Document:

THE  SECURITIES  REPRESENTED  BY  THIS  CERTIFICATE  HAVE  NOT  BEEN
     REGISTERED  UNDER  THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES
     ACT"),  OR  REGISTERED  OR  QUALIFIED  UNDER  ANY  APPLICABLE  STATE
     SECURITIES  LAWS  OR CANADIAN SECURITIES LAWS. THESE SECURITIES OR THE
     SECURITIES  ISSUABLE  UPON  EXERCISE  THEREOF  MAY  NOT BE TRANSFERRED
     UNLESS  (A)  COVERED  BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
     SECURITIES  ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE LAW
     OR (B) EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS
     ARE  AVAILABLE.  AS  A  CONDITION  TO PERMITTING ANY TRANSFER OF THESE
     SECURITIES,  THE  COMPANY  MAY  REQUIRE  THAT  IT BE FURNISHED WITH AN
     OPINION  OF  COUNSEL  ACCEPTABLE  TO THE COMPANY TO THE EFFECT THAT NO
     REGISTRATION  OR QUALIFICATIONS IS LEGALLY REQUIRED FOR SUCH TRANSFER.

                                DIVERSINET CORP.
                              WARRANT CERTIFICATE
                              __________ Warrants

          This  warrant  certificate  ("Warrant Certificate") certifies that for
value received ____________ or registered assigns (the "Holder") is the owner of
the  number of warrants ("Warrants") specified above, each of which entitles the
Holder  thereof  to  purchase,  at  any  time  on  or before the Expiration Date
(hereinafter  defined)  one  fully  paid  and non-assessable common share in the
capital  of  Diversinet  Corp.,  a  corporation  incorporated  under the laws of
Ontario,  Canada  (the "Company"), at a purchase price of $0.62 per common share
in  lawful  money  of  the  United  States of America in cash or by certified or
cashier's  check  or  a  combination  of  cash and certified or cashier's check,
subject  to adjustment as hereinafter provided. The common shares in the capital
of  the  Company  are  hereinafter  referred  to  as  "Common  Shares".

     1    Warrant;  Purchase  Price
          -------------------------

          Each Warrant shall entitle the Holder to purchase one Common Share and
the  purchase  price  payable  upon  exercise of the Warrants shall initially be
$0.62  per Common Share in lawful money of the United States of America, subject
to  adjustment  as  hereinafter  provided  (the "Purchase Price").  The Purchase
Price  and  number  of  Common Shares issuable upon exercise of each Warrant are
subject  to  adjustment  as  provided  in  Section  6.

     2    Exercise;  Expiration  Date
          ---------------------------

          2.1     The  Warrants are exercisable, at the option of the Holder, at
any  time  after  issuance  and on or before the Expiration Date, upon surrender
(the  "Date  of  Exercise")  of this Warrant Certificate to the Company together
with a duly completed Notice of Exercise, in the form attached hereto as Exhibit
A-1,  and  payment  of an amount equal to the Purchase Price times the number of
Warrants  to  be  exercised.  In the event the Holder will exercise the cashless
exercise  right  pursuant  to  Section  2.2 herein, the Holder shall provide the
Company  with  a Notice of Cashless Exercise in the Form of Exhibit A-2 attached
hereto  (the  date  of  such  submission  should also deemed to be the "Exercise
Date."  The  Company  shall promptly (but in no event later than 3 business days
after  the  Date  of  Exercise)  issue  or  cause  to  be issued and cause to be
delivered  to  or upon the written order of the Holder and in such name or names
as  the  Holder may designate, a certificate for the Common Shares issuable upon
such  exercise.  Any person so designated by the Holder to receive Common Shares
shall  be deemed to have become holder of record of such Common Shares as of the
Date  of  Exercise  of  this  Warrant  Certificate.  The  Company  shall,

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                                     Page 2

upon request of the Holder, if available, use its best efforts to deliver Common
Shares  hereunder  electronically  through  the  Depository Trust Corporation or
another  established  clearing  corporation performing similar functions. In the
case  of  exercise  of  less  than  all the Warrants represented by this Warrant
Certificate, the Company shall cancel the Warrant Certificate upon the surrender
thereof  and shall execute and deliver a new Warrant Certificate for the balance
of  such  Warrants.

          2.2     The  Holder may surrender this Warrant to the Company together
with  a  notice  of cashless exercise, in which event the Company shall issue to
the Holder the number of Common Shares determined as follows:

     X  =  Y  [(A-B)/A]
     where:

     X = the number of Common Shares to be issued to the Holder.

     Y  =  the  number  of  Warrant  Shares  with  respect to which this Warrant
     Certificate  is  being  exercised.

     A  =  the  average  of the closing sale prices of the Common Shares for the
     trading  day  immediately  prior  to  the  Date  of  Exercise.

     B = the Exercise Price.

          For purposes of Rule 144 promulgated under the Securities Act of 1933,
it  is  intended, understood and acknowledged that the Common Shares issued in a
cashless  exercise  transaction  shall  be  deemed  to have been acquired by the
Holder,  and  the  holding  period for the Common Shares shall be deemed to have
been  commenced,  on  the  issue  date.

          2.3     The  term "Expiration Date" shall mean 5:00 p.m. New York time
on  June 15, 2006 or if such date shall in the State of New York be a holiday or
a  day  on which banks are authorized to close, then 5:00 p.m. New York time the
next  following date which in the State of New York is not a holiday or a day on
which  banks  are  authorized  to  close.

     3    Registration  and  Transfer  on  Company  Books
          -----------------------------------------------

          3.1     The  Company  shall  maintain  books  for the registration and
transfer  of the Warrants and the registration and transfer of the Common Shares
issued  upon  exercise  of  the  Warrants.

          3.2     Prior  to due presentment for registration of transfer of this
Warrant  Certificate  (upon  surrender of this Warrant Certificate together with
the  Assignment  Form  annexed  hereto  as Exhibit B, properly endorsed), or the
Common  Shares  issued  upon  exercise of the Warrants, the Company may deem and
treat  the  registered  Holder  as  the  absolute  owner  thereof.

          3.3     Neither  this  Warrant  nor  the  Common  Shares issuable upon
exercise  hereof  have  been  registered  under  the  Securities Act of 1933, as
amended  (the  "Act") or qualified under a prospectus filed under the Securities
Act  (Ontario).  The  Company  will  not  permit the transfer of this Warrant or
issue  or  transfer  the  Common Shares issuable upon exercise hereof unless (i)
there  is an effective registration covering such Warrant or such shares, as the
case  may  be, under the Act and applicable states securities laws and is exempt
from,  or  not  subject  to,  the  prospectus requirements of the Securities Act
(Ontario),  (ii)  it first receives a letter from an attorney, acceptable to the
Company's  board  of directors or its agents, stating that in the opinion of the
attorney  the  proposed  issue or transfer is exempt from registration under the
Act  and  under  all  applicable  state securities laws, and exempt from, or not
subject  to,  the  prospectus  requirements  of the Securities Act (Ontario), or
(iii)  the  transfer is made pursuant to Rule 144 under the Act, and exempt from
the  prospectus  requirements of the Securities Act (Ontario). The Company shall
register  upon  its  books any permitted transfer of a Warrant Certificate, upon
surrender  of  same  to  the  Company with a written instrument of transfer duly
executed  by  the  registered Holder or by a duly authorized attorney.  Upon any
such registration of transfer, new Warrant Certificate(s) shall be issued to the
transferee(s)  and  the surrendered Warrant Certificate shall be canceled by the
Company.  A  Warrant  Certificate  may  also  be  exchanged,  at  the  option

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of  the  Holder,  for new Warrant Certificates representing in the aggregate the
number of Warrants evidenced by the Warrant Certificate surrendered.

          3.4     Subject  to  Section  3.5,  at  all times this Warrant and the
securities  issuable  upon exercise hereof shall bear a legend in the form which
appears on the face page of this Warrant Certificate by which the Holder of this
Warrant and Holder of such securities shall be bound.

          3.5     This  Warrant  Certificate  or  the  securities  issuable upon
exercise  of  the  Warrants  hereof shall not be required to bear such legend if
such security shall be issued upon:

          (i)     the  transfer  or exchange of such security in the event that,
at  the  time  of  such  transfer or exchange, (A) such security shall have been
registered  under  the  Act,  the Registration Statement in connection therewith
shall have been declared effective and such security shall have been disposed of
pursuant  to  such  effective  Registration Statement and is exempt from, or not
subject  to,  the prospectus requirements of the Securities Act (Ontario) or (B)
such  security  shall have been sold in compliance with Rule 144 (or any similar
provision  then  in  force)  under  the Act in such a manner that resale of such
security  will not require registration under the Act and is exempt from, or not
subject  to,  the  prospectus  requirements  of the Securities Act (Ontario); or

          (ii)     the  transfer  or  exchange of such security not bearing, nor
otherwise  required  under  the  terms  hereof  to  bear,  such  legend.

     4    Registration  Rights
          --------------------

          This Warrant Certificate is subject to the registration rights granted
under  the  letter  agreement  between  the Company and Sunrise Securities Corp.
dated  May  9, 2003 and such registration rights shall continue until all of the
Holder's  Common  Shares  have  been  sold  in  accordance  with  an  effective
registration  statement  or  upon  the Expiration Date. The Company will pay all
registration  expenses  in  connection  therewith.

     5    Reservation  of  Shares
          -----------------------

          The  Company  covenants  that  it  will  at all times reserve and keep
available  out  of its authorized Common Shares, solely for the purpose of issue
upon  exercise  of  the  Warrants, such number of Common Shares as shall then be
issuable  upon  the  exercise of all outstanding Warrants. The Company covenants
that  all  Common  Shares  which shall be issuable upon exercise of the Warrants
shall  be duly and validly issued and, upon payment for such shares as set forth
herein, fully paid and non-assessable and free from all taxes, liens and charges
with  respect  to  the  issue  thereof  (other than any taxes, liens, or charges
resulting  from  any  action  or inaction of the Holder), and that upon issuance
such  shares  shall  be  listed on each national securities exchange, if any, on
which  the  other  Common  Shares  are  then  listed.

     6    Loss or Mutilation
          ------------------

          Upon receipt by the Company of reasonable evidence of the ownership of
and  the  loss, theft, destruction or mutilation of any Warrant Certificate and,
in  the case of loss, theft or destruction, of indemnity reasonably satisfactory
to  the  Company, or, in the case of mutilation, upon surrender and cancellation
of  the  mutilated Warrant Certificate, the Company shall execute and deliver in
lieu thereof a new Warrant Certificate representing an equal number of Warrants.

     7    Adjustment of Purchase Price and Number of Shares Deliverable
          -------------------------------------------------------------

          7.1     The  number  of Common Shares purchasable upon the exercise of
each  Warrant  (such  shares being referred to in this Section 7 as the "Warrant
Shares")  and  the  Purchase  Price  with respect to the Warrant Shares shall be
subject  to  adjustment  as  follows:

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                                     Page 4

          (a)     In  case  the  Company  shall (i) declare a dividend or make a
distribution  on  its Common Shares payable in shares of its capital stock, (ii)
subdivide  its  outstanding  Common Shares through stock split, reverse split or
otherwise,  (iii) combine its outstanding Common Shares into a smaller number of
Common Shares, or (iv) issue by reclassification of its Common Shares (including
any  such reclassification in connection with a consolidation or merger in which
the  Company is the continuing corporation) other securities of the Company, the
number and/or nature of Warrant Shares purchasable upon exercise of each Warrant
immediately prior thereto shall be adjusted so that the Holder shall be entitled
to  receive  the  kind  and  number of Warrant Shares or other securities of the
Company  which  he  would  have owned or have been entitled to receive after the
happening  of any of the events described above, had such Warrant been exercised
immediately prior to the happening of such event or any record date with respect
thereto.  An  adjustment  made  pursuant  to  this  paragraph  (a)  shall become
effective  retroactively  as  of  the  record  date  of  such  event.

          (b)     In case the Company shall issue rights, options or warrants or
securities  convertible  into  Common Shares to the holders of its Common Shares
generally,  entitling  them  (for  a period expiring within forty-five (45) days
after  the record date referred to below in this paragraph (b)) to subscribe for
or purchase Common Shares at a price per share which (together with the value of
the  consideration,  if  any,  paid  for  such  rights,  options,  warrants  or
convertible  securities)  is lower on the record date referred to below than 95%
of  the  then  Market  Price Per Common Share (as determined pursuant to Section
9.2),  the  number of Warrant Shares thereafter purchasable upon the exercise of
each  Warrant  shall  be  determined by multiplying the number of Warrant Shares
immediately theretofore purchasable upon exercise of each Warrant by a fraction,
of  which the numerator shall be the number of Common Shares outstanding on such
record  date  plus  the number of additional Common Shares purchased pursuant to
such  offer,  and  of which the denominator shall be the number of Common Shares
outstanding  on  such  record date plus the number of shares which the aggregate
offering  price of the total number of Common Shares so purchased (together with
the  value of the consideration, if any, paid for such rights, options, warrants
or  convertible  securities)  would purchase at the then Market Price Per Common
Share.  Such  adjustment  shall  be  made at the expiration of the period during
which  such rights, options, warrants or convertible securities may be exercised
or converted, as the case may be, and shall become effective retroactively as of
the  record  date for the determination of shareholders entitled to receive such
rights,  options,  warrants  or  convertible  securities.

