<PAGE>

                                                                     EXHIBIT 2.1

                              PLAN OF COMBINATION



                                Combination of

                             Coral Reserves, Inc.,
                      Coral Reserves Energy Corporation,
                              Indian Oil Company,
                           Cancaan Securities, Inc.,

                                     into

                       Canaan Energy Corporation, f/k/a
                          Coral Reserves Group, Ltd.

                                      and

                      Canaan 1990 Acquisition Corporation
                      Canaan 1991 Acquisition Corporation
                      Canaan 1992 Acquisition Corporation
                      Canaan 1993 Acquisition Corporation
                      Canaan 1993I Acquisition Corporation
                      Canaan 1995 Acquisition Corporation
                      Canaan 1996 Acquisition Corporation
                      Canaan 1996I Acquisition Corporation

                                     into

       Coral Reserves Natural Gas Income Fund 1990 Limited Partnership,
       Coral Reserves Natural Gas Income Fund 1991 Limited Partnership,
       Coral Reserves Natural Gas Income Fund 1992 Limited Partnership,
       Coral Reserves Natural Gas Income Fund 1993 Limited Partnership,
            Coral Reserves 1993 Institutional Limited Partnership,
          Coral Reserves Energy Income Fund 1995 Limited Partnership,
          Coral Reserves Energy Income Fund 1996 Limited Partnership,
             Coral Reserves 1996 Institutional Limited Partnership


                               February 14, 2000
<PAGE>

                              PLAN OF COMBINATION

                               Table of Contents
                               -----------------

                                                                           Page
ARTICLE I
    DEFINITIONS.............................................................2
    1.01  Defined Terms.....................................................2
          -------------
    1.02  References and Titles.............................................5
          ---------------------

ARTICLE II
    ACQUISITION OF INDIAN BY CEC AND
    RECLASSIFICATION OF CEC COMMON STOCK....................................5
    2.01  The Share Acquisition;  Effective Time............................5
          --------------------------------------
    2.02  Certificate of Incorporation......................................5
          ----------------------------
    2.03  Bylaws............................................................6
          ------
    2.04  Effect on Securities of Indian....................................6
          ------------------------------
    2.05  Exchange of Certificates..........................................6
          ------------------------
    2.06  Reclassification of CEC Common Stock..............................6
          ------------------------------------
    2.07  Modification to Exchange Value....................................6
          ------------------------------

ARTICLE III
    ACQUISITION OF CORAL CORP., CORAL, INC.
    AND CANAAN SECURITIES COMMON STOCK......................................7
    3.01  Transfer of Coral Corp., Coral, Inc. and
          ----------------------------------------
          Canaan Securities Shares..........................................7
          ------------------------
    3.02  Issuance of CEC Common Stock......................................7
          ----------------------------
    3.03  Effects of Contribution of Canaan Securities Shares...............7
          ---------------------------------------------------
    3.04  Certificate of Incorporation......................................7
          ----------------------------
    3.05  Bylaws............................................................7
          ------

ARTICLE IV
    PARTNERSHIP MERGERS.....................................................7
    4.01  Partnership Votes.................................................7
          -----------------
    4.02  Partnership Mergers...............................................8
          -------------------
    4.03  Effect on Partnership Interests of Partnerships...................8
          -----------------------------------------------
    4.04  Treatment of Dissenting Partners..................................9
          --------------------------------
    4.05  Treatment of Cash Electing Partners...............................9
          -----------------------------------
    4.06  Issuance of Certificates.........................................10
          ------------------------

ARTICLE V
    REPRESENTATIONS AND WARRANTIES OFCORAL CORP. AND CORAL, INC............10

                                     -i-
<PAGE>

ARTICLE VI
    REPRESENTATIONS AND WARRANTIES OF INDIAN...............................10
    6.01  Ownership of Shares..............................................10
          -------------------
    6.02  Approval and Adoption of Agreements..............................11
          -----------------------------------

ARTICLE VII
    REPRESENTATIONS AND WARRANTIES OF CANAAN SECURITIES....................11
    7.01  Organization, Standing and Qualification.........................11
          ----------------------------------------
    7.02  Execution, Delivery and Performance of Agreement; Authority......11
          -----------------------------------------------------------
    7.03  Capitalization...................................................12
          --------------
    7.04  Financial Statements.............................................12
          --------------------
    7.05  Absence of Undisclosed Liabilities...............................12
          ----------------------------------
    7.06  Absence of Material Adverse Effect Since.........................13
          Interim Balance Sheet Date
          --------------------------
    7.07  Compliance with Laws, Material...................................13
          Agreements and Permits
          ----------------------

ARTICLE VIII
    REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIPS.....................13
    8.01  Organization, Standing and Qualification.........................13
          ----------------------------------------
    8.02  Execution, Delivery and Performance of...........................14
          Agreement; Authority
          --------------------
    8.03  Capitalization...................................................14
          --------------
    8.04  Financial Statements.............................................14
          --------------------
    8.05  Absence of Undisclosed Liabilities...............................15
          ----------------------------------
    8.06  Absence of Material Adverse Effect Since.........................15
          Interim Balance Sheet Date
          --------------------------
    8.07  Compliance with Laws, Material...................................15
          Agreements and Permits
          ----------------------

ARTICLE IX
    REPRESENTATIONS AND WARRANTIES OF CEC..................................15
    9.01  Capitalization...................................................16
          --------------
    9.02  Acquisition Subs.................................................16
          ----------------

ARTICLE X
    COVENANTS                                                              16
    10.01 Access to Records and Properties;................................16
          Operation of the Business
          -------------------------
    10.02 Announcements....................................................17
          -------------
    10.03 Shareholder and Director Approval................................17
          ---------------------------------
    10.04 Indian Shareholder Debt..........................................17
          -----------------------
    10.05 Amendment of Coral/Indian Merger.................................17
          Agreement
          ---------
    10.06 Securities Law Matters...........................................18
          ----------------------
    10.07 Agreements of Affiliates.........................................18
          ------------------------
    10.08 Restrictions on CEC Common Stock.................................18
          --------------------------------
    10.09 Canaan Securities Intra-Company..................................18
          Indebtedness
          ------------
    10.10 Release of Guarantees............................................19
          ---------------------

                                     -ii-
<PAGE>

    10.11 Cancellation of Canaan Securities................................19
          Agreements
          ----------
    10.12 Reports under the Securities Exchange............................19
          Act of 1934
          -----------
    10.13 Indemnification..................................................19
          ---------------

ARTICLE XI
    CONDITIONS.............................................................20
    11.01 Conditions to Obligations of all Parties.........................20
          ----------------------------------------

ARTICLE XII
    TERMINATION............................................................22
    12.01 Termination of Agreement.........................................22
          ------------------------
    12.02 Obligations Upon Termination.....................................22
          ----------------------------

ARTICLE XIII
    CLOSING................................................................22
    13.01 Time and Place...................................................22
          --------------
    13.02 Certificates of Acquisition and Exchanges........................22
          -----------------------------------------
    13.03 Further Assurances...............................................23
          ------------------
    13.04 Concurrent Conditions............................................23
          ---------------------

ARTICLE XIV
    GENERAL PROVISIONS.....................................................23
    14.01 Nonsurvival of Representations,..................................23
          Warranties and Covenants
          ------------------------
    14.02 Entire Agreement; Amendment and Waiver...........................23
          --------------------------------------
    14.03 Severability.....................................................24
          ------------
    14.04 Applicable Law...................................................24
          --------------
    14.05 Assignment.......................................................24
          ----------
    14.06 Notices..........................................................24
          -------
    14.07 Incorporation of Exhibits and Schedules..........................25
          by Reference
          ------------
    14.08 Multiple Counterparts............................................25
          ---------------------
    14.09 Expenses.........................................................26
          --------

                                  ATTACHMENTS

EXHIBITS:

10.07   --   Agreements of Affiliates
10.08   --   Restrictions on CEC Common Stock

                                     -iii-
<PAGE>

                              PLAN OF COMBINATION


     This Plan of Combination (the "Agreement") is entered into on this 14th day
of February, 2000 ("Execution Date"), by and among (i) Canaan Energy
Corporation, an Oklahoma corporation, f/k/a Coral Reserves Group, Ltd. ("CEC"),
(ii) Coral Reserves, Inc., an Oklahoma corporation ("Coral, Inc."), (iii) Coral
Reserves Energy Corporation, an Oklahoma corporation ("Coral Corp.") (CEC,
Coral, Inc. and Coral Corp are sometimes collectively referred to herein as the
"Coral Companies"), (iv) Indian Oil Company, an Oklahoma corporation ("Indian"),
(v) Canaan Securities, Inc., a Delaware corporation ("Canaan Securities"), (vi)
Coral Reserves Natural Gas Income Fund 1990 Limited Partnership, an Oklahoma
limited partnership  ("1990"), (vii) Coral Reserves Natural Gas Income Fund 1991
Limited Partnership, an Oklahoma limited partnership ("1991"), (viii) Coral
Reserves Natural Gas Income Fund 1992 Limited Partnership, an Oklahoma limited
partnership ("1992"), (ix) Coral Reserves Natural Gas Income Fund 1993 Limited
Partnership, an Oklahoma limited partnership ("1993"), (x) Coral Reserves 1993
Institutional Limited Partnership, an Oklahoma limited partnership ("1993-I"),
(xi) Coral Reserves Energy Income Fund 1995 Limited Partnership, an Oklahoma
limited partnership ("1995"), (xii) Coral Reserves Energy Income Fund 1996
Limited Partnership, an Oklahoma limited partnership ("1996"); (xiii) Coral
Reserves 1996 Institutional Limited Partnership, an Oklahoma limited partnership
("1996-I") (1990, 1991, 1992, 1993, 1993-I, 1995, 1996 and 1996-I are sometimes
collectively referred to herein as the "Partnerships"); and (xiv) Indco, L.L.C.
and certain shareholders of CEC, Indian and Canaan Securities .

