of common stock or other securities or property of the Company which Optionee would have owned or been entitled to receive if the option had been exercised immediately prior to any such event or any record date with respect thereto. No fractional shares of stock shall be issued as a result of or in connection with any such adjustment. In the event of an adjustment of the number of Shares subject to the Option pursuant to this Section 5 which would result in the issuance of a fractional share of stock, the number of Shares, as adjusted, shall be rounded up to the nearest whole number of Shares. Whenever the number of Shares is adjusted as herein provided, the exercise price payable upon exercise of the Option shall be adjusted by multiplying such exercise price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares immediately prior to such adjustment, and of which the denominator shall be the number of Shares subject to the Option immediately thereafter. An adjustment made pursuant to this Section 5 shall become effective immediately after the effective date of such event, A-2 21 retroactive to the record date, if any, for such event, and prompt written notice thereof shall be given to the Optionee. 6. Non-Transferability. The Option is not assignable or transferable by the Optionee, either voluntarily or by operation of law, other than with the Company's prior written consent or by will or by the laws of descent and distribution. 7. No Stockholder Rights. The Optionee or other person entitled to exercise the Option shall have no rights or privileges as a stockholder with respect to any Shares subject hereto until the Optionee or such person has become the holder of record of such Shares, and no adjustment (except such adjustments as may be effected pursuant to the provisions of Section 5 hereof) shall be made for dividends or distributions of rights in respect of such Shares if the record date is prior to the date on which the Optionee or such person becomes the holder of record. 8. Conditions to Issuance of Shares. The Company's obligation to issue Shares of its common stock upon exercise of the Option is expressly conditioned upon, at the Company's option, the completion by the Company of any registration or other qualification of such Shares under any state and/or federal law or rulings or regulations of any government regulatory body or the making of such investment representations or other representations and agreements by the Optionee or any person entitled to exercise the Option in order to comply with the requirements of any exemption from any such registration or other qualification of such Shares which the Board shall, in its sole discretion, deem necessary or advisable. Such required representations and agreements include representations and agreements that the Optionee, or any other person entitled to exercise the Option, (a) is not purchasing such Shares for distribution and (b) agrees to have placed upon the face and reverse of any certificates for such Shares a legend setting forth any representations and agreements which have been given to the Board or a reference thereto and stating that, prior to making any sale or other disposition of any such Shares, the Optionee, or any other person entitled to exercise the Option, will give the Company notice of intention to sell or dispose of the Shares not less than five days prior to such sale or disposition. 9. Legends. This Option and the Shares issuable upon exercise of this Option shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 10. Miscellaneous. a. Notices. All notices, requests, statements, invoices, payments and other communications required or permitted by the terms hereof to be given to any person shall be made to the following: A-3 22 IF TO THE COMPANY: Contango Oil and Gas Company Attn: Kenneth R. Peak 3700 Buffalo Speedway Suite 960 Houston, Texas 77098 Facsimile No.: (713) 960-1065 IF TO OPTIONEE: to the address set forth on the signature page below. Notices required to be in writing shall be delivered by letter, facsimile or other documentary form. Notice by facsimile or hand delivery shall be deemed to have been received by the close of the business day on which it was transmitted or hand delivered (unless transmitted or hand delivered after close in which case it shall be deemed received at the close of the next business day). Notice by overnight mail or courier shall be deemed to have been received two business days after it was sent. Either the Company or the Optionee may change its address by providing notice of same in accordance herewith. b. Governing Law. This agreement is governed by and shall be construed in accordance with the laws of the State of Nevada. Venue for the resolution of disputes relating to this agreement shall be limited to the United States District Court for the District of Nevada, and the parties agree not to contest such court's jurisdiction to adjudicate such disputes and not to seek the prior exhaustion of remedies in any other judicial, administrative or other forum; provided however, if such court determines that it lacks jurisdiction to adjudicate such dispute, venue shall instead be limited to another federal court of competent jurisdiction sitting in Colorado or Texas, and further provided that the selection of governing law and venue in this agreement shall not preclude the assertion of claims, rights or remedies that any party may elect relating to matters other than governing law and venue. c. Entirety. This Agreement constitutes the entire agreement between the Company and the Optionee concerning the subject matter hereof. There are no prior or contemporaneous agreements or representations affecting the same subject matter other than those herein expressed. No amendment, modification or change herein shall be enforceable unless reduced to writing and executed by both the Company and the Optionee. d. Non-Waiver. No waiver by either of the parties hereto of any one or more defaults by the other party in the performance of any of the provisions of this Agreement shall be construed as a waiver of any other default or defaults whether of a like kind or different nature. e. No Third Party Beneficiaries. Nothing in this Agreement shall provide any benefit to any third party or entitle any third party to any claim, cause of action, remedy or right of any kind, it being the intent of the Parties that this Agreement shall not be construed as a third party beneficiary contract. A-4 23 f. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. g. Headings. The headings contained in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. Counterparts; Facsimile Signatures. This Agreement may be executed in multiple counterparts and by facsimile, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. THIS AGREEMENT IS ADDRESSED TO THE OPTIONEE IN DUPLICATE AND SHALL NOT BE EFFECTIVE UNTIL THE OPTIONEE EXECUTES THE ACCEPTANCE BELOW AND RETURNS ONE COPY TO THE COMPANY, THEREBY ACKNOWLEDGING THAT IT HAS READ, APPROVES OF AND AGREES TO ALL THE TERMS AND CONDITIONS OF THIS AGREEMENT. * * * * * A-5 24 EFFECTIVE as of the 6th of June , 2000. CONTANGO OIL & GAS COMPANY /s/ Kenneth R. Peak ---------------------------------------- By: Kenneth R. Peak ---------------------------------------- Title: President and Chief Executive Officer -------------------------------------- ACCEPTED: Southern Ute Indian Tribe, dba the Southern Ute Indian Tribe Growth Fund /s/ John E. Baker, Jr. - ---------------------- By: John E. Baker, Jr. ------------------------ Title: Chairman, Southern Ute Tribal Council --------------------------------------- Address: 135 East 9th Street ------------------- Suite H - ---------------------------- Durango, Colorado 81301 - ------------------------------------------ Facsimile: 970-375-2216 -------------------------------- A-6 25 EXHIBIT B FORM OF STOCK OPTION AGREEMENT Name of Optionee: Southern Ute Indian Tribe, d/b/a SUIT Growth Fund Address: 135 East 9th Street, Suite H Durango, Colorado 81301 Number of Options Granted: ____ shares of common stock Date Option Granted: ________________ , 2000 THIS AGREEMENT (the "Agreement") is made as of the date set forth above between Contango Oil & Gas Company, a Nevada corporation (the "Company"), and the optionee named above (the "Optionee"). RECITAL The Board of Directors of the Company (the "Board") has determined that it is to the advantage and interest of the Company and its stockholders to grant the option provided for herein to the Optionee. In consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. Grant of Option The Company hereby grants to the Optionee the right and option (the "Option") to purchase on the terms and conditions hereinafter set forth all or any part of an aggregate of 5,000 shares (the "Shares") of the presently authorized and unissued common stock of the Company, par value $0.04 (the "Common Stock"). Unless otherwise specified on Exhibit "A" attached hereto, the Option shall vest and be exercisable immediately upon the date granted at the purchase price of $ per share. 2. Exercise. The right to exercise the Option, to the extent unexercised, shall remain in effect for a ________ period of five (5) years from the date of grant of the Option. 3. Method of Exercise. The Option may be exercised from time to time by written notice to the Company substantially in the form attached hereto as Exhibit B, stating the number of Shares with respect to which the Option is being exercised, together with payment in full, in cash or by certified or cashier's check payable to the order of the Company, of the purchase price for the number of Shares being exercised. If requested by the Board, prior to the delivery of any Shares the Optionee, or any other person entitled to exercise the Option, shall supply the Board with a 1 26 representation that the shares are not being acquired with a view to distribution and will be sold or otherwise disposed of only in accordance with applicable federal and state statutes, rules and regulations. As a condition to the exercise of the Option in whole or in part the Board may, in its sole discretion, require the Optionee to pay in addition to the purchase price for the Shares being exercised an amount equal to any federal, state or local taxes that the Board has determined are required to be paid in connection with the exercise of the Option in order to enable the Company to claim a deduction in connection with the exercise of the Option or otherwise. As soon after the notice of exercise as the Company is reasonably able to comply, the Company shall, without transfer or issue tax to the Optionee or any other person entitled to exercise the Option, deliver to the Optionee or any such other person, at the main office of the Company or such other place as shall be mutually acceptable, a certificate or certificates for the Shares being exercised. Notwithstanding the foregoing, the Company shall have the right to postpone the time of delivery of the Shares for such period as may be required for it with reasonable diligence to comply with any applicable listing requirements of any national securities exchange or any federal, state or local law. The Optionee may exercise the Option for less than the total number of Shares for which the Option is exercisable, provided that a partial exercise may not be for less than 100 shares, except during the final year of the Option, and shall not include any fractional shares. 4. Termination of Option. The Option shall terminate and expire upon the last date for exercise of the Option as provided in Section 2 of this Agreement. 5. Adjustments. In the event the Company (i) pays a dividend in shares of its common stock or makes a distribution in shares of its common stock, to holders of its shares of common stock, (ii) subdivides its outstanding shares of common stock, (iii) combines its outstanding shares of common stock into a smaller number of shares of common stock, or (iv) issues, by reclassification or reorganization, other securities or property of the Company to holders of its shares of common stock generally, then the Shares granted to Optionee hereunder shall be adjusted so that Optionee shall be entitled to receive the number of shares of common stock or other securities or property of the Company which Optionee would have owned or been entitled to receive if the option had been exercised immediately prior to any such event or any record date with respect thereto. No fractional shares of stock shall be issued as a result of or in connection with any such adjustment. In the event of an adjustment of the number of Shares subject to the Option pursuant to this Section 5 which would result in the issuance of a fractional share of stock, the number of Shares, as adjusted, shall be rounded up to the nearest whole number of Shares Whenever the number of Shares is adjusted as herein provided, the exercise price payable upon exercise of the Option shall be adjusted by multiplying such exercise price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares immediately prior to such adjustment, and of which the denominator shall be the number of Shares subject to the Option immediately thereafter. An adjustment made pursuant to this Section 5 shall become effective immediately after the effective date of such event, retroactive to the record date, if any, for such event, and prompt written notice thereof shall be given to the Optionee. 