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                                                                     EXHIBIT 4.4

                  CERTIFICATE OF DESIGNATIONS, PREFERENCES AND

                     RELATIVE RIGHTS AND LIMITATIONS OF THE

              __% CONVERTIBLE CUMULATIVE PREFERRED STOCK, SERIES C

               OF CONTANGO OIL & GAS COMPANY (THE "CORPORATION")

1.   Designation and Amount; Ranking.
     -------------------------------

     (a) There shall be created from the 125,000 shares of preferred stock, par
value $0.04 per share, of the Corporation authorized to be issued pursuant to
the Certificate of Incorporation, a series of preferred stock, designated as the
"__% Convertible Cumulative Preferred Stock, Series C" par value $0.04 per share
(the "Series C Preferred Stock"), and the number of shares of such series shall
be 92,000. Such number of shares may be decreased by resolution of the Board of
Directors; provided that no decrease shall reduce the number of shares of Series
C Preferred Stock to a number less than that of the shares of Series C Preferred
Stock then outstanding plus the number of shares issuable upon exercise of
options or rights then outstanding.

     (b) The Series C Preferred Stock will, with respect to dividend rights,
redemption rights or rights upon the liquidation, winding-up or dissolution of
the Corporation or otherwise rank (i) senior to all Junior Stock, (ii) on a
parity with all Parity Stock and (iii) junior to all Senior Stock.

2.   Definitions.  As used herein, the following terms shall have the following
     -----------
meanings:

     (a) "Accrued Dividends" shall mean, with respect to any share of Series C
Preferred Stock, as of any date, the accrued and unpaid dividends on such share
from and including the most recent Dividend Payment Date (or the Issue Date, if
such date is prior to the first Dividend Payment Date) to but not including such
date.

     (b) "Accumulated Dividends" shall mean, with respect to any share of Series
C Preferred Stock, as of any date, the aggregate accumulated and unpaid
dividends on such share from the Issue Date until the most recent Dividend
Payment Date on or prior to such date. There shall be no Accumulated Dividends
with respect to any share of Series C Preferred Stock prior to the first
Dividend Payment Date.

     (c) "AMEX" shall mean the American Stock Exchange.

     (d) "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.

     (e) "Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in Houston, Texas are authorized or required
by law or executive order to close.
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     (f) "Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Corporation, as amended from time to time.

     (g) "Change of Control" shall mean any of the following events:

         (i)   the sale, lease or transfer, in one or a series of related
               transactions, of all or substantially all of the Corporation's
               assets (determined on a consolidated basis) to any person or
               group (as that term is used in Section 13(d)(3) of the Exchange
               Act);

         (ii)  the adoption of a plan the consummation of which would result in
               the Corporation's liquidation or dissolution; or

         (iii) the acquisition, directly or indirectly, by any person or group
               (as that term is used in Section 13(d)(3) of the Exchange Act;
               provided that, the directors of the Corporation and their
               affiliates shall not be deemed to be a group solely by reason of
               the fact that they are all directors or affiliates of directors),
               of beneficial ownership (as defined in Rule 13d-3 under the
               Exchange Act) of more than 50% of the aggregate voting power of
               the Corporation's Voting Stock.

     (h) "Change of Control Date" shall mean the date on which the Change of
Control event occurs.

     (i) "Change of Control Option" shall have the meaning set forth in Section
4(a).

     (j) "Common Stock" shall mean the common stock, par value $0.04 per share,
of the Corporation, or any other class of stock resulting from successive
changes or reclassifications of such common stock consisting solely of changes
in par value, or from par value to no par value, or as a result of a
subdivision, combination, or merger, consolidation or similar transaction in
which the Corporation is a constituent corporation.

     (k) "Corporation" shall have the meaning set forth in the introduction.

     (l) "Conversion Price" shall mean $[____], subject to adjustment as set
forth in Section 7(c).

     (m) "Conversion Ratio" shall mean the quotient of the Liquidation
Preference divided by the Conversion Price in effect at the time of
determination.

     (n) "Conversion Shares" shall have the meaning set forth in Section
7(c)(ii).

     (o) "Dividend Payment Date" shall mean March 31, June 30, September 30 and
December 31 of each year, commencing September 30, 2002.

     (p) "Dividend Rate" shall have the meaning set forth in Section 3(a).

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     (q) "Dividend Record Date" shall mean a date fixed by the Board of
Directors, or a duly authorized committee thereof, for determining the Holders
who are entitled to receive dividends on a Dividend Payment Date. The Dividend
Record Date for a Dividend Payment Date shall be a date not less than 15 days
nor more than 45 days prior to the Dividend Payment Date.

     (r) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

     (s) "Expiration Date" shall have the meaning set forth in Section 4(b).

     (t) "Holder" or "holder" shall mean a holder of record of the Series C
Preferred Stock.

     (u) "Issue Date" shall mean the original date of issuance of the Series C
Preferred Stock.

     (v) "Junior Stock" shall mean the Common Stock and each other class of
capital stock or series of preferred stock established after the Issue Date, by
the Board of Directors, the terms of which do not expressly provide that such
class or series ranks senior to or on a parity with the Series C Preferred Stock
as to dividend rights, redemption rights or rights upon the liquidation,
winding-up or dissolution of the Corporation or otherwise.

     (w) "Liquidation Preference" shall mean, with respect to each share of
Series C Preferred Stock, $250 (as adjusted for stock splits, subdivisions,
combinations reclassifications and the like).

     (x) "Mandatory Conversion Date" shall have the meaning set forth in Section
8(b).

     (y) "Market Value" shall mean the average closing price of the Common Stock
for a five consecutive trading day period on the AMEX (or such other national
securities exchange or automated quotation system on which the Common Stock is
then listed or authorized for quotation) or, if the Common Stock is not so
listed or authorized for quotation, an amount determined in good faith by the
Board of Directors to be the fair value of the Common Stock.

     (z) "Officer" means the Chairman of the Board of Directors, the President,
any Vice President, the Treasurer, the Secretary or any Assistant Secretary of
the Corporation.

     (aa) "Parity Stock" shall mean any class of capital stock or series of
preferred stock established after the Issue Date by the Board of Directors, the
terms of which expressly provide that such class or series will rank on a parity
with the Series C Preferred Stock as to dividend rights, redemption rights or
rights upon the liquidation, winding-up or dissolution of the Corporation or
otherwise.

     (bb) "Person" shall mean any individual, corporation, general partnership,
limited partnership, limited liability partnership, joint venture, association,
joint-stock company, trust, limited liability company, unincorporated
organization or government or any agency or political subdivision thereof.

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     (cc) "SEC" or "Commission" shall mean the Securities and Exchange
Commission.

     (dd) "Securities Act" means the Securities Act of 1933, as amended.

     (ee) "Senior Stock" shall mean the Series A Preferred Stock, the Series B
Preferred Stock and each class of capital stock or series of preferred stock
established after the Issue Date by the Board of Directors, the terms of which
expressly provide that such class or series will rank senior to the Series C
Preferred Stock as to dividend rights, redemption rights or rights upon the
liquidation, winding-up or dissolution of the Corporation or otherwise.

     (ff) "Series A Preferred Stock" shall mean the Series A Senior Convertible
Cumulative Preferred Stock, par value $0.04 per share, of the Corporation.

     (gg) "Series B Preferred Stock" shall mean the Series B Senior Convertible
Cumulative Preferred Stock, par value $0.04 per share, of the Corporation.

     (hh) "Series C Preferred Stock" shall have the meaning set forth in Section
1(a).

     (ii) "Transaction" shall have the meaning set forth in Section 7(g).

     (jj) "Transfer Agent" shall mean The Bank of New York, the Corporation's
duly appointed transfer agent, registrar and conversion and dividend disbursing
agent for the Series C Preferred Stock. The Corporation may, in its sole
discretion, remove the Transfer Agent with ten days' prior notice to the
Transfer Agent; provided, that the Corporation shall appoint a successor
Transfer Agent who shall accept such appointment prior to the effectiveness or
such removal.

     (kk) "Voting Rights Class" shall have the meaning set forth in Section
5(a)(i).

     (ll) "Voting Rights Triggering Event" shall mean any time at which the
Corporation has failed to pay, in full, the equivalent of six quarterly
dividends payable on the Series C Preferred Stock (whether or not declared or
consecutive).

     (mm) "Voting Stock" shall mean, with respect to any Person, securities of
any class or classes of Capital Stock in such Person entitling the holders
thereof (whether at all times or only so long as no senior class of stock has
voting power by reason of contingency) to vote in the election of members of the
Board of Directors or other governing body of such Person. For purposes of this
definition, "Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
corporate stock or partnership interests and any and all warrants, options and
rights with respect thereto (whether or not currently exercisable), including
each class of common stock and preferred stock of such Person.

3.   Dividends.
     ---------

  (a) The holders of shares of the outstanding Series C Preferred Stock shall be
entitled, when, as and if declared by the Board of Directors out of funds of the
Corporation legally available therefor, to receive cumulative cash dividends at
the rate per annum of [___]% per share on the Liquidation Preference (the
"Dividend Rate").  Dividends payable for each full

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dividend period will be computed by dividing the Dividend Rate by four and shall
be payable in arrears on each Dividend Payment Date (commencing September 30,
2002) for the quarterly period ending immediately prior to such Dividend Payment
Date, to the holders of record of Series C Preferred Stock at the close of
business on the Dividend Record Date applicable to such Dividend Payment Date.
Such dividends shall be cumulative from the most recent date as to which
dividends shall have been paid or, if no dividends have been paid, from the
Issue Date (whether or not in any dividend period or periods there shall be
funds of the Corporation legally available for the payment of such dividends)
and shall accrue on a day-to-day basis, whether or not earned or declared, from
and after the Issue Date. Dividends payable for any partial dividend period
shall be computed on the basis of actual days elapsed in the period and a
360-day year consisting of twelve 30- day months. Accumulations of dividends on
shares of Series C Preferred Stock shall not bear interest.

     (b) As long as any shares of Series A Preferred Stock or Series B Preferred
Stock remain outstanding, no dividend may be declared or paid or set apart for
payment on the Series C Preferred Stock unless at the time of such declaration
or payment or setting apart for payment:

         (i)   full cumulative dividends have been or contemporaneously are
               declared and paid in cash (or declared and a sum sufficient for
               payment set apart for such payment) on the Series A Preferred
               Stock and Series B Preferred Stock for all quarterly dividend
               periods for the Series A Preferred Stock and Series B Preferred
               Stock terminating on or prior to the Dividend Payment Date for
               the Series C Preferred Stock;

         (ii)  an amount equal to the dividends accrued on the Series A
               Preferred Stock and Series B Preferred Stock from the last
               dividend payment date for the Series A Preferred Stock and Series
               B Preferred Stock to the Dividend Payment Date for the Series C
               Preferred Stock has been declared and set apart in cash for
               payment on the Series A Preferred Stock and Series B Preferred
               Stock; and

         (iii) the dividend payment for the most recent quarterly dividend
               period on the Series A Preferred Stock and Series B Preferred
               Stock has been paid entirely in cash.

     (c) When dividends are not paid in full on the Series C Preferred Stock and
any Parity Stock, all dividends declared on the Series C Preferred Stock and any
Parity Stock shall be declared pro rata so that the amount of dividends declared
per share on the Series C Preferred Stock and such Parity Stock shall in all
cases bear to each other the same ratio that the accumulated and unpaid
dividends per share on the Series C Preferred Stock and such Parity Stock bear
to each other. Except as set forth in the preceding sentence, unless full
dividends on the Series C Preferred Stock have been paid for all past dividend
periods, no dividends (other than in Common Stock or other shares of Junior
Stock) shall be declared or paid or set aside for payment, nor shall any other
distribution be made, on the Common Stock, any other Junior Stock or any Parity
Stock.

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     (d) Unless full dividends on the Series C Preferred Stock have been paid,
or declared and a sum sufficient for payment thereof set apart for such payment,
for all past dividend periods, the Corporation may not redeem, repurchase or
otherwise acquire for any consideration (nor may the Corporation pay or make
available any moneys for a sinking fund for the redemption of) any shares of
Common Stock, any Junior Stock or any Parity Stock except by conversion into or
exchange for shares of Junior Stock.

     (e) Holders shall not be entitled to any dividends on the Series C
Preferred Stock, whether payable in cash, property or stock, in excess of full
cumulative dividends.

     (f) The Holders at the close of business on a Dividend Record Date will be
entitled to receive the dividend payment on those shares on the corresponding
Dividend Payment Date notwithstanding the subsequent conversion thereof or the
Corporation's default in payment of the dividend due on that Dividend Payment
Date. However, shares of Series C Preferred Stock surrendered for conversion
pursuant to Section 7 during the period between the close of business on any
Dividend Record Date and the close of business on the day immediately preceding
the applicable Dividend Payment Date must be accompanied by payment of an amount
equal to the dividend payable on the shares on that Dividend Payment Date. A
Holder on a Dividend Record Date who (or whose transferee) tenders any shares
for conversion on the corresponding Dividend Payment Date will receive the
dividend payable by the Corporation on the Series C Preferred Stock on that
date, and the converting holder need not include payment in the amount of such
dividend upon surrender of shares of Series C Preferred Stock for conversion.
Except as provided above with respect to a voluntary conversion pursuant to
Section 7, the Corporation shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or for dividends on
the shares of Common Stock issued upon conversion.