          (c)     In  case  the  Company  shall distribute to all holders of its
Common  Shares,  or all holders of Common Shares shall otherwise become entitled
to  receive,  shares  in  the  capital  of  the Company (other than dividends or
distributions  on  its  Common  Shares  referred  to  in  paragraph  (a) above),
evidences  of  its  indebtedness  or  rights,  options,  warrants or convertible
securities  providing  the  right to subscribe for or purchase any shares in the
capital  of the Company or evidences of its indebtedness (other than any rights,
options, warrants or convertible securities referred to in paragraph (b) above),
then  in  each case the number of Warrant Shares thereafter purchasable upon the
exercise  of  each  Warrant  shall  be  determined  by multiplying the number of
Warrant  Shares  theretofore purchasable upon the exercise of each Warrant, by a
fraction, of which the numerator shall be the then Market Price Per Common Share
(as  determined  pursuant  to Section 9.2) on the record date mentioned below in
this  paragraph (c), and of which the denominator shall be the then Market Price
Per  Common  Share  on  such record date, less the then fair value per share (as
determined  by  the  Board  of  Directors  of the Company, in good faith) of the
shares  in  the  capital of the Company (other than Common Shares), evidences of
indebtedness,  or  of  such rights, options, warrants or convertible securities,
distributable  with respect to each Common Share.  Such adjustment shall be made
whenever any such distribution is made, and shall become effective retroactively
as  of the record date for the determination of shareholders entitled to receive
such  distribution.

          (d)     In  the  event  of  any  capital  reorganization  or  any
reclassification  (not  otherwise  referred  to  in  paragraph (a) above) of the
capital  stock  of  the Company or in case of the consolidation or merger of the
Company  with another corporation (other than a consolidation or merger in which
the  outstanding shares of the Company's Common Shares are not converted into or
exchanged  for  other rights or interests), or in the case of any sale, transfer
or  other  disposition  to  another  corporation of all or substantially all the
properties  and  assets  of  the  Company,  the  Holder  of  each  Warrant shall
thereafter  be  entitled  to  purchase  (and  it  shall  be  a  condition to the
consummation  of  any  such  reorganization,  reclassification,  consolidation,
merger, sale, transfer or other disposition that appropriate provisions shall be
made  so that such Holder shall thereafter be entitled to purchase) the kind and
amount  of  shares  and other securities and property (including cash) which the
Holder  would  have  been  entitled  to  receive  had  such

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Warrants  been  exercised  immediately  prior  to  the  effective  date  of such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition;  and  in any such case appropriate adjustments shall be made in the
application  of  the  provisions  of  this  Section 7 with respect to rights and
interest thereafter of the Holder of the Warrants to the end that the provisions
of  this Section 7 shall thereafter be applicable, as near as reasonably may be,
in  relation  to  any  shares  or other property thereafter purchasable upon the
exercise  of the Warrants. The provisions of this Section 7.1(d) shall similarly
apply to successive reorganizations, reclassifications, consolidations, mergers,
sales,  transfers  or  other  dispositions.

          (e)     Whenever  the  number  of  Warrant Shares purchasable upon the
exercise  of  each  Warrant  is  adjusted,  as provided in this Section 7.1, the
Purchase  Price  with  respect  to  the  Warrant  Shares  shall  be  adjusted by
multiplying  such  Purchase  Price  immediately  prior  to  such adjustment by a
fraction,  of  which  the  numerator  shall  be  the  number  of  Warrant Shares
purchasable  upon  the  exercise  of  each  Warrant  immediately  prior  to such
adjustment,  and  of which the denominator shall be the number of Warrant Shares
so  purchasable  immediately  thereafter.

          7.2     In  the  event the Company shall declare a dividend, or make a
distribution  to  the  holders  of its Common Shares generally, whether in cash,
property  or  assets  of  any  kind,  including any dividend payable in stock or
securities of any other issuer owned by the Company (excluding regularly payable
cash dividends declared from time to time by the Company's Board of Directors or
any  dividend  or  distribution referred to in Section 7.1(a) or (c) above), the
Purchase  Price  of each Warrant shall be reduced, without any further action by
the  parties  hereto,  by  the  Per  Share Value (as hereinafter defined) of the
dividend.  For  purposes  of  this  Section 7.2, the "Per Share Value" of a cash
dividend or other distribution shall be the dollar amount of the distribution on
each  Common  Share  and  the  "Per Share Value" of any dividend or distribution
other  than  cash  shall  be  equal  to  the  fair market value of such non-cash
distribution  on  each  Common Share as determined in good faith by the Board of
Directors  of  the  Company.

          7.3     Whenever  the  number  of  Warrant Shares purchasable upon the
exercise  of  each  Warrant  or  the  Purchase  Price  of such Warrant Shares is
adjusted,  as  herein  provided,  the  Company  shall mail to the Holder, at the
address  of  the  Holder  shown  on  the  books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary  of  the  Company,  which  sets  forth  the  number  of Warrant Shares
purchasable  upon  the  exercise  of each Warrant and the Purchase Price of such
Warrant  Shares  after such adjustment, a brief statement of the facts requiring
such  adjustment  and  the  computation  by  which  such  adjustment  was  made.

          7.4     In  the  event that at any time prior to the expiration of the
Warrants  and  prior  to  their  exercise:

          (a)     the  Company shall declare any distribution (other than a cash
dividend  or a dividend payable in securities of the Company with respect to the
Common  Shares);  or

          (b)     the  Company  shall  offer  for subscription to the holders of
Common  Shares  any  additional  shares  of  any  class  or any other securities
convertible into Common Shares or any rights to subscribe thereto; or

          (c)     the  Company  shall  declare  any stock split, stock dividend,
subdivision,  combination,  or  similar  distribution with respect to the Common
Shares,  regardless of the effect of any such event on the outstanding number of
shares  of  Common  Shares;  or

          (d)     the  Company  shall  declare a dividend, other than a dividend
payable in shares of the Company's own Common Shares; or

          (e)     there  shall be any capital change in the Company as set forth
in  Section  7.1(d);  or

          (f)     there  shall  be  a  voluntary  or  involuntary  dissolution,
liquidation,  or  winding  up  of  the  Company (other than in connection with a
consolidation,  merger,  or  sale  of  all or substantially all of its property,
assets  and  business  as  an  entity);

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                                     Page 6

(each  such  event hereinafter being referred to as a "Notification Event"), the
Company  shall  cause to be mailed to the Holder, not less than twenty (20) days
prior  to  the  record  date, if any, in connection with such Notification Event
(provided,  however,  that  if  there  is no record date, or if twenty (20) days
prior notice is impracticable, as soon as practicable) written notice specifying
the  nature  of  such  event and the effective date of, or the date on which the
books  of  the  Company  shall close or a record shall be taken with respect to,
such  event.  Such  notice  shall  also set forth facts indicating the effect of
such  action (to the extent such effect may be known at the date of such notice)
on  the Purchase Price and the kind and amount of the shares or other securities
or  property deliverable upon exercise of the Warrants.  For purposes here of, a
business  day  shall mean any day other than a Saturday, Sunday or any other day
in  which  commercial  banks are authorized by law to be closed in New York, New
York.

          7.5     The form of Warrant Certificate need not be changed because of
any change in the Purchase Price, the number of Warrant Shares issuable upon the
exercise  of  a  Warrant  or the number of Warrants outstanding pursuant to this
Section 7, and Warrant Certificates issued before or after such change may state
the  same  Purchase  Price,  the same number of Warrants, and the same number of
Warrant  Shares  issuable upon exercise of Warrants as are stated in the Warrant
Certificates  theretofore  issued  pursuant to this Agreement.  The Company may,
however,  at  any  time,  in its sole discretion, make any change in the form of
Warrant  Certificate  that  it may deem appropriate and that does not affect the
substance  thereof,  and  any  Warrant  Certificates  thereafter  issued  or
countersigned,  whether  in  exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.

     8    Voluntary  Adjustment  by  the  Company
          ---------------------------------------

          The  Company  may,  at  its option, at any time during the term of the
Warrants,  reduce  the  then  current  Purchase  Price  to  any  amount  deemed
appropriate  by  the Board of Directors of the Company and/or extend the date of
the  expiration  of  the  Warrants.

     9    Fractional  Shares  and  Warrants;  Determination  of Market Price Per
          ----------------------------------------------------------------------
Share
-----

          9.1     Anything contained herein to the contrary notwithstanding, the
Company  shall  not  be  required  to  issue  any  fraction of a Common Share in
connection with the exercise of Warrants.  Warrants may not be exercised in such
number  as  would  result  (except  for the provisions of this paragraph) in the
issuance  of  a  fraction  of a Common Share unless the Holder is exercising all
Warrants  then  owned by the Holder.  In such event, the Company shall, upon the
exercise  of  all  of  such  Warrants, issue to the Holder the largest aggregate
whole  number  of  Common Shares called for thereby upon receipt of the Purchase
Price  for  all  of  such  Warrants and pay a sum in cash equal to the remaining
fraction  of  a  Common  Share,  multiplied  by  its  Market Price Per Share (as
determined  pursuant to Section 9.2 below) as of the last business day preceding
the  date  on  which  the  Warrants  are  presented  for  exercise.

          9.2     As  used  herein, the "Market Price Per Share" with respect to
any  date  shall  mean  the  average closing price per share of Company's Common
Shares  for  the five trading days immediately preceding such date.  The closing
price  for each such day shall be the last sale price regular way or, in case no
such  sale  takes  place  on  such day, the average of the closing bid and asked
prices regular way, in either case on the principal securities exchange on which
the  Common Shares are listed or admitted to trading, the last sale price, or in
case  no  sale takes place on such day, the average of the closing bid and asked
prices of the Common Shares on Nasdaq or any comparable system, or if the Common
Shares  is  not  reported  on  Nasdaq or a comparable system, the average of the
closing  bid  and  asked  prices  as  furnished  by  two members of the National
Association  of  Securities  Dealers,  Inc.  selected  from  time to time by the
Company  for that purpose.  If such bid and asked prices are not available, then
"Market  Price  Per  Share"  shall  be  equal  to  the  fair market value of the
Company's Common Shares as determined in good faith by the Board of Directors of
the  Company.

     10   Indemnification
          ---------------

          10.1      Indemnification  by  the  Company.  The  Company  shall,
                    ---------------------------------
notwithstanding  any termination of this Warrant Certificate, indemnify and hold
harmless  each  Holder,  the  officers,  directors,  agents  (including  any
underwriters  retained  by  such Holder in connection with the offer and sale of
Common  Shares),  investment advisors and employees of each of them, each Person
who  controls  any  such  Holder  (within  the  meaning  of  Section  15  of the

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                                     Page 7

Act  or  Section 20 of the Exchange Act) and the officers, directors, agents and
employees  of  each  such controlling Person, to the fullest extent permitted by
applicable  law,  from  and against any and all joint or several losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and  attorneys'  fees)  and  expenses  (collectively,  together  with  actions,
proceedings  or  inquiries  by  any  regulatory or self-regulatory organization,
whether  commenced  or  threatened,  "Losses"),  as  incurred, arising out of or
relating  to  (i)  any  untrue  or  alleged  untrue statement of a material fact
contained  in  the  Registration  Statement,  any  Prospectus  or  any  form  of
prospectus  or  in  any  amendment  or  supplement thereto or in any preliminary
Prospectus, or arising out of or relating to any omission or alleged omission of
a  material  fact  required  to  be  stated  therein  or  necessary  to make the
statements  therein  (in  the  case  of  any Prospectus or form of prospectus or
supplement  thereto,  in  light of the circumstances under which they were made)
not  misleading,  except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon and in conformity with information
regarding  such  Holder  furnished  in  writing  to  the  Company by such Holder
expressly  for  use  therein,  which information was reasonably relied on by the
Company  for  use therein or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Common Shares and was
reviewed  and  expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of prospectus or in any
amendment  or  supplement  thereto  (provided  that  the  Company  amended  any
disclosure  with  respect to the method of distribution upon written notice from
the Holders that such section of the Prospectus should be revised in any way) or
(ii)  any violation or alleged violation by the Company of the Act, the Exchange
Act,  any other law, including, without limitation, any state securities law, or
any  rule  or  regulation  thereunder  relating  to  the offer or sale of Common
Shares.  The  Company shall not, however, be liable for any Losses to any Holder
with  respect  to  any  untrue  or  alleged untrue statement of material fact or
omission  or alleged omission of material fact if such statement or omission was
made  in  a preliminary Prospectus and such Holder did not receive a copy of the
final  Prospectus  (or  any  amendment or supplement thereto) at or prior to the
confirmation of the sale of the Common Shares in any case where such delivery is
required  by the Act and the untrue or alleged untrue statement of material fact
or  omission  or alleged omission of material fact contained in such preliminary
Prospectus was corrected in the final Prospectus (or any amendment or supplement
thereto),  unless  the  failure  to deliver such final Prospectus (as amended or
supplemented)  was  a  result  of noncompliance by the Company with the terms of
this  Warrant  Certificate. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in  connection  with  the transactions contemplated by this Warrant Certificate.