                                    RECITALS

     WHEREAS, Coral Corp., Coral, Inc., Indian, Canaan Securities, and the
Partnerships have determined to engage in a strategic business combination
pursuant to which all the outstanding capital stock of Indian, Coral Corp.,
Coral, Inc. and Canaan Securities shall be acquired by CEC, and the Acquisition
Subs shall be merged into the Partnerships, in exchange for capital stock of CEC
and other consideration set forth herein, in interdependent steps of a
transaction (the "Combination Transactions") intended to qualify under Section
351 of the Code (as hereinafter defined); and

     WHEREAS, the Coral Companies and Indian entered into an Agreement and Plan
of Merger dated February 15, 1999 (the "Coral/Indian Merger Agreement") in which
all the parties thereto made certain representations and warranties and agreed
to certain conditions and covenants;

     WHEREAS, the Coral Companies and Indian agree that this Agreement is
intended in part to supplement and enlarge the terms of the Coral/Indian Merger
Agreement to more specifically define the terms of the "Reorganization"
contemplated by the Coral/Indian Merger Agreement; and

     WHEREAS, the parties hereto desire to evidence the terms, provisions,
representations, warranties and conditions upon which the Combination
Transactions will be consummated by this binding Agreement.
<PAGE>

     NOW, THEREFORE, in consideration of the foregoing and the benefits to be
derived from the mutual observance of the terms and conditions set forth below,
the parties hereto agree as follows:

                                   ARTICLE I
                                  DEFINITIONS

      1.01     Defined Terms.  For purposes of this Agreement, in addition to
               --------------
the terms defined elsewhere herein, the following terms shall have the meanings
set forth in this Article I or in the Section referred to below:

               "Acquisition Subs" means (i) Canaan 1990 Acquisition Corporation
                ----------------
("1990 Sub"), (ii) Canaan 1991 Acquisition Corporation ("1991 Sub"), (iii)
Canaan 1992 Acquisition Corporation ("1992 Sub"), (iv) Canaan 1993 Acquisition
Corporation ("1993 Sub"),  (v) Canaan 1993-I Acquisition Corporation ("1993-I
Sub"), (vi) Canaan 1995 Acquisition Corporation ("1995 Sub"), (vii) Canaan 1996
Acquisition Corporation ("1996 Sub"), (viii) Canaan 1996-I Acquisition
Corporation ("1996-I Sub")

               "Agreement" means this Plan of Combination and the Exhibits and
                ---------
     Schedules attached hereto and by this reference made a part hereof for all
     purposes.

               "Canaan Securities" has the meaning set forth in the preface
                -----------------
     above.


                "CEC" means Canaan Energy Corporation, an Oklahoma corporation,
                 ---
     f/k/a Coral Reserves Group Ltd.

                "Closing" means the taking of the actions contemplated by
                 -------
     Article XIII of this Agreement in order to consummate the transactions
     contemplated thereby.

                "Closing Date" means the date on which the Closing occurs as set
                 ------------
     forth in Section XIII hereof.

                "Code" means the Internal Revenue Code as in effect on the date
                 ----
     hereof.

                "Coral Companies" means Coral Corp., Coral Inc., and CEC.
                 ---------------

                "Coral Corp." has the meaning set forth in the preface above.
                 -----------

                "Coral, Inc." has the meaning set forth in the preface above.
                 -----------

                "Coral/Indian Merger Agreement" means the Agreement and Plan of
                 -----------------------------
     Merger dated February 15, 1999 by and between the Coral Companies and
     Indian.

                                      -2-
<PAGE>

          "Disclosure Schedule" means the Disclosure Schedule attached
           -------------------
     hereto and any documents listed on such Disclosure Schedule and expressly
     incorporated therein by reference, including any supplement thereof
     delivered at or before the Closing.

          "Effective Time" shall mean the time that a certificate of acquisition
           --------------
     for the Share Acquisition (as defined in Section 2.01) and certificates of
     merger for the Partnership Mergers (as defined in Section 4.02) are
     simultaneously filed with the Oklahoma Secretary of State pursuant to the
     OGCA and the ORULPA.

          "Exchange Value" means the value of each of the parties to this
           --------------
     Agreement determined in the manner as described in the Prospectus.

          "GAAP" means generally accepted accounting principles as recognized by
           ----
     the U.S. Financial Accounting Standards Board.

          "Governmental Authority" means any national, state, county or
           ----------------------
     municipal government, domestic or foreign, any agency, board, bureau,
     commission, court, department or other instrumentality of any such
     government, or any arbitrator in any case that has jurisdiction over any of
     the parties hereto.

          "Indian" has the meaning set forth in the preface above.
           ------

          "Material Adverse Effect"  means a result or consequence that would
           -----------------------
     materially adversely affect the condition (financial or otherwise), results
     of operations or business of any of the parties hereto or the aggregate
     value of their individual assets, or would materially impair the ability of
     any such parties to own, hold, develop and operate a material portion of
     their assets, or would impair any such parties' ability to perform their
     individual obligations hereunder or consummate the transactions
     contemplated hereby.  Changes in the prices of oil or gas no matter how
     large shall not be considered a Material Adverse Effect.

          "OGCA" means the Oklahoma General Corporation Act.
           ----

          "ORULPA" means the Oklahoma Revised Uniform Limited Partnership Act.
           ------

          "Placing Broker" means those brokers having agreements with Canaan
           --------------
     Securities entitling them to receive a share of cash distributions from a
     Partnership as a result of their sale of units in such Partnership.

          "Prospectus" means the prospectus included in the S-4 Registration
           ----------
     Statement in the initial filing thereof.

                                      -3-
<PAGE>

          "S-4 Registration Statement" means the registration statement to be
           --------------------------
     filed by CEC with the SEC pursuant to Section 10.06 hereof and the
     Coral/Indian Merger Agreement providing for the registration of all of the
     shares of CEC Common Stock to be issued pursuant to this Agreement.

          "Tax" means any federal, state, or local gross receipts, license,
           ---
     payroll, employment, excise, severance, income, franchise, property, ad
     valorem, sales and use or other tax of any kind, including any interest,
     penalty, or addition thereto, whether disputed or not.

          "Tax Return" means any return, declaration, report, claim for refund,
           ----------
     or information return or statement relating to Taxes, including any
     schedule or attachment thereto.

          "1990" has the meaning set forth in the preface above.
           ----

          "1991" has the meaning set forth in the preface above.
           ----

          "1992" has the meaning set forth in the preface above.
           ----

          "1993" has the meaning set forth in the preface above.
           ----

          "1993-I" has the meaning set forth in the preface above.
           ------

          "1995" has the meaning set forth in the preface above.
           ----

          "1996" has the meaning set forth in the preface above.
           ----

          "1996-I" has the meaning set forth in the preface above.
           ------

          "1990 Sub" has the meaning set forth in Acquisition Subs above and
           --------
     shall be the Acquisition Sub which shall merge into 1990 in accordance with
     Section 4.02 hereof.

          "1991 Sub" has the meaning set forth in Acquisition Subs above and
           --------
     shall be the Acquisition Sub which shall merge into 1991 in accordance with
     Section 4.02 hereof.

          "1992 Sub" has the meaning set forth in Acquisition Subs above and
           --------
     shall be the Acquisition Sub which shall merge into 1992 in accordance with
     Section 4.02 hereof.

          "1993 Sub" has the meaning set forth in Acquisition Subs above and
           --------
     shall be the Acquisition Sub which shall merge into 1993 in accordance with
     Section 4.02 hereof.

          "1993-I Sub" has the meaning set forth in Acquisition Subs above and
           ----------
     shall be the Acquisition Sub which shall merge into 1993-I in accordance
     with Section 4.02 hereof.

                                      -4-
<PAGE>

          "1995 Sub" has the meaning set forth in Acquisition Subs above and
           --------
     shall be the Acquisition Sub which shall merge into 1995 in accordance with
     Section 4.02 hereof.

          "1996 Sub" has the meaning set forth in Acquisition Subs above and
           --------
     shall be the Acquisition Sub which shall merge into 1996 in accordance with
     Section 4.02 hereof.

          "1996-I Sub" has the meaning set forth in Acquisition Subs above and
           ----------
     shall be the Acquisition Sub which shall merge into 1996-I in accordance
     with Section 4.02 hereof.

      1.02     References and Titles.  All references in this Agreement to
               ---------------------
Exhibits, Schedules, Articles, Sections, subsections and other subdivisions
refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections
and other subdivisions of or to this Agreement unless expressly provided
otherwise. Titles appearing at the beginning of any Articles, Sections,
subsections or other subdivisions of this Agreement are for convenience only, do
not constitute any part of this Agreement, and shall be disregarded in
construing the language hereof. The words "this agreement," "herein," "hereby,"
"hereunder" and "hereof," and words of similar import, refer to this Agreement
as a whole and not to any particular subdivision unless expressly so limited.
The words "this article," "this section" and "this subsection," and words of
similar import, refer only to the Article, Section or Subsection hereof in which
such words occur. The word "or" is not exclusive, and the word "including" (in
its various forms) means "including without limitation." Pronouns in masculine,
feminine or neuter genders shall be construed to state and include any other
gender, and words, terms and titles (including terms defined herein) in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.

     As used in the representations and warranties contained in this Agreement,
the phrase "to the knowledge" of the representing party shall mean that such
individual party(ies) or the senior officers of such representing corporate
party, individually or collectively, either (i) know that the matter being
represented and warranted is true and accurate or (ii) have no reason, after
reasonable inquiry, to believe that the matter being represented and warranted
is not true and accurate.

                                   ARTICLE II
                        ACQUISITION OF INDIAN BY CEC AND
                      RECLASSIFICATION OF CEC COMMON STOCK

      2.01     The Share Acquisition;  Effective Time.  Subject to the terms and
               --------------------------------------
conditions of this Agreement, CEC shall acquire the shares of Indian in
accordance with the provisions of Section 1090.1 of the OGCA (the "Share
Acquisition").  The Share Acquisition shall become effective at the Effective
Time.

      2.02     Certificate of Incorporation.  The respective certificate of
               ----------------------------
incorporation of CEC and Indian in effect immediately prior to the Effective
Time shall remain in effect thereafter unless and until amended as provided by
law and such certificate of incorporation.

                                      -5-
<PAGE>

      2.03     Bylaws.  The respective bylaws of CEC and Indian in effect
               ------
immediately prior to the Effective Time shall remain in effect thereafter unless
and until amended or repealed as provided by applicable law.

      2.04     Effect on Securities of Indian.  At the Effective Time, by virtue
               ------------------------------
of the Share Acquisition and without any action on the part of the holder of any
shares of Common Stock of Indian:

               (a) Cancellation of Common Stock in Treasury. All shares of
                   ----------------------------------------
      Common Stock of Indian and any of the shares of preferred stock of Indian
      that are held in the treasury of Indian shall be canceled and no
      consideration shall be delivered in exchange therefor.

               (b) Exchange for CEC Common Stock. Each of the holders of shares
                   -----------------------------
      of Common Stock of Indian issued and outstanding immediately prior to the
      Effective Time shall receive his proportionate share of the total shares,
      rounded to the nearest whole share, of CEC Common Stock allocated to
      Indian based on its Exchange Value as described in the Prospectus.