4.   Change of Control.
     -----------------

     (a) Upon a Change of Control, each Holder shall, in the event that the
Market Value for the period ending on the Change of Control Date is less than
the Conversion Price, have a one-time option (the "Change of Control Option") to
convert all of such Holder's shares of Series C Preferred Stock into a number of
fully-paid and non-assessable shares of Common Stock equal to the Liquidation
Preference divided by an adjusted Conversion Price equal to the greater of:

         (i)   the Market Value for the period ending on the Change of Control
               Date; and

         (ii)  $____ (as adjusted for stock splits, subdivisions, combinations
               reclassifications and the like) [to be 66 2/3% of the recent
               Common Stock price set forth on the cover of the prospectus].

The Change of Control Option must be exercised, if at all, during a period of
not less than 30 days nor more than 60 days commencing on the third Business Day
after notice of the Change of Control has been given by the Corporation pursuant
to Section 4(b).

     (b) In the event of a Change of Control (other than a Change of Control
described in Section 4(f)), notice of such Change of Control shall be given,
within five Business Days of the

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Change of Control Date, by the Corporation by first-class mail to each Holder,
at such Holder's address as the same appears on the books of the Corporation or
its duly appointed Transfer Agent. Each such notice shall state (i) that a
Change of Control has occurred; (ii) the last day on which the Change of Control
Option may be exercised (the "Expiration Date") pursuant to the terms hereof;
(iii) the name and address of the Transfer Agent; and (iv) the procedures that
Holders must follow to exercise the Change of Control Option.

     (c) On or before the Expiration Date, each Holder wishing to exercise the
Change of Control Option shall surrender the certificate or certificates
representing the shares of Series C Preferred Stock to be converted, in the
manner and at the place designated in the notice described in Section 4(b), and
on such date the cash or shares of Common Stock due to such Holder shall be
delivered to the Person whose name appears on such certificate or certificates
as the owner thereof and the shares represented by each surrendered certificate
shall be returned to authorized but unissued shares. Upon surrender (in
accordance with the notice described in Section 4(b)) of the certificate or
certificates representing any shares to be so converted (properly endorsed or
assigned for transfer, if the Corporation shall so require and the notice shall
so state), such shares shall be converted by the Corporation at the adjusted
Conversion Price, if applicable, as described in Section 4(a).

     (d) The rights of Holders pursuant to this Section 4 are in addition to,
and not in lieu of, the rights of Holders provided for in Section 7 hereof.

     (e) In lieu of issuing the shares of Common Stock issuable upon conversion
of shares of Series C Preferred Stock in the event of a Change of Control, the
Corporation may, at its option, make a cash payment equal to the Market Value
determined for the period ending on the Change of Control Date for each share of
Common Stock that would otherwise be issuable. Any such cash payment shall be
treated as a redemption of the Series C Preferred Stock for purposes of all
rights and preferences of the holders of Senior Stock applicable to redemptions
of Series C Preferred Stock.

     (f) Notwithstanding the foregoing, upon a Change of Control in which (i)
each holder of Common Stock receives consideration consisting solely of common
stock of the successor, acquirer or other third party (and cash paid in lieu of
fractional shares) that is listed on a national securities exchange or quoted on
the NASDAQ National Market and (ii) all of the Common Stock has been exchanged
for, converted into or acquired for common stock of the successor, acquirer or
other third party (and cash in lieu of fractional shares), and the Series C
Preferred Stock becomes convertible solely into such common stock, the
Conversion Price will not be adjusted as described in Section 4(a).

5.   Voting Rights.
     -------------

     (a) The shares of Series C Preferred Stock shall have no voting rights
except as set forth below or as otherwise required by Delaware law from time to
time:

         (i)   If and whenever at any time or times a Voting Rights Triggering
               Event occurs, Holders (voting as a class with all other series of
               Parity Stock having similar rights to elect a director that are
               then exercisable) (the

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               "Voting Rights Class") will be entitled, at the next annual or
               special meeting of stockholders, to elect one additional director
               of the Corporation. Upon the election of such director, the
               number of directors constituting the Board of Directors will be
               increased by one.

         (ii)  Such voting rights may be exercised at a special meeting of the
               holders of the shares of the Voting Rights Class, called as
               hereinafter provided, or at any annual meeting of stockholders
               held for the purpose of electing directors, and thereafter at
               each such annual meeting until such time as all dividends in
               arrears on the shares of Series C Preferred Stock shall have been
               paid in full, at which time or times such voting rights and the
               term of the director elected pursuant to Section 5(a)(i) shall
               terminate and the number of directors constituting the Board of
               Directors will be reduced by one.

         (iii) At any time when such voting rights shall have vested in holders
               of shares of the Voting Rights Class, an Officer of the
               Corporation may call, and, upon written request of the record
               holders of shares representing at least twenty-five percent (25%)
               of the voting power of the shares then outstanding of the Voting
               Rights Class, addressed to the Secretary of the Corporation,
               shall call a special meeting of the holders of shares of the
               Voting Rights Class. Such meeting shall be held at the earliest
               practicable date upon the notice required for annual meetings of
               stockholders at the place for holding annual meetings of
               stockholders of the Corporation, or, if none, at a place
               designated by the Board of Directors. Notwithstanding the
               provisions of this Section 5(a)(iii), no such special meeting
               shall be called during a period within the 60 days immediately
               preceding the date fixed for the next annual meeting of
               stockholders in which such case, the election of directors
               pursuant to Section 5(a)(i) shall be held at such annual meeting
               of stockholders.

         (iv)  At any meeting held for the purpose of electing directors at
               which the holders of the Voting Rights Class shall have the right
               to elect directors as provided herein, the presence in person or
               by proxy of the holders of shares representing more than fifty
               percent (50%) in voting power of the then outstanding shares of
               the Voting Rights Class shall be required and shall be sufficient
               to constitute a quorum of such class for the election of
               directors by such class. The affirmative vote of the holders of
               shares of the Voting Rights Class constituting a majority of the
               shares of the Voting Rights Class present at such meeting, in
               person or by proxy, shall be sufficient to elect any such
               director.

         (v)   Any director elected pursuant to the voting rights created under
               this Section 5(a) shall hold office until the next annual meeting
               of stockholders (unless such term has previously terminated
               pursuant to Section 5 (a)(ii)) and any vacancy in respect of any
               such director shall be filled only by the holders of shares of
               the Voting Rights Class at a special meeting called in

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               accordance with the procedures set forth in this Section 5, or,
               if no such special meeting is called, at the next annual meeting
               of stockholders. Upon any termination of such voting rights, the
               term of office of any director elected pursuant to this Section 5
               shall terminate.

         (vi)  So long as any shares of Series C Preferred Stock remain
               outstanding, unless a greater percentage shall then be required
               by law, the affirmative vote or consent of the holders of at
               least a majority of the outstanding shares of the Series C
               Preferred Stock, voting as a single class, shall be required to
               (i) authorize or issue any shares of, or any securities
               convertible into shares of, any class or series of Senior Stock,
               including any additional shares of Series A Preferred Stock or
               Series B Preferred Stock (whether or not issued in the form of a
               dividend on such shares), or (ii) amend or repeal any provision
               of or add any provision to, the Certificate of Incorporation if
               that action would adversely alter or change the rights,
               preferences or privileges of the Series C Preferred Stock.

         (vii) In exercising the voting rights set forth in this Section 5(a),
               each share of Series C Preferred Stock shall be entitled to one
               vote.

     (b) The Corporation may authorize, increase the authorized amount of, or
issue any shares of Parity Stock or Junior Stock, without the consent of the
holders of Series C Preferred Stock, and in taking such actions the Corporation
shall not be deemed to have affected adversely the rights, preferences,
privileges or voting rights of Holders.

6.   Liquidation Preference.
     ----------------------

     (a) In the event of any liquidation, winding-up or dissolution of the
Corporation, whether voluntary of involuntary, each Holder shall be entitled to
receive and to be paid out of the assets of the Corporation available for
distribution to its stockholders the Liquidation Preference plus Accumulated
Dividends and Accrued Dividends thereon in preference to the holders of, and
before any payment or distribution is made on, any Junior Stock, including,
without limitation, on any Common Stock.

     (b) Neither the sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all the assets
or business of the Corporation (other than in connection with the liquidation,
winding-up or dissolution of its business) nor the merger or consolidation of
the Corporation into or with any other Person shall be deemed to be a
liquidation, winding-up or dissolution, voluntary or involuntary, for the
purposes of this Section 6.

     (c) After the payment to the Holders of full preferential amounts provided
for in this Section 6, the Holders as such shall have no right or claim to any
of the remaining assets of the Corporation.

     (d) In the event the assets of the Corporation available for distribution
to the Holders upon any liquidation, winding-up or dissolution of the
Corporation, whether voluntary or involuntary, shall be insufficient to pay in
full all amounts to which such holders are entitled

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pursuant to Section 6(a), no such distribution shall be made on account of any
shares of Parity Stock upon such liquidation, winding-up or dissolution unless
proportionate distributable amounts shall be paid on account of the shares of
Series C Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all Series C Preferred Stock and of any Parity
Stock are entitled upon such liquidation, winding-up or dissolution.

     (e) Upon any voluntary or involuntary liquidation, winding-up or
dissolution of the Corporation, Holders will not be entitled to receive any
liquidating distributions until all amounts payable upon any such event to
holders of outstanding shares of Series A Preferred Stock, Series B Preferred
Stock and any other class or series of Senior Stock have been paid in full.

7.   Conversion Rights.
     -----------------

     (a) Each Holder shall have the right, at its option, exercisable at any
time and from time to time from the Issue Date to convert, subject to the terms
and provisions of this Section 7, any or all of such Holder's shares of Series C
Preferred Stock. In such case, the shares of Series C Preferred Stock shall be
converted into such whole number of fully paid and nonassessable shares of
Common Stock as is equal, subject to Section 7(g), to the product of the number
of shares of Series C Preferred Stock being so converted multiplied by the
Conversion Ratio then in effect. The conversion right of a Holder shall be
exercised by the Holder by the surrender to the Corporation of the certificates
representing shares to be converted at any time during usual business hours at
its principal place of business or the offices of its duly appointed Transfer
Agent to be maintained by it, accompanied by duly executed written notice to the
Corporation in that the Holder elects to convert all or a portion of the shares
of Series C Preferred Stock represented by such certificate and specifying the
name or names (with address) in which a certificate or certificates for shares
of Common Stock are to be issued and (if so required by the Corporation or its
duly appointed Transfer Agent) by a written instrument or instruments of
transfer in form reasonably satisfactory to the Corporation or its duly
appointed Transfer Agent duly executed by the Holder or its duly authorized
legal representative and transfer tax stamps or funds therefor, if required
pursuant to Section 7(i). Immediately prior to the close of business on the date
of receipt by the Corporation or its duly appointed Transfer Agent of notice of
conversion of shares of Series C Preferred Stock, each converting Holder shall
be deemed to be the Holder of record of Common Stock issuable upon conversion of
such Holder's Series C Preferred Stock notwithstanding that the share register
of the Corporation of its duly appointed Transfer Agent shall then be closed or
that certificates representing such Common Stock shall not then be actually
delivered to such Holder. Upon notice from the Corporation, each Holder of
Series C Preferred Stock so converted shall promptly surrender to the
Corporation, at any place where the Corporation shall maintain a Transfer Agent,
certificates representing the shares so converted, duly endorsed in blank or
accompanied by proper instruments of transfer. On the date of any conversion,
all rights with respect to the shares of Series C Preferred Stock so converted,
including the rights, if any, to receive notices, will terminate, except only
the rights of Holders thereof to (i) receive dividends on the shares of Series C
Preferred Stock so converted in accordance with Section 3(f); (ii) receive
certificates for the number of whole shares of Common Stock into which such
shares of Series C Preferred Stock have been converted and cash, in lieu of any
fractional shares as provided in Section 7(f); and (iii) exercise the rights to
which they are entitled as holders of Common Stock.

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<PAGE>

     (b) If the last day for the exercise of the conversion right shall not be a
Business Day, then such conversion right may be exercised on the next preceding
Business Day.