6. Non-Transferability. The Option is not assignable or transferable by the Optionee, either voluntarily or by operation of law, other than with the Company's prior written consent or by will or by the laws of descent and distribution. 2 27 7. No Stockholder Rights. The Optionee or other person entitled to exercise the Option shall have no rights or privileges as a stockholder with respect to any Shares subject hereto until the Optionee or such person has become the holder of record of such Shares, and no adjustment (except such adjustments as may be effected pursuant to the provisions of Section 5 hereof) shall be made for dividends or distributions of rights in respect of such Shares if the record date is prior to the date on which the Optionee or such person becomes the holder of record. 8. Conditions to Issuance of Shares. The Company's obligation to issue Shares of its Common Stock upon exercise of the Option is expressly conditioned upon, at the Company's option, the completion by the Company of any registration or other qualification of such Shares under any state and/or federal law or rulings or regulations of any government regulatory body or the making of such investment representations or other representations and agreements by the Optionee or any person entitled to exercise the Option in order to comply with the requirements of any exemption from any such registration or other qualification of such Shares which the Board shall, in its sole discretion, deem necessary or advisable. Such required representations and agreements include representations and agreements that the Optionee, or any other person entitled to exercise the Option, (a) is not purchasing such Shares for distribution and (b) agrees to have placed upon the face and reverse of any certificates for such Shares a legend setting forth any representations and agreements which have been given to the Board or a reference thereto and stating that, prior to making any sale or other disposition of any such Shares, the Optionee, or any other person entitled to exercise the Option, will give the Company notice of intention to sell or dispose of the Shares not less than five days prior to such sale or disposition. 9. Legends. This Option and the Shares issuable upon exercise of this Option shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 10. Miscellaneous. a. Notices. All notices, requests, statements, invoices, payments and other communications required or permitted by the terms hereof to be given to any person shall be made to the following: 3 28 IF TO THE COMPANY: Contango Oil & Gas Company Attn: Kenneth R. Peak 3700 Buffalo Speedway Suite 960 Houston, Texas 77098 Facsimile No.: (713) 960-1065 IF TO OPTIONEE: To the address set forth on the signature page below. Notices required to be in writing shall be delivered by letter, facsimile or other documentary form. Notice by facsimile or hand delivery shall be deemed to have been received by the close of the business day on which it was transmitted or hand delivered (unless transmitted or hand delivered after close in which case it shall be deemed received at the close of the next business day). Notice by overnight mail or courier shall be deemed to have been received two business days after it was sent. Either the Company or the Optionee may change its address by providing notice of same in accordance herewith. b. Governing Law. This agreement is governed by and shall be construed in accordance with the laws of the State of Nevada. Venue for the resolution of disputes relating to this agreement shall be limited to the United States District Court for the District of Nevada, and the parties agree not to contest such court's jurisdiction to adjudicate such disputes and not to seek the prior exhaustion of remedies in any other judicial, administrative or other forum; provided however, if such court determines that it lacks jurisdiction to adjudicate such dispute, venue shall instead be limited to another federal court of competent jurisdiction sitting in Colorado or Texas, and further provided that the selection of governing law and venue in this agreement shall not preclude the assertion of claims, rights or remedies that any party may elect relating to matters other than governing law and venue. c. Entirety. This Agreement constitutes the entire agreement between the Company and the Optionee concerning the subject matter hereof. There are no prior or contemporaneous agreements or representations affecting the same subject matter other than those herein expressed. No amendment, modification or change herein shall be enforceable unless reduced to writing and executed by both the Company and the Optionee. d. Non-Waiver. No waiver by either of the parties hereto of any one or more defaults by the other party in the performance of any of the provisions of this Agreement shall be construed as a waiver of any other default or defaults whether of a like kind or different nature. e. No Third Party Beneficiaries. Nothing in this Agreement shall provide any benefit to any third party or entitle any third party to any claim, cause of action, remedy or right of any kind, it being the intent of the Parties that this Agreement shall not be construed as a third party beneficiary contract. 4 29 f. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. g. Headings. The headings contained in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. Counterparts; Facsimile Signatures. This Agreement may be executed in multiple counterparts and by facsimile, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. THIS AGREEMENT IS ADDRESSED TO THE OPTIONEE IN DUPLICATE AND SHALL NOT BE EFFECTIVE UNTIL THE OPTIONEE EXECUTES THE ACCEPTANCE BELOW AND RETURNS ONE COPY TO THE COMPANY, THEREBY ACKNOWLEDGING THAT HE OR SHE HAS READ, APPROVES OF AND AGREES TO ALL THE TERMS AND CONDITIONS OF THIS AGREEMENT. * * * * * 5 30 EFFECTIVE as of the ______ of June, 2000 CONTANGO OIL & GAS COMPANY ----------------------------------------- Kenneth R. Peak President and Chief Executive Officer ACCEPTED: - ------------------------------ By: Southern Ute Indian Tribe, doing business as the Southern Ute Indian Tribe Growth Fund Address: 135 East 9th Street Suite H Durango, Colorado 81301 Facsimile: (970) 375-2216 6 31 EXHIBIT A 7 32 EXHIBIT B CONTANGO OIL & GAS COMPANY FORM OF EXERCISE OF STOCK OPTION (To be signed only on exercise of Option) I hereby exercise, on the date hereof, the Stock Option granted by Contango Oil & Gas Company to me on _________, ____, subject to all the terms and provisions thereof as contained in the Agreement concerning such Stock Option signed by me on _______________, ____, and notify you of my desire to purchase ________________ shares of Common Stock of the Company which were offered to me pursuant to said Option. Enclosed is my check in the sum of $_________________ in full payment for such shares. I hereby represent that the ________________ shares of Common Stock to be delivered to me pursuant to the exercise of the Stock Option granted to me on _______________, ____ are being acquired by me as an investment and not with a view to, or for sale in connection with, the distribution of any part thereof. Dated: ------------------------------ - ------------------------------------ [Name of Optionee] 8 33 EXHIBIT C ACCREDITED INVESTOR CERTIFICATE In connection with the issuance of certain Common Stock (the "Common Stock") of Contango Oil & Gas Company, a Nevada corporation (the "Company"), the undersigned (an "Investor") hereby furnishes the following information and makes the following acknowledgments and representations and warranties: I. Legal Status of Investor. Each Investor must check the applicable statement below. The Investor is (check the appropriate category(ies)): ___ A natural person whose net worth (or joint net worth with his or her spouse) is in excess of $1,000,000 as of the date hereof; ___ A natural person whose income in 1997 and 1998 was, and whose income in 1999 is expected to be, in excess of $200,000, or whose income with his or her spouse in 1997 and 1998 was, and whose income with his or her spouse in 1999 is expected to be, in excess of $300,000; ___ A broker dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended; ___ An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of $5,000,000; ___ A trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the Securities Act; ___ An entity in which all of the equity owners are "accredited investors" as defined in Rule 501 under the Securities Act; or ___ A director or executive officer of the Company. 9 34 I. Identity of Investor. Name: ________________________________________________ Address: ________________________________________________ Telephone: ________________________________________________ Tax ID No.: ________________________________________________ I. Acknowledgment. Investor understands, acknowledges and agrees that: (a) The Common Stock has not been registered under the Securities Act or any other applicable federal or state securities laws; (b) Investor is acquiring the Common Stock for his, her or its own account for investment purposes and not with a view to, or for offer or sale in connection with, any distribution of the Common Stock in violation of the Securities Act; and (c) Investor has a preexisting personal and business relationship with the Company and certain of its officers, directors and controlling persons, and, by reason of Investor's business and financial experience, has the capacity to protect his, her or its interests in connection with the acquisition of the Common Stock. This completed questionnaire must be returned as soon as possible after receipt hereof and prior to acquiring the Common Stock. ---------------------------------------- Print or type name of Investor By: ------------------------------------ Name: Title: Date: , 2000 -------------------- EX-99.2 3 0003.txt CO-SALE AGREEMENT 1 EXHIBIT 99.2 CONTANGO OIL & GAS COMPANY CO-SALE AGREEMENT THIS CO-SALE AGREEMENT (the "Agreement") is made as of this 8th day of June, 2000, by and among Contango Oil & Gas Company, a Nevada corporation (the "Company"), the Southern Ute Indian Tribe, a federally recognized Indian tribe organized under the Indian Reorganization Act of 1934, doing business as the Southern Ute Indian Tribe Growth Fund (the "SUIT"), Trust Company of the West, a California trust company, in its capacities as Investment Manager pursuant to the Investment Management Agreement dated as of June 6, 1988 between General Mills, Inc. and the Trust Company of the West and as Custodian pursuant to the Custody Agreement dated as of February 6, 1989 among General Mills, Inc., the Trust Company of the West and State Street Bank and Trust Company, as Trustee ("TCW") and Kenneth R. Peak ("Peak"). RECITALS WHEREAS, SUIT is purchasing shares of the Company's Common Stock, and options to purchase additional shares of Common Stock (the "Options" and together with the Common Stock purchased by SUIT, the "SUIT Securities"), pursuant to that certain Securities Purchase Agreement dated as of the date hereof (the "Securities Purchase Agreement"), between SUIT and the Company; WHEREAS, TCW has previously purchased shares of the Company's Common Stock, and a warrant to purchase additional shares of Common Stock (the "Warrant" and together with the Common Stock purchased by TCW, the "TCW Securities"; the SUIT Securities and the TCW Securities collectively the "Securities") and has previously entered into a Co-Sale Agreement dated December 30, 1999 with the Company and Peak (the "Prior Co-Sale Agreement"); WHEREAS, SUIT was induced by the Company to purchase the Securities in part by the Company's, Peak's and TCW's agreement to enter into this Agreement; and WHEREAS, the parties desire to enter into this Agreement in order to grant rights of co-sale to SUIT and replace the Prior Co-Sale Agreement. In consideration of the mutual covenants set forth herein, the parties agree hereto as follows: 1. DEFINITIONS. (a) "CO-SALE STOCK" shall mean shares of the Company's Common Stock now owned or subsequently acquired by Peak. (b) "COMMON STOCK" shall mean the Company's Common Stock and shares of Common Stock issued or issuable upon exercise of the Options or the Warrant. 