          10.2      Indemnification  by  Holders.  Each  Holder shall, severally
                    ----------------------------
and  not  jointly,  indemnify  and  hold  harmless  the  Company, the directors,
officers, agents and employees, each Person who controls the Company (within the
meaning  of  Section  15 of the Act and Section 20 of the Exchange Act), and the
directors,  officers,  agents  or  employees of such controlling Persons, to the
fullest  extent  permitted  by  applicable  law, from and against all Losses, as
incurred,  arising  solely out of or based solely upon any untrue statement of a
material  fact  contained  in the Registration Statement, any Prospectus, or any
form  of  prospectus, or arising solely out of or based solely upon any omission
of  a  material  fact  required  to  be  stated therein or necessary to make the
statements  therein  not  misleading to the extent, but only to the extent, that
such  untrue  statement or omission is contained in any information so furnished
in  writing  by  such  Holder  to  the Company specifically for inclusion in the
Registration  Statement  or  such  Prospectus  and  that  such  information  was
reasonably  relied  upon  by  the Company for use in the Registration Statement,
such  Prospectus  or  such  form  of  prospectus  or  to  the  extent  that such
information  relates  to  such  Holder  or  such  Holder's  proposed  method  of
distribution of Common Shares and was reviewed and expressly approved in writing
by  such Holder expressly for use in the Registration Statement, such Prospectus
or  such  form  of  prospectus;  provided, however, that the indemnity agreement
                                 --------  -------
contained  in this Section 10.2 shall not apply to amounts paid in settlement of
any  Losses  if such settlement is effected without the prior written consent of
such Holder.  In no event shall the liability of any selling Holder hereunder be
greater  in  amount  than the dollar amount of the net proceeds received by such
Holder  upon  the  sale of the Common Shares giving rise to such indemnification
obligation.

          10.3      Conduct  of  Indemnification Proceedings.  If any Proceeding
                    ----------------------------------------
shall  be brought or asserted against any Person entitled to indemnity hereunder
(an  "Indemnified  Party"),  such  Indemnified  Party  promptly shall notify the
Person  from whom indemnity is sought (the "Indemnifying Party") in writing, and
the  Indemnifying  Party  shall  assume  the  defense  thereof,  including  the
employment  of  counsel reasonably satisfactory to the Indemnified Party and the
payment  of  all  fees and expenses incurred in connection with defense thereof;
provided, however, that the failure of any Indemnified Party to give such notice
--------  -------
shall  not  relieve  the  Indemnifying  Party  of its obligations or liabilities
pursuant  to  this  Warrant Certificate, except (and only) to the extent that it
shall  be  finally  determined  by  a  court  of  competent  jurisdiction (which
determination  is  not  subject  to  appeal or further review) that such failure
shall  have  proximately  and  materially  adversely prejudiced the Indemnifying
Party.

<PAGE>
                                     Page 8

          An  Indemnified  Party shall have the right to employ separate counsel
in  any  such Proceeding and to participate in the defense thereof, but the fees
and  expenses  of such counsel shall be at the expense of such Indemnified Party
or  Parties unless: (i) the Indemnifying Party has agreed in writing to pay such
fees  and expenses, or (ii) the Indemnifying Party shall have failed promptly to
assume  the  defense  of  such  Proceeding  and  to  employ  counsel  reasonably
satisfactory  to  such  Indemnified  Party  in any such Proceeding, or (iii) the
named  parties  to any such Proceeding (including any impleaded parties) include
both  such  Indemnified  Party  and the Indemnifying Party, and such Indemnified
Party  shall  have been advised by counsel that a conflict of interest is likely
to  exist  if  the same counsel were to represent such Indemnified Party and the
Indemnifying  Party  (in  which  case,  if  such  Indemnified Party notifies the
Indemnifying  Party  in writing that it elects to employ separate counsel at the
expense  of  the  Indemnifying  Party, the Indemnifying Party shall not have the
right  to assume the defense thereof and such counsel shall be at the reasonable
expense  of the Indemnifying Party).  The Indemnifying Party shall not be liable
for  any settlement of any such Proceeding effected without its written consent,
which  consent shall not be unreasonably withheld.  No Indemnifying Party shall,
without  the  prior  written  consent  of  the  Indemnified  Party,  effect  any
settlement  of  any pending Proceeding in respect of which any Indemnified Party
is  a  party,  unless  such settlement includes an unconditional release of such
Indemnified  Party  from  all liability on claims that are the subject matter of
such  Proceeding.

          All  fees  and expenses of the Indemnified Party (including reasonable
fees  and  expenses  to  the extent incurred in connection with investigating or
preparing  to  defend  such  Proceeding  in  a manner not inconsistent with this
Section)  shall  be  paid to the Indemnified Party, as incurred, within ten (10)
Business  Days of written notice thereof to the Indemnifying Party, which notice
shall  be  delivered  no  more frequently than on a monthly basis (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification  hereunder;  provided,  that  the Indemnifying Party may require
                             --------
such  Indemnified  Party to undertake to reimburse all such fees and expenses to
the  extent  it  is finally judicially determined that such Indemnified Party is
not  entitled  to  indemnification  hereunder).

          10.4      Contribution.  If  a claim for indemnification under Section
                    ------------
10.1  or  10.2  is  unavailable  to an Indemnified Party because of a failure or
refusal  of a court of competent jurisdiction to enforce such indemnification in
accordance  with  its terms (by reason of public policy or otherwise), then each
Indemnifying  Party,  in  lieu  of  indemnifying  such  Indemnified Party, shall
contribute  to  the amount paid or payable by such Indemnified Party as a result
of  such  Losses,  in  such proportion as is appropriate to reflect the relative
fault  of  the  Indemnifying  Party and Indemnified Party in connection with the
actions,  statements  or  omissions  that resulted in such Losses as well as any
other  relevant  equitable  considerations.  The  relative  fault  of  such
Indemnifying  Party  and  Indemnified Party shall be determined by reference to,
among  other  things,  whether  any  action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such  Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge,  access  to  information  and  opportunity to correct or prevent such
action,  statement  or  omission.  The  amount  paid  or payable by a party as a
result  of any Losses shall be deemed to include, subject to the limitations set
forth  in  Section  5(c),  any reasonable attorneys' or other reasonable fees or
expenses  incurred by such party in connection with any Proceeding to the extent
such  party  would  have  been  indemnified  for  such  fees  or expenses if the
indemnification  provided  for  in  this  Section was available to such party in
accordance with its terms.   In no event shall any selling Holder be required to
contribute  an  amount  under  this  Section 10.3, in excess of the net proceeds
received  by  such  Holder  upon  sale  of  the  Common  Shares  pursuant to the
Registration  Statement  giving  rise  to  such  contribution  obligation.

          The  parties  hereto  agree that it would not be just and equitable if
contribution  pursuant  to  this  Section  10.4  were  determined  by  pro  rata
allocation  or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No  Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f)  of the Act) shall be entitled to contribution from any Person who was not
guilty  of  such  fraudulent  misrepresentation.

          The  indemnity  and  contribution agreements contained in this Section
are  in  addition to any liability that the Indemnifying Parties may have to the
Indemnified  Parties.

<PAGE>
                                     Page 9

     11   Governing  Law
          --------------

          This  Warrant  Certificate  shall  be  governed  by  and  construed in
accordance  with  the  laws  of  the  Province  of  Ontario.

          IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be  duly  executed  by  its officers thereunto duly authorized and its corporate
seal  to  be  affixed  hereon,  as  of  this  _______  day  of  June,  2003.

                                    DIVERSINET  CORP.

                                    By:  __________________________________
                                         Name:  David Hackett
                                         Title: Chief Financial Officer

<PAGE>
                                    Page 10

                                                                     EXHIBIT A-1
                               NOTICE OF EXERCISE

     The  undersigned hereby irrevocably elects to exercise, pursuant to Section
2.1  of  the  Warrant  Certificate accompanying this Notice of Exercise, _______
Warrants  of  the  total number of Warrants owned by the undersigned pursuant to
the accompanying Warrant Certificate, and herewith makes payment of the Purchase
Price  of  such  shares  in  full.

                                          ________________________________

                                          ________________________________
                                          Signature

                                          Address:

                                          ________________________________

                                          ________________________________

                                          ________________________________

<PAGE>
                                    Page 11

                                                                     EXHIBIT A-2

                             CASHLESS EXERCISE FORM
                    (To be executed upon exercise of Warrant
                        pursuant to Section 2.02(a)(ii))

     The  undersigned  hereby  irrevocably  elects  to surrender its Warrant for
_________  Common  Shares  pursuant  to  the Cashless Exercise provisions of the
within  Warrant,  as  provided  for  in Section 2.2 of such Warrant Certificate.

     If  said  number  of  shares  shall  not  be all the shares exchangeable or
purchasable  under the within Warrant, a new Warrant is to be issued in the name
of  the  undersigned  for  the  balance  remaining  of  the  shares  purchasable
thereunder.

     Please  issue  a  certificate or certificates for such Common Shares in the
name  of,  and  pay  cash  for  fractional  shares  to:

                            Name:  ________________________________________
                            (Please Print name, Address and Social Security No.)

                            Address:_______________________________________
                            _______________________________________________
                            _______________________________________________

                            Social  Security  Number:______________________

                            Signature:_____________________________________
                            NOTE:  The  above  signature  should  correspond
                            exactly  with  the  name on the first page of this
                            Warrant or with the name of the assignee appearing
                            in  the  assignment  form  below.

<PAGE>
                                    Page 12

                                                                       EXHIBIT B

                               FORM OF ASSIGNMENT
           [TO BE COMPLETED AND SIGNED ONLY UPON TRANSFER OF WARRANT]

     FOR  VALUE  RECEIVED,  the  undersigned hereby sells, assigns and transfers
unto ___________________ the right represented by the within Warrant to purchase
____________  shares  of  Common  Shares  of Diversinet Corp., Inc. to which the
within  Warrant  relates and appoints ________________ attorney to transfer said
right  on  the books of Diversinet Corp., with full power of substitution in the
premises.

     Dated:

     _______________,  ____

                              _______________________________________
                              (Signature must conform in all respects to name of
                              holder as specified on the face of the Warrant)

                              _______________________________________
                              Address  of  Transferee

                              _______________________________________

                              _______________________________________

     In  the  presence  of:

     __________________________

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

--------------------------------------------------------------------------------
                                                                    EXHIBIT 10.4

                          PINNACLE GAS RESOURCES, INC.

                        PREFERRED STOCK AND COMMON STOCK

                     CONTRIBUTION AND SUBSCRIPTION AGREEMENT

                            DATED AS OF JUNE 23, 2003

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

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

<PAGE>

                                TABLE OF CONTENTS

ARTICLE I. DEFINITIONS.........................................................1

     Section 1.1       Definitions.............................................1

ARTICLE II. ISSUANCE OF SECURITIES............................................11

     Section 2.1       Initial CCBM Contribution..............................11
     Section 2.2       Initial RMG Contribution...............................11
     Section 2.3       Option of the Contributing Parties
                       to Purchase Additional Shares..........................12
     Section 2.4       Initial CSFB Contribution..............................13
     Section 2.5       Subsequent CSFB Contribution...........................14
     Section 2.6       Grant of Additional Warrants...........................15
     Section 2.7       Allocation Agreement...................................15
     Section 2.8       Disclaimers............................................15

ARTICLE III. CLOSING..........................................................16

ARTICLE IV. CONDITIONS TO CLOSING.............................................16

     Section 4.1       Closing Conditions of the Investors....................16
     Section 4.2       Closing Conditions of the CSFB Parties.................18
     Section 4.3       Closing Conditions of CCBM.............................19
     Section 4.4       Closing Conditions of RMG..............................20
     Section 4.5       Closing Conditions of the Company......................20

ARTICLE V. CONDITIONS TO THE SUBSEQUENT CSFB CONTRIBUTION.....................21

     Section 5.1       Conditions to the Subsequent CSFB Contribution.........21

ARTICLE VI. COVENANTS.........................................................22

     Section 6.1       Cooperation, Approvals, Further Action.................22
     Section 6.2       Closing Conditions; Adverse Effect.....................22
     Section 6.3       Supplements to Schedules...............................22
     Section 6.4       Access.................................................23
     Section 6.5       Confidentiality........................................23
     Section 6.6       Additional Affirmative Covenants of the Company........23
     Section 6.7       Taxes..................................................24
     Section 6.8       Public Disclosures.....................................25
     Section 6.9       Brokers' Fees..........................................25
     Section 6.10      Company Records........................................25
     Section 6.11      Retention of Stock Certificates; Negative Pledge.......25

ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................26

     Section 7.1       Organization; Qualification and Authority;
                       Binding Obligations....................................26
     Section 7.2       Authorized Shares and Related Matters..................26
     Section 7.3       Defaults; Indebtedness.................................27
     Section 7.4       No Violation...........................................27
     Section 7.5       Offering of Shares.....................................27