     (c) The Conversion Price shall be subject to adjustment as follows:

         (i)   In case the Corporation shall at any time or from time to time
               (A) pay a dividend (or other distribution) on the Common Stock
               payable in shares of Common Stock (other than the issuance of
               shares of Common Stock in connection with the conversion of the
               Series A Preferred Stock, the Series B Preferred Stock, the
               Series C Preferred Stock or any other series of preferred stock
               of the Corporation that is convertible into Common Stock); (B)
               subdivide or split the outstanding shares of Common Stock into a
               larger number of shares; (C) combine the outstanding shares of
               Common Stock into a smaller number of shares; or (D) issue any
               shares of its capital stock in a reclassification of the Common
               Stock, then, and in each such case, the Conversion Price in
               effect immediately prior to such event shall be adjusted (and any
               other appropriate actions shall be taken by the Corporation) so
               that the Holder of any share of Series C Preferred Stock
               thereafter surrendered for conversion shall be entitled to
               receive the number of shares of Common Stock that such Holder
               would have owned or would have been entitled to receive upon or
               by reason of any of the events described above, had such share of
               Series C Preferred Stock been converted into shares of Common
               Stock immediately prior to the occurrence of such event. An
               adjustment made pursuant to this Section 7(c)(i) shall become
               effective retroactively (x) in the case of any such dividend or
               distribution, to the day immediately following the close of
               business on the record date for the determination of holders of
               Common Stock entitled to receive such dividend or distribution or
               (y) in the case of any such subdivision, split, combination or
               reclassification, to the close of business on the day upon which
               such corporate action becomes effective.

         (ii)  In case the Corporation shall at any time or from time to time
               issue to all holders of its Common Stock rights, options or
               warrants entitling the holders thereof to subscribe for or
               purchase shares of Common Stock (or securities convertible into
               or exchangeable for shares of Common Stock) at a price per share
               less than the Market Value for the period ending on the date of
               issuance (treating the price per share of any security
               convertible, or exchangeable or exercisable into Common Stock as
               equal to (A) the sum of the price paid to acquire such security
               convertible, exchangeable or exercisable into Common Stock plus
               any additional consideration payable (without regard to any
               anti-dilution adjustments) upon the conversion, exchange or
               exercise of such security into Common Stock divided by (B) the
               number of shares of Common Stock into which such convertible,
               exchangeable or exercisable security is initially convertible,
               exchangeable or exercisable), other than (I) issuances of such
               rights, options or warrants if the Holder would be entitled to
               receive such rights, options or warrants upon conversion at any
               time of shares of Series C Preferred Stock into

                                      -11-
<PAGE>

               Common Stock and (II) issuances that are subject to certain
               triggering events (until such time as such triggering events
               occur), then, and in each such case, the Conversion Price then in
               effect shall be adjusted by dividing the Conversion Price in
               effect on the day immediately prior to the record date of such
               issuance by a fraction (y) the numerator of which shall be the
               sum of the number of shares of Common Stock outstanding on such
               record date plus the number of additional shares of Common Stock
               issued or to be issued upon or as a result of the issuance of
               such rights, options or warrants (or the maximum number into or
               for which such convertible or exchangeable securities initially
               may convert or exchange or for which such options, warrants or
               other rights initially may be exercised) and (z) the denominator
               of which shall be the sum of the number of shares of Common Stock
               outstanding on such record date plus the number of shares of
               Common Stock which the aggregate consideration for the total
               number of such additional shares of Common Stock so issued (or
               into or for which such convertible or exchangeable securities may
               convert or exchange or for which such options, warrants or other
               rights may be exercised plus the aggregate amount of any
               additional consideration initially payable upon the conversion,
               exchange or exercise of such security) would purchase at the
               Market Value for the period ending on the date of conversion;
               provided, that if the Corporation distributes rights or warrants
               (other than those referred to above in this subparagraph (c)(ii))
               pro rata to the holders of Common Stock, so long as such rights
               or warrants have not expired or been redeemed by the Corporation,
               (y) the holder of any Series C Preferred Stock surrendered for
               conversion shall be entitled to receive upon such conversion, in
               addition to the shares of Common Stock then issuable upon such
               conversion (the "Conversion Shares"), a number of rights or
               warrants to be determined as follows: (i) if such conversion
               occurs on or prior to the date for the distribution to the
               holders of rights or warrants of separate certificates evidencing
               such rights or warrants (the "Distribution Date"), the same
               number of rights or warrants to which a holder of a number of
               shares of Common Stock equal to the number of Conversion Shares
               is entitled at the time of such conversion in accordance with the
               terms and provisions applicable to the rights or warrants and
               (ii) if such conversion occurs after the Distribution Date, the
               same number of rights or warrants to which a holder of the number
               of shares of Common Stock into which such Series C Preferred
               Stock was convertible immediately prior to such Distribution Date
               would have been entitled on such Distribution Date had such
               Series C Preferred Stock been converted immediately prior to such
               Distribution Date in accordance with the terms and provisions
               applicable to the rights and warrants, and (z) the Conversion
               Price shall not be subject to adjustment on account of any
               declaration, distribution or exercise of such rights or warrants.

         (iii) In case the Corporation shall at any time or from time to time
               (A) make a pro rata distribution to all holders of shares of its
               Common Stock consisting exclusively of cash (excluding any cash
               distributed upon a

                                      -12-
<PAGE>

               merger or consolidation to which paragraph (g) below applies),
               that, when combined together with (x) all other such all-cash
               distributions made within the then-preceding 12 months in respect
               of which no adjustment has been made and (y) any cash and the
               fair market value of other consideration paid or payable in
               respect of any tender offer by the Corporation or any of its
               subsidiaries for shares of Common Stock concluded within the
               then-preceding 12 months in respect of which no adjustment
               pursuant to this Section 7(c) has been made, in the aggregate
               exceeds 10% of the Corporation's market capitalization (defined
               as the product of the Market Value for the period ending on the
               record date of such distribution times the number of shares of
               Common Stock outstanding on such record date) on the record date
               of such distribution; (B) complete a tender or exchange offer by
               the Corporation or any of its subsidiaries for shares of Common
               Stock that involves an aggregate consideration that, together
               with (I) any cash and other consideration payable in a tender or
               exchange offer by the Corporation or any of its subsidiaries for
               shares of Common Stock expiring within the then-preceding 12
               months in respect of which no adjustment pursuant to this Section
               7(c) has been made and (II) the aggregate amount of any such
               all-cash distributions referred to in clause (A) above to all
               holders of shares of Common Stock within the then-preceding 12
               months in respect of which no adjustments have been made, exceeds
               10% of the Corporation's market capitalization on the expiration
               of such tender offer; or (C) make a distribution to all holders
               of its Common Stock consisting of evidences of indebtedness,
               shares of its capital stock other than Common Stock or assets
               (including securities, but excluding those dividends, rights,
               options, warrants and distributions referred to in paragraph
               (c)(i) or (c)(ii) above or clause (A) of this paragraph
               (c)(iii)), then, and in each such case, the Conversion Price then
               in effect shall be adjusted by dividing the Conversion Price in
               effect immediately prior to the date of such distribution or
               completion of such tender or exchange offer, as the case may be,
               by a fraction (x) the numerator of which shall be the Market
               Value for the period ending on the record date referred to below,
               or, if such adjustment is made upon the completion of a tender or
               exchange offer, on the payment date for such offer, and (y) the
               denominator of which shall be such Market Value less the then
               fair market value (as determined by the Board of Directors of the
               Corporation) of the portion of the cash, evidences of
               indebtedness, securities or other assets so distributed or paid
               in such tender or exchange offer, applicable to one share of
               Common Stock (but such denominator shall not be less than one);
               provided, however, that no adjustment shall be made with respect
               to any distribution of rights to purchase securities of the
               Corporation if the Holder would otherwise be entitled to receive
               such rights upon conversion at any time of shares of Series C
               Preferred Stock into shares of Common Stock unless such rights
               are subsequently redeemed by the Corporation, in which case such
               redemption shall be treated for purposes of this Section

                                      -13-
<PAGE>

               7(c)(iii) as a dividend on the Common Stock. Such adjustment
               shall be made whenever any such distribution is made or tender or
               exchange offer is completed, as the case may be, and shall become
               effective retroactively to a date immediately following the close
               of business on the record date for the determination of
               stockholders entitled to receive such distribution.

         (iv)  Notwithstanding anything herein to the contrary, no adjustment
               under this Section 7(c) need be made to the Conversion Price
               unless such adjustment would require an increase or decrease of
               at least 1% of the Conversion Price then in effect. Any lesser
               adjustment shall be carried forward and shall be made at the time
               of and together with the next subsequent adjustment, if any,
               which, together with any adjustment or adjustments so carried
               forward, shall amount to an increase or decrease of at least 1%
               of such Conversion Price.

     (d) If the Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter (and before the dividend or distribution has
been paid or delivered to stockholders) legally abandon its plan to pay or
deliver such dividend or distribution, then thereafter no adjustment in the
Conversion Price then in effect shall be required by reason of the taking of
such record.

     (e) Upon any increase or decrease in the Conversion Price, then, and in
each such case, the Corporation promptly shall deliver to each Holder a
certificate signed by an authorized officer of the Corporation, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased
Conversion Price then in effect following such adjustment.

     (f) No fractional shares or securities representing fractional shares of
Common Stock shall be issued upon the conversion of any shares of Series C
Preferred Stock, whether voluntary or mandatory. If more than one share of
Series C Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate Liquidation Preference
of the shares of Series C Preferred Stock so surrendered. If the conversion of
any share or shares of Series C Preferred Stock results in a fraction, an amount
equal to such fraction multiplied by the last reported sale price of the Common
Stock on the AMEX (or on such other national securities exchange or automated
quotation system on which the Common Stock is then listed for trading or
authorized for quotation) or, if the Common Stock is not then so listed or
authorized for quotation, an amount determined in good faith by the Board of
Directors to be the fair value of the Common Stock at the close of business on
the trading day next preceding the day of conversion shall be paid to such
holder in cash by the Corporation.

     (g) In the event of any reclassification of outstanding shares of Common
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value), or in the event of any consolidation or merger
of the Corporation with or into another Person or any merger of another Person
with or into the Corporation (other than a consolidation or merger in which the
Corporation is the resulting or surviving Person and which does not result in
any reclassification or change of outstanding Common Stock), or in the event of
any sale or other

                                      -14-
<PAGE>

disposition to another Person of all or substantially all of the assets of the
Corporation (computed on a consolidated basis) (any of the foregoing, a
"Transaction"), each share of Series C Preferred Stock then outstanding shall,
without the consent of any Holder, become convertible at any time, at the option
of the Holder thereof, only into the kind and amount of securities (of the
Corporation or another issuer), cash and other property receivable upon such
Transaction by a holder of the number of shares of Common Stock into which such
share of Series C Preferred Stock could have been converted immediately prior to
such Transaction, after giving effect to any adjustment event. The provisions of
this Section 7(g) and any equivalent thereof in any such securities similarly
shall apply to successive Transactions. The provisions of this Section 7(g)
shall be the sole right of Holders in connection with any Transaction and such
Holders shall have no separate vote thereon.

     (h) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Series C Preferred Stock such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series C
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if at any time there shall be insufficient
unissued shares of Common Stock to permit such reservation or to permit the
conversion of all outstanding shares of Series C Preferred Stock.

     (i) The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Series C Preferred Stock shall be made without charge to
the converting holder of shares of Series C Preferred Stock for such
certificates or for any tax in respect of the issuance or delivery of such
certificates or the securities represented thereby, and such certificates shall
be issued or delivered in the respective names of, or in such names as may be
directed by, the Holders of the shares of Series C Preferred Stock converted;
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the Holder of the
shares of Series C Preferred Stock converted, and the Corporation shall not be
required to issue or deliver such certificate unless or until the Person or
Persons requesting the issuance or delivery thereof shall have paid to the
Corporation the amount of such tax or shall have established to the reasonable
satisfaction of the Corporation that such tax has been paid.

8.   Mandatory Conversion.
     --------------------

     (a) At any time on or after June 30, 2004, the Corporation shall have the
right, at its option, to cause the Series C Preferred Stock, in whole but not in
part, to be automatically converted into that number of whole shares of Common
Stock for each share of Series C Preferred Stock equal to the Conversion Ratio
then in effect, with any resulting fractional shares of Common Stock to be
settled in accordance with Section 7(f). The Corporation may exercise its right
to cause a mandatory conversion pursuant to this Section 8(a) only if the
closing price of the Common Stock equals or exceeds 130% of the Conversion Price
then in effect for at least 20 trading days in any consecutive 30-day trading
period on the AMEX (or another national securities exchange or the Nasdaq
National Market), including the last trading day of such 30-day period, ending
on the trading day prior to the Corporation's issuance of a press release
announcing the mandatory conversion as described in Section 8(b).

                                      -15-
<PAGE>

     (b) To exercise the mandatory conversion right described in Section 8(a),
the Corporation must issue a press release for publication on Business Wire or
an equivalent newswire service prior to the opening of business on the first
trading day following any date on which the conditions described in Section 8(a)
are met, announcing such a mandatory conversion. The Corporation shall also give
notice by mail or by publication (with subsequent prompt notice by mail) to the
Holders (not more than four Business Days after the date of the press release)
of the mandatory conversion announcing the Corporation's intention to convert
the Series C Preferred Stock. The conversion date will be a date selected by the
Corporation (the "Mandatory Conversion Date") and will be no more than five
Business Days after the date on which the Corporation issues the press release
described in this Section 8(b).