      2.05     Exchange of Certificates.  On and after the Effective Time, CEC
               ------------------------
shall deliver certificates representing the shares of CEC Common Stock as
determined above in Section 2.04(b) to be issued in the Share Acquisition
against surrender by the holders of certificates representing the shares of such
Common Stock of Indian (the "Certificates").  Until surrendered and exchanged as
contemplated by this Section 2.05, each Certificate shall be deemed at any time
after the Effective Time to represent solely the right to receive upon such
surrender shares of CEC Common Stock, as provided by this Article II.

      2.06     Reclassification of CEC Common Stock.  Immediately prior to the
               ------------------------------------
Effective Time, the shares of CEC Common Stock shall be reclassified into the
number of shares of CEC Common Stock allocated to CEC based on its Exchange
Value as described in the Prospectus and, at the Closing, each shareholder shall
surrender his certificates representing his pre-Combination Transactions shares
of common stock of CEC in exchange for his pro rata number of total shares of
CEC Common Stock allocated to CEC.

      2.07     Modification to Exchange Value.  The Exchange Value for Indian or
               ------------------------------
any other party or the method of calculation of the Exchange Value will not be
modified in any way that reduces Indian's Exchange Value or its relative
Exchange Value compared to the other parties without the consent of Indian.

                                      -6-
<PAGE>

                                  ARTICLE III
                    ACQUISITION OF CORAL CORP., CORAL, INC.
                       AND CANAAN SECURITIES COMMON STOCK

      3.01     Transfer of Coral Corp., Coral, Inc. and Canaan Securities
               ----------------------------------------------------------
Shares.  Subject to the terms and conditions of this Agreement, at the Effective
------
Time, the shareholders of Coral Corp. and Coral, Inc. and the sole shareholder
of Canaan Securities shall sell, assign, transfer, convey, contribute to the
capital of, and deliver to CEC, and CEC shall acquire, purchase and receive from
the  shareholders of Coral Corp. and Coral, Inc. and the sole shareholder of
Canaan Securities, at the Closing hereunder, all right, title and interest in
and to all of the shares of Common Stock of Coral Corp., Coral, Inc. and Canaan
Securities, free and clear of all liabilities, obligations, liens and
encumbrances whatsoever.

      3.02     Issuance of CEC Common Stock.  The shareholders of Coral Corp.
               -----------------------------
and Coral, Inc. and the sole shareholder of Canaan Securities shall receive the
total shares, rounded to the nearest whole share, of CEC Common Stock allocated
to such entities based on their relative Exchange Values as described in the
Prospectus.

      3.03     Effects of Contribution of Canaan Securities Shares.  After
               ---------------------------------------------------
giving effect to the transfer and purchase as contemplated by Sections 3.01 and
3.02, Coral Corp., Coral, Inc. and Canaan Securities shall be direct wholly-
owned subsidiaries of CEC.

      3.04     Certificate of Incorporation.  The respective Articles of
               ----------------------------
Incorporation of Coral Corp., Coral, Inc. and Canaan Securities in effect
immediately prior to the Effective Time shall remain in effect thereafter,
unless and until amended as provided by applicable law and such Articles of
Incorporation.

      3.05     Bylaws.  The respective bylaws of Coral Corp., Coral, Inc. and
               ------
Canaan Securities in effect immediately prior to the Effective Time shall remain
in effect thereafter, unless and until amended or repealed as provided by
applicable law.

                                   ARTICLE IV
                              PARTNERSHIP MERGERS

      4.01     Partnership Votes.  Prior to the Effective Time, each of the
               -----------------
Partnerships shall solicit the vote of the holders of partnership interests in
such Partnerships to approve this Agreement and the resulting Partnership
Mergers discussed below in Section 4.02 (the "Partnership Vote"). Approval of
this Agreement by each Partnership requires the approval of each General Partner
and Additional General Partner and the approval of holders of more than fifty
percent (50%) of the partnership interests owned by the limited partners
calculated based on the limited partners' share in the profits of the
Partnership determined based on the profit sharing ratio in effect on the date
the vote is taken.  The Partnerships shall engage an independent third party to
receive and tabulate all votes and dissents in connection with the Partnership
Votes and such tabulation shall be available

                                      -7-
<PAGE>

to the General Partner and any limited partners upon request at any time during
and after voting occurs.

      4.02     Partnership Mergers.
               -------------------

               (a) The Partnership Mergers.  Subject to the approval of this
                   -----------------------
     Agreement by the Partnerships as provided in Section 4.01 and subject to
     the terms and conditions of this Agreement, the Acquisition Subs shall be
     merged into the Partnerships, with each Acquisition Sub merging into the
     Partnership with the like numerical description in such Acquisition Sub's
     name as the corresponding Partnership in accordance with the provisions of
     Section 1090.2 of the OGCA (the "Partnership Mergers").  Following the
     Partnership Mergers, the separate existence of the Acquisition Subs shall
     thereupon cease, and the respective merged Partnerships shall be the
     surviving entities (the "Surviving Entities") of the Partnership Mergers
     and shall continue in existence under the laws of the State of Oklahoma.

               (b) Effective Time of the Partnership Mergers.  The Partnership
                   -----------------------------------------
     Mergers shall become effective at the Effective Time.

               (c) Certificates of Merger.  Certificates of Merger evidencing
                   ----------------------
     the transactions contemplated in this Section 4.02 shall be filed with the
     Oklahoma Secretary of State at the Effective Time.

              (d) Partnership Agreement.  The respective Partnership Agreement
                  ---------------------
     of each Partnership as in effect immediately prior to the Effective Time
     shall be the governing document of the Surviving Entities and thereafter
     may be amended in accordance with their respective terms and as provided by
     law.

      4.03     Effect on Partnership Interests of Partnerships.  At the
               -----------------------------------------------
Effective Time, by virtue of the Partnership Mergers and without any action on
the part of partners of the Partnership, each limited partner, and each
additional General Partner in a Partnership, shall receive such partner's
proportionate share of CEC Common Stock allocated to such Partnership based on
the Exchange Value of such Partnership, as calculated as described in the
Prospectus.  The relative number of shares each partner is entitled to receive
shall be computed in the manner described in the Prospectus.  The number of
shares issuable to each Partnership in the Partnership Mergers shall be rounded
to the nearest whole share.  The Partnership Mergers shall have no effect on the
General Partners', Canaan Securities' or the Placing Brokers' interests in the
Partnerships.  The Exchange Value for each Partnership shall be first allocated
to limited partners until the limited partners' collective "Return" is 115% of
their aggregate investment.  For this purpose, Return shall mean (x) the sum of
historical cash distributions to limited partners prior to the Closing Date plus
Exchange Value allocated to limited partners, divided by (y) the aggregate
original capital contributions of limited partners.

                                      -8-
<PAGE>

      4.04     Treatment of Dissenting Partners.
               --------------------------------

               (a) Demand for Dissenter's Rights of Appraisal.  If a Partnership
                   ------------------------------------------
     receives approval of this Agreement by holders of less than seventy-five
     percent (75%) (based on the percentage interests in profits) of the
     partnership interests, including the interests of the General Partner and
     the additional General Partners, the limited partners in such Partnership
     will be entitled to exercise dissenter's rights of appraisal.  In order to
     exercise the right to dissent, a limited partner must not vote in favor of
     this Agreement and must deliver to the General Partner of the Partnership
     prior to the Partnership Vote a written notice stating his name and that he
     demands dissenters rights of appraisal.  A proxy or vote against this
     Agreement will not be sufficient demand for such dissenter's rights of
     appraisal.

               (b) Procedure for Dissenter's Rights of Appraisal.  A dissenting
                   ---------------------------------------------
     limited partner will be entitled to receive a cash payment for shares of
     CEC Common Stock issued to him at a price equal to the value of his
     partnership interests in the Partnership exchanged therefrom determined as
     provided in this Section 4.04.  Within ten (10) days after the Closing, CEC
     will notify any dissenting limited partners who have properly perfected
     their dissenter's rights of appraisal of this fact (the "Dissenting
     Partners").  For a period of thirty (30) days after the date of the notice,
     either CEC or any Dissenting Partner can propose and thereafter negotiate a
     price that will be paid for the Dissenting Partner's interest in the
     Partnership, provided that in no event shall the price paid to Dissenting
     Partners in the same Partnership be computed in a different manner.  If CEC
     and all Dissenting Partners are unable to reach an agreement within such
     thirty (30) day period, Madison Energy Advisors (or such other independent
     appraiser as CEC may select if Madison Energy Advisors is unable or
     unwilling to serve) (the "Appraiser") will determine the value of a
     Dissenting Partner's interest in the Partnership based on appraisal of the
     Partnership assets which will value the Partnership assets as if sold in an
     orderly manner in a reasonable period of time and in a manner consistent
     with appropriate industry practice.  The Appraiser shall have ninety (90)
     days to determine the value of the Dissenting Partners' partnership
     interests.  The determination of the Appraiser shall be final.  CEC shall
     pay the Dissenting Partners the amount determined by the Appraiser within
     fifteen (15) days of such determination, with interest from the Closing
     Date to the payment date at the "prime rate" as published in the Wall
     Street Journal from time to time between the Closing Date and the payment
     date.  All fees of the Appraiser shall be borne by CEC.

      4.05     Treatment of Cash Electing Partners.  Any limited partner in a
               -----------------------------------
Partnership which approves this Agreement and who votes in favor of such
approval may elect to receive cash in an amount equal to seventy-five percent
(75%) of such limited partner's share of the Exchange Value allocated to such
limited partner pursuant to Section 4.03 (a "Cash Electing Partner").  The
maximum amount of cash available in the aggregate to pay Dissenting Partners and
the Cash Electing Partners is $5,000,000 ("Cash Limit").  However, the
Dissenting Partners will receive priority over the Cash Electing Partners in the
allocation of the Cash Limit.  Therefore, if there are more claims by Dissenting
Partners and Cash Electing Partners than the Cash Limit after estimated

                                      -9-
<PAGE>

claims of Dissenting Partners, such Cash Electing Partners shall receive a pro-
rata share of the remaining cash available and any remaining amount due the Cash
Electing Partners shall be paid in the form of CEC Common Stock, rounded to the
nearest whole share. If a limited partner elects to become a Cash Electing
Partner, he will be deemed to have received such limited partner's relative
share of the CEC Common Stock he would have received under Section 4.03 and
immediately thereafter sold such shares to CEC for the amount due for such cash
election under this Section 4.05. If a limited partner fails to make an election
to receive cash, such limited partner will be deemed to have elected to receive
his proportionate share of CEC Common Stock as provided in Section 4.03. CEC
shall make payments to all Cash Electing Partners within five (5) days after the
Effective Time.