2 2. SALES BY PEAK. (a) If Peak proposes to sell or transfer any shares of Co-Sale Stock, then Peak shall promptly give written notice (the "Notice") simultaneously to the Company, to SUIT and to TCW at least thirty (30) days prior to the closing of such sale or transfer. The Notice shall describe in reasonable detail the proposed sale or transfer including, without limitation, the number of shares of Co-Sale Stock to be sold or transferred, the nature of such sale or transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. (b) SUIT and TCW shall each have the right, exercisable upon written notice to Peak within fifteen (15) days after the Notice, to participate in such sale of Co-Sale Stock on the same terms and conditions. Such notice shall indicate the number of shares of Common Stock SUIT and/or TCW wishes to sell under its right to participate. To the extent SUIT or TCW exercises such right of participation in accordance with the terms and conditions set forth below, the number of shares of Co-Sale Stock that Peak may sell in the transaction shall be correspondingly reduced. If the prospective purchaser or transferee then increases the number of shares it would like to purchase, Peak will provide notification of such change to SUIT and and TCW and give SUIT and TCW the opportunity to sell additional shares. (c) SUIT or TCW, respectively, may sell all or any part of that number of shares equal to the product obtained by multiplying (i) the aggregate number of shares of Co-Sale Stock covered by the Notice by (ii) a fraction the numerator of which is the number of shares of Common Stock owned by SUIT or TCW, respectively, at the time of the sale or transfer and the denominator of which is the total number of shares of Common Stock owned by Peak, TCW and SUIT at the time of the sale or transfer. SUIT or TCW shall effect its respective participation in the sale by promptly delivering to Peak for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent the number of shares of Common Stock which SUIT or TCW elects to sell. (d) After SUIT or TCW shall have received its respective portion of the sale proceeds by reason of participation in a co-sale transaction, then SUIT or TCW, as applicable, shall deliver to Peak pursuant to Section 2(c) that number of shares of Common Stock that shall be transferred to the prospective purchaser in consummation of the sale of the Common Stock pursuant to the terms and conditions specified in the Notice. To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchase shares or other securities from SUIT or TCW exercising its rights of co-sale hereunder, Peak shall not sell to such prospective purchaser or purchasers any Co-Sale Stock unless and until, simultaneously with such sale, Peak shall purchase such shares or other securities from SUIT or TCW, as applicable, on the same terms and conditions specified in the Notice. (e) The exercise or non-exercise of the rights of SUIT or TCW hereunder to participate in one or more sales of Co-Sale Stock made by Peak shall not adversely affect its respective rights to participate in subsequent sales of Co-Sale Stock subject to Section 2(a). If SUIT or TCW does not elect to participate in the sale of the Co-Sale Stock subject to the Notice, Peak may, not later than sixty (60) days following delivery to the Company of the Notice, enter into an agreement providing for the closing of the transfer of the Co-Sale Stock covered by the Notice within thirty 3 (30) days of such agreement on terms and conditions not more materially favorable to the transferor than those described in the Notice. Any proposed transfer on terms and conditions materially more favorable than those described in the Notice, as well as any subsequent proposed transfer of any of the Co-Sale Stock by Peak, shall again be subject to the co-sale rights of SUIT and TCW and shall require compliance by Peak with the procedures described in this Section 2. 3. EXEMPT TRANSFERS. (a) Notwithstanding the foregoing, the co-sale rights of SUIT and TCW shall not apply to (i) any pledge of Co-Sale Stock made pursuant to a bona fide loan transaction with a financial institution that creates a mere security interest, (ii) any transfer to the ancestors, descendants or spouse of Peak or to trusts for the benefit of such persons, (iii) any transfer or transfers by Peak to John Jurrius so long as such transfer is made in connection with Jurrius' appointment to the Company's Board of Directors, not to exceed 1,000,000 shares, or (iv) any bona fide gift of not more than Peak's holdings of the Company's securities on the date hereof; provided that in the event of any transfer made pursuant to one of the exemptions provided by clauses (i), (ii) and (iv), (A) Peak shall inform SUIT and TCW of such pledge, transfer or gift prior to effecting it and (B) the pledgee, transferee or donee shall furnish SUIT and TCW with a written agreement to be bound by and comply with all provisions of Section 2. Except with respect to Co-Sale Stock transferred under clause (iii) above (which Co-Sale Stock shall no longer be subject to the co-sale rights of SUIT and TCW), such transferred Co-Sale Stock shall remain "Co-Sale Stock" hereunder, and such pledgee, transferee or donee shall be treated similarly with Peak for purposes of this Agreement. (b) Notwithstanding the foregoing, the provisions of Section 2 shall apply to the sale of any Co-Sale Stock to (i) the public pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act") or (ii) the Company. 4. LEGEND. (a) Each certificate representing shares of Co-Sale Stock now or hereafter owned by Peak or issued to any person in connection with a transfer pursuant to Section 3(a) hereof shall be endorsed with the following legend: "THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN SUIT, TCW, THE COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY." (b) Peak agrees that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in Section 4(a) above to enforce the provisions of this Agreement and the Company agrees to promptly do so. The legend shall be removed upon termination of this Agreement. 4 5. MISCELLANEOUS. (a) CONDITIONS TO EXERCISE OF RIGHTS. Exercise of TCW's and SUIT's rights under this Agreement shall be subject to and conditioned upon, and Peak and the Company shall use their best efforts to assist TCW and SUIT in, compliance with applicable laws. (b) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Nevada. (c) PRIOR CO-SALE AGREEMENT. This Agreement shall replace the Prior Co-Sale Agreement in its entirety, and the Prior Co-Sale Agreement is hereby cancelled and shall have no further force or effect. (d) AMENDMENT. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by the written consent of each of the parties hereto. (e) NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature page hereof or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. (f) SEVERABILITY. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. (g) ATTORNEYS' FEES. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. (h) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties relative to the specific subject matter hereof. Any previous agreement among the parties relative to the specific subject matter hereof is superseded by this Agreement. This Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives. 5 (i) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. * * * 6 IN WITNESS WHEREOF, the undersigned have executed this CO-SALE AGREEMENT as of the date set forth above. COMPANY: CONTANGO OIL & GAS COMPANY a Nevada corporation Address: 3700 Buffalo Speedway By: /s/ Kenneth R. Peak Suite 960 ------------------------------------------ Houston, TX 77098 Kenneth R. Peak President and Chief Executive Officer PEAK: /s/ Kenneth R. Peak ---------------------------------------------- Kenneth R. Peak, an individual Address: 3700 Buffalo Speedway Suite 960 Houston, TX 77098 TCW: TRUST COMPANY OF THE WEST, a California trust company, in its capacities as Investment Manager pursuant to the Investment Management Agreement dated as of June 6, 1988 between General Mills, Inc. and the Trust Company of the West as Custodian pursuant to the Custody Agreement dated as of February 6, 1989 among General Mills, Inc., the Trust Company of the West and State Street Bank and Trust Company, as trustee Address: 865 S. Figueroa Street Suite 1800 Los Angeles, CA 90017 By: /s/ Arthur R. Carlson ------------------------------------------ Arthur R. Carlson Managing Director By: /s/ Thomas F. Mehlberg ------------------------------------------ Thomas F. Mehlberg Managing Director SUIT: SOUTHERN UTE INDIAN TRIBE, a federally recognized Indian tribe organized under the Indian Reorganization Act of 1934, doing business as the Southern Ute Indian Tribe Growth Fund Address: 135 East 9th Street Suite H By: /s/ John E. Baker, Jr. Durango, CO 81301 ------------------------------------------ EX-99.3 4 0004.txt OPTION 1 EXHIBIT 99.3 STOCK OPTION AGREEMENT THIS OPTION AGREEMENT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. CONTANGO OIL & GAS COMPANY STOCK OPTION AGREEMENT Name of Optionee: Southern Ute Indian Tribe Address: 135 East 9th Street, Suite H Durango, Colorado 81301 Number of Options Granted: 2,500,000 shares of common stock Date Option Granted: June 8, 2000 THIS AGREEMENT (the "Agreement") is made as of the date set forth above between Contango Oil & Gas Company, a Nevada corporation (the "Company"), and the optionee named above (the "Optionee"). RECITAL In connection with the Securities Purchase Agreement dated as of June 6, 2000 (the "Purchase Agreement") by and between the Company and the Optionee, the Board of Directors of the Company (the "Board") has determined that it is to the advantage and interest of the Company and its stockholders to grant the option provided for herein to the Optionee. The option provided for herein is being granted in connection with the investment by Optionee in the Company. In consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee the right and option (the "Option") to purchase on the terms and conditions hereinafter set forth all or any part of an aggregate of 2,500,000 shares (the "Shares") of the presently authorized and unissued common stock of the Company, par value $0.04 (the "common stock"), at the purchase price of $1.00 per share, for an aggregate purchase price of $2,500,000. The Option is fully vested and immediately exercisable. 2. Exercise. The right to exercise the Option granted hereunder, to the extent unexercised, shall remain in effect for a period of ninety (90) days from the date of grant of this Option. 3. Method of Exercise. The Option may be exercised from time to time by written notice to the Company, stating the number of Shares with respect to which the Option is being exercised, 2 together with payment in full, in cash or by certified or cashier's check payable to the order of the Company, of the purchase price for the number of Shares being exercised. If requested by the Board, prior to the delivery of any Shares the Optionee, or any other person entitled to exercise the Option, shall supply the Board with a representation that the shares are not being acquired with a view to distribution and will be sold or otherwise disposed of only in accordance with applicable federal and state statutes, rules and regulations. As a condition to the exercise of the Option in whole or in part the Board may, in its sole discretion, require the Optionee to pay in addition to the purchase price for the Shares being exercised an amount equal to any federal, state or local taxes that the Board has determined are required to be paid in connection with the exercise of the Option in order to enable the Company to claim a deduction in connection with the exercise of the Option or otherwise. As soon after the notice of exercise as the Company is reasonably able to comply, the Company shall, without transfer or issue tax to the Optionee or any other person entitled to exercise the Option, deliver to the Optionee or any such other person, at the main office of the Company or such other place as shall be mutually acceptable, a certificate or certificates for the Shares being exercised. Notwithstanding the foregoing, the Company shall have the right to postpone the time of delivery of the Shares for such period as may be required for it with reasonable diligence to comply with any applicable listing requirements of any national securities exchange or any federal, state or local law. The Optionee may exercise the Option for less than the total number of Shares for which the Option is exercisable, provided that a partial exercise may not be for less than 100 shares and shall not include any fractional shares. 