ARTICLE VIII. REPRESENTATIONS, AND WARRANTIES OF THE INVESTORS................27

                                       i

<PAGE>

     Section 8.1       Investment Matters.....................................27
     Section 8.2       Authority..............................................28
     Section 8.3       No Conflicts...........................................29
     Section 8.4       Other Agreements.......................................29

ARTICLE IX. REPRESENTATIONS AND WARRANTIES OF CCBM............................29

     Section 9.1       Organization; Qualification and Authority;
                       Binding Obligations....................................29
     Section 9.2       Defaults; Outstanding Debt.............................30
     Section 9.3       No Violation...........................................30
     Section 9.4       Consents...............................................30
     Section 9.5       Investment Company Status..............................30
     Section 9.6       Taxes..................................................30
     Section 9.7       Compliance with Law....................................31
     Section 9.8       Proceedings............................................31
     Section 9.9       Title..................................................31
     Section 9.10      Contracts..............................................31
     Section 9.11      Permits................................................32
     Section 9.12      Consents, Preferential Rights, etc.....................32
     Section 9.13      Marketing..............................................32
     Section 9.14      Change in Condition....................................32
     Section 9.15      No Other Activities....................................33
     Section 9.16      Contributed Assets.....................................33

ARTICLE X. REPRESENTATIONS AND WARRANTIES OF RMG..............................33

     Section 10.1      Organization; Qualification and Authority;
                       Binding Obligations....................................33
     Section 10.2      Defaults; Outstanding Debt.............................33
     Section 10.3      No Violation...........................................34
     Section 10.4      Consents...............................................34
     Section 10.5      Investment Company Status..............................34
     Section 10.6      Taxes..................................................34
     Section 10.7      Compliance with Law....................................34
     Section 10.8      Proceedings............................................35
     Section 10.9      Title..................................................35
     Section 10.10     Contracts..............................................35
     Section 10.11     Permits................................................35
     Section 10.12     Consents, Preferential Rights, etc.....................36
     Section 10.13     Marketing..............................................36
     Section 10.14     Change in Condition....................................36
     Section 10.15     No Other Activities....................................36
     Section 10.16     Contributed Assets.....................................36
     Section 10.17     Environmental Matters..................................36
     Section 10.18     Operation of the Proven Properties.....................37

Article XI. TRANSFER OF SECURITIES............................................37

     Section 11.1      Restriction on Transfer................................37
     Section 11.2      Restrictive Legends....................................37

                                       ii

<PAGE>

ARTICLE XII. TERMINATION......................................................38

     Section 12.1      Termination............................................38
     Section 12.2      Effect of Termination..................................38

ARTICLE XIII. MISCELLANEOUS...................................................39

     Section 13.1      Indemnification........................................39
     Section 13.2      Indemnification Procedures.............................40
     Section 13.3      Dispute Resolution.....................................42
     Section 13.4      Consent to Amendments..................................43
     Section 13.5      Survival of Representations and Warranties.............43
     Section 13.6      Successors and Assigns; No Third Party Benefit.........43
     Section 13.7      Notices................................................44
     Section 13.8      Descriptive Headings...................................45
     Section 13.9      Satisfaction Requirement...............................45
     Section 13.10     Governing Law..........................................46
     Section 13.11     Entire Agreement.......................................46
     Section 13.12     Severability...........................................46

Schedule 2.1(a)-1      CCBM Contributed Assets
Schedule 2.1(a)-2      Assumed CCBM Liabilities
Schedule 2.2(a)-1      RMG Contributed Assets
Schedule 2.2(a)-2      Assumed RMG Liabilities
Schedule 9.8           CCBM Proceedings
Schedule 9.10          CCBM Contracts
Schedule 9.12          CCBM Required Consents
Schedule 9.13          CCBM Marketing
Schedule 9.16          CCBM Excluded Assets
Schedule 10.8          RMG Proceedings
Schedule 10.10         RMG Contracts
Schedule 10.12         RMG Required Consents
Schedule 10.13         RMG Marketing
Schedule 10.16         RMG Excluded Assets
Exhibit A              Form of AMI Agreement
Exhibit B              Form of Assignment, Assumption and Bill of Sale
Exhibit C              Form of Carrizo Transition Services Agreement
Exhibit D-1            Form of Schoonmaker Employment Agreement
Exhibit D-2            Form of Uhland Employment Agreement

                                       iii

<PAGE>

Exhibit E              Form of RMG Transition Services Agreement
Exhibit F              Form of Securityholders Agreement
Exhibit G              Allocations
Exhibit H              Form of Certificate of Incorporation
Exhibit I              Form of Certificate of Designations
Exhibit J              Form of Bylaws
Exhibit K-1            Form of Company Officer's Certificate
Exhibit K-2            Form of CCBM/RMG Officer's Certificate
Exhibit L              Approved 2003 Capital Expenditures Budget
Exhibit M              Approved 2003 General and Administrative Expenses Budget
Exhibit N              Form of Baker Botts Legal Opinion
Exhibit O              Form of Davis Graham & Stubbs Legal Opinion

                                       iv

<PAGE>

                          PINNACLE GAS RESOURCES, INC.
                     CONTRIBUTION AND SUBSCRIPTION AGREEMENT

     This CONTRIBUTION AND SUBSCRIPTION AGREEMENT, dated as of June 23, 2003
(this "AGREEMENT"), is entered into by and among Pinnacle Gas Resources, Inc., a
Delaware corporation (the "COMPANY"), CCBM, Inc., a Delaware corporation
("CCBM"), Rocky Mountain Gas, Inc., a Wyoming corporation ("RMG"), and each of
the CSFB Parties (as defined herein, and collectively with CCBM and RMG, the
"INVESTORS").

     WHEREAS, subject to terms and conditions of this Agreement, CCBM has agreed
to contribute certain assets to the Company in exchange for the issuance of
common stock, par value $.01, of the Company ("COMMON STOCK") and an option to
purchase additional newly issued shares of Common Stock;

     WHEREAS, subject to terms and conditions of this Agreement, RMG has agreed
to contribute certain assets to the Company in exchange for the issuance of
Common Stock and an option to purchase additional newly issued shares of Common
Stock;

     WHEREAS, subject to the terms and conditions of this Agreement, the CSFB
Parties (as defined below) and have agreed to contribute cash to the Company in
exchange for the issuance of Common Stock, Series A Redeemable Preferred Stock,
par value $.01 per share, of the Company ("PREFERRED STOCK") and warrants
exercisable for the purchase of Common Stock at a price per share equal to
$100.00, as the same may be adjusted as provided therein ("WARRANTS"); and

     WHEREAS, the parties hereto agree that the contributions by CCBM and RMG
contemplated by the foregoing clauses are intended to constitute transfers
described in Section 351(a) of the Internal Revenue Code of 1986, as amended;

     NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements hereinafter contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

                                   ARTICLE I.
                                   DEFINITIONS

     Section 1.1 Definitions. For the purpose of this Agreement, and in addition
to terms defined elsewhere in this Agreement, the following terms shall have the
following meanings. In addition, all terms of an accounting character not
specifically defined herein have the meanings assigned thereto by the Financial
Accounting Standards Board and generally accepted accounting principles.

     "AAA" has the meaning set forth in Section 13.3(d).

     "ACQUIRED ASSETS" means the assets acquired by the Company pursuant to the
First Source Agreements.

                                       1
<PAGE>

     "ACQUISITIONS" means the acquisition of assets by the Company pursuant to
the First Source Agreements.

     "ADDITIONAL SHARES" has the meaning set forth in Section 2.3(a).

     "AFFILIATE" means, with respect to any Person, any Person controlling,
controlled by, or under common control with such Person. For the purposes of
this definition, "control" means the possession of the power to direct or cause
the direction of management and policies of such Person, whether through the
direct or indirect ownership of voting securities, by contract or otherwise.

     "AGREEMENT" has the meaning set forth in the preamble.

     "AMI AGREEMENT" means the Area of Mutual Interest Agreement to be entered
into among the Company and the Investors concurrently with the execution of this
Agreement in the form of Exhibit A attached hereto.

     "APPROVALS" means any approvals, authorizations, grants of authority,
consents, orders, qualifications, permits, licenses, variances, exemptions,
franchises, concessions, certificates, filings or registrations or any waivers
of the foregoing, or any notices, statements or other communications required to
be filed with, delivered to or obtained from any Governmental Entity or any
other Person.

     "ASSIGNMENT, ASSUMPTION AND BILL OF SALE" means those certain Assignments,
Assumptions and Bills of Sale executed by each of CCBM and RMG in the form of
Exhibit B attached hereto.

     "ASSOCIATES" of any Person, means any officer, director or employee of such
Person and such officer's, director's or employee's spouse, heirs, executors,
administrators, testamentary trustees, legatees or beneficiaries."

     "ASSUMED CCBM LIABILITIES" means the obligations of CCBM to be assumed by
the Company, as set forth in Schedule 2.1(a)-2, and any other liabilities
expressly defined as Assumed CCBM Liabilities elsewhere in this Agreement.

     "ASSUMED RMG LIABILITIES" means the obligations of RMG to be assumed by the
Company, as set forth in Schedule 2.2(a)-2, and any other liabilities expressly
defined as Assumed RMG Liabilities elsewhere in this Agreement.

     "ASSUMPTIONS" means the assumption by the Company pursuant to the terms
hereof of the Assumed CCBM Liabilities and the Assumed RMG Liabilities.

     "AWARD" has the meaning set forth in Section 13.2(e).

     "BOARD" means the board of directors of the Company.

                                       2
<PAGE>

     "BUSINESS DAY" means any day which is not a Saturday, Sunday or day on
which banks are authorized by law to close in the State of New York, the State
of Texas or the State of Wyoming.

     "CAPITAL REQUEST" has the meaning set forth in Section 2.5(a).

     "CARRIZO" means Carrizo Oil & Gas, Inc., a Texas corporation.

     "CARRIZO TRANSITION SERVICES AGREEMENT" means a Transition Services
Agreement to be entered into between the Company and Carrizo concurrently with
the execution of this Agreement in the form of Exhibit C attached hereto.

     "CCBM" has the meaning set forth in the recitals.

     "CCBM CONTRACTS" has the meaning set forth in Section 9.10.

     "CCBM CONTRIBUTED ASSETS" means the assets to be contributed by CCBM as set
forth in Schedule 2.1(a)-1; provided, that the CCBM Contributed Assets shall not
include any proceeds, revenues, deductions, credits, refunds, rights and causes
of action or other similar assets attributable to the ownership or operation of
the CCBM Contributed Assets prior to the Closing notwithstanding anything to the
contrary in any Assignment, Assumption and Bill of Sale or other Related
Agreement.

     "CCBM CONTRIBUTION" has the meaning set forth in Section 2.1(a).

     "CEILING AMOUNT" means $7,500,000.

     "CERTIFICATE OF DESIGNATIONS" means the Company's Certificate of
Designations, Preferences and Rights of Series A Redeemable Preferred Stock
filed with the Secretary of State of the State of Delaware on June 23, 2003.

     "CLOSING" has the meaning set forth in Article III.

     "CLOSING DATE" has the meaning set forth in Article III.

     "COMMISSION" means the United States Securities and Exchange Commission.

     "COMMITMENT AMOUNT" has the meaning set forth in Section 2.5(a).

     "COMMON STOCK" has the meaning set forth in the recitals.

     "COMPANY" has the meaning set forth in the preamble.

     "CONTRIBUTING PARTIES" means, collectively, CCBM and RMG.

     "CONTRIBUTED ASSETS" means, collectively, the CCBM Contributed Assets and
the RMG Contributed Assets.

     "CONTRIBUTION" means, collectively, the CCBM Contribution and the RMG
Contribution.

                                       3
<PAGE>

     "CSFB PARTIES" means, collectively, DLJ MB Partners III GmbH & Co. KG, a
limited company organized under the laws of Germany, DLJ Offshore Partners III,
C.V., a partnership organized under the laws of the Netherlands Antilles, DLJ
Offshore Partners III-1, C.V., a partnership organized under the laws of the
Netherlands Antilles, DLJ Offshore Partners III-2, C.V., a partnership organized
under the laws of the Netherlands Antilles, Millennium Partners II, L.P., a
Delaware limited partnership, DLJ Merchant Banking Partners III, L.P., a
Delaware limited partnership, and MBP III Plan Investors, L.P., a Delaware
limited partnership.

     "CUSTOMARY FILINGS" means rights to consent which require notices to,
filings with, or other actions by Governmental Entities or tribal entities in
connection with the sale or conveyance of oil and gas leases or interests
therein if they are customarily obtained subsequent to the sale or conveyance.