      4.06     Issuance of Certificates.  Within five (5) business days after
               ------------------------
the receipt of properly completed and executed letters of transmittal, CEC shall
deliver or cause to be delivered certificates representing the shares of CEC
Common Stock issuable in the Partnership Mergers to all parties. Certificates
for shares issuable to Dissenting Partners and Cash Electing Partners shall be
issued in the name of an exchange agent designated by CEC with instructions to
deliver to CEC upon receipt of evidence from CEC that payments required under
this Agreement to be made to such parties have been made.

                                   ARTICLE V
                       REPRESENTATIONS AND WARRANTIES OF
                          CORAL CORP. AND CORAL, INC.

     As a material part of the consideration for this Agreement, except as
disclosed in the Disclosure Schedule specifically referring to this Article V,
Coral Corp. and Coral, Inc. represent and warrant to the other parties hereto as
of the date of this Agreement that its representations and warranties in the
Coral/Indian Merger Agreement are true and correct.

                                   ARTICLE VI
                    REPRESENTATIONS AND WARRANTIES OF INDIAN

     As a material part of the consideration for this Agreement, except as
disclosed in the Disclosure Schedule specifically referring to this Article VI,
Indian represents and warrants to the other parties hereto as of the date of
this Agreement and as of the Closing Date that its representations or warranties
contained in the Coral/Indian Merger Agreement, except as modified herein, are
true and correct, taking into consideration any materiality, knowledge or other
similar standards in the Coral/Indian Merger Agreement.  Furthermore, Indian and
each of the Indian shareholders, individually as to himself only and not
jointly, represent and warrant to the other parties hereto as of the date of
this Agreement and as of the Closing Date as follows:

      6.01     Ownership of Shares.  The shareholders of Indian as set forth on
               -------------------
the signature pages hereof are all the shareholders of record of Indian and each
such shareholder listed thereon owns all right, title and interest in the shares
of Indian listed next to his name free and clear of all liens, claims,
encumbrances, options, pledges, trusts, voting trusts and restrictions of any
kind whatsoever

                                      -10-
<PAGE>

except for restrictions on the transfer under the certificate of incorporation
and bylaws of Indian and restrictions and claims under the Lasuzzo Agreements.
Except for the ownership described on the signature page of this Agreement, each
shareholder has no record or direct or indirect beneficial ownership whatsoever
in capital stock of Indian or in rights to acquire any such capital stock,
except for shares issuable pursuant to Section 10.04 hereof or under the Lasuzzo
Agreements. Without in any way limiting the generality of the foregoing, each
shareholder of Indian hereby waives, releases and extinguishes any and all
rights and options which each shareholder has or may have to purchase shares
from Indian or shares held by any other shareholder or to require Indian or any
other shareholder to first offer to sell shares to Indian or the shareholders,
or otherwise with respect to the offer, purchase or sale of shares, except any
such rights as may be contained in the certificate of incorporation or bylaws of
Indian, or in the Lasuzzo Agreements. The Lasuzzo Agreements shall mean (i) the
Stock Rights Certificate between Indian and Lasuzzo dated April 1, 1999; and
(ii) the letter agreement dated September 29, 1999 between Richard R. Dunning
and Lasuzzo.

      6.02     Approval and Adoption of Agreements.  The execution and delivery
               -----------------------------------
by Indian and the shareholders of Indian of this Agreement and the Coral/Indian
Merger Agreement and the documents to be delivered on or before the Closing
pursuant to such agreements ("Indian Closing Documents") have been duly and
validly authorized by all the necessary corporate actions of Indian, including
approval by Indian's shareholders.  Assuming the due authorization, execution
and delivery by each of the other parties hereto, and the binding effect
thereon, this Agreement and the Coral/Indian Merger Agreement constitute, and
the Indian Closing Documents when executed and delivered by Indian and Indian's
shareholders will constitute, legal, valid and binding obligations of Indian and
Indian's shareholders enforceable against them in accordance with their
respective terms.

                                  ARTICLE VII
              REPRESENTATIONS AND WARRANTIES OF CANAAN SECURITIES

     As a material part of the consideration for this Agreement, except as
disclosed in the Disclosure Schedule specifically referring to this Article VII,
Canaan Securities represents and warrants to the other parties hereto as of the
date of this Agreement and as of the Closing Date as follows:

      7.01     Organization, Standing and Qualification.  Canaan Securities is a
               ----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.  Canaan Securities has all requisite corporate power
and authority to carry on its business as now being conducted and to own, lease
or operate its properties as and in the places where such business is now
conducted and such properties are now owned, leased or operated.   Canaan
Securities is qualified and in good standing to do business in all states in
which the nature of its business requires it to be qualified.

      7.02     Execution, Delivery and Performance of Agreement; Authority.
               -----------------------------------------------------------
Canaan Securities has full corporate power and authority to enter into this
Agreement, perform its obligations hereunder and to consummate the transactions
contemplated hereby.  The execution, delivery and

                                      -11-
<PAGE>

performance of this Agreement by Canaan Securities will not, with or without the
giving of notice or the passage of time, or both, conflict with, result in a
default, right to accelerate or loss of rights under, or result in the creation
of any lien, charge or encumbrance pursuant to, any provision of Canaan
Securities' certificate of incorporation or bylaws or any franchise, mortgage,
deed of trust, lease, license, agreement, understanding, or to the knowledge of
Canaan Securities, any law, ordinance, rule or regulation or any order, judgment
or decree to which Canaan Securities is a party or by which it may be bound or
affected. The execution and delivery by Canaan Securities of this Agreement and
the documents to be delivered by Canaan Securities on or before Closing pursuant
to this Agreement ("Canaan Securities Closing Documents") have been duly and
validly authorized by all necessary corporate actions of Canaan Securities,
including all of its shareholders. Assuming the due authorization, execution and
delivery by each of the other parties, and the binding effect thereon, this
Agreement constitutes, and the Canaan Securities Closing Documents when executed
and delivered by Canaan Securities will constitute, legal, valid and binding
obligations of Canaan Securities enforceable against it in accordance with their
respective terms.

      7.03     Capitalization.  The authorized capital stock of Canaan
               --------------
Securities consists of 1,000 shares of common stock, par value $0.01 per share,
of which 500 shares are issued and outstanding as of the date hereof.  Except as
set forth in the Disclosure Schedule, there are no outstanding subscriptions,
options, warrants, calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements of any character or nature
whatsoever under which Canaan Securities may become obligated to issue, assign,
transfer or repurchase any shares of the capital stock or other equity interest
of  Canaan Securities.  All of the Canaan Securities Common Stock outstanding
has been validly issued and is fully paid and nonassessable.

      7.04     Financial Statements.  Canaan Securities has furnished or made
               --------------------
available to the other parties hereto (i) its audited consolidated financial
statements for each of the fiscal years in the three-year period ended December
31, 1998, including balance sheets as of the end of 1997 and 1998 and statements
of income, cash flows and shareholders' equity for each of the three years then
ended (collectively, the "Canaan Securities Audited Financial Statements") and
(ii) its unaudited balance sheet as of September 30, 1999 (the "Canaan
Securities Unaudited Interim Balance Sheet") and unaudited statements of income,
cash flows and shareholders' equity for the nine month period ended September
30, 1999 (collectively the "Canaan Securities Unaudited Interim Financial
Statements.") (The Canaan Securities Audited Financial Statements and the Canaan
Securities Unaudited Interim Financial Statements are sometimes collectively
referred to herein as the "Canaan Securities Financial Statements").  The Canaan
Securities Financial Statements which are incorporated into this Agreement for
all purposes are complete and correct in all material respects, have been
prepared in accordance with GAAP; provided, however, that the Canaan Securities
Unaudited Interim Financial Statements are subject to normal year-end
adjustments (which will not be material individually or in the aggregate) and
lack footnotes.

      7.05     Absence of Undisclosed Liabilities.  Canaan Securities has  no
               ----------------------------------
material liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become

                                      -12-
<PAGE>

due, including liability for Taxes), except for (i) liabilities set forth on the
face of the Canaan Securities Financial Statements, (ii) liabilities which have
arisen after the date of the Canaan Securities Unaudited Interim Balance Sheet
in the ordinary course of business and consistent with past experience and
practice, and (iii) liabilities under this Agreement.

      7.06     Absence of Material Adverse Effect Since Interim Balance Sheet
               --------------------------------------------------------------
Date.  Since September 30, 1999, no event has occurred that would have a
----
Material Adverse Effect on Canaan Securities.

      7.07     Compliance with Laws, Material Agreements and Permits.  Canaan
               -----------------------------------------------------
Securities is not in violation of, or in default in any material respect under,
and no event has occurred that (with notice or the lapse of time or both) would
constitute a violation of or default under, (i) its articles of incorporation or
by-laws, (ii) any applicable law, rule, regulation, order, writ, decree or
judgment of any Governmental Authority, or (iii) any agreement to which Canaan
Securities is a party or to which any of their respective assets is subject or
bound, except (in the case of clause (ii) and (iii) above) for any violation or
default that would not, individually or in the aggregate, have a Material
Adverse Effect on Canaan Securities.  Canaan Securities has obtained and holds
all permits, licenses, variances, exemptions, orders, franchises, approvals and
authorizations of all Governmental Authorities necessary for the lawful conduct
of its business or the lawful ownership, use and operation of its assets
("Canaan Securities Permits"), except for Canaan Securities Permits which the
failure to obtain or hold would not, individually or in the aggregate, have a
Material Adverse Effect on Canaan Securities.  Canaan Securities is in
compliance with the terms of its Canaan Securities Permits, except where the
failure to comply would not, individually or in the aggregate, have a Material
Adverse Effect on Canaan Securities.  No investigation or review by any
Governmental Authority with respect to Canaan Securities is pending or, to the
knowledge of Canaan Securities, threatened, other than those the outcome of
which would not, individually or in the aggregate, have a Material Adverse
Effect on Canaan Securities.

                                  ARTICLE VIII
               REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIPS

     As a material part of the consideration for this Agreement, except as
disclosed in the Disclosure Schedule specifically referring to this Article
VIII, the Partnerships represent and warrant to the other parties hereto as of
the date of this Agreement and as of the Closing Date as follows:

      8.01     Organization, Standing and Qualification.  The Partnerships are
               ----------------------------------------
limited partnerships duly organized, validly existing and in good standing under
the laws of the State of Oklahoma.  The Partnerships have all requisite power
and authority to carry on their businesses as now being conducted and to own,
lease or operate its properties as and in the places where such businesses are
now conducted and such properties are now owned, leased or operated.   The
Partnerships are qualified and in good standing to do business in all states in
which the nature of their businesses requires them to be qualified.