4. Termination of Option. The Option shall terminate and expire upon the last date for exercise of the Option as provided in Section 2 of this Agreement. 5. Adjustments. In the event the Company (i) pays a dividend in shares of its common stock or makes a distribution in shares of its common stock, to holders of its shares of common stock, (ii) subdivides its outstanding shares of common stock, (iii) combines its outstanding shares of common stock into a smaller number of shares of common stock, or (iv) issues, by reclassification or reorganization, other securities or property of the Company to holders of its shares of common stock generally, then the Shares granted to Optionee hereunder shall be adjusted so that Optionee shall be entitled to receive the number of shares of common stock or other securities or property of the Company which Optionee would have owned or been entitled to receive if the option had been exercised immediately prior to any such event or any record date with respect thereto. No fractional shares of stock shall be issued as a result of or in connection with any such adjustment. In the event of an adjustment of the number of Shares subject to the Option pursuant to this Section 5 which would result in the issuance of a fractional share of stock, the number of Shares, as adjusted, shall be rounded up to the nearest whole number of Shares. Whenever the number of Shares is adjusted as herein provided, the exercise price payable upon exercise of the Option shall be adjusted by multiplying such exercise price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares immediately prior to such adjustment, and of which the denominator shall be the number of Shares subject to the Option immediately thereafter. An adjustment made pursuant to this Section 5 shall become effective immediately after the effective date of such event, retroactive to the record date, if any, for such event, and prompt written notice thereof shall be given to the Optionee. 3 6. Non-Transferability. The Option is not assignable or transferable by the Optionee, either voluntarily or by operation of law, other than with the Company's prior written consent or by will or by the laws of descent and distribution. 7. No Stockholder Rights. The Optionee or other person entitled to exercise the Option shall have no rights or privileges as a stockholder with respect to any Shares subject hereto until the Optionee or such person has become the holder of record of such Shares, and no adjustment (except such adjustments as may be effected pursuant to the provisions of Section 5 hereof) shall be made for dividends or distributions of rights in respect of such Shares if the record date is prior to the date on which the Optionee or such person becomes the holder of record. 8. Conditions to Issuance of Shares. The Company's obligation to issue Shares of its common stock upon exercise of the Option is expressly conditioned upon, at the Company's option, the completion by the Company of any registration or other qualification of such Shares under any state and/or federal law or rulings or regulations of any government regulatory body or the making of such investment representations or other representations and agreements by the Optionee or any person entitled to exercise the Option in order to comply with the requirements of any exemption from any such registration or other qualification of such Shares which the Board shall, in its sole discretion, deem necessary or advisable. Such required representations and agreements include representations and agreements that the Optionee, or any other person entitled to exercise the Option, (a) is not purchasing such Shares for distribution and (b) agrees to have placed upon the face and reverse of any certificates for such Shares a legend setting forth any representations and agreements which have been given to the Board or a reference thereto and stating that, prior to making any sale or other disposition of any such Shares, the Optionee, or any other person entitled to exercise the Option, will give the Company notice of intention to sell or dispose of the Shares not less than five days prior to such sale or disposition. 9. Legends. This Option and the Shares issuable upon exercise of this Option shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 10. Miscellaneous. a. Notices. All notices, requests, statements, invoices, payments and other communications required or permitted by the terms hereof to be given to any person shall be made to the following: 4 IF TO THE COMPANY: Contango Oil and Gas Company Attn: Kenneth R. Peak 3700 Buffalo Speedway, Suite 960 Houston, Texas 77098 Facsimile No.: (713) 960-1065 IF TO OPTIONEE: to the address set forth on the signature page below. Notices required to be in writing shall be delivered by letter, facsimile or other documentary form. Notice by facsimile or hand delivery shall be deemed to have been received by the close of the business day on which it was transmitted or hand delivered (unless transmitted or hand delivered after close in which case it shall be deemed received at the close of the next business day). Notice by overnight mail or courier shall be deemed to have been received two business days after it was sent. Either the Company or the Optionee may change its address by providing notice of same in accordance herewith. b. Governing Law. This agreement is governed by and shall be construed in accordance with the laws of the State of Nevada. Venue for the resolution of disputes relating to this agreement shall be limited to the United States District Court for the District of Nevada, and the parties agree not to contest such court's jurisdiction to adjudicate such disputes and not to seek the prior exhaustion of remedies in any other judicial, administrative or other forum; provided however, if such court determines that it lacks jurisdiction to adjudicate such dispute, venue shall instead be limited to another federal court of competent jurisdiction sitting in Colorado or Texas, and further provided that the selection of governing law and venue in this agreement shall not preclude the assertion of claims, rights or remedies that any party may elect relating to matters other than governing law and venue. c. Entirety. This Agreement constitutes the entire agreement between the Company and the Optionee concerning the subject matter hereof. There are no prior or contemporaneous agreements or representations affecting the same subject matter other than those herein expressed. No amendment, modification or change herein shall be enforceable unless reduced to writing and executed by both the Company and the Optionee. d. Non-Waiver. No waiver by either of the parties hereto of any one or more defaults by the other party in the performance of any of the provisions of this Agreement shall be construed as a waiver of any other default or defaults whether of a like kind or different nature. e. No Third Party Beneficiaries. Nothing in this Agreement shall provide any benefit to any third party or entitle any third party to any claim, cause of action, remedy or right of any kind, it being the intent of the Parties that this Agreement shall not be construed as a third party beneficiary contract. f. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or 5 unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. g. Headings. The headings contained in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. Counterparts; Facsimile Signatures. This Agreement may be executed in multiple counterparts and by facsimile, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. THIS AGREEMENT IS ADDRESSED TO THE OPTIONEE IN DUPLICATE AND SHALL NOT BE EFFECTIVE UNTIL THE OPTIONEE EXECUTES THE ACCEPTANCE BELOW AND RETURNS ONE COPY TO THE COMPANY, THEREBY ACKNOWLEDGING THAT IT HAS READ, APPROVES OF AND AGREES TO ALL THE TERMS AND CONDITIONS OF THIS AGREEMENT. * * * * * 6 EFFECTIVE as of the 8th of June, 2000. CONTANGO OIL & GAS COMPANY /s/ Kenneth R. Peak ------------------------------------------- By: Kenneth R. Peak Title: President and Chief Executive Officer ACCEPTED: Southern Ute Indian Tribe, dba the Southern Ute Indian Tribe Growth Fund /s/ John E. Baker, Jr. - -------------------------------------------- By: John E. Baker, Jr. ----------------------------------------- Title: Chairman, Southern Ute Tribal Council ------------------------------------- Address: 135 East 9th Street ------------------------------------ Suite H ------------------------------------ Durango, Colorado 81301 ------------------------------------ Facsimile: 970-375-2216 ---------------------------------- EX-99.4 5 0005.txt PARTICIPATION AGREEMENT 1 EXHIBIT 99.4 PARTICIPATION AGREEMENT This Participation Agreement ("AGREEMENT"), dated this 8th day of June, 2000, is between the Southern Ute Indian Tribe doing business as Red Willow Production Company ("SUIT"), the address of which is P.O. Box 737, Ignacio, Colorado 81137, and Contango Oil & Gas Company, a Nevada corporation ("CONTANGO"), the address of which is 3700 Buffalo Speedway, Suite 960, Houston, Texas 77098. RECITALS: A. Contango currently holds the right to participate in oil and gas exploration and development prospects ("PROSPECTS") and acquisitions of proved oil and gas reserves ("PROVED PROPERTIES") through its Agreement (the "JEX AGREEMENT") dated effective as of September 1, 1999 with Juneau Exploration Company, L.L.C ("JEX"). B. Contango expects to obtain additional opportunities to participate in Prospects and acquire Proved Properties during the term of this Agreement. These opportunities may be obtained through (i) a transaction wherein the Offeror extends Contango a one-time opportunity to participate in a particular Prospect or group of Prospects or to acquire a particular group of Proved Properties (such one-time opportunities are referred to hereinafter as "SINGLE ACQUISITIONS") or (ii) an agreement whereby the Offeror extends Contango the continuing opportunity to participate in various Single Acquisitions as they are presented over the term of such agreement (such agreements offering multiple opportunities for Single Acquisitions are referred to herein as "ACQUISITION AGREEMENTS"). C. SUIT wants the right, but not the obligation, to acquire an undivided interest in the Prospects and Proved Properties that Contango acquires, on a case by case basis as they are offered to Contango, and Contango is willing to grant such right to SUIT, pursuant to the terms hereof. D. Concurrently with the execution of this Agreement, pursuant to a separate agreement, SUIT is acquiring common stock of Contango and options to acquire common stock of Contango. NOW THEREFORE, for and in consideration of the terms of this Agreement, the adequacy of which is hereby acknowledged, the parties agree as follows: I. DEFINITIONS "ACQUIRING PARTY" has the meaning ascribed in Section 12.1(b) of this Agreement. "ACQUISITION AGREEMENTS" has the meaning ascribed in the Recitals of this Agreement. "ACQUISITION COSTS" means the costs which must be paid by Contango in order to be entitled to participate in, and to participate in, any Single Acquisition, including but not limited to leasehold 1 2 acquisition costs, geological and geophysical costs, land and legal costs, title examination costs, drilling costs, completion costs, and reworking costs. "AFFILIATE" means, with respect to any party, any of its officers and any entity that, at such time, is, directly or indirectly through one or more intermediaries, Controlled by such party or any of its officers. "AREA OF INTEREST" has the meaning ascribed in Section 12.1(b) of this Agreement. "CLAIMS" has the meaning ascribed in Section 8.1.2 of this Agreement. "CONDITIONAL ELECTION" has the meaning ascribed in Section 4.1 of this Agreement. "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities or other equity interests, by contract or otherwise. "DAMAGES" has the meaning ascribed in Section 8.1.2 of this Agreement. "ENCUMBRANCE" means a mortgage, deed of trust, security interest, pledge, lien, net profits interest, royalty or overriding royalty interest, other payments out of production, or other burdens of any nature, whether similar or dissimilar to the foregoing. "INITIAL ACQUISITION COSTS" means Acquisition Costs which must be paid by Contango at the initial closing of the applicable Single Acquisition between Contango and the Offeror. "JEX" has the meaning ascribed in the Recitals of this Agreement. "JEX AGREEMENT" has the meaning ascribed in the Recitals of this Agreement. "LAW" has the meaning ascribed in Section 8.1.6 of this Agreement. "NOTICES" has the meaning ascribed in Section 14.1 of this Agreement. "NOTIFIED ENTITY" has the meaning ascribed in Section 13.2 of this Agreement. "NOTIFIED PARTY" has the meaning ascribed in Section 12.2 of this Agreement. "OFFEROR" means an individual or entity that offers Contango the opportunity to participate in the acquisition of Single Acquisitions, either one at the time or through Acquisition Agreements. "OFFERED INTEREST" has the meaning ascribed in Section 13.2 of this Agreement. 