     "DEFENSIBLE TITLE" means, with respect to any Proven Property, such record
and beneficial title that (x) except as disclosed in Schedule 2.1(a) (with
respect to the CCBM Contributed Assets) and Schedule 2.2(a) (with respect to the
RMG Contributed Assets) entitles the party named to receive, from its ownership
of such interest, a percentage of all Hydrocarbons produced, saved and marketed
from each well or property included in the Proven Properties not less than the
Net Revenue Interest set forth in Schedule 2.1(a) (with respect to the CCBM
Contributed Assets) and Schedule 2.2(a) (with respect to the RMG Contributed
Assets) for such well or property, without reduction, suspension, or termination
for the productive life of such well or property, except (i) as a result of
elections not to participate in an operation under an applicable operating, unit
or other agreement, (ii) as required to allow other working interest owners to
make up past underproduction or processors or pipelines to make up past
underdeliveries or (iii) readjustments of interest provided for under the terms
of the applicable operating, unit or other agreement, in each case, after the
date hereof; (y) except as disclosed in Schedule 2.1(a) (with respect to the
CCBM Contributed Assets) and Schedule 2.2(a) (with respect to the RMG
Contributed Assets), obligates the party named to bear a percentage of the costs
and expenses relating to operations on, and the maintenance and production of,
such well or property, not greater than the Working Interest or operating
interest set forth in Schedule 2.1(a) (with respect to the CCBM Contributed
Assets) and Schedule 2.2(a) (with respect to the RMG Contributed Assets) without
increase for the productive life of such well or property or without a
proportionate increase in the associated Net Revenue Interest, except as a
result of an election of other parties not to participate in an operation under
an applicable operating, unit or other agreement, contribution requirements with
respect to defaulting co-owners, or readjustments of interest provided for under
the terms of the applicable operating or unit agreement, in each case, after the
date hereof; and (z) is free and clear of any Liens except Permitted
Encumbrances.

     "DIRECTOR" means any member of the Board of the Company.

     "DISPUTE" shall have the meaning set forth in Section 13.3(a).

     "DISPUTE NOTICE" shall have the meaning set forth in Section 13.3(b).

                                       4
<PAGE>

     "EMPLOYMENT AGREEMENTS" means the Employment Agreements to be entered into
between the Company, each of Peter G. Schoonmaker and Gary Uhland concurrently
with the execution of this Agreement in the form of Exhibits D-1 and D-2,
respectively, attached hereto.

     "ENVIRONMENTAL LAWS" means all federal, state and local laws, regulations,
and requirements presently in effect, including the common law, relating to
pollution or protection of human health or the environment, including without
limitation, laws relating to Releases or threatened Releases of Hazardous
Materials into the indoor or outdoor environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata) or
otherwise relating to the regulation, manufacture, processing, distribution,
use, treatment, storage, Release, disposal, transport or handling of Hazardous
Materials and all laws and regulations with regard to record keeping,
notification, disclosure and reporting requirements respecting Hazardous
Materials.

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     "EXCLUDED CCBM LIABILITIES" has the meaning set forth in Section 2.1(b).

     "EXCLUDED RMG LIABILITIES" has the meaning set forth in Section 2.2(b).

     "FIRST SOURCE AGREEMENTS" means, collectively, that certain Agreement for
Purchase and Sale and that certain Earn-In Joint Venture Agreement, each dated
as of May 30, 2003, among First Source Wyoming, Inc., First Sourcenergy Wyoming,
Inc., Squaw Creek, Inc., Squaw Creek Development, Inc., Gastar Exploration, Ltd.
and RMG.

     "GOOD AND LEGAL TITLE" means (i) as to any mineral rights or other real
property, that there is a lease, conveyance or other form of assignment or
transfer of record evidencing ownership by either CCBM or RMG, as the case may
be, of such real property, and (ii) as to personal property, that either CCBM or
RMG, as the case may be, has good title to such personal property.

     "GOVERNMENTAL ENTITY" means any court or tribunal in any jurisdiction
(domestic or foreign) or any governmental or regulatory body, agency,
department, commission, board, bureau or other authority or instrumentality
(domestic or foreign).

     "HAZARDOUS MATERIALS" means all substances, of any quantity or
concentration, defined as Hazardous Substances, Oil, Pollutants or Contaminants
in the National Oil and Hazardous Substances Pollution Contingency Plan, 40
C.F.R. ss. 300.5, or defined as such by, or regulated as such under, any
Environmental Law, and such term shall include, without limitation, PCBs,
mercury and naturally-occurring radioactive material, petroleum, natural gas,
liquefied natural gas, or synthetic gas, or any other substance which may be the
basis for any Person to require investigation, cleanup, removal, treatment or
remediation.

     "HYDROCARBONS" means, collectively, natural gas, petroleum and other liquid
or gaseous hydrocarbons and related minerals and all products produced
therefrom, in each case whether in a natural or a processed state.

     "INDEMNIFIED PARTY" shall have the meaning set forth in Section 13.2(a).

                                       5
<PAGE>

     "INDEMNIFYING PARTY" means any Person required to indemnify any other
Person pursuant to Section 13.2(b).

     "INDEBTEDNESS" means any obligation for borrowed money (including notes
payable and drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money).

     "INITIAL CSFB CONTRIBUTION" shall have the meaning set forth in Section
2.4.

     "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.

     "INVESTORS" means, collectively, CCBM, RMG and the CSFB Parties.

     "LAW" means any statute, law, rule or regulation or any judgment, order,
writ, injunction or decree of any Governmental Entity.

     "LIEN" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement or like
instrument under the laws of any jurisdiction).

     "MAJORITY INTEREST" means those Investors who beneficially own in excess of
50% of the aggregate number of shares of the then-outstanding Common Stock plus
(without duplication) all shares of Common Stock issuable upon the exercise of
all then-outstanding Warrants.

     "MATERIAL ADVERSE CHANGE" means any change, event or occurrence which has a
Material Adverse Effect; provided, however, that any change, event or occurrence
resulting from (i) changes in the price of any Hydrocarbons, or other changes
affecting the oil and gas industry generally or (ii) changes in general economic
conditions, shall not constitute a Material Adverse Change.

     "MATERIAL ADVERSE EFFECT" means any material adverse effect on the
business, properties, assets or condition, financial or otherwise, or results of
operations of the Company and its subsidiaries, taken as a whole, or on the
Contributed Assets, taken as a whole, since December 31, 2002.

     "NOTICE" shall have the meaning set forth in Section 13.7.

     "NET REVENUE INTEREST" means an interest (expressed as a percentage or
decimal fraction) in and to all Hydrocarbons produced and saved from or
attributable to a Proven Property.

     "OFFICER'S CERTIFICATE" means a certificate signed in the name of the
Company, by an executive officer of the Company.

     "PERSON" means any natural person, corporation, limited partnership,
general partnership, joint stock company, joint venture, association, company,
limited liability company, trust, bank trust company, land trust, business
trust, or other organization, whether or not a legal entity, and any
Governmental Entity.

                                       6
<PAGE>

     "PERMITS" means all licenses, permits, variances, exemptions, orders,
franchises, approvals and other authorizations of or from Governmental Entities
necessary for the conduct of the business of the Company as currently conducted
and as proposed to be conducted by the Company after the Closing.

     "PERMITTED ENCUMBRANCES" means:

      (a) with respect to Proven Properties, lessors' royalties and any
   overriding royalties, reversionary interests, net profits interests,
   production payments, carried interests and other similar burdens to the
   extent that they do not, individually or in the aggregate, reduce the Net
   Revenue Interest of the party named below that shown in Schedule 2.1(a) (with
   respect to the CCBM Contributed Assets) or Schedule 2.2(a) (with respect to
   the RMG Contributed Assets) or increase the Working Interest of the party
   named above that shown in Schedule 2.1(a) (with respect to the CCBM
   Contributed Assets) or Schedule 2.2(a) (with respect to the RMG Contributed
   Assets) without a corresponding increase in the Net Revenue Interest;

      (b) with respect to Proven Properties, all leases, contracts, unit
   agreements, pooling agreements, operating agreements, and other contracts,
   agreements and instruments applicable to the Contributed Assets, to the
   extent that they do not, individually or in the aggregate, reduce the Net
   Revenue Interest of the party named below that shown in Schedule 2.1(a) (with
   respect to the CCBM Contributed Assets) or Schedule 2.2(a) (with respect to
   the RMG Contributed Assets) or increase the Working Interest of the party
   named above that shown in Schedule 2.1(a) or Schedule 2.2(a) without a
   corresponding increase in the Net Revenue Interest;

      (c) Liens for taxes or assessments that are not yet delinquent or, if
   delinquent, are being contested in good faith by appropriate actions as
   disclosed on Schedule 2.1(a) (with respect to the CCBM Contributed Assets) or
   Schedule 2.2(a) (with respect to the RMG Contributed Assets);

      (d) materialmen's, mechanic's, repairman's, employee's, contractor's,
   operator's and other similar Liens or charges arising in the ordinary course
   of business for amounts that are not yet delinquent (including any amounts
   being withheld as provided by law), or if delinquent, are being contested in
   good faith by appropriate actions as disclosed on Schedule 2.1(a) (with
   respect to the CCBM Contributed Assets) or Schedule 2.2(a) (with respect to
   the RMG Contributed Assets);

      (e) Customary Filings;

      (f) rights of reassignment arising upon final intention to abandon or
   release any of the Contributed Assets;

      (g) easements, rights-of-way, servitudes, permits, surface leases and
   other rights in respect of surface operations arising or incurred in the
   ordinary course of business that do not materially interfere with the use,
   operation or value of the Contributed Assets affected thereby;

                                       7
<PAGE>

      (h) all rights reserved to or vested in any Governmental Entities to
   control or regulate any of the Contributed Assets in any manner and all
   obligations and duties under all applicable Laws or under any Permit;

      (i) any other Liens, defects or irregularities that do not, individually
   or in the aggregate, materially detract from the value of or materially
   interfere with the use or operation of the Contributed Assets subject thereto
   or affected thereby and that would be accepted by a reasonably prudent
   purchaser engaged in the business of owning and operating coalbed methane
   properties in the Powder River Basin of Wyoming and Montana;

      (j) consents to assignment and similar contractual provisions affecting
   the Contributed Assets, provided that, with respect to transfers to the
   Contributing Parties or their predecessors in the chain of title, such
   consents, where applicable, have been obtained;

      (k) preferential rights to purchase and similar contractual provisions
   affecting the Contributed Assets, provided that, with respect to transfers to
   Contributing Parties or their predecessors in the chain of title, such
   preferential rights, where applicable, have expired or been waived;

      (l) terms and conditions of governmental licenses and permits affecting
   the Contributed Assets;

      (m) other matters that the CSFB Parties and the Company waive in writing;

      (n) litigation referenced in Schedule 9.8 or disclosed in writing by the
   Contributing Parties prior to the execution of this Agreement;

      (o) gas imbalances associated with the Contributed Assets set forth in
   Schedule 9.13; and

      (p) matters specifically listed on Schedule 2.1(a) or Schedule 2.2(a).

      "PERMITTED TRANSFEREE" means, (a) with respect to any CSFB Party, (i) any
Affiliate of any CSFB Party, (ii) any managing director, director, managing
general partner, associate general partner, advisory general partner, general
partner or limited partner of any CSFB Party, (iii) any Associate of any CSFB
Party, and (iv) any trust, the beneficiaries of which, or any corporation,
limited liability company or partnership, the shareholders, members or general
or limited partners of which, include only one or more CSFB Parties, or any of
their respective Associates, (b) with respect to CCBM, (i) Carrizo or any other
Affiliate of CCBM (other than any Person deemed an Affiliate of CCBM through
control of Carrizo or any other publicly traded parent, direct or indirect, of
CCBM), (ii) any Associate of CCBM, (iii) any trust, the beneficiaries of which,
or any corporation, limited liability company or partnership, the shareholders,
members or general or limited partners of which, include only CCBM or any of its
Associates, (c) with respect to RMG, (i) any Affiliate of RMG (other than any
Person deemed an Affiliate of RMG through control of U.S. Energy or any other
publicly traded parent, direct or indirect, of RMG), (ii) any Associate of RMG,
(iii) any trust, the beneficiaries of which, or any corporation, limited
liability company or partnership, the shareholders, members or general or
limited partners of which, include only RMG or any of its Associates; provided,
however, that

                                       8
<PAGE>

any transferee from any CSFB Party, CCBM or RMG pursuant to clauses (a), (b) or
(c) above will act through DLJ Merchant Banking Partners III, L.P., CCBM and
RMG, respectively.

      "PREFERRED STOCK" has the meaning set forth in the recitals.

      "PROCEEDINGS" means all proceedings, actions, claims, suits,
investigations and inquiries by or before any arbitrator or Governmental Entity.

      "PRO RATA PORTION" has the meaning set forth in Section 2.3(b).

      "PROVEN PROPERTY" means the Contributed Assets comprised of discrete well
locations, wells, groups of wells, well completions, multiple well completions,
units, leases or other property or contractual interests which are classified as
a proved developed producing, proved developed nonproducing or proved
undeveloped properties or interests in Schedules 2.1(a) and 2.2(a).

      "RECORDS" means books, accounts, ledgers tax returns, financial and other
records, including audit work papers, correspondence and contracts of every kind
related to the Contributed Assets.

      "RELATED AGREEMENTS" means the Securityholders Agreement, the Employment
Agreements, the AMI Agreement, the Transition Services Agreements, the First
Source Agreements and the Assignments, Assumptions and Bill of Sales executed by
each of CCBM and RMG.

      "RELEASE" means any release, spill, emission, discharge, leaking, pumping,
injection, deposit, disposal, dispersal, leaching or migration into the indoor
or outdoor environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) or into or out of any
property, including the movement of Hazardous Materials through or in air, soil,
surface water, groundwater or property.