                                      -13-
<PAGE>

      8.02     Execution, Delivery and Performance of Agreement; Authority.  The
               -----------------------------------------------------------
Partnerships have full power and authority to enter into this Agreement, perform
their obligations hereunder and to consummate the transactions contemplated
hereby.  The execution, delivery and performance of this Agreement by the
Partnerships will not, with or without the giving of notice or the passage of
time, or both, conflict with, result in a default, right to accelerate or loss
of rights under, or result in the creation of any lien, charge or encumbrance
pursuant to, any provision of the Partnerships' respective partnership
agreements or any franchise, mortgage, deed of trust, lease, license, agreement,
understanding, or to the knowledge of the General Partners of the Partnerships,
any law, ordinance, rule or regulation or any order, judgment or decree to which
any of the Partnerships are a party or by which they may be bound or affected.
The execution and delivery by the Partnerships of this Agreement and the
documents to be delivered by the Partnerships on or before Closing pursuant to
this Agreement (the "Partnership Closing Documents") have been duly and validly
authorized by all necessary actions of the General Partners of the Partnerships,
subject to receipt of necessary approval of the limited partners.  Assuming the
due authorization, execution and delivery by each of the other parties, and the
binding effect thereon, this Agreement constitutes, and the Partnership Closing
Documents when executed and delivered by the General Partners of the Partnership
will constitute, legal, valid and binding obligations of the Partnerships
enforceable against them in accordance with their respective terms.

      8.03     Capitalization.  Except as set forth in the Disclosure Schedule,
               --------------
there are no outstanding subscriptions, options, warrants, calls, contracts,
demands, commitments, convertible securities or other agreements or arrangements
of any character or nature whatsoever under which the Partnerships may become
obligated to issue, assign, transfer or repurchase any partnership interests of
the Partnership.

      8.04     Financial Statements.  The General Partners of the Partnerships
               --------------------
have furnished or made available to the other parties hereto (i) their audited
consolidated financial statements for each of the fiscal years in the three-year
period ended December 31, 1998, including balance sheets as of the end of 1997
and 1998 and statements of income, cash flows and shareholders' equity for each
of the three years then ended (collectively, the "Partnership Audited Financial
Statements") and (ii) their unaudited balance sheet as of September 30, 1999
(the "Partnership Unaudited Interim Balance Sheet") and unaudited statements of
income, cash flows and shareholders' equity for the nine month period ended
September 30, 1999 (collectively the "Partnership Unaudited Interim Financial
Statements.") (The Partnership Audited Financial Statements and the Partnership
Unaudited Interim Financial Statements are sometimes collectively referred to
herein as the "Partnership Financial Statements").  The Partnership Financial
Statements which are incorporated into this Agreement for all purposes are
complete and correct in all material respects, have been prepared in accordance
with GAAP; provided, however, that the Partnership Unaudited Interim Financial
Statements are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack footnotes.

                                      -14-
<PAGE>

      8.05     Absence of Undisclosed Liabilities.  The Partnerships have  no
               ----------------------------------
material liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due, including liability for
Taxes), except for (i) liabilities set forth on the face of the Partnership
Financial Statements,  (ii) liabilities which have arisen after the date of the
Partnership Unaudited Interim Balance Sheet in the ordinary course of business
and consistent with past experience and practice, and (iii) liabilities under
this Agreement.

      8.06     Absence of Material Adverse Effect Since Interim Balance Sheet
               --------------------------------------------------------------
Date.  Since September 30, 1999, no event has occurred that would have a
----
Material Adverse Effect on a Partnership.

      8.07     Compliance with Laws, Material Agreements and Permits.  The
               -----------------------------------------------------
Partnerships are not in violation of, or in default in any material respect
under, and no event has occurred that (with notice or the lapse of time or both)
would constitute a violation of or default under, (i) their respective
certificates of limited partnership, (ii) any applicable law, rule, regulation,
order, writ, decree or judgment of any Governmental Authority, or (iii) any
agreement to which the Partnerships are a party or to which any of their
respective assets are subject or bound, except (in the case of clause (ii) and
(iii) above) for any violation or default that would not, individually or in the
aggregate, have a Material Adverse Effect on any of the Partnerships.  The
General Partners of the Partnerships have obtained and hold all permits,
licenses, variances, exemptions, orders, franchises, approvals and
authorizations of all Governmental Authorities necessary for the lawful conduct
of their businesses or the lawful ownership, use and operation of their assets
("Partnership Permits"), except for Partnership Permits which the failure to
obtain or hold would not, individually or in the aggregate, have a Material
Adverse Effect on the Partnerships.  The Partnerships are in compliance with the
terms of their Partnership Permits, except where the failure to comply would
not, individually or in the aggregate, have a respective Material Adverse Effect
on any of the Partnerships.  No investigation or review by any Governmental
Authority with respect to any of the Partnerships is pending or, to the
knowledge of the General Partners of the Partnerships, threatened, other than
those the outcome of which would not, individually or in the aggregate, have a
respective Material Adverse Effect on any of the Partnerships.

                                   ARTICLE IX
                     REPRESENTATIONS AND WARRANTIES OF CEC

     As a material part of the consideration for this Agreement, except as
disclosed in the Disclosure Schedule specifically referring to this Article IX,
CEC represents and warrants to the other parties hereto as of the date of this
Agreement and as of the Closing Date that its representations and warranties in
the Coral/Indian Merger Agreement are true and correct, taking into
consideration any materiality, knowledge or other similar standards in the
Coral/Indian Merger Agreement, and further represents and warrants as follows:

                                      -15-
<PAGE>

      9.01     Capitalization.  The authorized capital stock of CEC consists of
               --------------
(i) 50,000,000 shares of common stock, par value $0.01 per share, of which 632
shares are issued and outstanding as of the date hereof, and (ii) 1,000,000
shares of preferred stock, par value $0.01 per share, none of which are
outstanding.  Except as set forth in the Disclosure Schedule, there are no
outstanding subscriptions, options, warrants, calls, contracts, demands,
commitments, convertible securities or other agreements or arrangements of any
character or nature whatsoever under which CEC may become obligated to issue,
assign, transfer or repurchase any shares of the capital stock or other equity
interest of  CEC.  All of the CEC Common Stock outstanding has been validly
issued and is fully paid and nonassessable.  All of the CEC Common Stock
issuable pursuant to this Agreement shall when issued be validly issued, fully
paid and nonassessable.

      9.02     Acquisition Subs.  Each of the Acquisition Subs will be prior to
               ----------------
the Effective Time validly existing and in good standing under the laws of
Oklahoma and 100% owned by CEC.



                                   ARTICLE X
                                   COVENANTS

      10.01    Access to Records and Properties; Operation of the Business.
               -----------------------------------------------------------
Except to the extent limited by agreement with third parties, between the date
of this Agreement and the Closing Date, the Coral Companies, Indian, and the
Partnerships shall continue to comply with the provisions of Section 5 of the
Coral/Indian Merger Agreement.  Canaan Securities shall give CEC full access to
all its respective premises, properties and books and records and will cause its
employees, agents and representatives to furnish CEC with financial and
operating data and other information with respect to Canaan Securities as CEC
from time to time reasonably requests.  Except as required by law, all
information furnished pursuant hereto shall not be disclosed without the consent
of Canaan Securities and shall be kept confidential from all third parties.  In
the event of any termination of this Agreement, CEC will return all documents,
work papers and other materials (including all copies thereof) obtained pursuant
hereto and in connection with the transactions contemplated hereby, and after
such termination (i) will use all reasonable efforts to keep confidential any
information obtained pursuant to this Agreement, except to the extent required
by law or unless such information is readily ascertainable from public or
published information or trade sources, and (ii) will not use any of the
information obtained in connection with the transactions contemplated by this
Agreement, except in connection with such transactions.  From the date hereof to
the Closing Date, except to the extent that CEC shall otherwise consent, Canaan
Securities hereto shall operate its business substantially as presently operated
and only in the ordinary course, and, consistent with such operation, shall use
its best efforts to preserve intact their respective present business
organizations and relationships with persons having dealings with them. The
provisions of this Section 10.01 shall be read to be consistent with and in
addition to any other agreements by, among or between the parties hereto
relating to restrictions on the operation of their respective businesses.

                                      -16-
<PAGE>

      10.02    Announcements.  All pre-Closing and post-Closing press releases,
               -------------
and other public announcements with respect to this Agreement and the
transactions contemplated by this Agreement shall be approved by CEC prior to
the issuance thereof.

      10.03    Shareholder and Director Approval. By execution hereof, all of
               ---------------------------------
the shareholders and directors of CEC, Coral Corp., Coral, Inc., Indian and
Canaan Securities, do hereby consent to and approve of this Agreement and all
transactions related thereto and all such respective corporate transactions
required to give effect to such consent and approval.

      10.04    Indian Shareholder Debt.  On or before the Closing Date, all
               -----------------------
indebtedness of Indian to its shareholders or their affiliates (other than
Indco, L.L.C.) will be canceled, which will be considered as partial or full
debt forgiveness or contributions to capital of Indian by each shareholder or
their affiliates (other than Indco, L.L.C.), any of whom may be issued such
additional shares of common stock of Indian at such prices for each dollar of
debt contributed or forgiven immediately before the Closing of the Share
Acquisition as the shareholders of Indian or their affiliates may agree, so that
such shares will be taken into consideration in dividing the shares of CEC to be
delivered to the shareholders of Indian.  On or before the Closing Date, the
obligations of Indco, L.L.C. to Indian will be distributed as a dividend so that
Indco will have no further obligation to Indian.  CEC will use its best efforts
to cause any existing obligation of Indian to Indco, L.L.C. for funds advanced
to Indian to be paid in full on or before the Closing, but if Indian is unable
to do so, Indco agrees that such obligation may be satisfied by CEC delivering
additional shares of CEC Common Stock valued at the Indian Exchange Value per
share.

      10.05    Amendment of Coral/Indian Merger Agreement.  By execution of this
               ------------------------------------------
Agreement, the parties agree to the following amendments to the Coral/Indian
Merger Agreement:

               (a) the March 1, 2000 date contained in Section 1.14(d)(ii) shall
     be amended to be September 1, 2000;

               (b) The word "less" in the third sentence of Section 1.01 is
     amended to be "plus" for purposes of calculating the adjustment to Indian's
     Exchange Value caused by the payment of the Contingent Production Payment;
     and

               (c) The last sentence of Section 1.04 requiring Indian to
     maintain $750,000 in Net Working Capital is deleted.

Otherwise, the Coral/Indian Merger Agreement shall remain in full force and
effect except to the extent of any inconsistency between this Agreement and the
Coral/Indian Merger Agreement, in which event this Agreement shall control.