2 3 "OPERATING AGREEMENTS" has the meaning ascribed in Section 5.2 of this Agreement. "PAYMENT DEADLINE" has the meaning ascribed in Section 4.2 of this Agreement. "POST-ACQUISITION ELECTION PROSPECTS" has the meaning ascribed in Section 4.3 of this Agreement. "PROVED PROPERTIES" has the meaning ascribed in the Recitals of this Agreement. "SINGLE ACQUISITIONS" has the meaning ascribed in the Recitals of this Agreement. "SUBJECT PROPERTIES" has the meaning ascribed in Section 12.1(b) of this Agreement. "SUBSEQUENT ACQUISITION COSTS" means all Acquisition Costs other than Initial Acquisition Costs. "SURPLUS INTEREST" has the meaning ascribed in Section 2.3 of this Agreement. "TRANSFER" means, when used as a verb, to sell, grant, assign, or otherwise convey, or dispose of or commit to do any of the foregoing; and when used as a noun, means such a sale, grant, assignment, or other conveyance or disposition, or such an arrangement. For purposes of this Agreement, however, a Transfer shall not include any Encumbrance for the purpose of obtaining corporate or project financing (including without limitation, project financing through volumetric production payments). "TRANSFERRING ENTITY" has the meaning ascribed in Section 13.2 of this Agreement. "TRIBAL COUNCIL" has the meaning ascribed in Section 8.4.1 of this Agreement. "VARIABLE INTEREST ACQUISITION" has the meaning ascribed in Section 2.3 of this Agreement. II. GRANT OF RIGHT TO PARTICIPATE 2.1 SUIT'S PARTICIPATION IN PROSPECTS AND PROVED PROPERTIES. Subject to the further terms and conditions hereof, Contango hereby grants SUIT the right, but not the obligation, by paying a proportionate part of the applicable Acquisition Costs thereof, to acquire an undivided eighteen and 75/100ths percent (18.75%) of the interest acquired by Contango in and to any and all Single Acquisitions in which Contango acquires an interest and which are located within the United States, including its Outer Continental Shelf, during the term of this Agreement. 2.2 SUIT'S PARTICIPATION THROUGH ACQUISITION AGREEMENTS. Single Acquisitions may be presented to Contango as one-time opportunities from Offeror or may be presented to Contango as recurring opportunities to participate in Prospects or Proved Properties as they are presented by 3 4 the Offeror. In those cases where Contango receives an opportunity to participate in a Single Acquisition through its rights under an Acquisition Agreement, if SUIT desires to participate in such Single Acquisition, SUIT will be required to participate, as to its undivided interest in such Single Acquisition on the same basis and subject to the same terms and conditions as does Contango under the terms of the applicable Acquisition Agreement. 2.3 VARIABLE INTEREST ACQUISITIONS. If, under the terms of any Acquisition Agreement, Contango has the right to vary its percentage of participation in any Single Acquisition (a "VARIABLE INTEREST ACQUISITION"), Contango shall not be obligated to acquire the maximum percentage of interest which it is entitled to acquire under such Acquisition Agreement. However, if Contango elects to acquire less than the maximum percentage of interest of any Single Acquisition to which it is entitled, then in addition to the 18.75% of such percentage interest that SUIT acquires under Section 2.1 above, Contango hereby grants SUIT the right, but not the obligation, to acquire any or all of the balance of the maximum percentage of interest that Contango has elected not to acquire in such Single Acquisition (the "SURPLUS INTEREST"). 2.4 ACQUISITIONS FOR NON-CASH CONSIDERATION. If the terms of any Single Acquisition provide that all or any part of the consideration to be paid by Contango is to be paid with any class of Contango stock, SUIT will be permitted to participate in such Single Acquisition, so long as SUIT reimburses Contango for the value of the Contango stock that Contango will provide the Offeror in the Single Acquisition on SUIT's behalf. For purposes of such reimbursement, the Contango stock will be valued at an amount equal to eighteen and 75/100ths percent (18.75%) of the risk-adjusted net present value of the applicable Single Acquisition as such risk-adjusted net present value has been presented to and approved by Contango's Board of Directors. This Agreement shall not entitle SUIT to participate in any Prospects or Proved Properties obtained by Contango by means of (i) any acquisition of equity interests in entities owning Prospects, Proved Properties or Acquisition Agreements or rights to acquire Prospects, Proved Prospects or Acquisition Agreements, (ii) any merger or (iii) any business combination. 2.5 DECLINED ACQUISITIONS. SUIT shall not have the right to participate in any Single Acquisition unless Contango participates in such Single Acquisition. Contango shall be entitled to decline participation in any Single Acquisition without obligation of any kind to SUIT. 2.6 NO ADDITIONAL ENCUMBRANCES. Each acquisition by SUIT of an undivided interest in Prospects and Proved Properties will be subject to the same Encumbrances which burden such Prospects and Proved Properties when they are acquired by Contango, but Contango shall not add, or allow to be added, any further Encumbrances to such Prospects and Properties to SUIT's undivided interest therein. 4 5 III. NOTICES OF ACQUISITION OPPORTUNITIES 3.1 NOTICE OF ACQUISITION OPPORTUNITIES. Contango shall follow the following procedures in notifying SUIT in advance of potential acquisitions and participation opportunities: 3.1.1 NOTICE OF POTENTIAL ACQUISITION AGREEMENTS. Contango shall keep SUIT informed on a current basis as to any potential or pending Acquisition Agreements, such that SUIT will have as much advance notice as possible so as to enable it to begin considering whether it may be interested in acquiring Single Acquisitions that may become available thereunder. 3.1.2 NOTICE FOLLOWING EXECUTION OF NEW ACQUISITION AGREEMENT. Immediately after Contango enters into an Acquisition Agreement it shall provide SUIT with a copy of such Acquisition Agreement so that SUIT may have the opportunity to plan its participation in Single Acquisitions which might be offered to Contango thereunder. 3.2 NOTICE OF SINGLE ACQUISITION OPPORTUNITIES. If Contango receives an offer of a Single Acquisition which Contango considers to be of potential interest, Contango shall: 3.2.1 Immediately after determining that the proposed Single Acquisition is of interest, contact SUIT by telephone and provide SUIT with an oral summary of the information regarding such Single Acquisition that Contango has received as of that time and, if the applicable Single Acquisition is a Variable Interest Acquisition, whether SUIT may have the opportunity to acquire any Surplus Interest. 3.2.2 Immediately following receipt thereof by Contango, send to SUIT, by facsimile, a complete copy of any proposed acquisition agreement or written notice, including all attachments, which Contango may have received in connection with such potential Single Acquisition. 3.2.3 Immediately following receipt thereof by Contango, send to SUIT, by facsimile or overnight courier, any written materials furnished to Contango by the Offeror (i) describing the oil and gas properties that are the subject of the potential Single Acquisition, (ii) setting out the financial terms of the potential Single Acquisition, and/or (iii) estimating the future net revenues that may be produced from the properties. 3.2.4 As soon as such arrangements have been made with the Offeror, arrange for SUIT to participate with Contango in any review which Contango does of the Offeror's land, legal, title, production history, and subsurface and geophysical data and interpretations that are made available to Contango, subject, of course, to any confidentiality limitations imposed by the Offeror or its licensors. 5 6 3.2.5 If Contango prepares, or has its consultants prepare, any forecasts of the potential net revenues of wells then existing or expected to be drilled on the applicable Single Acquisition, immediately following their preparation, furnish a copy of such forecasts to SUIT. 3.2.6 If Contango prepares, or has its consultants prepare, any title opinion or landman's runsheet or title report or conduct any title curative on any of the oil and gas leases comprising the Single Acquisition, immediately following their preparation, furnish a copy of such materials to SUIT. 3.2.7 As soon as possible, but in any case prior to the applicable election deadline, furnish SUIT with a General Information and Election Form in the form of that attached as EXHIBIT A hereto, which shall (i) identify the lands and leases comprising the Single Acquisition, (ii) generally describe the nature of the Single Acquisition, (iii) explain who holds record title to the applicable oil and gas interests and, if title will not be conveyed to Contango and SUIT at the closing of such acquisition, who will hold title meanwhile and describe the contractual arrangements established to convey title to Contango and SUIT, (iv) set out the percentages of participation interest available to Contango and SUIT and provide a ballot for SUIT to elect whether to participate for its 18.75% interest and, if applicable, its Surplus Interest. IV. ELECTIONS AND PAYMENTS 4.1 SUIT'S ELECTION TO PARTICIPATE IN A SINGLE ACQUISITION. At least six (6) hours prior to the time by which Contango must elect whether it will participate in any given Single Acquisition, SUIT shall advise Contango whether it will participate for its 18.75% interest in such Single Acquisition (and, if applicable, whether it will acquire any Surplus Interest) by completing and signing the General Information and Election Form and returning it to Contango by facsimile. A failure of SUIT to respond by said time will constitute an election not to participate in such Single Acquisition. If SUIT desires to participate in a given Single Acquisition, but has remaining unresolved concerns regarding such Acquisition at the time of the required election, SUIT shall sign and return the applicable General Information and Election Form and append a rider thereto (i) stating that its election to participate in such Single Acquisition is subject to its satisfaction with the resolution of certain specific concerns and (ii) describing such specific concerns with particularity (a "CONDITIONAL ELECTION"). 4.2 SUIT'S PAYMENT OF ITS SHARE OF INITIAL ACQUISITION COSTS. Unless SUIT has given a Conditional Election for any given Single Acquisition, then following an election by SUIT to participate, SUIT shall pay Contango for SUIT's proportionate share of the Initial Acquisition Costs of such Single Acquisition at or before the closing of such Single Acquisition between Contango and the Offeror. If SUIT, has given a Conditional Election for any given Single Acquisition, SUIT may defer its absolute election to participate in, and its payment of Initial Acquisition Costs with respect to, such Single Acquisition, until the first to occur of: (i) three (3) business days prior to the spudding 6 7 of the first well to be drilled, or the re-entry of the first well to be re-entered, on the applicable Single Acquisition, or (ii) twenty (20) days following the closing of the Single Acquisition (the "PAYMENT DEADLINE"). The failure by SUIT to pay its share of the Initial Acquisition Costs, and any Subsequent Acquisition Costs paid in the meanwhile by Contango for such Single Acquisition, by the Payment Deadline shall constitute an election of SUIT not to participate in such Single Acquisition and SUIT shall have no further right to participate therein notwithstanding its Conditional Election. If (i) there were no Initial Acquisition Costs for the applicable Single Acquisition or (ii) SUIT pays its share of the Initial Acquisition Costs, and any Subsequent Acquisition Costs paid meanwhile by Contango, for such Single Acquisition by the Payment Deadline, then, upon the Payment Deadline (or, if earlier, the date SUIT makes such payment), SUIT's election to participate in such Single Acquisition will become absolute and the concerns which gave rise to the Conditional Election will be deemed to have been waived. Notwithstanding anything to the contrary contained herein, SUIT will not be required to pay its share of any Acquisition Costs before Contango must pay them under the applicable agreements. 