     (c) In addition to any information required by applicable law or
regulation, the press release and notice of a mandatory conversion described in
Section 8(b) shall state, as appropriate: (i) the Mandatory Conversion Date;
(ii) the number of shares of Common Stock to be issued upon conversion of each
share of Series C Preferred Stock and (iii) that dividends on the Series C
Preferred Stock to be converted will cease to accrue on the Mandatory Conversion
Date.

     (d) On and after the Mandatory Conversion Date, dividends will cease to
accrue on the Series C Preferred Stock called for a mandatory conversion
pursuant to Section 8(a) and all rights of Holders will terminate except for the
right to receive the whole shares of Common Stock issuable upon conversion
thereof and cash, in lieu of any fractional shares of Common Stock in accordance
with Section 7(f). The dividend payment with respect to the Series C Preferred
Stock called for a mandatory conversion pursuant to Section 8(a) on a date
during the period between the close of business on any Dividend Record Date to
the close of business on the corresponding Dividend Payment Date will be payable
on such Dividend Payment Date to the record holder of such share on such
Dividend Record Date if such share has been converted after such Dividend Record
Date and prior to such Dividend Payment Date. Except as provided in the
immediately preceding sentence with respect to a mandatory conversion pursuant
to Section 8(a), no payment or adjustment will be made upon conversion of Series
C Preferred Stock for Accrued Dividends or for dividends with respect to the
Common Stock issued upon such conversion.

     (e) The Corporation may not authorize, issue a press release or give notice
of any mandatory conversion pursuant to Section 8(a) unless, prior to giving the
conversion notice, all Accumulated Dividends on the Series C Preferred Stock for
periods ended prior to the date of such conversion notice shall have been paid
in cash in full.

     (f) In addition to the mandatory conversion right described in Section
8(a), if there are less than 9,200 shares of Series C Preferred Stock
outstanding, the Corporation shall have the right, at any time on or after June
30, 2006, at its option, to cause the Series C Preferred Stock, in whole but not
in part, to be automatically converted into that number of whole shares of
Common Stock equal to the quotient of (i) the Liquidation Preference divided by
(ii) the lesser of (A) the Conversion Price then in effect and (B) the Market
Value for the five trading day period ending on the second trading day
immediately prior to the Mandatory Conversion Date, with any resulting
fractional shares of Common Stock to be settled in cash in accordance with
Section 7(f). The provisions of clauses (b), (c), (d) and (e) of this Section 8
shall apply to any mandatory

                                      -16-
<PAGE>

conversion pursuant to this clause (f); provided that (i) the Mandatory
Conversion Date described in Section 8(b) shall not be less than 15 days nor
more than 30 days after the date on which the Corporation issues a press release
pursuant to Section 8(b) announcing such mandatory conversion and (ii) the press
release and notice of mandatory conversion described in Section 8(c) will not
state the number of shares of Common Stock to be issued upon conversion of each
share of Series C Preferred Stock, but instead will state the basis for
determining the number of shares of Common Stock to be issued as set forth in
this Section 8(f).

9.   Consolidation, Merger and Sale of Assets.
     ----------------------------------------

     (a) The Corporation, without the consent of the Holders, may consolidate
with or merge into any other Person or convey, transfer or lease all or
substantially all its assets to any Person or may permit any Person to
consolidate with or merge into, or transfer or lease all or substantially all
its properties to, the Corporation; provided, however, that (a) the successor,
transferee or lessee is organized under the laws of the United States or any
political subdivision thereof; (b) the shares of Series C Preferred Stock will
become shares of such successor, transferee or lessee, having in respect of such
successor, transferee or lessee the same powers, preferences and relative
participating, optional or other special rights and the qualification,
limitations or restrictions thereon, the Series C Preferred Stock had
immediately prior to such transaction; and (c) the Corporation delivers to the
Transfer Agent a certificate signed by two Officers and a written opinion from
legal counsel, who is acceptable to the Transfer Agent and may be an employee of
or counsel to the Corporation or the Transfer Agent, stating that such
transaction complies with this Certificate of Designation.

     (b) Upon any consolidation by the Corporation with, or merger by the
Corporation into, any other person or any conveyance, transfer or lease of all
or substantially all the assets of the Corporation as described in Section 9(a),
the successor resulting from such consolidation or into which the Corporation is
merged or the transferee or lessee to which such conveyance, transfer or lease
is made, will succeed to, and be substituted for, and may exercise every right
and power of, the Corporation under the shares of Series C Preferred Stock, and
thereafter, except in the case of a lease, the predecessor (if still in
existence) will be released from its obligations and covenants with respect to
the Series C Preferred Stock.

10.  Redemption.
     ----------

     (a) The Corporation may not redeem the shares of Series C Preferred Stock
prior to June 30, 2006. At any time on or after June 30, 2006 and prior to June
30, 2009, the Corporation may, at its option, redeem all, but not a portion, of
the shares of Series C Preferred Stock at a cash redemption price per share
equal to (i) 105% of the Liquidation Preference plus (ii) all Accumulated
Dividends and Accrued Dividends to the date of redemption. The date of
redemption shall be a date fixed by the Corporation not less than 30 nor more
than 60 days after the date of the press release referred to in Section 10(c).

     (b) At any time on or after June 30, 2009, the Corporation may, at its
option, redeem all, but not a portion, of the outstanding shares of Series C
Preferred Stock at a cash redemption price per share equal to the Liquidation
Preference plus all Accumulated Dividends and Accrued Dividends to the date of
redemption. The date of redemption shall be a date fixed by the

                                      -17-
<PAGE>

Corporation not less than 30 nor more than 60 days after the date of the press
release referred to in Section 10(c).

     (c) If the Corporation elects to redeem the Series C Preferred Stock in
accordance with either Section 10(a) or Section 10(b), it will notify the
Holders of its intention to redeem the Series C Preferred Stock by:

         (i)   issuing a press release on Business Wire or an equivalent
               newswire service indicating its intention to redeem the Series C
               Preferred Stock; and

         (ii)  mailing a notice of its intention to redeem the Series C
               Preferred Stock to all Holders.

     (d) In addition to any information required by applicable law, regulation
or stock exchange rule, the press release and notice of redemption will state:

         (i)   the redemption date;

         (ii)  the redemption price to be paid in respect of each share of
               Series C Preferred Stock;

         (iii) that dividends on the Series C Preferred Stock will cease to be
               payable on the redemption date, unless the Corporation defaults
               in making payment of any cash payable upon redemption;

         (iv)  that the option of holders of Series C Preferred Stock to convert
               shares of Series C Preferred Stock into Common Stock will
               terminate at the close of business on the Business Day
               immediately preceding the redemption date, unless the Corporation
               defaults in making payment of any cash payable upon redemption;

         (v)   the Conversion Price then in effect; and

         (vi)  that shares of Series C Preferred Stock must be surrendered to
               the Corporation or to the Transfer Agent in order to receive the
               redemption payment and the procedures for surrendering shares of
               Series C Preferred Stock.

     (e) Notice having been given as provided above, from and after the date
fixed for the redemption (unless the Corporation shall fail to make available
the money necessary to effect such redemption), the Holders shall cease to be
shareholders with respect to the Corporation's shares of Series C Preferred
Stock and shall have no interest in or claim against the Corporation by virtue
thereof and shall have no voting or other right with respect to such shares,
except the right to receive the moneys payable upon such redemption from the
Corporation, less any required tax withholding amount, without interest thereon,
upon surrender (and endorsement or assignment of transfer, if required by the
Corporation or the Transfer Agent and so stated in the notice) of their
certificates, and the shares represented thereby shall no longer be deemed to be
outstanding. The Corporation may, at its option, at any time after a notice of
redemption has

                                      -18-
<PAGE>

been given, deposit the redemption price for the shares of Series C Preferred
Stock, plus any Accumulated Dividends and Accrued Dividends thereon to the date
fixed for redemption, with the Transfer Agent, as a trust fund for the benefit
of the Holders, together with irrevocable instructions and authority to such
Transfer Agent that such funds be delivered upon redemption of such shares and
to pay, on and after the date fixed for redemption or prior thereto, the
redemption price of the shares to their respective Holders upon the surrender of
their share certificates. From and after the making of such deposit, the Holders
shall cease to be shareholders with respect to such shares and shall have no
interest in or claim against the Corporation by virtue thereof and shall have no
voting or other rights with respect to such shares, except the right to receive
from such trust fund the moneys payable upon such redemption, without interest
thereon, upon surrender (and endorsement, if required by the Corporation or the
Transfer Agent) of their certificates, and the shares represented thereby shall
no longer be deemed to be outstanding. Any balance of such moneys remaining
unclaimed at the end of the two-year period commencing on the date fixed for
redemption shall be repaid to the Corporation upon its request expressed in a
resolution of its Board of Directors.

     (f) The right of Holders to convert shares of Series C Preferred Stock will
terminate at the close of business on the Business Day immediately preceding the
redemption date, unless the Corporation defaults in making payment of any cash
payable upon redemption.

11.  Other Provisions.
     ----------------

     (a) With respect to any notice to a Holder required to be provided
hereunder, neither failure to mail such notice, nor any defect therein or in the
mailing thereof, to any particular holder shall affect the sufficiency of the
notice or the validity of the proceedings referred to in such notice with
respect to the other holders or affect the legality or validity of any
distribution, rights, warrant, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up, or the vote upon
any such action. Any notice which was mailed in the manner herein provided shall
be conclusively presumed to have been duly given whether or not the holder
receives the notice.

     (b) Shares of Series C Preferred Stock issued and reacquired will be
retired and canceled promptly after reacquisition thereof and, upon compliance
with the applicable requirements of Delaware law, have the status of authorized
but unissued shares of preferred stock of the Corporation undesignated as to
series and may with any and all other authorized but unissued shares of
preferred stock of the Corporation be designated or redesignated and issued or
reissued, as the case may be, as part of any series of preferred stock of the
Corporation, except that any issuance or reissuance of shares of Series C
Preferred Stock must be in compliance with this Certificate of Designation.

     (c) The shares of Series C Preferred Stock shall be issuable only in whole
shares.

     (d) All notice periods referred to herein shall commence on the date of the
mailing of the applicable notice.

                                      -19-<PAGE>

                                                                   EXHIBIT 10.20

                            OPTION PURCHASE AGREEMENT

     This Option Purchase Agreement (the "Agreement") is made and entered into
as of June 4, 2002, by and between Contango Sundance, Inc., a Delaware
corporation and its affiliates ("Contango") and Cheniere Energy, Inc., a
Delaware corporation and its affiliates ("Cheniere"), each a "party" and
collectively the "parties."

                                 R E C I T A L S

     A. Cheniere intends to form a limited partnership ("Freeport") for the
purpose of developing one or more LNG receiving and regasification facilities in
Freeport, Texas (the "Project").

     B. Contango desires to obtain from Cheniere, and Cheniere desires to grant
to Contango, an option, composed of two tranches (the First Option and the
Second Option, as defined herein), to acquire up to 20% of the partnership
interests of Freeport (the "Freeport Interests"), on a fully diluted basis, on
the terms and conditions set forth herein.

                                A G R E E M E N T

     NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:

1. Definitions.

     1.1     The following terms shall have meanings assigned to them below:

     1.1.1   "Agreement" shall have the meaning assigned to it in the
             introductory paragraph.

     1.1.2   "Cheniere" shall have the meaning assigned to it in the
             introductory paragraph.

     1.1.3   "Cheniere Additional Sale Notice" shall have the meaning assigned
             to it in Section 7.5

     1.1.4   "Cheniere Indemnified Parties" shall have the meaning assigned to
             it in Section 8.2.

     1.1.5   "Contango" shall have the meaning assigned to it in the
             introductory paragraph.

     1.1.6   "Contango Indemnified Parties" shall have the meaning assigned to
             it in Section 8.1.

     1.1.7   "Development Schedule" shall have the meaning assigned to it in
             Section 7.2.6.

<PAGE>

     1.1.8   "Financing Statements" shall have the meaning assigned to it in
             Section 3(a).

     1.1.9   "First Option" shall have meaning assigned to it in Section 2.

     1.1.10  "First Option Expiration Date" shall have the meaning assigned to
             it in Section 2.1.

     1.1.11  "First Option Price" shall have the meaning assigned to it in
             Section 2.2.1.

     1.1.12  "Freeport" and "Freeport Interests" shall have the meanings
             assigned to them in the Recitals.

     1.1.13  "Note" shall have the meaning assigned to it in Section 2.2.2.

     1.1.14  "Option Price" shall have the meaning assigned to it in Section 2.