                                      -17-
<PAGE>

      10.06    Securities Law Matters.
               ----------------------

               (a) All the parties hereto shall cooperate with CEC in its prompt
     preparation of the S-4 Registration Statement. CEC shall file the S-4
     Registration Statement as soon as practicable after the Execution Date
     hereof.  CEC shall use its best efforts, and the other parties hereto shall
     cooperate with CEC, to have the Registration Statement declared effective
     under the Securities Act as promptly as practicable after such filing.

               (b) CEC will cause the S-4 Registration Statement (including the
     Prospectus) at the time it becomes effective under the Securities Act, to
     comply as to form in all material respects with the applicable provision of
     the Securities Act, the Exchange Act and the Rules and Regulations of the
     SEC thereunder.  CEC will comply with all provisions of the Securities Act,
     the Exchange Act and the Rules and Regulations of the SEC thereunder, and
     all applicable state securities laws in connection with the transactions
     contemplated by this Agreement.

      10.07    Agreements of Affiliates.  At least 30 days prior to the
               ------------------------
Effective Time, all the parties hereto shall cause to be prepared and delivered
to CEC a list identifying all Persons who, at the time of the Effective Time,
may be deemed to be "affiliates" of such parties as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act.  All such parties
shall use their best efforts to cause each Person who is identified as an
affiliate of such party in such list to execute and deliver to CEC, on or prior
to the Closing Date, a written agreement, in the form attached hereto as Exhibit
                                                                         -------
10.07 (if such Person has not executed and delivered an agreement) substantially
-----
to the same effect contemporaneously with the execution of this Agreement.  CEC
shall be entitled to place legends as specified in such agreements on the CEC
Certificates representing any Common Stock to be issued to such Persons in the
Combination Transactions.

      10.08    Restrictions on CEC Common Stock.  At the Effective Time, the
               --------------------------------
shareholders of the Coral Companies, and Canaan Securities and certain
shareholders of Indian shall enter into an agreement in substantially the form
set forth in Exhibit 10.08 hereto restricting such shareholders' ability to
             -------------
sell, transfer and acquire shares of CEC Common Stock and granting each such
shareholder certain rights regarding such shares of CEC Common Stock as
contemplated by the Coral/Indian Merger Agreement.

      10.09    Canaan Securities Intra-Company Indebtedness.  At or before the
               --------------------------------------------
Effective Time, the sole shareholder of Canaan Securities shall repay all the
indebtedness due to Canaan Securities from the sole shareholder, and as of the
Effective Time, there shall be no indebtedness due from Canaan Securities to, or
to Canaan Securities from, any of the officers, directors, employees, agents or
its sole shareholder, or any relative of any such persons, or any trust,
corporation or other entity in which any such persons or any relatives of such
persons has any interest (collectively, "Related Parties"), other than amounts
due from Canaan Securities to employees for salary, bonuses or expenses
reflected in the financial statements of Canaan Securities or arising after the
date thereof

                                      -18-
<PAGE>

in the ordinary course of business. All indebtedness due to Canaan Securities
from any of the Related Parties shall be paid in full prior to the Effective
Time.

      10.10    Release of  Guarantees.  At the Closing, CEC shall cause the
               ----------------------
release of the personal guarantees and pledges or security agreements of Cibola
Corporation, Indco and the shareholders of Indian and the Coral Companies with
respect to any bank debt of Indian, the Coral Companies or the Partnerships.  At
the Closing, CEC shall also cause the release of any security interests in the
notes of Indco, L.L.C. to Indian.

      10.11    Cancellation of Canaan Securities Agreements. At the Closing, all
               --------------------------------------------
of the dealer manager agreements between the Partnerships and Canaan Securities
shall be canceled and terminated and CEC agrees to issue to the Placing Brokers
shares of CEC Common Stock and cash calculated as described in the Prospectus to
satisfy the obligations of Canaan Securities to the Placing Brokers under the
terms of its existing selling agreements with the Placing Brokers.

      10.12    Reports under the Securities Exchange Act of 1934.  With a view
               -------------------------------------------------
to making available to all persons who may be deemed to be "affiliates" as that
term is used in Paragraphs (c) and (d) of Rule 145 under the Securities Act the
benefits of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the SEC that may at any time permit such affiliates to sell CEC
Common Stock to the public without registration, CEC agrees to (i) file with the
SEC in a timely manner all reports and other documents required of the SEC under
the Securities Act and the Exchange Act and (ii) furnish to any such affiliate,
forthwith upon request (a) a written statement by CEC that it has complied with
the reporting requirements of Rule 144 and the Exchange Act; (b) a copy of the
most recent annual or quarterly report of CEC and such other reports or
documents so filed by CEC; and (c) such other information as may be reasonably
requested in availing any such affiliate of any rule or regulation of the SEC
which permits the selling of any such securities without registration.

      10.13    Indemnification.  CEC shall, to the fullest extent permitted
               ---------------
under applicable law, indemnify and hold harmless, each present and former
director or officer of Indian against all costs and expenses (included
reasonable attorneys fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the Effective
Time), whether civil, administrative or investigative, arising out of or
pertaining to any claim or action by any limited partners of any of the
Partnerships relating to the transactions contemplated by this Agreement;
provide, however, that CEC shall not be liable for any amounts in connection
with any settlement effected by any indemnified party without CEC's prior
written consent (which consent shall not be unreasonably withheld).  Without
limiting the foregoing, in the event of any such claim, action, suit, proceeding
or investigation, CEC shall pay the fees and expenses of counsel selected by any
such indemnified party, which counsel shall be reasonably satisfactory to CEC,
promptly after statements therefor are received (unless CEC shall elect to
defend such action).  If CEC shall elect to defend any such action and so long
as CEC diligently continues to defend, CEC shall have the right to control the
investigation, defense and/or settlement of each such action or matter, at its
cost and expense,

                                      -19-
<PAGE>

including use of counsel of its choice reasonably satisfactory to the
indemnified party; provided, however, that CEC will consult with the indemnified
party and take the views of the indemnified party into consideration in
effecting or rejecting any settlement; provided, further, that if both CEC and
any indemnified party are parties to any litigation, such indemnified party
shall be entitled to retain separate counsel if there are actual or potential
conflicts of interest between such indemnified party and CEC at CEC's cost and
expense; provided, further, that CEC shall not entered into any settlement of
any action or matter that does not include a complete and unconditional release
of such indemnified party, without the prior written consent of such indemnified
party which consent shall not be unreasonably withheld. CEC and any indemnified
party shall cooperate with each other in connection with the investigation and
defense of any action or matter for which indemnification is provided under this
Section. The obligation of CEC under this Section 10.13 shall not be terminated
or modified in such manner as to adversely affect any indemnified party without
the consent of the affected indemnified party (it being expressly agreed that
each such indemnified party shall be a third party beneficiary of this Section
10.13).

                                   ARTICLE XI
                                   CONDITIONS

      11.01    Conditions to Obligations of all Parties.  In addition to the
               ----------------------------------------
conditions contained in the Coral/Indian Merger Agreement, all obligations of
each of the parties hereto at the Closing are subject to the fulfillment by each
of the parties hereto of each of the following conditions at or prior to the
Closing, any of which may be waived in whole or in part by the party to whom
such condition benefits, and in such cases where multiple parties benefit from a
condition to be waived, each such party must agree to waive such condition:

               (a) Representations and Warranties.  All representations and
                   ------------------------------
      warranties of each of the parties hereto which are contained herein or in
      any document delivered pursuant hereto shall be true and correct in all
      material respects when made and as of the Closing.

               (b) Covenants, Agreements and Obligations. All covenants,
                   -------------------------------------
      agreements and obligations required by the terms of this Agreement to be
      performed by each of the parties hereto at or before the Closing shall
      have been properly performed in all material respects.

               (c) Delivery of Documents.  All documents, certificates or other
                   ---------------------
      instruments required to be delivered to each party hereto at or prior to
      the Closing shall have been so delivered.

               (d) Certificates of Existence and Good Standing. Each of the
                   -------------------------------------------
      parties hereto shall have delivered to the other parties hereto
      certificates of existence and good standing with respect to each entity
      issued by the Secretary of State of their respective states of
      organization dated no earlier than ten (10) business days prior to the
      Closing Date, and reflecting that each entity is in existence and is in
      good standing, has filed all required franchise tax returns and has paid
      all required franchise taxes, and reflecting all instruments

                                      -20-
<PAGE>

      filed of record with respect to each such entity to the date of such
      certificate in the office of such Secretary of State. Each such entity
      also shall deliver a certificate or letter of good standing with respect
      to each other state where any of such entities are qualified to do
      business as a foreign corporation reflecting that such corporation has
      paid all required franchise taxes and has filed all required franchise tax
      returns for all periods ending on or before the Closing Date.

          (e) Partnership Mergers Approval.  The Partnership Mergers shall have
              ----------------------------
     been duly and validly adopted as provided in Section 4.01.

          (f) Other Consents and Approvals.  All consents, approvals, permits
              ----------------------------
     and authorizations required to be obtained prior to the Closing from any
     Governmental Authority or other person in connection with the consummation
     of the transactions contemplated hereby shall have been obtained, made or
     waived, except where such failure to obtain such consents, approvals,
     permits, authorizations or waiver would not be reasonably likely to result
     in a Material Adverse Effect on any such entity, as the case may be
     (assuming the transactions contemplated hereby are consummated).

          (g) Pending Actions.  None of the parties hereto shall be subject to
              ---------------
     any writ, order, decree or injunction of a court of competent jurisdiction
     which prohibits or restricts the consummation of the transactions
     contemplated hereby or any pending or threatened action seeking such relief
     or seeking damages as a result thereof.

          (h) S-4 Registration Statement Effectiveness.  The S-4 Registration
              ----------------------------------------
     Statement shall have been declared effective by the SEC under the
     Securities Act and shall be effective at the Effective Time, and no stop
     order suspending such effectiveness shall have been issued, no action,
     suit, proceeding or investigation by SEC to suspend such effectiveness
     shall have been initiated and be continuing, and all necessary approvals
     under state securities law, if any, relating to the issuance or trading of
     CEC Common Stock to be issued pursuant to this Agreement shall have been
     received.

          (i) NASDAQ Listing.  The shares of CEC Common Stock issued in the
              --------------
     Combination Transactions shall have been authorized for listing on the
     NASDAQ National Market, subject to official notice of issuance.

          (j) Limitation on Cash Available for Dissenting and Cash Electing
              -------------------------------------------------------------
     Partners.  No more than $5,000,000 shall be required for the payment of
     --------
     Dissenting Partners or Cash Electing Partners as set forth in Article IV.