4.3 SUIT'S PARTICIPATION IN MULTIPLE ELECTION PROSPECTS. In Single Acquisitions where all of the elections regarding participation (other than those made under Operating Agreements) are not made at the closing of the Single Acquisition ("POST-ACQUISITION ELECTION PROSPECTS"), it is anticipated that the Offeror will require that Contango and SUIT make the same election with respect to their aggregate interest in the applicable Single Acquisition. Therefore the following procedures will apply to Post-Acquisition Election Prospects: 4.3.1 Immediately after Contango receives any notice or other document of any nature from the Offeror or anyone else of material consequence to any Post-Closing Election Prospect, Contango shall send a copy of such notice or document to SUIT by facsimile or by recognized overnight courier for delivery on the morning of the next business day. 4.3.2 If the agreements governing any Post-Acquisition Election Prospect do not allow Contango and SUIT to make separate post-acquisitions decisions regarding participation and/or payment with respect to their respective percentages of interest in the applicable Single Acquisition, then Contango and SUIT will jointly consider each election and payment decision that is required to be made following the closing of the Single Acquisition and, if both parties make the same decision regarding such election, then Contango shall implement the joint decision by making the appropriate election or payment to the Offeror and SUIT will reimburse Contango for its proportionate share of the Acquisition Costs associated with such election before they are due from Contango to the Offeror. If, however, both parties cannot agree on whether or not to participate in the applicable operation or make the applicable payment, then the party choosing to participate in the proposed operation shall be entitled to do so on its own account. If SUIT is the party making the affirmative election to participate in the applicable operation or pay the applicable payment, then Contango shall thereafter act on behalf of SUIT to administer SUIT's participation in the applicable Single Acquisition from that point forward. Unless the parties mutually agree to the contrary, the party choosing not to participate or to make 7 8 such payment shall bear the same economic consequences, as among Contango and SUIT, that non-consenting parties bear under the applicable participation agreements and Operating Agreements when they fail to participate in the same operation or make the same payment. For example, if the applicable Operating Agreement provides that non-consenting parties to a reworking operation bear a non-consent penalty of 400% when they fail to elect to consent to such reworking operation and SUIT desires not to participate in such reworking operation and Contango desires to participate in such reworking operation (but Contango and SUIT do not have the right to make separate elections under such Operating Agreement), then Contango will be entitled to pay all of the costs attributable to the interests of both Contango and SUIT and will be entitled to receive all of the revenues attributable to the interests of both Contango and SUIT until Contango has recovered, from the revenues which have otherwise been attributable to the interest of SUIT, the economic equivalent of a 400% non-consent penalty against SUIT. 4.3.3 If the agreements governing any Post-Acquisition Election Prospect allow Contango and SUIT to make separate post-acquisition decisions regarding participation and/or payment with respect to their respective percentages of interest in the applicable Single Acquisition, then Contango and SUIT shall be entitled to make such decisions separately and, if permitted give notice of such separate decisions, directly to the Offeror. 4.4 LOSS OF RIGHTS UNDER ACQUISITION AGREEMENTS. With respect to any Prospect that is jointly-owned by Contango and SUIT, if Contango elects to discontinue development of such Prospect and SUIT desires to continue development of such Prospect, Contango shall use reasonable commercial efforts to enable SUIT to proceed with development of such Prospect for its own account. V. ASSIGNMENTS OF TITLE AND OPERATING AGREEMENTS 5.1 ASSIGNMENTS OF TITLE. If it is permitted under the terms of the applicable agreements with the Offeror or Offeror is otherwise willing to do so, Contango will instruct the Offeror to assign SUIT's percentage of interest in any oil and gas interests acquired or earned within any Single Acquisition directly to SUIT at the same time the Offeror assigns Contango its percentage of such interests. If it is not permitted under the terms of the applicable agreements with the Offeror and the Offeror is not otherwise willing to make such partial assignment directly to SUIT, Contango will assign SUIT its percentage interest in the applicable oil and gas interests for such Single Acquisition, immediately upon receipt of the assignment from the Offeror, by assignment containing a warranty of title by, through and under Contango, but not otherwise. 5.2 OPERATING AGREEMENTS. It is expected that all oil and gas interests which are acquired pursuant to Single Acquisitions will already be subject to, or in the course of business will be made subject to, joint operating agreements ("OPERATING AGREEMENTS") between the working interest owners. It is expected that, in many instances, the terms of the Operating Agreement for any given Single Acquisition will already be set at the time Contango is offered the opportunity to 8 9 participate in such Single Acquisition. However, in those instances where the Operating Agreement applicable to a given Single Acquisition being jointly acquired by Contango and SUIT is to be the subject of negotiation between Contango and the Offeror, Contango shall consult with SUIT before entering into such Operating Agreement. Contango will use reasonable commercial efforts to cause Contango and SUIT to become direct parties to each of the Operating Agreements governing any oil and gas properties acquired by Contango and SUIT under this Agreement, such that Contango and SUIT are entitled to separately exercise their rights and separately perform their obligations with respect to the applicable oil and gas properties. VI. POST-CLOSING GOVERNANCE OF ACQUISITIONS 6.1 PARTICIPATION IN OPERATIONS AFTER OPERATING AGREEMENT GOVERNS. From and after the point in the progress of activity in any Single Acquisition, and to the extent, that the rights and duties of Contango and the Offeror are governed by the terms of an Operating Agreement, the rights and duties of Contango and SUIT shall also be governed by such Operating Agreement. To the extent that the terms of any such Operating Agreement conflict with the terms of this Agreement, then as among Contango and SUIT, this Agreement shall control. VII. JEX AGREEMENT 7.1 JEX AGREEMENT. A complete copy of the JEX Agreement is attached hereto as EXHIBIT B. The JEX Agreement is, as of the date of this Agreement, the only Acquisition Agreement in effect. Except as provided to the contrary in this Article VII, all of the terms of this Agreement shall apply to the JEX Agreement as if the JEX Agreement had been executed after the execution of this Agreement and thus become an Acquisition Agreement in the ordinary course of affairs. 7.2 SINGLE ACQUISITIONS PREVIOUSLY PRESENTED BY JEX. JEX has, prior to the date of this Agreement, presented Contango with the opportunity to participate in the following Single Acquisitions: (i) Eugene Island Block 28, (ii) Brazos Block 436, (iii) Sotexas Ranch Phase I and (iv) Goliad. Contango has elected to participate for 95% of JEX's interest in each of such Single Acquisitions. Pursuant to a General Information and Election Form attached hereto as EXHIBIT C, which is being executed contemporaneously with this Agreement, SUIT is electing to participate in 18.75% of Contango's 95% of JEX's interest in the Sotexas Ranch Phase I Single Acquisition. Simultaneously with the execution of this Agreement, SUIT shall reimburse Contango for its proportionate share of all Initial Acquisition Costs for the Sotexas Ranch Phase I Single Acquisition and all other Acquisition Costs incurred by Contango since the closing of such Single Acquisition, all in accordance with the settlement statement attached hereto as EXHIBIT D. SUIT shall have fifteen (15) days from the date of this Agreement to elect whether it will participate in the Eugene Island Block 28 Single Acquisition. SUIT is presently considering whether it will participate in the Brazos 436 and Goliad Single Acquisitions. SUIT will be required to give Contango its absolute election to participate and its payment of its share of all applicable Initial Acquisition Costs, and any Subsequent Acquisition Costs paid by Contango meanwhile, for each of the Brazos 436 and Goliad Single Acquisitions at least three (3) days prior to the spud dates of the first well on each such Single 9 10 Acquisition. Contango will provide SUIT with a General Information and Election Form for the Brazos 436 and the Goliad Single Acquisitions within a reasonable time after the execution of this Agreement. Except as indicated otherwise in this Section 7.2, each of the Single Acquisitions mentioned in this Section 7.2 will hereafter be handled as nearly as possible in the manner any other Single Acquisition would be handled under this Agreement. 7.3 SUBSEQUENTLY PRESENTED SINGLE ACQUISITIONS. After the execution of this Agreement, Contango shall offer SUIT the opportunity to acquire further Single Acquisitions as such opportunities are presented by JEX. SUIT may elect to participate or not participate for its 18.75% interest and Surplus Interest in each such Single Acquisition as they are presented by JEX. 7.4 REDUCTIONS IN COSTS. If at any time the amount Contango is obligated to pay to acquire an interest in a Single Acquisition is subsequently rebated under the terms of the JEX Agreement, Contango shall promptly: (A) inform SUIT, and (B) rebate to SUIT a proportionate share of such reduction upon receipt thereof. 7.5 NO RIGHTS OR OBLIGATIONS UNDER CERTAIN SECTIONS OF THE JEX AGREEMENT. SUIT shall have no rights or obligations under Section 1.8 of the JEX Agreement. SUIT shall have no rights to participate in, nor obligations in respect of, any arrangement which has already arisen in favor of Contango under Section 1.9 of the JEX Agreement. 7.6 REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS. All of the representations, warranties and additional covenants made, or to be made by either Contango or SUIT to the other of them under Article VIII hereof are hereby made by each of Contango and SUIT to the other in respect of the JEX Agreement and the Sotexas Ranch Phase I Single Acquisition. Except as disclosed on SCHEDULE 7.6, Contango warrants and represents that neither it nor any of its Affiliates are parties to any agreement with JEX or with any of JEX's Affiliates (other than the JEX Agreement) which relates to the acquisition of oil and gas properties and no such agreements are pending. If, during the term of this Agreement, Contango or any of its Affiliates become parties to any agreement with JEX or any of JEX's Affiliates which relates to the acquisition of oil and gas properties, it shall promptly notify SUIT and give SUIT the opportunity to acquire 18.75% of the interest that Contango or any of Contango's Affiliates has under said agreement. 7.7 DISCOVERY WELLS. Sections 2.5 and 2.6 of the JEX Agreement shall not apply to SUIT and, in lieu thereof, if and when a "successful well" (as defined in Section 2.5 of the JEX Agreement) is drilled and completed, such that Contango is required to grant JEX the options required by said Section 2.5, then as to each such successful well in which SUIT participated through completion, then SUIT shall pay Contango Twelve Thousand Five Hundred Dollars ($12,500) within thirty (30) days after Contango grants JEX such options; provided, however, that, if subsequent to the grant of such options, Contango and JEX agree that said well should not have been designated a successful well, then the $12,500 shall be refunded to SUIT within thirty (30) days thereafter. 