     1.1.15  "Partnership Agreement" shall have the meaning assigned to it in
             Section 7.2.

     1.1.16  "Prepayment Amount" shall have the meaning assigned to it in
             Section 7.2.4(f).

     1.1.17  "Project" shall have the meaning assigned to it in the Recitals.
     1.1.18  "Second Option" shall have the meaning assigned to it in Section 2.

     1.1.19  "Second Option Expiration Date" shall have the meaning assigned to
             it in Section 2.3

     1.1.20  "Second Option Price" shall have the meaning assigned to it in
             Section 2.4.

     1.1.21  "Security Agreement" shall have the meaning assigned to it in
             Section 3(a).

2. Option to Purchase. Upon the terms and subject to the conditions set forth in
this Agreement, in exchange for a payment of $750,000 by Contango in immediately
available funds (the "Option Price"), Cheniere hereby grants Contango an
exclusive option (i) to purchase 10% of the Freeport Interests (the "First
Option") and (ii) to purchase an additional 10% of the Freeport Interests (the
"Second Option"), such that upon exercise of the Second Option Contango would
own 20% of the Freeport Interests on a fully diluted basis.

     2.1 First Option Term. The First Option shall be exercisable at any time on
     or prior to the First Option Expiration Date (as defined). The First Option
     shall expire (the "First Option Expiration Date") upon the earlier to occur
     of (i) December 15, 2002 and (ii) the date that is seven (7) days after
     Contango's receipt of a Cheniere Additional Sale Notice.
<PAGE>

2.2 First Option Price.

     2.2.1 The exercise price for the First Option (the "First Option Price")
           shall be One Million Five Hundred Thousand Dollars ($1,500,000),
           payable as follows:

           (a) Contango shall pay Cheniere the Option Price on the date of this
           Agreement, which amount shall be credited to the First Option Price;

           (b) the balance of $750,000 shall be paid by Contango on the date the
           First Option is exercised in immediately available funds; and

           (c) any amount payable pursuant to Section 7.2 hereof.

     2.2.2 Upon the expiration without exercise of the First Option in
           accordance with its terms, the Option Price shall be refunded,
           together with any applicable interest, to Contango on or before
           July 15, 2003 in accordance with the terms of the promissory note
           (the "Note") of Cheniere, attached hereto as Exhibit B.

2.3 Second Option Term. The Second Option shall become exercisable on the date
the First Option is exercised. The Second Option shall expire on the earlier to
occur of (i) the First Option Expiration Date if Contango fails to exercise the
First Option on or prior thereto or (ii) December 15, 2002, provided that if the
payment specified in Section 2.4(b)(i) has not been delivered to Cheniere, the
Second Option shall expire at the close of business on September 15, 2002 (such
date as applicable, the "Second Option Expiration Date").

2.4 Second Option Price. The price for the Second Option (the "Second Option
Price") shall be One Million Five Hundred Thousand Dollars ($1,500,000), payable
as follows:

           (a) if the Second Option is exercised prior to September 15, 2002,
           $1,500,000 (plus any amount required by Section 7.2) shall be paid by
           Contango on the date of exercise; and

           (b) if the Second Option is not exercised prior to September 15,
           2002, then (i) on September 15, 2002, Contango shall pay Cheniere
           $250,000 as a nonrefundable deposit on the Second Option Price and
           (ii) on the date the Second Option is exercised, Contango shall pay
           Cheniere $1,250,000 (plus any amount required by Section 7.2).

2.5 Method of Exercise; Option Closings. In the event Contango elects to
exercise the First Option and/or the Second Option, the purchase and sale of the
Freeport Interests covered thereby shall occur at one or more subsequent
closings as specified in the Option
<PAGE>

Exercise Notice (as defined below) or at such other time as Cheniere and
Contango mutually agree.

     2.5.1  Exercise of First Option. Contango shall exercise the First Option
            by delivering written notice of exercise (the "Option Exercise
            Notice") to Cheniere on or prior to the First Option Expiration
            Date, which notice shall specify the exercise date of such option
            which shall occur prior to the First Option Expiration Date. On the
            exercise date, a closing shall occur whereby (i) Contango shall
            deliver to Cheniere the payment set forth in Section 2.2.1(b) and
            (c) hereof, the Note and terminations of the Security Agreement and
            the Financing Statements along with a release as reasonably
            requested by Cheniere and (ii) the parties shall enter into a
            joinder to the Partnership Agreement (as defined below), admitting
            Contango as a partner in Freeport, owning a 10% partnership interest
            in Freeport, in accordance with the terms of this Agreement.

     2.5.2  Exercise of Second Option. Contango shall exercise the Second Option
            by delivering an Option Exercise Notice to Cheniere on or prior to
            the Second Option Expiration Date, which notice shall specify the
            exercise date of such option which shall occur prior to the Second
            Option Expiration Date. On the exercise date, a closing shall occur
            whereby (i) Contango shall deliver to Cheniere the payment set forth
            in Section 2.4(a) or 2.4(b) hereof, as applicable, and (ii) Contango
            shall then own a 20% partnership interest in Freeport, in accordance
            with the terms of this Agreement and the Partnership Agreement.

3. Security. Cheniere's obligation to refund the Option Price to Contango shall
be secured by the following:

               (a) the grant to Contango of a security interest in all revenue
               and receivables of Cheniere and its affiliates, including without
               limitation all oil and gas receivables, as evidenced by a
               security agreement (the "Security Agreement"), attached hereto as
               Exhibit A, to be entered into on the date hereof and the filing
               of a UCC-1 or other applicable financing statement or statements
               (the "Financing Statements") with the secretary of state of
               Delaware; and

               (b) the execution by Cheniere on the date hereof of the Note,
               attached hereto as Exhibit B, in favor of Contango in the
               principal amount of $750,000, evidencing Cheniere's obligations
               under Section 2.2.2 of this Agreement.
<PAGE>

4. Intentionally Omitted.

5. Representations and Warranties of Cheniere. Cheniere represents and warrants
to Contango as follows:

     5.1 Corporate Existence; Authority. Cheniere is a corporation duly
     organized, validly existing and in good standing under the laws of
     Delaware, and it has all requisite power and authority to own and operate
     its property, to carry on its business as now conducted and to carry out
     the transactions contemplated by this Agreement. Cheniere is duly qualified
     to transact business and is in good standing in each jurisdiction in which
     such qualification is required. The individual executing and delivering
     this Agreement on behalf of Cheniere has been duly authorized to execute
     and deliver this Agreement on behalf of Cheniere, and the signature of such
     individual is binding upon Cheniere.

     5.2 Enforceability. This agreement constitutes the valid and binding
     agreement of Cheniere, enforceable in accordance with its terms, except as
     such enforceability may be limited by principles of public policy, and
     subject to laws of general application relating to bankruptcy, insolvency
     and the relief of debtors and rules of law governing specific performance,
     injunctive relief or other equitable remedies.

     5.3 No Conflicts. The execution and performance of this Agreement, the
     Security Agreement, the Financing Statements and the Note by Cheniere will
     not (a) violate or conflict with Cheniere's certificate of incorporation or
     bylaws or any agreements; (b) conflict with or violate any judicial or
     administrative order, award, judgment or decree applicable to Cheniere; (c)
     conflict with any of the terms, conditions or provisions of any mortgage,
     instrument, lease, agreement, contract or restriction to which Cheniere is
     a party, or by which Cheniere is bound, or require the approval of any
     creditor of Cheniere or any other party; (d) violate any provision of any
     federal or state statute, rule or regulation applicable to Cheniere, except
     where such failure or violation would not have a material adverse effect on
     Cheniere's ability to perform its obligations hereunder and thereunder.

     5.4 Governmental Consents. No consent, approval, order or authorization of,
     or registration, qualification, designation, declaration or filing with,
     any federal, state or local governmental authority on the part of Cheniere
     is required in connection with the consummation of the transactions
     contemplated by this Agreement.

     5.5 Litigation. There is no litigation or other legal, administrative or
     governmental proceeding pending or, to the knowledge of Cheniere,
     threatened against or relating to Cheniere or its properties or business,
     that if determined adversely to Cheniere may reasonably be expected to have
     a material adverse effect on Cheniere's ability to perform its obligations
     under this Agreement, the Note, the Security Agreement and the Financing
     Statements.

     5.6 Brokers' or Finders' Fees. No agent, broker, investment banker, person
     or firm acting on behalf of Cheniere other than Petrie Parkman & Co. (the
     fees for which will be borne solely by Cheniere), is or will be entitled to
     any brokers' or finders' fee or any
<PAGE>

     other commission or similar fee directly or indirectly from any of the
     parties hereto in connection with any of the transactions contemplated
     hereby.

6. Representations and Warranties of Contango. Contango represents and warrants
to Cheniere as follows:

     6.1 Corporate Existence; Authority. Contango is a corporation duly
     organized, validly existing and in good standing under the laws of
     Delaware, and it has all requisite power and authority to carry on its
     business as now conducted and to carry out the transactions contemplated by
     this Agreement. Contango is duly qualified to transact business and is in
     good standing in each jurisdiction in which such qualification is required.
     The individual executing and delivering this Agreement on behalf of
     Contango has been duly authorized to execute and deliver this Agreement on
     behalf of Contango, and the signature of such individual is binding upon
     Contango.

     6.2 Enforceability. This agreement constitutes the valid and binding
     agreement of Contango, enforceable in accordance with its terms, except as
     such enforceability may be limited by principles of public policy, and
     subject to laws of general application relating to bankruptcy, insolvency
     and the relief of debtors and rules of law governing specific performance,
     injunctive relief or other equitable remedies.

     6.3 No Conflicts. The execution and performance of this Agreement and the
     Security Agreement by Contango will not (a) violate or conflict with
     Contango's certificate of incorporation or bylaws or any agreements; (b)
     conflict with or violate any judicial or administrative order, award,
     judgment or decree applicable to Contango; (c) conflict with any of the
     terms, conditions or provisions or any mortgage, instrument, lease,
     agreement, contract or restriction to which Contango is a party, or by
     which Contango is bound, or require the approval of any creditor of
     Contango or any other party; (d) violate any provision of any federal or
     state statute, rule or regulation applicable to Contango, except where such
     failure or violation would not have a material adverse effect on Contango's
     ability to perform its obligations hereunder and thereunder.

     6.4 Governmental Consents. No consent, approval, order or authorization of,
     or registration, qualification, designation, declaration or filing with,
     any federal, state or local governmental authority on the part of Contango
     is required in connection with the consummation of the transactions
     contemplated by this Agreement.

     6.5 Litigation. There is no litigation or other legal, administrative or
     governmental proceeding pending or, to the knowledge of Contango,
     threatened against or relating to Contango or its properties or business,
     that if determined adversely to Contango may reasonable be expected to have
     a material adverse effect on Contango's ability to perform its obligations
     under this Agreement or the Security Agreement.

     6.6 Brokers' or Finders' Fees. No agent, broker, investment banker, person
     or firm acting on behalf of Contango other than Growth Capital Partners
     (the fees for which will be borne solely by Contango), is or will be
     entitled to any brokers' or finders' fee or any
<PAGE>

     other commission or similar fee directly or indirectly from any of the
     parties hereto in connection with any of the transactions contemplated
     hereby.

7. Covenants.

     7.1 Limitation on Indebtedness; No Sale of Business. Cheniere shall be
     prohibited, until such time as the First Option is exercised or, in the
     event the First Option expires in accordance with its terms, until the
     Option Price (together with interest thereon) has been refunded to
     Contango, from (i) incurring any other indebtedness for borrowed money,
     other than unsecured indebtedness that is junior and subordinate in right
     of payment to Cheniere's obligations under the Note, which subordination
     shall be pursuant to documentation reasonably satisfactory to Contango,
     (ii) grant a security interest, mortgage, pledge or otherwise grant a lien
     in any of its property or assets to secure payment of a debt or the
     performance of an obligation, and (iii) directly or indirectly selling all
     or any substantial portion of its assets outside the ordinary course of
     business; provided that Cheniere may farm out existing oil and gas existing
     leases to third party industry partners and may sell up to an additional
     40% of the Freeport Interests.

     7.2 Partnership Agreement. On the date of an exercise of the First Option
     by Contango, the parties shall enter into an agreement of limited
     partnership (the "Partnership Agreement") with Freeport LNG GP, Inc., a
     wholly owned subsidiary of Cheniere, as general partner, that will be in
     form and substance reasonably satisfactory to Contango. Prior to execution
     of the Partnership Agreement, Cheniere, Contango and all other prospective
     partners therein as identified by Cheniere shall negotiate the Partnership
     Agreement and its terms in good faith. Notwithstanding anything herein to
     the contrary, unless otherwise agreed to by both parties, the terms of the
     Partnership Agreement shall include without limitation the following:

     7.2.1  Effective Date. The effective date of Contango's ownership of the
            Freeport Interests purchased upon exercise of the First Option and,
            if applicable, the Second Option shall be the date of formation of
            the partnership.