      "REQUIRED CONSENTS" means all approvals and consents required to be
obtained by the Company, CCBM or RMG with respect to the consummation of each of
the transactions contemplated by this Agreement, including, without limitation,
those set forth on Schedule 9.12 and Schedule 10.12.

      "RESPONSE" shall have the meaning set forth in Section 13.3(b).

      "RMG" has the meaning set forth in the recitals.

      "RMG CONTRIBUTED ASSETS" means the assets to be contributed by RMG as set
forth in Schedule 2.2(a)-1 hereto; provided, that the RMG Contributed Assets
shall not include any proceeds, revenues, deductions, credits, refunds, rights
and causes of action or other similar assets attributable to the ownership or
operation of the RMG Contributed Assets prior to the Closing. For the avoidance
of doubt, the RMG Contributed Assets shall not include the Acquired Assets but
shall include all rights and interests of RMG arising under the First Source
Agreements notwithstanding anything to the contrary in any Assignment,
Assumption and Bill of Sale or other Related Agreement.

                                       9
<PAGE>

      "RMG CONTRACTS" has the meaning set forth in Section 10.10.

      "RMG CONTRIBUTION" has the meaning set forth in Section 2.2(a).

      "RMG PLEDGE" means the Pledge Agreement between RMG and the Company.

      "RMG TRANSITION SERVICES AGREEMENT" means a Transition Services Agreement
to be entered into between the Company and RMG concurrently with the execution
of this Agreement in the form of Exhibit E attached hereto.

      "SECURITIES" means, collectively, the Common Stock (including Common Stock
issued upon exercise of the Warrants and/or pursuant to Section 2.3), Preferred
Stock and Warrants.

      "SECURITIES ACT" means the Securities Act of 1933, as amended.

      "SENIOR MANAGER" shall have the meaning set forth in Section 13.3(b).

      "SHARES" means, collectively, the shares of Preferred Stock and Common
Stock.

      "SECURITYHOLDERS AGREEMENT" means the Securityholders Agreement among the
Company and holders of Securities in the form attached hereto as Exhibit F, as
amended and in effect from time to time.

      "SUBSEQUENT CSFB CONTRIBUTION" has the meaning set forth in Section
2.5(a).

      "TAXES" means all federal, state, county, local, foreign or other taxes,
charges, fees, levies, imposts, duties, licenses or other governmental
assessments, together with any interest, penalties, additions to tax or
additional amounts imposed with respect thereto.

      "THIRD PARTY CLAIM" means a Claim that is not a Claim by the Company, the
Investors or any of their Affiliates for their own losses.

      "THRESHOLD AMOUNT" means $75,000.

      "TRANCHE A PRICE" the meaning set forth in Section 2.3(a).

      "TRANCHE A SHARES" has the meaning set forth in Section 2.3(a).

      "TRANCHE B PRICE" the meaning set forth in Section 2.3(a).

      "TRANCHE B SHARES" has the meaning set forth in Section 2.3(a).

      "TRANSITION SERVICES AGREEMENTS" means, collectively, the RMG Transition
Services Agreement and the Carrizo Transition Services Agreement.

      "WARRANTS" has the meaning set forth in the recitals.

      "WELLS" has the meaning set forth in Section 6.6(d).

                                       10
<PAGE>

         "WORKING INTEREST" means, with respect any Contributing Party, the
percentage interest of such Contributing Party of costs and expenses
attributable to the maintenance, development and operation of a Proven Property,
prior to giving effect to rights of non-consent hereafter exercised by others
and claims with respect to non-payment by defaulting parties to operating
agreements and similar contracts.

                                  ARTICLE II.
                             ISSUANCE OF SECURITIES

      Section 2.1   Initial CCBM Contribution.

         (a) Subject to the terms and conditions of this Agreement, at the
      Closing, CCBM shall contribute, convey, assign, transfer and deliver to
      the Company all of its right, title and interest at the time of the
      Closing in and to the CCBM Contributed Assets (the "CCBM CONTRIBUTION"),
      and the Company shall assume the Assumed CCBM Liabilities. The CCBM
      Contribution and the assumption of the Assumed CCBM Liabilities will be
      effected by the execution and delivery by CCBM to the Company of a duly
      executed Assignment, Assumption and Bill of Sale together with such
      additional assignments as may be required by Governmental Entities to
      effect the assignment to the Company of CCBM's interest in the leases and
      other properties and interests included in the CCBM Contributed Assets.

         (b) Notwithstanding any other provision of this Agreement, the Company
      shall not assume or have any liability hereunder with respect to any other
      liabilities or obligations of CCBM not specifically included in the
      Assumed CCBM Liabilities, whether known or unknown, liquidated or
      unliquidated, contingent or fixed (the "EXCLUDED CCBM LIABILITIES"),
      including, without limitation:

             (i) liabilities to the extent arising out of the business
         operations of CCBM or its ownership of the CCBM Contributed Assets
         prior to the Closing Date;

             (ii) liabilities to the extent arising out of any businesses
         operated and assets owned by CCBM other than the CCBM Contributed
         Assets, whether incurred before or after the Closing Date; and

             (iii) liabilities or obligations for CCBM to pay any Taxes,
         including any Taxes incurred by CCBM arising out of its business
         operations or its ownership of the CCBM Contributed Assets prior to the
         Closing Date.

         (c) In consideration for all of the foregoing, at the Closing, subject
      to the terms and conditions of this Agreement, the Company will issue to
      CCBM 75,000 shares of Common Stock and will grant the option described in
      Section 2.3(a).

      Section 2.2   Initial RMG Contribution.

         (a) Subject to the terms and conditions of this Agreement, at the
      Closing, RMG shall contribute, convey, assign, transfer and deliver to the
      Company all of its right,

                                       11
<PAGE>

      title and interest at the time of the Closing in and to the RMG
      Contributed Assets (the "RMG CONTRIBUTION"), and the Company shall assume
      the Assumed RMG Liabilities. The RMG Contribution and the assumption of
      the Assumed RMG Liabilities will be effected by delivery by RMG to the
      Company of a duly executed Assignment, Assumption and Bill of Sale
      together with such additional assignments as may be required by
      Governmental Entities to effect the assignment to the Company of RMG's
      interest in the leases included in the RMG Contributed Assets.

         (b) Notwithstanding any other provision of this Agreement, the Company
      shall not assume or have any liability hereunder with respect to any other
      liabilities or obligations of RMG not specifically included in the Assumed
      RMG Liabilities, whether known or unknown, liquidated or unliquidated,
      contingent or fixed (the "EXCLUDED RMG LIABILITIES"), including, without
      limitation:

             (i) liabilities to the extent arising out of the business
         operations of RMG or its ownership of the RMG Contributed Assets prior
         to the Closing Date;

             (ii) liabilities to the extent arising out of any businesses
         operated and assets owned by RMG other than the RMG Contributed Assets,
         whether incurred before or after the Closing Date; and

             (iii) liabilities or obligations for RMG to pay any Taxes,
         including any Taxes incurred by RMG arising out of its business
         operation or its ownership of the RMG Contributed Assets prior to the
         Closing Date.

         (c) In consideration for all of the foregoing, at the Closing, subject
      to the terms and conditions of this Agreement, the Company will issue to
      RMG 75,000 shares of Common Stock and will grant the option described in
      Section 2.3(b).

      Section 2.3   Option of the Contributing Parties to
                    Purchase Additional Shares.

         (a) For so long as CCBM or any of its Permitted Transferees shall own
      of record Common Stock, CCBM shall have the continuing option, upon 10
      Business Days' notice to the Company, to purchase in one or more
      transactions after the Closing Date (i) a Pro Rata Portion of up to 25,000
      additional shares of Common Stock ("TRANCHE A SHARES") at a purchase price
      per share equal to $100 as increased by 10% per annum compounded quarterly
      beginning on the Closing Date and accruing daily through the date of the
      purchase of such shares (the "TRANCHE A PRICE"), and (ii) a Pro Rata
      Portion of up to 25,000 additional shares of Common Stock ("TRANCHE B
      SHARES, and together with Tranche A Shares, "ADDITIONAL SHARES") at a
      purchase price equal to $100 per share as increased by 20% per annum
      compounded quarterly beginning on the Closing Date and accruing daily
      through the date of the purchase of such shares (the "TRANCHE B Price").
      Notwithstanding anything to the contrary contained herein, CCBM may not
      purchase Tranche B Shares until such time as CCBM has purchased all of the
      Tranche A Shares then available to it.

         (b) For so long as RMG or any of its Permitted Transferees shall own of
      record Common Stock, RMG shall have the continuing option upon 10 Business
      Days'

                                       12
<PAGE>

      notice to the Company, to purchase in one or more transactions after the
      date of this Agreement (i) a Pro Rata Portion of up to 25,000 Tranche A
      Shares at a purchase price per share equal to the Tranche A Price and
      (ii) a Pro Rata Portion of up to 25,000 Tranche B Shares at a purchase
      price per share equal to the Tranche B Price. Notwithstanding anything to
      the contrary contained herein, RMG may not purchase Tranche B Shares until
      such time as RMG has purchased all of the Tranche A Shares then available
      to it.

         (c) For purposes of this Section 2.3, "PRO RATA PORTION" means a number
      of Tranche A Shares or Tranche B Shares, as the case may be, equal to
      25,000 multiplied by a fraction, (i) the numerator of which is an amount
      equal to the product of (A) the number of shares of Common Stock and
      Preferred Stock purchased on or prior to such date by the CSFB Parties
      pursuant to this Agreement as of the date of purchase of any Additional
      Shares and (B) $100.00, and (ii) the denominator of which is equal to
      $30,000,000; provided, that such number shall be increased or decreased,
      as appropriate, in the event that prior to such purchase there shall have
      occurred any subdivision, split-up, combination or reverse split of shares
      of Common Stock.

         (d) The purchase price for all Additional Shares shall be payable in
      cash and shall be made by wire transfer of immediately available funds to
      an account or accounts designated by the Company in writing not later than
      at least two Business Days prior to the date of the purchase.

         (e) Except with respect to Permitted Transferees, the option to
      purchase Additional Shares pursuant to this Agreement may not be assigned
      without the prior written consent of a Majority Interest.

      Section 2.4   Initial CSFB Contribution.

         (a) Subject to the terms and conditions of this Agreement, at the
      Closing the CSFB Parties shall contribute as a capital contribution to the
      Company (the "INITIAL CSFB CONTRIBUTION"), and the Company shall accept
      from the CSFB Parties, the following cash contributions:

       CSFB Party                                     Cash Contribution
       ----------                                     -----------------
       DLJ Merchant Banking Partners III, L.P.            13,273,904
       DLJ Offshore Partners III, C.V.                       707,658
       DLJ Offshore Partners III-1, C.V.                     236,866
       DLJ Offshore Partners III-2, C.V.                     168,658
       Millennium Partners II, L.P.                           42,042
       DLJ MB Partners III GmbH & Co. KG                     111,916
       MBP III Plan Investors, L.P.                        3,098,956
                                                         -----------
                                 TOTAL:                  $17,640,000

      Such contributions shall be made by wire transfer of immediately available
      funds to an account or accounts designated by the Company in writing at
      least two Business Days prior to the Closing.

                                       13
<PAGE>

         (b) In consideration of the foregoing, at the Closing, subject to the
      terms and conditions of this Agreement, the Company will issue to the CSFB
      Parties the number of Securities set forth below:

<TABLE>
<CAPTION>
                                                            Shares of
      CSFB Party                                  Common Stock     Preferred Stock     Warrants
      ----------                                  ------------     ---------------     --------
<S>                                                    <C>               <C>            <C>
      DLJ Merchant Banking Partners III, L.P.          37,625             97,823         97,823
      DLJ Offshore Partners III, C.V.                   2,006              5,215          5,215
      DLJ Offshore Partners III-1, C.V.                   671              1,746          1,746
      DLJ Offshore Partners III-2, C.V.                   478              1,243          1,243
      Millennium Partners II, L.P.                        119                310            310
      DLJ MB Partners III GmbH & Co. KG                   317                825            825
      MBP III Plan Investors, L.P.                      8,784             22,838         22,838
                                                       ------            -------        -------
                                     TOTALS:           50,000            130,000        130,000
</TABLE>

         Section 2.5   Subsequent CSFB Contribution.

         (a) At any time prior to July 1, 2004, the Company may request (a
      "CAPITAL REQUEST") that the CSFB Parties make and, subject to the terms
      and conditions of this Agreement, the CSFB Parties shall make, an
      additional cash capital contribution or contributions to the Company
      (each, a "SUBSEQUENT CSFB CONTRIBUTION"); provided:

             (i) the aggregate amount of all Subsequent Capital Contributions
         shall not exceed $11,760,000 (the "COMMITMENT AMOUNT");

             (ii) no Subsequent Capital Contribution shall be less than
         $4,000,000 (unless at such time the Commitment Amount remaining shall
         be less than $4,000,000);

             (iii) the CSFB Parties shall have received not less than 20
         Business Days' written notice of the Subsequent CSFB Contribution from
         the Chief Executive Officer of the Company; and

             (iv) a majority of the Board shall have authorized such Capital
         Request and approved of such Subsequent Capital Contribution for use in
         connection with (A) the drilling of coal bed methane wells, for
         remedial work on coal bed methane wells (in either case, located on the
         Contributed Assets or the Acquired Assets) or the creation or
         improvement of infrastructure to promote the gathering and production
         of coal bed methane from such wells or (B) an acquisition of assets;
         provided that such acquisition shall have been approved by the CSFB
         Parties.