                                      -21-
<PAGE>

                                  ARTICLE XII
                                  TERMINATION

      12.01    Termination of Agreement.  Notwithstanding anything herein to the
               ------------------------
contrary, this Agreement and the transactions contemplated hereby may be
terminated and abandoned at any time prior to the Closing in the following
manner:

               (a) By the mutual written consent of the parties hereto;

               (b) By any party hereto, through written notice to the other
     parties hereto, if there has been a material breach by any other party
     hereto of any representation or warranty set forth in or incorporated by
     reference into this Agreement, or if, on the Closing Date, any condition
     set forth in Article XI has not been satisfied or waived; or

               (c) By any party after September 1, 2000.

               Upon receipt of written notice of termination, pursuant to
     paragraph (b) above, the breaching or nonperforming party shall have a
     period of five (5) business days to cure the breach or remedy, cure,
     perform or fulfill the condition which has not been satisfied or waived.

      12.02    Obligations Upon Termination.  In the event of termination of
               ----------------------------
this Agreement pursuant to the terms and provisions hereof, each party shall
return all books, records, maps, files, papers and other property in such
party's possession to the party entitled thereto, whereupon this Agreement shall
become void, except as provided herein and no party shall have any character of
liability to the other parties hereunder, including any liability for damages;
provided that in the event of termination because of breach of or default under
a representation, warranty, covenant or agreement contained herein, the party
not in breach or default shall have and retain all rights afforded to it under
this Agreement or the Coral/Indian Merger Agreement and in law or at equity by
reason of such breach or default.

                                  ARTICLE XIII
                                    CLOSING

      13.01    Time and Place.  The closing of the transactions contemplated
               --------------
hereby (the "Closing") shall take place at the offices of Crowe & Dunlevy, 1800
Mid-America Tower, 20 North Broadway, Oklahoma City, Oklahoma, as soon as
practicable after each of the conditions set forth in Article XI has been
satisfied or waived by the party or parties entitled to the benefit of such
conditions on or before Closing.

      13.02    Certificates of Acquisition and Exchanges.  On the Closing Date,
               -----------------------------------------
subject to the provisions of this Agreement: (i) properly executed certificates
of acquisition and merger for the Share Acquisition and the Partnership Mergers
shall be filed with the Secretary of State of Oklahoma

                                      -22-
<PAGE>

in accordance with the OGCA and the ORULPA, to be effective on the Closing Date
and CEC shall cause its shares to be issued (or cash paid to Cash Electing
Partners and Placing Brokers) in accordance with the terms of this Agreement;
and (ii) the shares of Canaan Securities shall be exchanged for shares of CEC
Common Stock as contemplated by Article III and the shares of CEC shall be
reclassified as contemplated by Section 2.06.

      13.03    Further Assurances.  At any time and from time to time after the
               ------------------
Closing, at CEC's request and without additional consideration, any party hereto
will execute and deliver such other instruments of sale, transfer, conveyance,
assignment and confirmation and take such action as CEC may deem reasonably
necessary or desirable in order to more effectively transfer, convey and assign
to CEC, and to confirm CEC's title to, all of the Coral, Inc. Shares, the Coral
Corp. shares, the Indian shares, the Canaan Securities shares, and the interests
in the Partnerships and to assist CEC in exercising all rights with respect
thereto, including the exclusive right to use the corporate names and other
trademarks and service marks used, owned or reserved by any of the parties
hereto.

      13.04    Concurrent Conditions.  The performance or tender of performance
               ---------------------
of all matters applicable to a party at the Closing under this Agreement shall
be deemed concurrent conditions and no party shall be required to perform, or
tender performance of, the obligations of such party hereunder unless,
coincident therewith, each other party for whom performance is required under
this Agreement performs or tenders performance of its obligations hereunder.

                                  ARTICLE XIV
                               GENERAL PROVISIONS

      14.01    Nonsurvival of Representations, Warranties and Covenants.  Except
               --------------------------------------------------------
for the provisions of Sections 2.05, 4.04, 4.05, 4.06, 10.01, 10.12, 10.13,
12.02, 13.02 and 13.03 and 14.09, the representations, warranties, covenants and
agreements made by each of the parties hereto shall not survive, and shall be
terminated and extinguished by the Closing.

      14.02    Entire Agreement; Amendment and Waiver.  This Agreement, together
               --------------------------------------
with all Exhibits and Schedules attached hereto and all agreements and
instruments to be executed and delivered by the parties pursuant hereto, is
intended to supplement the Coral/Indian Merger Agreement, except as otherwise
specifically provided for herein, and, except as so limited by the first part of
this sentence, contains the entire agreement between the parties relating to the
subject matter hereof and supersedes any other prior agreement,  arrangement or
understanding between the parties regarding the subject matter hereof. No
representation, warranty, covenant, obligation, promise, inducement or statement
of intention has been made by any of the parties which is not expressed in this
Agreement or the Coral/Indian Merger Agreement.  This Agreement may be amended
or changed only by written instrument duly executed by all the parties hereto,
and any alleged amendment or change which is not so documented shall not be
effective as to the parties.  Except as expressly provided herein to the
contrary, provisions of this Agreement may be waived only by the party(ies)
hereto who is entitled to the benefit thereof by evidencing such waiver in
writing, executed by such party(ies).  Except to the extent waiver or
satisfaction is deemed to exist by the

                                      -23-
<PAGE>

express terms of this Agreement, the failure of any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed to
be a waiver of any such provision, nor in any to affect the validity of this
Agreement or any part thereof or the right of any party thereafter to enforce
each and every provision. No waiver of any breach of this Agreement shall be
held to be a waiver of any other or subsequent breach.

      14.03    Severability.  This Agreement is intended to be performed in
               ------------
accordance with and only to the extent permitted by all applicable legal
requirements.  If any provision of this Agreement or the application thereof to
any person or circumstance shall for any reason and to any extent, be invalid or
unenforceable, then the performance of such offending provision shall be excused
by the parties hereto, but the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby, but rather shall be enforced to the greatest extent permitted by law.

      14.04    Applicable Law.  This Agreement shall in all respects be governed
               --------------
by, and construed in accordance with, the substantive federal laws of the United
States and the internal laws of the State of Oklahoma (principles of conflict of
laws excluded).

      14.05    Assignment.  This Agreement may not be assigned by any party
               ----------
without the prior written consent of each other party hereto.  No such permitted
assignment shall alter any of the obligations of an assigning party under this
Agreement or release an assigning party from obligations of such party under
this Agreement.  Upon any such assignment, the assignee shall succeed to all
rights assigned to it by, and shall become bound by all of the obligations of,
the assigning party. Nothing in this Agreement is intended to confer upon any
person not a party hereto any rights, benefits or remedies under or by reason of
this Agreement.

      14.06    Notices.  All notices and other communications required or
               -------
permitted to be given pursuant to this Agreement shall be in writing and shall
be delivered personally, by overnight courier or by facsimile communication to
the number set forth below, or by first class mail, postage prepaid, certified
with return receipt requested, at the addresses set forth below.  Notice shall
be effective only if and when received by the addressee.  For purposes of
notice, the addresses of the parties shall be as follows:

If to Coral Companies:              c/o Leo E. Woodard
                                    119 North Robinson
                                    Suite 600
                                    Oklahoma City, Oklahoma  73102
                                    Phone: (405) 232-3222
                                    Fax:  (405) 232-2226

                                      -24-
<PAGE>

With Copies to:                     Michael M. Stewart, Esq.
                                    Crowe & Dunlevy
                                    1800 Mid-America Tower
                                    20 North Broadway
                                    Oklahoma City, Oklahoma  73102
                                    Phone:  (405) 235-7747
                                    Fax:  (405) 272-5238


If to Indian:                       Richard R. Dunning
                                    9400 North Broadway, Suite 800
                                    Oklahoma City, Oklahoma  73114
                                    Phone:  (405) 606-7737
                                    Fax:   (405) 606-7743

With a Copy to:                     Armand Paliotta, Esq.
                                    Hartzog Conger & Cason
                                    201 Robert S. Kerr Avenue
                                    Suite 1600
                                    Oklahoma City, Oklahoma  73102
                                    Phone:  (405) 235-7000
                                    Fax:  (405) 235-7329

If to Canaan Securities:            c/o Thomas H. Henson
                                    21 Locust Avenue
                                    Suite 2A
                                    New Canaan, Connecticut  06840
                                    Phone:  (203) 972-6277
                                    Fax:  (203) 972-6777

provided that each party shall have the right to change its address for notice,
and the person who is to receive notice hereunder, by the giving of fifteen (15)
days' prior written notice to the other parties hereto in the manner set forth
above.

      14.07    Incorporation of Exhibits and Schedules by Reference.  All
               ----------------------------------------------------
Exhibits and Schedules expressly referenced herein are hereby incorporated
herein for any and all purposes as a part of this Agreement, to the same extent
as if stated herein.

      14.08    Multiple Counterparts.  This Agreement will be executed in one or
               ---------------------
more counterparts, each of which shall be an original, but all of which shall
constitute but one instrument and shall be effective as to all parties executing
this Agreement, regardless of whether all shareholders of Indian execute this
Agreement.

                                      -25-
<PAGE>

      14.09    Expenses.   Each party shall be responsible for its own fees and
               --------
expenses, including fees and expenses of legal counsel, incurred in connection
with the negotiation of this Agreement and the consummation of the transactions
contemplated hereby; provided, however, if the Closing does not occur, Indian
shall not bear any of the expenses associated with this Agreement and the
Registration Statement and each Partnership's share of the transaction costs
shall be allocated (i) to the General Partners in proportion to their percentage
interest in the partnership operating costs plus a percentage equal to the
percentage of limited partners who abstain or vote to reject this Agreement; and
(ii) to the limited partners in proportion to the percentages of limited
partners who vote to approve this agreement.  As between the Partnerships,
Canaan Securities and CEC, transaction costs shall be shared based on their
relative Exchange Values as described in the Prospectus.

                           [Signatures on Next Page]

                                      -26-
<PAGE>

     IN WITNESS WHEREOF, this Plan of Combination and Agreement of Merger has
been duly executed and delivered as of the date first above written by the
parties or the authorized representatives of the parties hereto.

Canaan Energy Corporation,
  an Oklahoma corporation, f/k/a Coral
  Reserves Group, Ltd.