     7.2.2  Partner Interest. The ownership interest in Freeport of Contango (or
            its designated affiliate) shall be a limited and/or general
            partnership interest.

     7.2.3  General Partner: Freeport LNG GP, Inc., a wholly owned Cheniere
            subsidiary, will own 1% of Freeport as the general partner and shall
            be the managing partner of Freeport.

     7.2.4  Expenditures: Expenditures after January 1, 2002 will be funded by
            cash calls paid by the partners in accordance with the following:

     (a) With respect to the first Five Million Dollars ($5,000,000) incurred
after January 1, 2002, such expenditures will be funded by the partners by cash
calls pro rata in accordance with their respective partnership interests,
payable according to procedures outlined in the Partnership Agreement.
<PAGE>

     (b) Beginning with the first dollar of additional capital contributions in
excess of Five Million Dollars ($5,000,000), all partners will make their
contributions pro rata in accordance with their respective partnership interests
according to procedures outlined in the Partnership Agreement.

     (c) Cash expenditures incurred by Cheniere or its affiliates from January
1, 2002 will be credited against Cheniere's pro rata share of the initial cash
call. Through June 30, 2002, such expenditures are estimated at $1,500,000.

     (d) Cheniere and its affiliates have accrued liabilities related to
development expenditures for the Project after January 1, 2002, which will be
payable by Freeport. Through June 30, 2002, such liabilities are estimated at
$500,000.

     (e) A preliminary budget for 2002 and 2003 will be attached to the
Partnership Agreement. The attached budget shall include both the cash
expenditures and liabilities described above.

     (f) An initial cash call relating to 2002 operating expenses will be made
after the formation of the partnership. Such initial cash call will require
Contango to contribute One Million Dollars ($1,000,000) to Freeport on the later
to occur of the exercise date, or the date specified in the Partnership
Agreement for funding of the capital call by all partners, regardless of whether
the Second Option has then been exercised. Such payment by Contango shall be
credited against Contango's pro rata share of the initial $5,000,000 capital
call, and then the excess remaining credited as a prepayment of Contango's pro
rata share of either the initial $5,000,000 capital call related to the
interests acquired pursuant to the Second Option, or if Contango fails to
exercise such Second Option, Contango's pro rata share on future capital calls
(the "Prepayment Amount"); provided that in the event Contango subsequently
exercises the Second Option, the Prepayment Amount shall be reallocated and
applied to Contango's pro rata share of 2002 operating expenses relating to the
interests acquired upon exercise of the Second Option.

     7.2.5  Failure To Fund Cash Calls: If any partner in Freeport obligated to
            make a capital contribution to Freeport fails to make such
            contribution, any other partner or partners may fund such
            contribution and increase its ownership interest in Freeport in
            proportion to the contribution made, with the non-contributing
            partner's equity position in Freeport being diluted accordingly.

     7.2.6  Annual Budget: An addendum will be included setting forth an
            operating and capital expenditure budget for fiscal years 2002 and
            2003.

     7.2.7  Noncompetition: Each of the partners in Freeport will not compete,
            directly or indirectly, with Freeport in the building, owning and
            operating of LNG receiving and regasification facilities within 20
            miles of Freeport, Texas.

     7.2.8  Transferability: Contango and Cheniere, or their affiliates, will
            have a right to transfer all or a portion of their respective
            ownership in Freeport to
<PAGE>

            an affiliate, subject to certain customary restrictions. Transfer
            rights to third parties will be agreed and specified.

     7.2.9  Dissolution: The rights of each partner with respect to the
            dissolution of Freeport shall be specified.

     7.2.10 Standstill: Cheniere will agree not to actively pursue development
            of its other potential LNG sites in Texas with LNG suppliers until
            firm Terminal Use Agreements of at least the equivalent of 600
            MMcf/d of natural gas have been executed for the Project.

     7.2.11 Governing Law: The Partnership Agreement will be governed by the
            laws of the State of Texas, without reference to its choice of law
            principles.

7.3 Formation of Entity. Cheniere agrees to form the Freeport entity as soon as
practicable after the date of this Agreement and to take all action necessary
for the sale of partnership interests in such entity to Contango upon exercise
of the First Option and the execution of the Partnership Agreement.

7.4 Conduct of Partnership. After the formation of Freeport and until such time
as the First Option is exercised, Cheniere will cause Freeport LNG GP, Inc., as
managing partner of Freeport, to conduct the business of the partnership as
contemplated by the parties to this Agreement on the date hereof, including
without limitation complying with the terms of the Partnership Agreement and the
purpose of the partnership as stated therein and developing the Project in
accordance with customary and reasonably prudent development standards for an
LNG receiving and regasification facility.

7.5 Sale of Additional Interests. Cheniere agrees that, prior to the exercise of
the First Option, it shall and it shall cause Freeport to sell additional
interests in Freeport to additional investors only on terms that are no less
favorable than those obtained by Contango hereunder. Promptly after the sale of
twenty percent (20%) or more of the interests in Freeport to additional
investors on terms no less favorable than those obtained by Contango, Cheniere
shall deliver to Contango notice thereof, including the financial and other
terms of such sales (the "Cheniere Additional Sales Notice"). Notwithstanding
anything in this Agreement to the contrary, the Cheniere Additional Sales Notice
shall be deemed to have been given to Contango if and only if (i) it is
delivered personally, (ii) it has been faxed to Contango, upon electronic
confirmation of receipt of such fax (provided such fax is immediately confirmed
by overnight mail or delivery service requiring signature by Contango on
receipt), or (iii) it is delivered by overnight mail or delivery service
requiring signature by Contango on receipt, in which case it shall be deemed
delivered on the date the delivery signature is obtained.

7.6 Certain Payments. All revenues relating to the proposed operation of the
Project received by Cheniere, its affiliates or Freeport on or after January 1,
2002 shall be considered to be the property of Freeport and received for its
benefit, to be held or distributed, as the case may be, in accordance with the
terms of the Partnership Agreement and shall be allocated amongst the partners
pro rata in accordance with their
<PAGE>

     respective percentage interests in the Partnership (which, in the case of
     Contango, shall be Contango's percentage interest as of December 15, 2002).

     7.7 Confidentiality. The contents of this Agreement are intended to be
     confidential and are not to be discussed with or disclosed to any third
     person, except (i) with the express prior written consent of the other
     party hereto, (ii) as may be required or appropriate in response to any
     summons, subpoena or discovery order or to comply with any applicable law,
     order, regulation or ruling, provided that (a) the disclosing party seeks,
     under applicable law, confidential treatment for such information by the
     governmental or regulatory authority or such other recipient and (b) prior
     to such disclosure, the other party is given prompt written notice of the
     disclosure requirement so that it may take whatever action it deems
     appropriate, including intervention in any proceeding and the seeking of an
     injunction to prohibit such disclosure; or (iii) to financial advisors,
     legal counsel and other consultants assisting such party, or to third
     parties in order to obtain such consents or approvals from such third
     parties as may be necessary or desirable, provided that such advisors,
     counsel, consultants and third parties have either entered into
     confidentiality arrangements with the party disclosing such confidential
     information to such persons, or they agree to become bound by the terms of
     this Section 7.7 as if they were a party to this letter; provided, that
     nothing contained herein shall prevent any party from promptly making such
     disclosures as may, in its good faith judgment, be required or advisable
     under applicable securities laws (in which case the disclosing party shall
     advise the other party and provide them with a copy of the proposed
     disclosure prior to making such disclosure).

     7.8 Further Actions. Each of the parties hereto agrees that it will, at any
     time, and from time to time, upon the request of the appropriate party, do,
     execute, acknowledge and deliver, or will cause to be done, executed,
     acknowledged and delivered, all such further acts, deeds, assignments,
     transfers, conveyances, powers of attorney and assurances as may be
     required to consummate the transaction contemplated by this Agreement.

8. Indemnification.

     8.1 Indemnity by Cheniere Against Claims. Cheniere hereby indemnifies and
     holds harmless Contango and its shareholders, employees, agents,
     affiliates, successors and assigns (the "Contango Indemnified Parties")
     from and against the following:

     8.1.1  any and all losses, costs, liabilities, damages, or deficiencies
            resulting from any misrepresentation, breach or failure of any
            warranty or non-fulfillment of any agreement, covenant or
            undertaking on the part of Cheniere contained in this Agreement; and

     8.1.2  any and all claims, actions, suits, proceedings, demands,
            assessments, judgments, costs and expenses (including, but not
            limited to, reasonable attorneys', accountants' or other
            professional fees incident to this Section 8.1).
<PAGE>

     8.2 Indemnity by Contango Against Claims. Contango hereby indemnifies and
     hold harmless Cheniere and its shareholders, employees, agents, affiliates,
     successors and assigns (the "Cheniere Indemnified Parties") from and
     against the following:

     8.2.1  any and all losses, costs, liabilities, damages or deficiencies
            resulting from any misrepresentation, breach or failure of any
            warranty or non-fulfillment of any agreement, covenant or
            undertaking on the part of Contango contained in this Agreement; and

     8.2.2  any and all actions, suits, proceedings, demands, assessments,
            judgments, costs and expenses (including, but not limited to,
            reasonable attorneys', accountants' and other professional fees
            incident to this Section 8.2).

     8.3 Remedies. Upon the occurrence of any event for which any of the
     Contango Indemnified Parties or the Cheniere Indemnified Parties, as the
     case may be, is entitled to indemnification under this Agreement, such
     indemnified party shall have all of the rights and remedies in law and in
     equity available to it.

9. Miscellaneous.

     9.1 Inurement; Binding Effect. This agreement shall inure to the benefit
     of, and be binding upon, the parties hereto and their respective
     successors, and assigns.

     9.2 Assignment. Neither party may assign any of its rights under this
     Agreement, except that either party may assign its rights under this
     Agreement to one or more of its wholly owned affiliates (or in the case of
     Contango, any wholly owned subsidiary of Contango Oil & Gas Company);
     provided, that no such assignment shall relieve any assigning party from
     any of its obligations hereunder.

     9.3 Third Parties. Nothing in this Agreement shall confer upon any person
     or entity not a party to this Agreement, any rights or remedies of any
     nature or kind whatsoever under or by reason of this Agreement.

     9.4 Notices. All notices and other communications given or made pursuant to
     this Agreement shall be in writing and shall be deemed to have been given
     or made if in writing and delivered personally or sent by registered or
     certified mail (postage prepaid, return receipt requested) to the parties
     at the following addresses (or at such other address as a party may specify
     by notice given pursuant to this Section 9.4):

           If to Contango:

                 Contango Sundance, Inc.
                 3700 Buffalo Speedway, Suite 960
                 Houston, Texas  77098
                 Attention:  Kenneth R. Peak
                 Facsimile No.:  713-960-1065
<PAGE>

         with a required copy to:

                  Morgan, Lewis & Bockius LLP
                  300 South Grand Avenue, 22nd Floor
                  Los Angeles, California  90071-3132
                  Attention:  Richard A. Shortz, Esq.
                  Facsimile No.:  213-612-2554

         If to Cheniere:

                  Cheniere Energy, Inc.
                  333 Clay Street, Suite 3400
                  Houston, Texas  77002
                  Attention:  Don Turkleson
                  Telephone No.:  (713) 659 1361

         with a required copy to:

                  Andrews & Kurth, L.L.P.
                  600 Travis, Suite 4200
                  Houston, Texas  77002
                  Attention:  Michael Overman
                  Facsimile No.:  (713) 238-7411

     Except as set forth elsewhere in this Agreement, such notice or
     communication shall be deemed to have been given when delivered personally,
     upon electronic confirmation of receipt if by fax (provided such fax is
     immediately confirmed by registered or certified mail (postage prepaid,
     return receipt requested), or the earlier of (i) the date delivered or (ii)
     three days after being mailed (with the first day of this three day period
     being the day following mailing).

     9.5 Entire Agreement. This agreement, together with the Security Agreement,
     the Note and the Partnership Agreement (collectively, the "Transaction
     Documents"), shall constitute the entire subject matter concerning the
     granting of an option by Cheniere to Contango for the purchase of the
     Freeport Interests, and there are no agreements, undertakings,
     restrictions, representations, or warranties among the parties for the
     option to purchase the Freeport Interests other than those set forth in the
     Transaction Documents. This agreement supersedes all prior negotiations,
     discussions, correspondence, communications, understandings, and agreements
     between the parties relating to the granting of an option by Cheniere to
     Contango for the purchase of the Freeport Interests.

     9.6 Amendment. This Agreement may be amended, modified, or supplemented
     only by a writing signed by Contango and Cheniere.

     9.7 Waiver. The waiver by either party of the performance by the other
     party of any provision of this Agreement shall not invalidate this
     Agreement, nor shall it be considered a waiver of any other provision of
     this Agreement, nor shall it be considered a waiver of the performance of
     such provision required to be made at a later date. The
<PAGE>

     waiver by either party of any breach by the other party of any provision of
     this Agreement shall not constitute a waiver of the breach of any other
     provision of this Agreement, or of any preceding or succeeding breach of
     the same provision. Any waiver under this Agreement must be in writing and
     signed by the waiving party to be effective, and shall be effective only to
     the extent of such writing.