         (b) In consideration of the foregoing, for each $980,000 in Subsequent
      Capital Contribution received from the CSFB Parties, the Company will
      issue to the CSFB Parties 10,000 shares of Preferred Stock and 10,000
      Warrants.

         (c) The Subsequent CSFB Contribution shall be made by wire transfer of
      immediately available funds to an account or accounts designated by the
      Company in

                                       14
<PAGE>

      writing not later than at least two Business Days prior to the date of
      such Subsequent CSFB Contribution.

      Section 2.6   Grant of Additional Warrants. In the event the Company shall
at any time on or after June 30, 2005 elect to pay dividends on the Preferred
Stock in kind, then, in accordance with Section 2(b) of the Certificate of
Designations, for each additional share of Preferred Stock distributed as a
dividend payment, the Company shall deliver a single Warrant to the holders of
each share of Preferred Stock on which each in kind dividend is paid. The
Warrants, if any, so distributed shall be exercisable for shares of Common Stock
at a price per share equal to the exercise price of the outstanding Warrants on
the day of such distribution.

      Section 2.7   Allocation Agreement. Each of the Company, RMG, CCBM and the
CSFB Parties agree to the following allocations in the manner set forth on
Exhibit G for all purposes including, without limitation, for purposes of U.S.
federal, state and local income tax:

         (a) An allocation of the value of the Initial CSFB Contribution between
      the Warrants and the Preferred Stock.

         (b) An allocation of the value of the CCBM Contributed Assets, less the
      Assumed CCBM Liabilities, between the 75,000 shares of Common Stock and
      the option described in Section 2.3(a).

         (c) An allocation of the value of the RMG Contributed Assets, less the
      Assumed RMG Liabilities, between the 75,000 shares of Common Stock and the
      option described in Section 2.3(b).

         (d) An allocation of the value of the 75,000 shares of Common Stock and
      the option described in Section 2.3(a), increased by the amount of the
      Assumed CCBM Liabilities, among the CCBM Contributed Assets.

         (e) An allocation of the value of the 75,000 shares of Common Stock and
      the option described in Section 2.3(b), increased by the amount of the
      Assumed RMG Liabilities, among the RMG Contributed Assets.

      Section 2.8 Disclaimers.   EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN
ARTICLES IX OR X, OR IN THE CONVEYANCE INSTRUMENTS TO BE DELIVERED BY EITHER
CCBM OR RMG, AS THE CASE MAY BE, TO THE COMPANY HEREUNDER, WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, CCBM AND RMG, AS THE CASE MAY BE, EXPRESSLY
DISCLAIM ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, ORAL OR WRITTEN, AS
TO (I) TITLE TO ANY OF THE CONTRIBUTED ASSETS, (II) THE CONTENTS, CHARACTER OR
NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR ANY REPORT OF ANY PETROLEUM ENGINEERING
CONSULTANT, OR ANY GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE
CONTRIBUTED ASSETS, PROVIDED, HOWEVER, NOTWITHSTANDING THE FOREGOING, RMG
REPRESENTS AND WARRANTS, AND CCBM REPRESENTS AND WARRANTS THAT TO ITS KNOWLEDGE,
THAT ANY HISTORICAL INFORMATION AS TO PRODUCTION AND SALES VOLUMES, VOLUMES OF

                                       15
<PAGE>

PRODUCED WATER AND PRICING OF HYDROCARBON SALES RELATED TO THE CCBM CONTRIBUTED
ASSETS AND THE RMG CONTRIBUTED ASSETS, RESPECTIVELY PROVIDED TO ANY SUCH
CONSULTANT FOR USE IN CONNECTION WITH THE PREPARATION OF ANY SUCH REPORT IS
ACCURATE, (III) THE QUANTITY, QUALITY OR RECOVERABILITY OF HYDROCARBONS IN OR
FROM THE CONTRIBUTED ASSETS, (IV) ANY ESTIMATES OF THE VALUE OF THE CONTRIBUTED
ASSETS OR FUTURE REVENUES GENERATED BY THE CONTRIBUTED ASSETS, (V) THE
PRODUCTION OF HYDROCARBONS FROM THE CONTRIBUTED ASSETS, OR WHETHER PRODUCTION
HAS BEEN CONTINUOUS, OR IN PAYING QUANTITIES, (VI) THE MAINTENANCE, REPAIR,
CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE CONTRIBUTED
ASSETS, OR (VII) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE
AVAILABLE OR COMMUNICATED TO THE OTHER INVESTORS, THE COMPANY OR ANY OF THEIR
AFFILIATES, OR ANY OF THEIR EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR
ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR
ANY DISCUSSION OR PRESENTATION RELATING THERETO, AND FURTHER DISCLAIM ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY
EQUIPMENT, MACHINERY, TOOLS, FIXTURES AND OTHER TANGIBLE PROPERTY, IT BEING
EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT THE COMPANY SHALL BE
DEEMED TO BE OBTAINING EQUIPMENT, MACHINERY, TOOLS, FIXTURES AND OTHER TANGIBLE
PROPERTY IN ITS PRESENT STATUS, CONDITION AND STATE OF REPAIR, "AS IS" AND
"WHERE IS" WITH ALL FAULTS AND THAT THE COMPANY AND THE OTHER INVESTORS HAVE
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS THEY DEEM APPROPRIATE WITH RESPECT
THERETO.

                                  ARTICLE III.
                                    CLOSING

      The issuance and delivery of the Securities to be purchased by the
Investors shall take place at a closing (the "CLOSING") to be held at the
Houston offices of Akin Gump Strauss Hauer & Feld LLP on such date (the "CLOSING
DATE") which shall be on the day which is two consecutive Business Days after
the date on which the last of the conditions set forth in Article V is fulfilled
or waived or is capable of being fulfilled at the Closing or at such other time
or place as the parties hereto shall agree.

                                  ARTICLE IV.
                              CONDITIONS TO CLOSING

Section 4.1 Closing Conditions of the Investors. Each Investor's obligation to
acquire the Securities to be acquired by it hereunder on the Closing Date is
subject to the satisfaction or waiver, on or b

                                       16
<PAGE>

         (a) The representations and warranties of the Company contained in this
      Agreement shall be true and correct in all respects at and as of the
      Closing Date, as if made at and as of such date (except that
      representations and warranties made as of a specific date need be true
      only as of that date).

         (b) The Company shall have performed in all material respects all of
      its obligations under this Agreement required to be performed by it on or
      prior to the Closing Date.

         (c) Each Investor shall have received (i) an Officer's Certificate
      signed by the President of the Company, dated the Closing Date, attaching
      (A) a true and complete copy of the Company's Certificate of
      Incorporation, together with all amendments thereto, as filed with the
      Secretary of State of the State of Delaware in the form attached hereto as
      Exhibit H, (B) a true and complete copy of the Certificate of
      Designations, as filed with the Secretary of State of the State of
      Delaware and in the form attached hereto as Exhibit I, (C) a true and
      complete copy of the Company's Bylaws in effect on the date thereof in the
      form attached hereto as Exhibit J, (D) certificates of good standing of
      the appropriate officials of the jurisdiction of formation of the Company
      and of each state or other jurisdiction in which the Company is qualified
      to transact business, and is transacting business, except those other
      jurisdictions where the failure to be so qualified would not have a
      Material Adverse Effect and (E) a true and correct copy of the resolutions
      of the Board authorizing and approving the execution of this Agreement and
      each Related Agreement and the performance of the transactions
      contemplated hereby and thereby and (ii) a Closing Certificate signed by
      the President of the Company, dated the Closing Date, in the form of
      Exhibit K-1 attached hereto.

         (d) The offering and sale of the Securities under this Agreement shall
      have complied with all applicable requirements of federal and state
      securities laws.

         (e) (i) There shall be no Proceedings pending or, to the Company's
      knowledge threatened, against or affecting the Company or any of its
      properties or rights, or any of its Affiliates, Associates, officers or
      Directors, before any Governmental Entity which (A) seeks to restrain,
      enjoin or prevent the consummation of the transactions contemplated by
      this Agreement or (B) questions the validity or legality of any such
      transaction, and (ii) to the Company's knowledge there shall be no valid
      basis for any such Proceeding.

         (f) The Company shall have duly received all Approvals, Permits and
      certificates, other than Customary Filings, by or of all Governmental
      Entities required for the issuance of the Securities by the Company, the
      execution and delivery of the Related Agreements and the consummation of
      the transactions contemplated hereby and thereby, and all of the foregoing
      shall be in full force and effect at the Closing Date.

         (g) The initial members of the Board shall have been appointed
      Directors of the Company, as specified in the Securityholders Agreement,
      effective upon the Closing.

                                       17
<PAGE>

         (h) The Company and each of Peter G. Schoonmaker and Gary W. Uhland
      shall have entered into the Employment Agreements.

         (i) The Company and RMG shall have entered into the RMG Transition
      Services Agreement.

         (j) The Company and Carrizo shall have entered into the Carrizo
      Transition Services Agreement.

         (k) The Company and the Investors shall have entered into the
      Securityholders Agreement and the AMI Agreement.

         (l) The 2003 Capital Expenditures Budget, a copy of which is attached
      as Exhibit L hereto, shall have been approved by the Board.

         (m) The 2003 General and Administrative Expenses Budget, a copy of
      which is attached as Exhibit M hereto, shall have been approved by the
      Board.

         (n) The Company shall have delivered to the Investors a detailed
      statement setting forth the uses of the proceeds resulting from the offer
      and sale of the Securities pursuant to this Agreement, which statement
      shall be acceptable to the Investors.

         (o) The Company shall have delivered to the Investors a five-year
      financial forecast for the Company which forecast shall be based on
      assumptions believed reasonable by management for the Company and
      otherwise acceptable to the Investors; provided that, notwithstanding any
      other provisions hereof, it is recognized by the Investors that such
      projections and any reserve report delivered in connection with this
      Agreement as they relate to future events are not to be viewed as fact and
      that the actual results during the period or periods covered by the
      projections or reserve reports may differ from the projected results set
      forth therein by a material amount; and, without limiting the generality
      of the foregoing, no representation or warranty is made in this Agreement
      as to future prices of hydrocarbons or as to the timing or results of
      future exploration or production operations.

         (p) Each of CCBM and RMG shall have delivered to the Company possession
      of the certificates representing or evidencing the Common Stock issued to
      such parties pursuant hereto.

         (q) Each of the Contributions and the Initial CSFB Contribution shall
      be made concurrently and each Investor's obligation to make its respective
      contribution is conditioned upon the concurrent contribution of each other
      Investor.

      Section 4.2 Closing Conditions of the CSFB Parties. In addition to the
conditions set forth in Section 4.1 above, the obligation of the CSFB Parties to
make the Initial CSFB Contribution and to acquire Securities in connection
therewith, is further subject to the satisfaction or waiver, on or prior to the
Closing Date, of the conditions contained in this Section 4.2.

                                       18
<PAGE>

         (a) Baker Botts L.L.P., counsel to CCBM, shall have delivered a legal
      opinion dated the Closing Date substantially in the form attached hereto
      as Exhibit N to the CSFB Parties.

         (b) Davis Graham & Stubbs LLP, counsel to RMG, shall have delivered a
      legal opinion dated the Closing Date substantially in the form attached
      hereto as Exhibit O to the CSFB Parties.

         (c) All conditions precedent to the consummation of the Acquisitions
      shall have been satisfied or waived except for the payment of the purchase
      price with respect thereto, and RMG shall have delivered true and correct
      copies of the First Source Agreements and such agreements shall have been
      validly and fully executed by the purchasers and sellers party thereto.

         (d) The representations and warranties of CCBM and RMG contained in
      this Agreement shall be true and correct in all respects at and as of the
      Closing Date, as if made at and as of such date (except that
      representations and warranties made as of a specific date need be true
      only as of that date).

         (e) CCBM and RMG shall have performed in all material respects all of
      their respective obligations under this Agreement required to be performed
      by them on or prior to the Closing Date.

         (f) The CSFB Parties shall have received all such counterpart originals
      or certified or other copies of such documents as they may reasonably
      request.

         (g) The CSFB Parties shall have been furnished with reasonably
      requested evidence of all Required Consents, other than Customary Filings,
      and each such Required Consent shall be unconditional or be subject to
      conditions which have been satisfied on or before the Closing Date.

         (h) There shall have occurred no Material Adverse Change.

      Section 4.3  Closing Conditions of CCBM. In addition to the conditions set
forth in Section 4.1 above, the obligation of CCBM to acquire the Shares to be
acquired by it hereunder on the Closing Date is further subject to the
satisfaction or waiver, on or before the Closing Date, of the conditions
contained in this Section 4.3.