By:/s/ Leo E. Woodard
   --------------------------------------
Name:  Leo E. Woodard
Title: Chairman and CEO

  Shareholders:

  /s/ Leo E. Woodard
  ---------------------------------------
  Leo E. Woodard (300 shares / 47.5%)

  /s/ John Penton
  ---------------------------------------
  John Penton (300 shares / 47.5%)

  /s/ Michael S. Mewbourn
  ---------------------------------------
  Michael S. Mewbourn (32 shares / 5%)


Coral Reserves, Inc.,
  an Oklahoma corporation

By:/s/ Leo E. Woodard
  ---------------------------------------
Name:  Leo E. Woodard
Title:  President

  Shareholders:

  /s/ Leo E. Woodard
  ---------------------------------------
  Leo E. Woodard (500 shares / 47.5%)

  /s/ John Penton
  ---------------------------------------
  John Penton (500 shares / 47.5%)

  /s/ Michael S. Mewbourn
  ---------------------------------------
  Michael S. Mewbourn (53 shares / 5%)

                                      -27-
<PAGE>

Coral Reserves Energy Corporation,
  an Oklahoma corporation

By:/s/ Leo E. Woodard
  ---------------------------------------
Name:  Leo E. Woodard
Title:  President

  Shareholders:

  /s/ Leo E. Woodard
  ---------------------------------------
  Leo E. Woodard (500 shares / 47.5%)

  /s/ John Penton
  ---------------------------------------
  John Penton (500 shares / 47.5%)

  /s/ Michael S. Mewbourn
  ---------------------------------------
  Michael S. Mewbourn (53 shares / 5%)



Canaan Securities, Inc.,
  a Delaware corporation

By:/s/ Thomas H. Henson
  ---------------------------------------
Name:  Thomas H. Henson
Title:  President

  Shareholder:

  /s/ Thomas H. Henson
  ---------------------------------------
  Thomas H. Henson (500 shares / 100%)

                                      -28-
<PAGE>

Coral Reserves Natural Gas Income Fund 1990 Limited Partnership,
  an Oklahoma limited partnership ("1990")
Coral Reserves 1993 Institutional Limited Partnership,
  an Oklahoma limited partnership ("1993-I")
Coral Reserves 1996 Institutional Limited Partnership,
  an Oklahoma limited partnership ("1996-I")

  By:     Coral Reserves, Inc., an Oklahoma corporation
  Title:  General Partner of 1990, 1993-I and 1996-I Limited Partnerships

  By:/s/ Leo E. Woodard
     ------------------------------------
  Name:  Leo E. Woodard
  Title:  President of Coral Reserves, Inc.

Coral Reserves Natural Gas Income Fund 1991 Limited Partnership,
  an Oklahoma limited partnership ("1991")
Coral Reserves Natural Gas Income Fund 1992 Limited Partnership,
  an Oklahoma limited partnership ("1992")
Coral Reserves Natural Gas Income Fund 1993 Limited Partnership,
  an Oklahoma limited partnership ("1993")
Coral Reserves Energy Income Fund 1995 Limited Partnership,
  an Oklahoma limited partnership ("1995)
Coral Reserves Energy Income Fund 1996 Limited Partnership,
  an Oklahoma limited partnership ("1996")

  By:     Coral Reserves Energy Corporation, an Oklahoma corporation
  Title:  General Partner of 1991, 1992, 1993, 1995 and 1996 Limited
Partnerships


  By:/s/ Leo E. Woodard
     ------------------------------------
  Name:  Leo E. Woodard
  Title:   President of Coral Reserves Energy Corporation

                                      -29-
<PAGE>

Indian Oil Company,
  an Oklahoma corporation

By:/s/ Richard R. Dunning
   --------------------------------------
      Richard R. Dunning, Chief Executive Officer


Indco, L.L.C.

By:/s/ Richard R. Dunning
   --------------------------------------
       Richard R. Dunning, Manager


  Shareholders:

Dunning Family Limited Partnership

By: Dunning Management, L.L.C.

By:
   --------------------------------------
   Richard R. Dunning, Manager (_____ shares / _____%)


-----------------------------------------
Larry D. Hartzog (_____ shares / _____%)


-----------------------------------------
Michael C. Black, Trustee of the Michael C. Black Revocable Trust (_____ shares
/ ____%)


-----------------------------------------
Roger Graham  (_____ shares / ____%)


-----------------------------------------
Anthony Lasuzzo (_____ shares / ____%)


-----------------------------------------
Frank Harrison (_____ shares/ _____%)

                                      -30-
<PAGE>

                                 EXHIBIT 10.07

        Form of Affiliate Letter Addressed to Canaan Energy Corporation


Canaan Energy Corporation
119 North Robinson, Suite 600
Oklahoma City, Oklahoma 73102

Ladies and Gentlemen:

  I have been advised of the Plan of Combination dated as of ____________, 2000
(the "Agreement") by and between (i) Canaan Energy Corporation, an Oklahoma
corporation, f/k/a Coral Reserves Group, Ltd. ("Canaan"), (ii) Coral Reserves,
Inc., an Oklahoma corporation ("Coral, Inc."), (iii) Coral Reserves Energy
Corporation, an Oklahoma corporation ("Coral Corp.") ("CEC", Coral, Inc. and
Coral Corp are sometimes collectively referred to herein as the "Coral
Companies"), (iv) Indian Oil Company, an Oklahoma corporation ("Indian"), (v)
Canaan Securities, Inc., a Connecticut corporation ("Canaan Securities"), (vi)
Coral Reserves Natural Gas Income Fund 1990 Limited Partnership, an Oklahoma
limited partnership  ("1990"), (vii) Coral Reserves Natural Gas Income Fund 1991
Limited Partnership, an Oklahoma limited partnership ("1991"), (viii) Coral
Reserves Natural Gas Income Fund 1992 Limited Partnership, an Oklahoma limited
partnership ("1992"), (ix) Coral Reserves Natural Gas Income Fund 1993 Limited
Partnership, an Oklahoma limited partnership ("1993"), (x) Coral Reserves 1993
Institutional Limited Partnership, an Oklahoma limited partnership ("1993-I"),
(xi) Coral Reserves Energy Income Fund 1995 Limited Partnership, an Oklahoma
limited partnership ("1995"), (xii) Coral Reserves Energy Income Fund 1996
Limited Partnership, an Oklahoma limited partnership ("1996"); and (xiii) Coral
Reserves 1996 Institutional Limited Partnership, an Oklahoma limited partnership
("1996-I") (the entities listed in (ii)-(xii) are collectively referred to
herein as the "Combining Entities"), whereby the Combining Entities will be
merged with and into Canaan (the "Combination Transaction").  I also have been
advised that as of the date hereof I may be deemed to be an "affiliate" of one
or more of the Combining Entities, as the term "affiliate" is defined for
purposes of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act").  I have
been advised further that as a result of the Combination Transaction, I may
receive shares of Canaan Common Stock (the "Canaan Capital Stock"), in exchange
for shares of the Combining Entity or Entities owned by me.

  I represent, warrant and covenant to Canaan that in the event I receive any
Canaan Capital Stock as a result of the Combination Transaction:

     A.  I shall not make any sale, transfer or other disposition of the Canaan
     Capital Stock in violation of the Act or the Rules and Regulations.
<PAGE>

     B.  I have carefully read this letter and the Agreement and discussed its
     requirements and other applicable limitations upon my ability to sell,
     transfer or otherwise dispose of Canaan Capital Stock to the extent I
     believe necessary with my counsel.

     C.  I have been advised that the issuance of Canaan Capital Stock to me
     pursuant to the Combination Transaction will be registered with the
     Commission under the Act on a Registration Statement on Form S-4.  However,
     I have also been advised that, I may be deemed to have been an affiliate of
     one or more of the Combining Entities and the distribution by me of the
     Canaan Capital Stock has not been registered under the Act, I may not sell,
     transfer or otherwise dispose of Canaan Capital Stock issued to me in the
     Combination Transaction unless (i) such sale, transfer or other disposition
     has been registered under the Act, (ii) such sale, transfer or other
     disposition is made in conformity with the volume and other limitations of
     Rule 145 promulgated by the Commission under the Act, or (iii) in the
     opinion of counsel reasonably acceptable to Canaan, such sale, transfer or
     other disposition is otherwise exempt from registration under the Act.

     D.  I understand that Canaan is under no obligation to register the sale,
     transfer or other disposition of the Canaan Capital Stock by me or on my
     behalf under the Act or to take any other action necessary in order to make
     compliance with an exemption from such registration available.

     E.  I also understand that stop transfer instructions will be given to
     Canaan's transfer agent with respect to Canaan Capital Stock and that there
     will be placed on the certificates for the Canaan Capital Stock issued to
     me, or any substitutions therefor, a legend stating in the substance:

          "The securities represented by this certificate have been issued in  a
          transaction to which Rule 145 promulgated under the Securities Act of
          1933 applies and may only be sold or otherwise transferred in
          compliance with the requirements of Rule 145 or pursuant to a
          registration statement under said act or an exemption from such
          registration."

     F.  I also understand that unless the transfer by me of my Canaan Capital
     Stock has been registered under the Act or is a sale made in conformity
     with the provisions of Rule 145, Canaan reserves the right to put the
     following legend on the certificates issued to my transferee:

          "The shares represented by this certificate have not been registered
          under the Securities Act of 1933 and were acquired from a person who
          received such shares in a transaction to which Rule 145 promulgated
          under the Securities Act of 1933 applies.  The shares have been
          acquired by the holder not with a view to, or for resale in connection
          with, any distribution thereof within the meaning of Securities Act of
          1933 and may not be sold, pledged or otherwise

                                      -2-
<PAGE>

          transferred except in accordance with an exemption from the
          registration requirements of the Securities Act of 1933."

  By Canaan's acceptance of this letter, Canaan hereby agrees with me as
follows:

  For so long as and to the extent necessary to permit me to sell shares of
Canaan Capital Stock pursuant to Rule 145 under the Act, Canaan shall (a) use
its reasonable best efforts to (i) file, on a timely basis, all reports and data
required to be filed with the Commission by it pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended, and (ii) furnish to me upon request
a written statement as to whether Canaan has complied with such reporting
requirements during the 12 months preceding any proposed sale of Canaan Capital
Stock by me under Rule 145 and (b) otherwise use its reasonable best efforts to
permit such sales pursuant to Rule 145.

  It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if (a) the undersigned shall have delivered to Canaan a copy of a letter
from the staff of the Commission, or an opinion of counsel in form and substance
reasonably satisfactory to Canaan, to the effect that such legend is not
required for purposes of the Act or (b) a period of one (1) year shall have
elapsed following the date of consummation of the Combination Transaction.

                              Very truly yours,



                              By:
                                 --------------------------------------
                              Name:
                                   ------------------------------------


Accepted this ______ day of _________________, 2000 by

CANAAN ENERGY CORPORATION

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------


                                      -3-