     9.8 Severability, Construction. This agreement shall be deemed severable,
     and the invalidity and unenforceability of any provision of this Agreement
     shall not affect the validity or enforceability of this Agreement or of any
     other provision of this Agreement. If any provision of this Agreement or
     and agreement delivered pursuant hereto, is invalid due to its scope or
     breadth, such provision shall be deemed valid to the extent of the scope or
     breadth permitted by law.

     9.9 Section Headings. The section headings contained in this Agreement are
     solely for convenience of reference and shall not affect the meaning or
     interpretation of this Agreement.

     9.10 Counterparts. This Agreement may be executed in any number of
     counterparts, each of which shall be deemed an original, and all of which
     together shall be considered one and the same agreement.

     9.11 Governing Law; Consent to Jurisdiction. THIS AGREEMENT SHALL BE
     GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
     DELAWARE, WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES. THE PARTIES
     HERETO AGREE THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR IN ANY
     MANNER RELATING TO THIS AGREEMENT SHALL BE BROUGHT IN ANY COURT OF THE
     STATE OF DELAWARE OR IN THE UNITED STATES DISTRICT COURT LOCATED IN
     DELAWARE. THE PARTIES HERETO CONSENT AND SUBMIT TO PERSONAL JURISDICTION OF
     ANY SUCH COURT IN ANY ACTION OR PROCEEDING.

     9.12 Costs. All costs and expenses (including legal and accounting fees)
     incurred by either party in negotiating this Agreement and carrying out the
     transactions contemplated by this Agreement shall be paid by the party
     incurring such fees and costs.
<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date and year first above written.

CONTANGO:

CONTANGO SUNDANCE, INC.
a Delaware corporation

By:      /s/ Kenneth R. Peak
Name:    Kenneth R. Peak
Title:   Chairman and Chief Executive Officer

CHENIERE:

CHENIERE ENERGY, INC.
a Delaware corporation

By:      /s/ Charles M. Reimer
Name:    Charles M. Reimer
Title:   President and Chief Executive Officer
<PAGE>

                                   EXHIBIT A

                               SECURITY AGREEMENT

     THIS SECURITY AGREEMENT dated as of June 4, 2002 (the "Security Agreement")
is by and between CHENIERE ENERGY, INC., a Delaware corporation (the "Debtor")
and CONTANGO OIL & GAS COMPANY, a Delaware corporation (the "Secured Party").

     WHEREAS, pursuant to the terms of an Option Purchase Agreement dated of
even date herewith (the "Purchase Agreement") between the Debtor and Secured
Party, Debtor agreed to purchase, and Secured Party agreed to sell, an option,
composed of two tranches (the First Option and the Second Option, each as
defined in the Purchase Agreement), to acquire up to 20% of the partnership
interests of a limited partnership ("Freeport") formed for the purpose of
developing one or more LNG receiving and regasification facilities in Freeport,
Texas (the "Freeport Interests"), on a fully diluted basis, upon the terms and
conditions set forth therein.

     WHEREAS, in connection with the Purchase Agreement, the Secured Party has
agreed to make an initial payment of $750,000.00 (the "Initial Payment"), which
amount shall be refunded to the Secured Party (with interest thereon) in the
event the First Option expires without having been exercised (the "Refund"). The
Debtor's obligation to repay the Refund is evidenced by, and subject to, the
terms of that certain Secured Promissory Note in the original principal amount
of $750,000.00, dated of even date herewith (as the same may be further amended,
supplemented, or otherwise modified, renewed or replaced from time to time, the
"Note") by the Debtor in favor of the Secured Party.

     WHEREAS, the Debtor has agreed to grant to the Secured Party a security
interest in the Collateral (as hereinafter defined) to secure its obligations
under the Note and Purchase Agreement to repay the Refund (if applicable), to
the extent and in accordance with the terms hereof.

     NOW, THEREFORE, in consideration of the above premises, the parties hereto
agree as follows:

     SECTION 1. Definitions. When used in this Security Agreement:

     "Collateral" shall mean all of the Debtor's right, title and interest in
the Debtor's accounts, revenue and accounts receivables (including without
limitation, all oil and gas receivables), all rights to payment thereof
evidenced by chattel paper (including tangible chattel paper and electronic
chattel paper) or instruments, all letters of credit and letter of credit
rights, all payment intangibles, all supporting obligations, and any and all
proceeds thereon, products thereof or income therefrom.

     "Event of Default" shall mean the occurrence of any of the following
events: (1) an Event of Default (as defined in the Note), or (2) the failure of
the Debtor to comply with or perform any of the covenants contained herein.

     "Obligations" shall mean all obligations of the Debtor to make due and
punctual payment of principal of and interest and any fees under the Note, costs
and attorneys' fees, and all other monetary obligations of the Debtor to the
Secured Party hereunder and under the Note, now or hereafter existing, or due or
to become due.
<PAGE>

     All terms not otherwise defined herein shall have the respective meanings
set forth in the Note. Terms not otherwise defined herein or in the Note shall
have, where appropriate, their respective definitions as set forth in the
Uniform Commercial Code as in effect in the State of Delaware.

     SECTION 2. Grant of Security Interest. As security for the prompt and
complete payment when due of the Obligations, the Debtor hereby grants to the
Secured Party a security interest in all of his right, title and interest in and
to all Collateral.

     SECTION 3. Representations and Warranties of the Debtor. The Debtor hereby
represents and warrants to the Secured Party that: (i) it is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, (ii) it has the corporate power and authority to
own its properties, carry on its business as it is currently being conducted and
to execute, deliver and perform its obligations under this Security Agreement
and the Note, (iii) the execution, delivery and performance by the Debtor of
this Security Agreement and the Note have been duly authorized by all necessary
corporate action, will not constitute a violation of any indenture, agreement,
or undertaking to which the Debtor is a party or by which the Debtor is bound,
will not violate any provision of the Certificate of Incorporation or By-laws of
the Debtor, and will not violate any provision of applicable law, and order of
any court or other agency of the United States or any state thereof applicable
to the Debtor or its assets in properties; (iv) the execution, delivery and
performance of this Security Agreement will not result in the creation or
imposition of any lien or charge on, security interest in or other encumbrance
on any of the assets of the Debtor except as contemplated by this Security
Agreement; (v) no consent of any other party (including, without limitation,
creditors of the Debtor) and to the Debtor's knowledge, no permit, approval or
authorization of, exemption by, notice or report to or registration or filing
with, any governmental authority is required to be obtained by the Debtor in
connection with the execution, delivery and performance of this Security
Agreement; (vi) no financing statement, mortgage, notice of lien, deed of trust,
security agreement, or any other agreement or instrument creating or giving
notice of an encumbrance or charge against any of the Collateral is in existence
or on file in any public office other than those created or filed pursuant to
the terms of this Security Agreement in favor of the Secured Party and (vii)
this Security Agreement, when executed and delivered, will create and grant to
the Secured Party (upon the filing of the appropriate UCC financing statements)
a valid lien on and a perfected security interest in favor of the Secured Party
in, all right, title or interest of the Debtor in or to the Collateral, subject
to no prior pledge, lien, security interest, charge or encumbrance or to any
agreement purporting to grant any third party a security interest in the
Collateral.

     SECTION 4. Covenants of the Debtor. The Debtor hereby covenants and agrees
that:

     (a) It will keep the Collateral free and clear of all security interests,
liens and claims other than the security interest and lien herein granted and
will not sell, assign, transfer, exchange or otherwise dispose of, or grant any
option with respect to, the Collateral except by assignment to the Secured
Party.

     (b) It will defend the Secured Party's right, title and security interest
in and to the Collateral against claims and demands of all persons whomsoever.
<PAGE>

     (c) It will not change its name, organization structure, jurisdiction of
incorporation or its location except upon 30 days' prior written notice to the
Secured Party.

     SECTION 5. The Secured Party's Rights Exclusive of the Debtor's Default.
The Debtor hereby agrees to permit representatives of the Secured Party, upon
reasonable notice to the Debtor, to discuss its records in connection with the
Collateral at such reasonable times and as often as may be reasonably requested
by the Secured Party. The Secured Party, from time to time, at its option may
take any other action which the Secured Party deems necessary for the
maintenance or preservation of any of the Collateral or its interest therein.
The Secured Party shall have the right to designate any officer, employee or
attorney to execute, sign, endorse, assign, transfer or deliver in the name of
the Debtor or in its name any documents or certificates necessary to evidence,
perfect and realize upon the security interest granted herein and the
Obligations.

     SECTION 6. The Secured Party's Rights and Remedies Upon the Debtor's
Default.

     (a) Collections, etc. Upon the occurrence and during the continuance of an
Event of Default, the Secured Party may, in its sole discretion, in its name or
in the name of the Debtor or otherwise, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect to, the
Collateral, but shall be under no obligation so to do, or the Secured Party may
extend the time of payment, arrange for payment in installments, or otherwise
modify the terms of, or release, any of the Collateral, without thereby
incurring responsibility to, or discharging or otherwise affecting any liability
of the Debtor. The Secured Party will not be required to take any steps to
preserve any rights against prior parties to the Collateral. If the Debtor fails
to make any payment or to take any action required hereunder, the Secured Party
may make such payments and take all such actions as the Secured Party reasonably
deems necessary to protect the Secured Party's security interests in the
Collateral and/or the value thereof, and the Secured Party is hereby authorized
(without limiting the general nature of the authority hereinabove conferred) to
pay, purchase, contest or compromise any liens which in the judgment of the
Secured Party appear to be equal to, prior to or superior to the security
interests of the Secured Party in the Collateral and any liens not expressly
permitted by this Security Agreement.

     (b) Possession, Sale of Collateral, etc. Upon the occurrence and during the
continuance of an Event of Default, the Secured Party may take such measures as
it may deem necessary or proper for the care or protection of the Secured
Party's rights and remedies hereunder, including the right to sell or cause to
be sold, whenever the Secured Party shall decide, in one or more sales or
parcels, at such prices as the Secured Party may deem best, and for cash or on
credit or for future delivery, without assumption of any credit risk, all or any
portion of the Collateral, at any broker's board or at a public or private sale,
without any demand of performance or notice of intention to sell or of the time
or place of sale (except 10 days' written notice to the Debtor of the time and
place of any such sale or sales and such other notices as may be required by
applicable law and cannot be waived), and any person may be the purchaser of all
or any portion of the Collateral so sold and thereafter hold the same
absolutely, free (to the fullest extent permitted by applicable law) from any
claim or right of whatever kind, including any equity of redemption, of the
Debtor, any such demand, notice, claim, right or
<PAGE>

equity being hereby expressly waived and released to the fullest extent
permitted by applicable law. At any sale or sales made pursuant to this Section
6, the Secured Party may bid for or purchase, free (to the fullest extent
permitted by applicable law) from any claim or right of whatever kind, including
any equity of redemption, of the Debtor any such demand, notice, claim, right or
equity being hereby expressly waived and released, any part of or all of the
Collateral offered for sale, and may make any payment on account thereof by
using any claim for moneys then due and payable to the Secured Party by the
Debtor hereunder as a credit against the purchase price. The Secured Party shall
in any such sale make no representations or warranties with respect to the
Collateral or any part thereof, and the Secured Party shall not be chargeable
with any of the obligations or liabilities of the Debtor. The Debtor hereby
agrees (i) that it will indemnify and hold the Secured Party harmless from and
against any and all claims with respect to the Collateral asserted before the
taking control of the relevant Collateral by the Secured Party pursuant to this
Section 6, or arising out of any act of, or omission to act on the part of, any
person (other than the Secured Party) prior to such taking of actual possession
or control by the Secured Party, or arising out of any act on the part of the
Debtor or its agents before or after the commencement of such actual possession
or control by the Secured Party; and (ii) the Secured Party shall have no
liability or obligation to the Debtor arising out of any such claim except for
acts of willful misconduct or gross negligence or not taken in good faith. In
any action hereunder, the Secured Party shall be entitled to the appointment of
a receiver, without notice, to take possession of all or any portion of the
Collateral and to exercise such powers as the court shall confer upon the
receiver. Notwithstanding the foregoing, upon the occurrence of an Event of
Default, and during the continuation of such Event of Default, the Secured Party
shall be entitled to apply, without prior notice to the Debtor except as may be
required by applicable law, any cash or cash items constituting Collateral in
the possession of the Secured Party to payment of the Obligations then due and
payable.