7.8 ALLOCATION OF DEAD-END G&G COSTS. 10 11 (a) Regarding Section 1.5 of the JEX Agreement, as between Contango and SUIT, their relative share of Dead-End G&G Costs attributable to any given year shall equal $200,000 multiplied by a fraction, with the denominator being the total amount of Dead-End G&G Costs attributable to such year, with the numerator being the portion of the total amount of such Dead-End G&G Costs paid by such party. (b) With respect to any and all Dead-End G&G Costs paid by SUIT, Contango shall, within ten days after its receives from JEX a refund of excess Dead-End G&G Costs paid under the JEX Agreement, refund to SUIT its pro rata share of any such refund of Dead-End G&G Costs from JEX. VIII. WARRANTIES, REPRESENTATIONS AND COVENANTS 8.1 WARRANTIES, REPRESENTATIONS, AND COVENANTS. Each party, as to itself only, warrants, represents, and covenants to the other party that: 8.1.1 There are no pending Claims to which it is a party that affect the execution and delivery of this Agreement or the transactions contemplated hereby, and it shall promptly notify the other party of any such Claims as to which it receives either notice or a written threat of assertion. 8.1.2 It shall protect, defend, indemnify, and hold harmless the other party and its employees, agents, successors and assigns, from and with respect to any and all rights, claims, demands, causes of action, and legal, administrative, or arbitration proceedings, of any and every nature (collectively, "CLAIMS"), and injuries, deaths, damages, and obligations of any and every nature resulting from or that gave rise to any Claim, including liabilities, losses, costs, penalties, expenses, judgments, fines, settlements, interest, reasonable attorney's fees, and other related expenses of any nature (collectively, "Damages"), to the extent such Claims and Damages result from a breach of its warranties, representations, or covenants; provided however, that Damages shall not include consequential, special, incidental, or punitive damages. 8.1.3 It has full power to enter into and perform its obligations under this Agreement; the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite action that remains in full force and effect and binding upon it, and has not been revoked or modified; and this Agreement has been duly executed and delivered. 8.1.4 This Agreement will, when executed, delivered, and accepted, constitute its legal, valid and binding obligation, enforceable in accordance with their terms, except as limited by bankruptcy or other laws applicable generally to creditor's rights and as limited by general equitable principles. 11 12 8.1.5 Neither its execution and delivery of this Agreement, nor its consummation of the transactions contemplated hereby, nor its compliance with the terms hereof, will violate or result in any default under its organizational documents, or under any agreement or other instrument to which it is a party or by which it is bound, or violate any federal, state, or local law (including statutory and case law), rule, regulation, ordinance, permit, license, order, judgment, injunction, writ, or decree of any nature (collectively "LAW") applicable to it. 8.2 CONTANGO'S WARRANTIES, REPRESENTATIONS, AND COVENANTS. Contango warrants, represents, and covenants that: 8.2.1 It is a corporation duly organized, legally existing and in good standing under the laws of the state of its incorporation, as first set out above. 8.2.2 It is (or will be at the relevant time) qualified to do business and is (or will be at the relevant time) in good standing in each state in which the any properties subject hereto are located where the laws of such state require a corporation owning such properties located in such state to qualify to do business. 8.2.3 Contango shall timely and fully perform all its material obligations under all Acquisition Agreements and all other agreements to which it is a party and through which it has acquired or has the right to acquire any jointly-owned Prospect or Proved Property, and shall use reasonable commercial efforts to enforce all its rights and all of the other party's obligations under such agreements. Without SUIT's consent, Contango shall not agree to any amendment of any such agreement or waive any of its rights or any of the Offeror's obligations under any such agreement; provided, however, that the foregoing -------- ------- restrictions shall not apply to an amendment or waiver that: (A) only affects Single Acquisitions as to which SUIT had declined the right to acquire an interest hereunder, or (B) will not diminish SUIT's rights or increase SUIT's obligations relative to the rights and obligations of Contango. Except as provided to the contrary in Sections 4.3.2 and 4.4, nothing in this Agreement is intended to mean that Contango must pursue development of Prospects or Proved Properties which it believes are no longer economically viable. 8.2.4 Except as may have been disclosed in writing to SUIT by Contango to the contrary, at the time Contango presents SUIT with any Acquisition Agreement (other than the JEX Agreement), it will be deemed to have warranted and represented to SUIT that neither it nor any of its Affiliates (hereinafter defined) are parties to any agreement with the Offeror or with any of the Offeror's Affiliates which relates to the acquisition of oil and gas properties and no such agreements are pending. If, during the term of this Agreement, Contango or any of its Affiliates become parties to any agreement with the Offeror or any of the Offeror's Affiliates which relates to the acquisition of oil and gas properties, it shall promptly notify SUIT and give SUIT the opportunity to acquire 18.75% of the interest 12 13 Contango's Affiliate has under said agreement. At such time as the President or any Vice President of Contango knows that any director or five percent (5%) or greater shareholder of Contango is competing with Contango within any Area of Interest, Contango shall notify SUIT of such competition. 8.2.5 It is Contango's expectation that Acquisition Properties will be operated by third parties that are not Affiliates of Contango. If any such operator should resign or be removed, Contango shall consult with SUIT and in good faith consider SUIT's recommendations as to a successor operator, including any desire by SUIT to become successor operator, but SUIT and Contango anticipate that a successor operator will be a third party. 8.2.6 At the time Contango presents SUIT with any Acquisition Agreement, it shall be deemed to have warranted and represented to SUIT that, to the best of its knowledge, information, and belief: (i) the Acquisition Agreement has not been amended except to the extent such amendments have been provided to SUIT, (ii) except as disclosed to SUIT in writing, no material rights or obligations under it have been waived, and (iii) it constitutes Contango's and the Offeror's entire agreement and understanding relating to its subject matter. 8.3 DISCLAIMER OF CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS. CONTANGO HEREBY EXPRESSLY DISCLAIMS ALL REPRESENTATIONS, WARRANTIES AND COVENANTS AS TO THE ACCURACY AND COMPLETENESS OF (i) ANY ANALYSIS, REPORT, RESERVE PROJECTION, FINANCIAL PROJECTION, OPINION OR OTHER SIMILAR INFORMATION OBTAINED BY CONTANGO FROM ANY THIRD PERSON AND DELIVERED TO SUIT AND (ii) ANY TITLE ANALYSIS, RESERVE PROJECTION OR FINANCIAL PROJECTION PREPARED BY CONTANGO OR ITS AGENTS AND MADE AVAILABLE TO SUIT. 8.4 SUIT'S WARRANTIES, REPRESENTATIONS, AND ADDITIONAL COVENANTS. SUIT warrants, represents, and covenants that: 8.4.1 It is a federally recognized Indian tribe organized under the Indian Reorganization Act of 1934; authority is vested in its Tribal Council ("TRIBAL COUNCIL") by the Constitution adopted and approved on November 4, 1936, and amended October 1, 1975, to act for it; and pursuant to 25 USC Section 476 and Tribal constitutional authority, Article VII, and subject to the approval of this Agreement by the Tribal Council which has already been obtained, possesses the authority to execute, deliver and perform this Agreement. 8.4.2 It understands its investments under this Agreement will not be registered under the Securities Act of 1933, as amended, or any Blue Sky Laws in reliance upon the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, Regulation D and certain exemptions afforded by Blue Sky Laws. SUIT represents 13 14 and warrants that it is an "ACCREDITED INVESTOR" (as defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended) and is sophisticated and experienced in the exploration, production, and sale of oil and gas properties and related assets and is acquiring its rights under this Agreement for its own account and with no present intention of transfer or resale. IX. NO PARTNERSHIP 9.1 NO PARTNERSHIP. Nothing herein shall be deemed to: (a) constitute either party the partner, venturer, agent, or legal representative of the other, or (b) create any fiduciary relationship between the parties. The parties do not intend to create, and this Agreement shall not be construed to create, any mining, commercial or other partnership or joint venture. Neither party, nor any of its directors, officers, employees, agents, attorneys, or Affiliates, shall act for or assume any obligation or responsibility on behalf of the other party, unless and as otherwise expressly provided herein. Each party's rights, duties, obligations and liabilities shall be several and not joint or collective. Each party shall be responsible only for its obligations hereunder and shall be liable only for its share of the costs and expenses as provided herein. X. TENANTS IN COMMON; WAIVER OF RIGHT TO PARTITION 10.1 TENANTS IN COMMON; WAIVER OF RIGHTS TO PARTITION. The parties' ownership of any Prospects and Proved Properties shall be as tenants in common, subject to the applicable agreements including the application Operating Agreement. The parties hereby waive and release all rights of partition, or of sale in lieu thereof, or other division of such Prospects and Proved Properties, including any such rights provided by Law. XI. OTHER BUSINESS OPPORTUNITIES 11.1 OTHER BUSINESS OPPORTUNITIES. Except as expressly provided herein: (a) each party shall have the right to independently engage in and receive full benefits from business activities, whether or not competitive with transactions that are the subject hereof, without consulting the other, and (b) the doctrines of corporate opportunity or business opportunity shall not be applied to any other activity or operation of either party. XII. AREA OF INTEREST 12.1 AREA OF INTEREST. (a) If this Article conflicts geographically with any Acquisition Agreement, Operating Agreement or other such agreement to which Contango is bound, then the provisions of such other agreement shall control as among the parties to the extent of the geographic area of such conflict. 14 15 (b) There shall be an area of interest ("AREA OF INTEREST") covering all lands covered by any Prospect or any Proved Property in which SUIT has acquired, or still has the right to acquire, an interest hereunder, and any lands within one (1) mile of the exterior boundaries thereof, but only to the extent of oil and gas exploration, production and gathering properties or properties whose acquisition could be of benefit to oil or gas operations on such Prospects or Proved Properties (collectively, the "SUBJECT PROPERTIES"). Any interest or right to acquire any interest in Subject Properties within the Area of Interest either acquired or proposed to be acquired during the term of this Agreement by or on behalf of either party ("ACQUIRING PARTY") or of any of its Affiliates shall be subject to this Agreement. 