     (c) Application of Proceeds. The Debtor further agrees that the Secured
Party may apply any proceeds from the disposition of any of the Collateral in
the following manner: (x) first, to the payment of all costs and expenses
incurred in connection with the sale of or other realization on any of the
Collateral, including attorneys' fees and expenses if the Secured Party
endeavored to collect the obligations of the Debtor owing the Secured Party by
or through an attorney at law and (y) second, to the payment, in whole or in
part of the obligations of the Debtor to the Secured Party in such order as the
Secured Party may elect subject to any duty imposed by law and subject to the
direction of a court of competent jurisdiction.

     (d) Power of Attorney. Upon the occurrence and during the continuance of an
Event of Default which is not waived in writing by the Secured Party (i) the
Debtor does hereby irrevocably make, constitute and appoint the Secured Party or
any of its officers or designees their true and lawful attorney-in-fact with
full power in the name of the Secured Party or such other person to endorse any
notes, checks, drafts, money orders or other evidences of payment relating to
the Collateral that may come into the possession of the Secured Party, and to do
any and all other acts necessary or proper to carry out the intent of this
Security Agreement and the grant of the security interests hereunder, and the
Debtor hereby ratifies and confirms all that the Secured Party or its
substitutes shall properly do by virtue hereof; (ii) the Debtor hereby further
irrevocably makes, constitutes and appoints the Secured Party or any of its
officers or designees its true and lawful attorney-in-fact in the name of the
Secured Party or its name (A) to enforce all of its rights under and pursuant to
all agreements with respect to the Collateral, all for the sole
<PAGE>

benefit of the Secured Party, (B) to enter into and perform such agreements as
may be necessary in order to carry out the terms, covenants and conditions of
this Security Agreement that are required to be observed or performed by it, (C)
to execute such other and further mortgages, pledges and assignments of the
Collateral, and related instruments or agreements, as the Secured Party may
reasonably require for the purpose of perfecting, protecting, maintaining or
enforcing the security interests granted to the Secured Party hereunder, and (D)
to do any and all other things necessary or proper to carry out the intention of
this Security Agreement and the grant of the security interests hereunder and
the Debtor hereby ratifies and confirms in advance all that the Secured Party as
such attorney-in-fact or its substitutes shall properly do by virtue of this
power of attorney. In the event the Secured Party exercises the power of
attorney granted herein, the Secured Party shall concurrently with such
exercise, provide written notice to the Debtor in accordance with Section 8
hereof.

     SECTION 7. Further Assurances. The Debtor agrees that it will from time to
time, on request of the Secured Party, execute such financing statements,
notices, and other documents, and pay the cost of filing or recording the same
in all public offices deemed necessary by the Secured Party and to do all such
other acts as the Secured Party may request to establish and maintain a valid
security interest in the Collateral. The Debtor hereby irrevocably appoints the
Secured Party as its attorney-in-fact (such power being coupled with an
interest) to take such action in the Debtor's name, in the case that a default
or an Event of Default shall have occurred and be continuing.

     SECTION 8. Notice. If any notification of intended disposition of any of
the Collateral or of any other act by the Secured Party is required by law and a
specific time period is not stated therein such notification given at least ten
(10) days before such disposition or act, shall be deemed reasonably and
properly given. Notices and other communications provided for herein shall be in
writing and shall be delivered or mailed (or if by telecopier, delivered by such
equipment) addressed (i) if to the Secured Party, to it at 3700 Buffalo
Speedway, Suite 960, Houston, Texas 77098, Attention: Kenneth R. Peak, Facsimile
No. (713) 960-1065, (ii) if to Debtor, to it at 333 Clay Street, Suite 3400,
Houston, Texas 77002, Attn: Charif Souki, Telephone No. (713) 659-1361, or such
other address as such party may from time to time designate by giving written
notice to the other party hereunder. All notices and other communications given
to any party hereto in accordance with the provisions of this Security Agreement
shall be deemed to have been given on the fifth business day after the date when
sent by registered or certified mail, postage prepaid return receipt requested,
if by mail, or when receipt is acknowledged, if by telecopier, in each case
addressed to such party as provided in this Section 8 or in accordance with the
latest unrevoked written direction from such party.

     SECTION 9. Non-Waiver of Rights and Remedies. No delay or failure on the
part of the Secured Party in the exercise of any right or remedy shall operate
as a waiver thereof, no single or partial exercise by the Secured Party of any
right or remedy shall preclude other or further exercise thereof or the exercise
of any other right or remedy and no course of dealing between the parties shall
operate as a waiver of any right or remedy of the Secured Party.

     SECTION 10. Governing Law. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
WITHOUT GIVING EFFECT TO ANY
<PAGE>

CONFLICTS OF LAWS PROVISIONS. THE PARTIES HERETO AGREE THAT ANY LEGAL ACTION OR
PROCEEDING ARISING OUT OF OR IN ANY MANNER RELATING TO THIS SECURITY AGREEMENT
SHALL BE BROUGHT IN ANY COURT OF THE STATE OF DELAWARE OR IN THE UNITED STATES
DISTRICT COURT LOCATED IN DELAWARE. THE PARTIES HERETO HEREBY CONSENT AND SUBMIT
TO PERSONAL JURISDICTION OF ANY SUCH COURT IN ANY ACTION OR PROCEEDING..

     SECTION 11. Severability. This Security Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Security Agreement shall be prohibited by or invalidated under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Security Agreement and the parties hereto
agree to negotiate in good faith a provision to replace the ineffective
provision, such provision to be as similar in effect and intent as the
ineffective provision as permissible.

     SECTION 12. Amendments. This Security Agreement may not be amended except
by a writing signed by the parties hereto.

     SECTION 13. Benefits. The rights and privileges of the Secured Party
hereunder shall inure to the benefits of its successors and assigns and the
obligations of the Debtor shall be binding on the Debtor's successors and
assigns.

     SECTION 14. Counterparts. This Security Agreement may be executed
simultaneously in any number of counterparts, all of which taken together will
constitute one agreement, and any party hereto may execute this Security
Agreement by signing any such counterpart.
<PAGE>

     IN WITNESS WHEREOF, the Debtor and the Secured Party have caused this
Security Agreement to be duly executed on the date and year first written above.

                                 DEBTOR:

                                 CHENIERE ENERGY, INC.,
                                 a Delaware corporation

                                 By:    /s/ Charles M. Reimer
                                 Name:  Charles M. Reimer
                                 Title: President and Chief Executive Officer

                                 SECURED PARTY:

                                 CONTANGO OIL & GAS COMPANY,
                                 a Delaware corporation

                                 By:    /s/ Kenneth R. Peak
                                 Name:  Kenneth R. Peak
                                 Title: Chairman and Chief Executive Officer
<PAGE>

                                   EXHIBIT B

                             SECURED PROMISSORY NOTE

$750,000.00                                                      Houston, Texas
                                                                   June 4, 2002

FOR VALUE RECEIVED, the undersigned, CHENIERE ENERGY, INC., a Delaware
corporation ("Maker") hereby promises to pay to CONTANGO OIL & GAS COMPANY, a
Delaware corporation ("Lender"), or order, at 3700 Buffalo Speedway, Suite 960,
Houston, Texas 77098, or at such other address as the holder of this Secured
Promissory Note ("Note") may specify in writing, the principal sum of SEVEN
HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($750,000.00) (the "Loan"), plus
interest thereon, in the manner and upon the terms and conditions set forth
below.

1. Rate of Interest

     The principal balance of this Note shall bear interest at a per annum rate
equal to eight percent (8%) commencing on earlier to occur of: (i) the First
Option Expiration Date (as defined in that certain Option Purchase Agreement,
dated as of even date herewith between Lender and Maker (the "Option Purchase
Agreement")) and (ii) such date on which Lender has provided written notice to
Maker that Lender has irrevocably elected not to exercise the First Option.
Interest charged on this Note shall be computed on the basis of a three hundred
sixty five or three hundred sixty six (365/366) day year for actual days
elapsed.

     If Maker shall default in the payment of principal of, or interest on, the
Loan, whether at stated maturity, by acceleration or otherwise, Maker shall on
demand from time to time pay interest, to the extent permitted by law, on the
defaulted amount of the Loan up to the date of actual payment of such defaulted
amount at a per annum rate equal to the lesser of twelve percent (12%) and the
maximum amount permitted by applicable law.

     In no event shall the interest rate or rates payable under this Note, plus
any other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Maker and Lender intend legally to agree
upon the rate or rates of interest (and the other amounts paid in connection
herewith) and manner of payment stated within this Note; provided, however, that
anything contained herein to the contrary notwithstanding, if said interest rate
or rates of interest (or other amounts paid in connection herewith) or the
manner of payment exceeds the maximum allowable under applicable law, then, ipso
facto as of the date of this Note, the undersigned is and shall be liable only
for the payment of such maximum as allowed by law, and payment received from
Maker in excess of such legal maximum, whenever received, shall be applied to
reduce the principal balance of this Note to the extent of such excess.
<PAGE>

2. Schedule of Payment

     Principal under this Note, together with all accrued and unpaid interest
thereon and any other sums owing in connection herewith shall be due and payable
on July 15, 2003 (the "Maturity Date").

3. Prepayment

     Voluntary prepayments of the principal balance of this Note shall be
permitted at any time; provided that each such prepayment shall be accompanied
by all accrued and unpaid interest on the amount being prepaid.

4. Holder's Right of Acceleration

     If any one or more of the following events shall occur (each an "Event of
Default"):

     (a) Default shall be made in the payment of the principal or interest of
this Note when and as the same shall become due and payable, either at the
Maturity Date, by acceleration or otherwise;

     (b) Maker shall (i) apply for or consent to the appointment of a receiver,
trustee or liquidator of his property, (ii) admit in writing its inability to
pay its debts as they mature, (iii) make a general assignment for the benefit of
creditors, or (iv) commence a voluntary case under the federal bankruptcy laws
or file a petition or answer seeking reorganization or an arrangement with
creditors to take advantage of any other bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law or statute, or file an
answer admitting the material allegations of a petition filed against it in any
proceeding under any such law;

     (c) An order, judgment or decree shall be entered by any court of competent
jurisdiction, approving a petition seeking reorganization of all or a
substantial part of the assets of Maker and such order, judgment or decree shall
continue unstayed and in effect for a period of 30 days;

     (d) Maker fails or neglects to perform, keep, or observe any material term,
provision, condition, covenant, or agreements set forth in the Option Purchase
Agreement, the failure or neglect of which has a material adverse effect on
Maker's ability to perform its material obligations thereunder, in each case
giving effect to any applicable grace periods, cure periods, or required
notices, if any;

then Lender may in its discretion and upon notice to Maker at the address set
forth on the signature page hereof, declare the entire balance hereof
immediately due and payable.

5. General Provisions

     (a) All payments of principal and interest shall be made in lawful money of
the United States of America.
<PAGE>

     (b) If this Note is not paid when due, the undersigned further promises to
pay all costs of collection, foreclosure fees, and reasonable attorneys' fees
incurred by the holder, whether or not suit is filed hereon.

     (c) The undersigned hereby consents to any and all renewals, replacements,
and/or extensions of time for payment of this Note before, at, or after
maturity.

     (d) The undersigned hereby consents to the acceptance, release, or
substitution of security for this Note.

     (e) Any waiver of any rights under this Note or under any other agreement,
instrument, or paper signed by the undersigned is neither valid nor effective
unless made in writing and signed by the holder of this Note.

     (f) No delay or omission on the part of the holder of this Note in
exercising any right shall operate as a waiver thereof or of any other right.

     (g) A waiver by the holder of this Note upon any one occasion shall not be
construed as a bar or waiver of any right or remedy on any future occasion.

     (h) Should any one or more of the provisions of this Note be determined
illegal or unenforceable, all other provisions shall nevertheless remain
effective.

     (i) This Note cannot be changed, modified, amended, or terminated orally.

     (j) THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY
CONFLICTS OF LAWS PROVISIONS. MAKER AGREES THAT ANY LEGAL ACTION OR PROCEEDING
ARISING OUT OF OR IN ANY MANNER RELATING TO THIS NOTE SHALL BE BROUGHT IN ANY
COURT OF THE STATE OF DELAWARE OR IN THE UNITED STATES DISTRICT COURT LOCATED IN
DELAWARE. MAKER HEREBY CONSENTS AND SUBMITS TO PERSONAL JURISDICTION OF ANY SUCH
COURT IN ANY ACTION OR PROCEEDING.

6. Security for this Note

     This Note is secured by the collateral described in that certain Security
Agreement of even date herewith, between Lender and Maker, and is subject to all
of the terms and conditions thereof including, but not limited to, the remedies
specified therein or granted in connection therewith.
<PAGE>

     IN WITNESS WHEREOF, this Note has been executed and delivered on the date
first set forth above.

                             "MAKER"

                             CHENIERE ENERGY, INC.

                             By:    /s/ Charles M. Reimer
                             Name:  Charles M. Reimer
                             Title: President and Chief Executive Officer

                             Address for Notices:
                             Cheniere Energy, Inc.
                             333 Clay Street, Suite 3400
                             Houston, TX  77002
                             Attn: Don Turkleson

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