12.2 NOTICE OF ACQUISITION. (a) Within five (5) days after the acquisition or proposed acquisition, as applicable, of any interest or right to acquire any interest in Subject Properties wholly or partially within the Area of Interest, the Acquiring Party shall notify the other party ("NOTIFIED PARTY") of such acquisition by it or by its Affiliate; provided further, if the acquisition of any interest or right to acquire any interest pertains to Subject Property partially within the Area of Interest, then all such Subject Property (i.e., regardless of whether in or outside of the Area of Interest) shall be subject to this Section. The Acquiring Party's notice shall: (i) describe the acquisition (or proposed acquisition) in detail, (ii) identify the acquiring party, if such party is an Affiliate, (iii) describe the interest in the lands and minerals covered thereby, (iv) describe the cost of such acquisition (or proposed acquisition), and (v) describe why the Acquiring Party believes the acquisition (or proposed acquisition) would be worthwhile. The Acquiring Party shall also promptly make any and all information concerning the relevant interest available for inspection by the Notified Party. (b)(i) Within fourteen (14) days after receiving the Acquiring Party's notice, the Notified Party may notify the Acquiring Party of its election to accept a proportionate interest in the acquired interest, such that SUIT would have 18.75% of the acquired interest and Contango would have 81.25% of the acquired interest. Promptly upon such notice, the Acquiring Party shall convey (or cause its Affiliate to convey) to the Notified Party, by special warranty deed or assignment, the applicable proportionate percentage (18.75% as to SUIT, and 81.25% as to Contango) of the Acquiring Party's (or its Affiliate's) interest in such acquired property. The acquired interests shall be operated pursuant to an operating agreement on an AAPL 1989 Form prepared by Contango and approved by SUIT for such purpose. Concurrently with the delivery of the special warranty conveyance, the Notified Party shall promptly pay to the Acquiring Party its proportionate share of the Acquiring Party's actual out-of-pocket acquisition costs. (ii) If the Notified Party does not give such notice of election to participate in the acquisition within the 14 day period set forth in subsection (i), it shall have no interest in the acquired property, and the acquired property shall not be subject to this Agreement. XIII. PREEMPTIVE RIGHT 13.1 OTHER PREEMPTIVE RIGHTS. If this Article conflicts with the preemptive right provision contained in any Acquisition Agreement, Operating Agreement or other applicable 15 16 agreement governing jointly-owned properties, the provisions of any such agreement shall control as among the parties and the following preemptive right shall not apply. 13.2 PREEMPTIVE RIGHT. If either party ("TRANSFERRING ENTITY") intends to Transfer all or any part of its interest in any property in which the other party owns an interest hereunder, it shall promptly notify the other party ("NOTIFIED ENTITY") of such intentions. The notice shall state the price and all other pertinent terms and conditions of the intended Transfer, and shall be accompanied by a copy of the contract for sale or the proposed offer pursuant to which it would be willing to sell the interest that is the subject of such notice ("OFFERED INTEREST"). The consideration for the intended transfer may only be monetary. The Notified Entity shall have fourteen (14) days from its receipt of such notice is delivered to notify the Transferring Entity whether it elects to acquire the Offered Interest at the same price and on the same terms and conditions as set forth in the notice. If it does so elect, the acquisition by the Notified Entity shall be consummated promptly after notice of such election is delivered. If the Notified Entity fails to so elect within said fourteen (14) day period, the Transferring Entity shall have sixty (60) days following the expiration of such period to consummate the Transfer to a third party at a price and on terms no less favorable to the Transferring Entity than those offered by the Transferring Entity to the Notified Entity in the aforementioned notice. If the Transferring Entity fails to consummate the Transfer to a third party within said 60 day period, the Notified Entity's preemptive right in such offered interest shall be revived. Any subsequent proposal to Transfer such interest shall be conducted in accordance with this Section. 13.3 TRANSFER TO WHICH PREEMPTIVE RIGHT DOES NOT APPLY. The preemptive right provisions of this Section shall not apply to any Transfer by a party of any part of its interest to an Affiliate; provided however, the Affiliate and any of its direct or remote transferees, shall be bound by this Article the same as if an original party to this Agreement; or any corporate consolidation or reorganization of Contango, by which the surviving entity shall possess substantially all of the stock or all of the property rights and interests, and be subject to substantially all of the liabilities and obligations of Contango, in which event this Section shall apply to the surviving entity in the same manner as it applied to Contango. XIV. NOTICES 14.1 NOTICES. Except as expressly provided otherwise in this Agreement, all notices or other communications ("NOTICES") under this Agreement shall be in writing and shall be addressed to the party as set forth below. All Notices shall be given by: (i) personal delivery, (ii) facsimile, provided the transmitting device used by the party provides documentary confirmation of receipt, (iii) first class mail, postage prepaid, or (iv) a nationally recognized overnight courier service. All Notices shall be effective and shall be deemed delivered (i) if by personal delivery or by overnight courier, on the date of delivery if delivered on or before 4:30 p.m. on such day; otherwise, it shall be deemed to have been delivered on the next business day following delivery, (ii) if by electronic communication, on the day of receipt unless received after 4:30 p.m., in which event it shall be deemed to have been received on the next business day following receipt of the electronic 16 17 communication, and (iii) if solely by mail, on the first to occur or actual receipt. A party may change its address by Notice to the other party. If to SUIT: Southern Ute Indian Tribe Attention: John Jurrius P.O. Box 737 116 Capote Drive Ignacio, Colorado 81137 Telephone No.: (970) 563-0140 Facsimile No.: (970) 563-0398 If to Contango: Contango Oil & Gas Company Attention: Kenneth R. Peak 3700 Buffalo Speedway Suite 960 Houston, Texas 77098 Telephone No.: (713) 960-1901 Facsimile No.: (713) 960-1065 XV. MISCELLANEOUS 15.1 TERM. This Agreement shall terminate on the first to occur of: (i) thirty (30) days notice from SUIT, or (ii) two (2) years from the date hereof, but such termination shall not affect any Operating Agreements or other agreements to which SUIT and Contango are parties or diminish any unfulfilled obligations of the parties which are outstanding at the time of such termination. 15.2 SURVIVAL OF PROVISIONS. The parties' respective warranties, representations, and covenants under Article I, Section 2.6 (to the extent conveyances are made after this Agreement terminates), Article IV (with respect to (i) any payment obligations thereunder which have not been fulfilled as of the time this Agreement terminates and (ii) any election and payment rights and obligations on Prospects and Proved Properties wherein the parties are not direct parties to an Operating Agreement at the time this Agreement terminates), Article V, Article VI, Sections 7.4, 7.6, 7.7 and 7.8, and Articles VIII, IX, X, XII (for a period of two (2) years following the termination of this Agreement), XIII (for a period of two (2) years following the termination of this Agreement), XIV, and XV shall survive the termination of this Agreement. 15.3 CHOICE OF LAW, AND VENUE. The laws of the United States shall apply in all matters concerning this Agreement. In such instances in which the laws of the United States do not provide a statutory or federal common law rule for decision, and application of other law would not conflict 17 18 with federal policy, the laws of the State of Texas shall apply. Venue for all disputes shall be limited to the federal courts. 15.4 ENTIRE AGREEMENT. This Agreement contains the entire understanding and agreement between the parties, and supersedes all prior agreements and understandings, written or oral, between the parties relating to the subject matter hereof. 15.5 AMENDMENTS. This Agreement may not be amended except by the written agreement of the parties. 15.6 WAIVERS. The failure of any party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Agreement shall not constitute a waiver of any provision of this Agreement or limit the party's right to seek redress for any subsequent act which constitutes a violation or breach. 15.7 FURTHER ASSURANCES. Without further consideration, each party agrees to take such further actions and execute such further documents as may be necessary or appropriate to effectuate and purpose and intent of this Agreement. 15.8 COSTS. Except as may be expressly provided otherwise herein, each party shall bear its own costs and expenses in connection with the negotiation and performance of this Agreement. 15.9 SECTION AND OTHER HEADINGS; AND CONSTRUCTION. The section and other headings contained in this Agreement are for reference only and have no legal significance. The use of pronouns is generic and they shall mean any gender as appropriate. The terms "include," "including," or similar terminology shall be construed as meaning without limitation as to the nature or scope of the referenced matters, whether similar or dissimilar to the referenced matters. The terms "herein" or "hereof," or similar terminology, shall be construed as referring to this Agreement rather than only the section in which such term appears. References to subsections shall refer to the section or subsection in which they appear, unless otherwise noted. This Agreement shall be deemed to have been drafted by both parties, and therefore the rule against construing ambiguities against the party drafting a contract shall be inapplicable to this Agreement. 15.10 SEVERABILITY. If any provision of this Agreement is held to be invalid or unenforceable in whole or in part in any relevant jurisdiction, such provision, only to the extent invalid or unenforceable, shall be severable from this Agreement, and the other provisions of this Agreement (along with the provision at issue, to the extent that it would be valid and enforceable, and such provision shall be deemed to be so reformed) shall remain in full force and effect in such jurisdiction and the remaining provisions hereof shall be liberally construed to carry out the purpose and intent of this Agreement. The invalidity or unenforceability, in whole or in part, of any provision of 18 19 this Agreement in any relevant jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, nor shall the invalidity or unenforceability of any provision of this Agreement with respect to any person affect the validity or enforceability of such provision with respect to any other person. 15.11 ATTORNEY'S FEES. If litigation is commenced between the parties, the prevailing party shall be entitled to recover from the other party all reasonable attorney fees and costs. 15.12 NO THIRD PARTY BENEFICIARIES. This Agreement shall be construed to benefit the parties and their respective successors and assigns only, and shall not be construed to create third party beneficiary rights in any other party. 15.13 PARTIES IN INTEREST; SUCCESSORS AND ASSIGNS. Except as expressly provided below, without the consent of the other party, neither party may Transfer any of its interest hereunder, except to an Affiliate; provided, however, the Affiliate and any of its direct or remote transferees shall remain bound by this restriction the same as if an original party hereto; that is, without the other party's consent, it may not assign an interest in this Agreement except to an Affiliate of the original party to this Agreement from which its interest derives (that is, SUIT or Contango). Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Nothing herein is intended to confer upon any other person or entity any rights or remedies under or by reason of this Agreement. SUIT intends to assign an interest in this Agreement to John Jurrius, and shall have the right to do so without Contango's consent. 15.14 TIME OF ESSENCE. Time is of the essence with respect to making elections and responding to notices hereunder. 15.15 FACSIMILE EXECUTION AND COUNTERPARTS. This Agreement may be executed by facsimile and in any number of counterparts. Notwithstanding that this Agreement is executed in counterparts, it shall constitute a single agreement. If this Agreement is executed in counterparts, the signature pages of such counterparts may be appended to this Agreement to form a single document with all signatures. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SOUTHERN UTE INDIAN TRIBE, doing CONTANGO OIL & GAS COMPANY business as Red Willow Production Company By: /s/ John E. Baker, Jr. By: /s/ Kenneth R. Peak -------------------------------- ------------------------------ John E. Baker, Jr. Kenneth R. Peak Chairman, Southern Ute President Tribal Council 19 -----END PRIVACY-ENHANCED MESSAGE-----