         (a) The representations and warranties of the CSFB Parties and RMG
      contained in this Agreement shall be true and correct in all respects at
      and as of the Closing Date, as if made at and as of such date (except that
      representations and warranties made as of a specific date need be true
      only as of that date).

         (b) The CSFB Parties and RMG shall have performed in all material
      respects all of their respective obligations under this Agreement required
      to be performed by them on or prior to the Closing Date.

         (c) CCBM shall have received all such counterpart originals or
      certified or other copies of such documents as it may reasonably request.

      Section 4.4  Closing Conditions of RMG. In addition to the conditions set
forth in Section 4.1 above, the obligation of RMG to acquire the Shares to be
acquired by it hereunder on the Closing Date is further subject to the
satisfaction or waiver, on or before the Closing Date, of the conditions
contained in this Section 4.3.

         (a) The representations and warranties of the CSFB Parties and CCBM
      contained in this Agreement shall be true and correct in all respects at
      and as of the Closing Date, as if made at and as of such date (except that
      representations and warranties made as of a specific date need be true
      only as of that date).

         (b) The CSFB Parties and CCBM shall have performed in all material
      respects all of their respective obligations under this Agreement required
      to be performed by them on or prior to the Closing Date.

                                       19
<PAGE>

         (c) RMG shall have received all such counterpart originals or certified
      or other copies of such documents as it may reasonably request.

      Section 4.5 Closing Conditions of the Company. The Company's obligation to
issue the Securities to any Investor hereunder at any Closing is subject to the
satisfaction or waiver, on or before the applicable Closing Date of the
conditions contained in this Section 4.5.

         (a) The representations and warranties of such Investor contained in
      Article VIII hereof shall be true in all respects at and as of the
      applicable Closing Date, as if made at and as if such date (except that
      representations and warranties made as of a specific date need be true
      only as of that date).

         (b) Each of CCBM and RMG shall have delivered to the Company an
      Officer's Certificate in the form of Exhibit K-2, dated the Closing Date.

         (c) Such Investor shall have performed in all material respects all of
      its obligations under this Agreement required to be performed by it on or
      prior to the applicable Closing Date.

         (d) In the case of RMG and CCBM, each of RMG and CCBM, respectively,
      shall have delivered to the Company possession of the certificates
      representing the Common Stock issued to such Investor pursuant hereto.

         (e) The Company shall have duly received all Approvals, Permits and
      certificates, other than Customary Filings, by or of all Governmental
      Entities required for the issuance of the Securities by the Company, the
      execution and delivery of the Related Agreements and the consummation of
      the transactions contemplated hereby and thereby, and all of the foregoing
      shall be in full force and effect at the Closing Date.

                                       20
<PAGE>

                                   ARTICLE V.
                 CONDITIONS TO THE SUBSEQUENT CSFB CONTRIBUTION

      Section 5.1 Conditions to the Subsequent CSFB Contribution. The obligation
of the CSFB Parties to make the Subsequent CSFB Contribution and to acquire the
Securities to be acquired by them in connection therewith is subject to the
prior satisfaction or waiver of the conditions contained in this Section 5.1.

         (a) The representations and warranties of the Company contained in this
      Agreement shall be true and correct at and as of the date of the
      Subsequent CSFB Contribution, as if made at and as of such date (except
      that representations and warranties made as of a specific date need be
      true only as of that date) except for such breaches that would not,
      individually or in the aggregate, have a Material Adverse Effect.

         (b) The Company shall have performed in all material respects all of
      its obligations under this Agreement and any Related Agreement required to
      be performed by it on or prior to the date of the Subsequent CSFB
      Contribution.

         (c) The representations and warranties of CCBM and RMG contained in
      this Agreement shall be true and correct at and as of the date of the
      Subsequent CSFB Contribution, as if made at and as of such date (except
      that representations and warranties made as of a specific date need be
      true only as of that date).

         (d) CCBM and RMG shall have performed in all material respects all of
      their respective obligations under this Agreement and any Related
      Agreement to which each is a party required to be performed by it on or
      prior to the date of the Subsequent CSFB Contribution.

         (e) There shall have occurred no Material Adverse Change nor any
      change, event or occurrence which has a material adverse effect on the
      prospects of the Company and its subsidiaries, taken as a whole, or on the
      Contributed Assets and the Acquired Assets, taken as a whole, since the
      Closing Date.

         (f) There shall not have occurred any breach by the Company in any
      material term or provision of the Preferred Stock or any of the Related
      Agreements.

         (g) Prior to any Subsequent CSFB Contribution, the Company shall have
      delivered a use of proceeds statement indicating that the proceeds of such
      contribution shall be used only in connection with (i) expenditures
      approved by a majority of the Board with respect to the drilling of coal
      bed methane wells, for remedial work on coal bed methane wells (in either
      case, located on the Contributed Assets or the Acquired Assets) or the
      creation or improvement of infrastructure to promote the gathering and
      production of coal bed methane from such wells or (ii) any acquisition
      approved by the CSFB Parties, which approval may be withheld in their sole
      and absolute discretion.

                                       21
<PAGE>

                                   ARTICLE VI.
                                    COVENANTS

      Section 6.1   Cooperation, Approvals, Further Action. The Company and the
each of the Investors covenants and agrees to cooperate and use all commercially
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement, including cooperating
fully with the other parties to obtain all Approvals that may be necessary or
which may be reasonably requested by the Company or the Investors to consummate
the transactions contemplated by this Agreement and the Related Agreements. In
case at any time after the date hereof any commercially reasonable further
action is reasonably necessary or desirable to carry out the purposes of this
Agreement, the parties hereto shall take all such reasonably necessary action.
Without limiting the foregoing, the parties hereto acknowledge that CCBM and RMG
shall be responsible for obtaining any Required Consents prior to the Closing
and CCBM and RMG agree to assist and cooperate with the Company in obtaining any
approvals of any Governmental Entities with respect to the assignment of the
leases included in the Contributed Assets.

      Section 6.2   Closing Conditions; Adverse Effect. Each of CCBM and RMG
covenants and agrees, from the date hereof until the earlier of the Closing Date
or the termination of this Agreement, (i) not to take any action that will, or
is reasonably likely to, (A) cause any breach of its respective representations
and warranties contained herein such that any condition to the Closing contained
herein would not be satisfied or (B) adversely affect the Contributed Assets and
(ii) not to amend or otherwise modify any term or provision of any Related
Agreement, in each case, without the prior written consent of the CSFB Parties;
provided, however, that such consent shall be deemed given unless the CSFB
Parties notify CCBM and RMG to the contrary within three Business Days of
receipt of a written request therefor.

      Section 6.3   Supplements to Schedules. Each of the parties hereto agree
that any party hereto may supplement or amend any schedule required by Article
VII, Article VIII, Article IX or Article X with respect to any matter hereafter
arising which, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in such schedules; provided,
however, that no supplement or amendment of any schedule made pursuant to this
Section 6.3 shall be deemed to cure any preexisting breach of any representation
or warranty made in this Agreement unless the parties agree thereto in writing.

                                       22
<PAGE>

      Section 6.4 Access.  At all times from and after the date hereof until the
Closing, each of CCBM and RMG shall afford the other Investors and their
respective counsel and other authorized representatives reasonable access to its
respective properties, employees and officers and subsidiaries and to all
Records, in each case, as related to the Contributed Assets provided, however,
that each of CCBM and RMG reserves the right to withhold any information if
disclosure is prohibited by an agreement with a third party. The foregoing
notwithstanding, each of CCBM and RMG shall use its commercially reasonable
efforts to obtain any such third party consent required in connection with the
provision to the other Investors of any information related to the Contributed
Assets.

      Section 6.5   Confidentiality. Each Investor shall, and shall cause its
representatives to, hold confidential all information relating to CCBM and RMG
or any of their respective subsidiaries it has received from such party or any
of its representatives and any information such Investor receives (whether
before or after the date hereof) from CCBM or RMG or any of their respective
representatives as a result of Section 6.4 above or such Investor's ownership of
Securities; provided, however, that the foregoing shall not apply to (A)
information that is or becomes generally available to the public other than as a
result of a disclosure by such Investor or any of its Affiliates or
representatives in violation of this Section 6.5, (B) information that is or
becomes available to such Investor or any of its representatives on a
nonconfidential basis from a source other than CCBM or RMG or their respective
Affiliates or representatives, provided that such source is not known by such
Investor to be bound by a confidentiality agreement with, or other obligation of
secrecy to, the Investor to whom such duty is owed or any other party, (C)
disclosures to any partner, Affiliate, subsidiary or parent company of such
Investor for the purpose of evaluating its investment in the Company (in which
case, such Investor shall cause each such Person to hold the information
confidential in accordance with this Section 6.5) or (D) information that is
required to be disclosed by such Investor or any of its representatives as a
result of any applicable Law; provided further, that in the event information is
required to be disclosed pursuant to clause (D) above, the Person proposing such
disclosure shall provide the applicable other Investor, to the extent
practicable an opportunity, reasonably in advance of such disclosure, to review
and comment on the form and content of the proposed disclosure. The foregoing to
the contrary notwithstanding, the obligations of confidentiality contained
herein, as they relate to the transactions contemplated by this Agreement, shall
not apply to the tax structure or tax treatment of such transactions, and each
party hereto (and any of their respective employees, representatives, or agents)
may disclose to any and all Persons, without limitation of any kind, the tax
structure and tax treatment of the transactions contemplated by this Agreement
and all materials of any kind (including opinions or other tax analysis) that
are provided to such Person relating to the tax treatment and tax structure of
such transactions (provided that such disclosure shall not include the name (or
other identifying information not relevant to the tax structure or tax
treatment) of any Person and shall not include information for which
nondisclosure is reasonably necessary in order to comply with applicable
securities laws).

      Section 6.6 Additional Affirmative Covenants of the Company. All covenants
contained in this Section 6.6 shall be given independent effect. The provisions
of this Section 6.6 are for the benefit of Investors for so long as they hold
any Securities.

                                       23
<PAGE>

         (a) The Company covenants that (i) all shares of Common Stock that may
      be issued upon the exercise of the Warrants and all of the Additional
      Shares that may be issued pursuant to this Agreement will, upon issuance
      and upon full payment therefor, be validly issued, fully paid and
      nonassessable (except to the extent specified in the Delaware General
      Corporation Law) and free from all taxes, liens and charges (other than
      under the Securityholders Agreement) with respect to the issuance thereof
      and (ii) the Company will at all times have authorized and reserved a
      sufficient number of shares of Common Stock to permit the (A) issuance of
      all of the Additional Shares and (B) during the period within which the
      Warrants may be exercisable for shares of Common Stock, the exercise of
      all Warrants.

         (b) Within 60 days after Closing, upon presentation of reasonably
      requested documentary proof the Company will (i) pay, or reimburse the
      CSFB Parties for the payment of, all reasonable out-of-pocket expenses
      arising in connection with the transactions and other agreements and
      instruments contemplated by this Agreement with respect to the Closing,
      including the reasonable fees and expenses of the CSFB Parties' counsel,
      advisors and consultants and (ii) reimburse RMG for the fees payable under
      that certain Financial Advisory Agreement, dated the 24th day of July,
      2002, between U.S. Energy and Sanders Morris Harris Inc. which are
      actually incurred by U.S. Energy, provided such reimbursement shall not
      exceed $1,150,000 in the aggregate.

         (c) The Company will take all actions necessary to become duly
      qualified to own, hold and operate the Contributed Assets and the Acquired
      Assets, shall comply with all bonding requirements to own, hold and
      operate such assets and shall obtain insurance with respect to such assets
      of the type and in amounts customary for the oil and gas industry.

         (d) Prior to Closing, the Company shall cause to be delivered to the
      CSFB Parties title opinions and other title information with respect to
      the producing wells, group of wells and units and leases and well
      locations ("WELLS") contributed by the Contributing Parties and the Wells
      acquired upon consummation of the Acquisitions, in each case in form and
      substance reasonably acceptable to the CSFB Parties.

      Section 6.7 Taxes. Each Contributing Party shall be severally responsible
for, and shall pay, when due, all unpaid ad valorem property, production,
windfall profit, severance and similar taxes and assessments based upon or
measured by the ownership of such party's Contributed Assets or the production
of Hydrocarbons or the receipt of proceeds therefrom attributable to the period
prior to the Closing Date. After the Closing Date, when the Company receives tax
statements for the Contributed Assets from the appropriate taxing authorities
for which the Contributing Parties are responsible in whole or in part, the
Company shall deliver to each of the Contributing Parties a copy of such
statements, together with the amount, if applicable, of each Contributing
Party's pro rata share thereof, and each Contributing Party shall pay to the
Company the amount for which it is responsible within three Business Days of
receipt of such statement. For purposes of the immediately preceding sentence, a
Contributing Party's pro rata share of such Taxes shall be based on (a) in the
case of any such Taxes that are determined by reference to production, windfall
profit or severance, the percentage of production, income or profits, as
applicable, for the period to which such Taxes relates that is

                                       24
<PAGE>

produced or earned prior to the Closing Date and (b) in the case of any other
such Taxes, the percentage of the actual period to which such Taxes relate that
precedes the Closing Date.

      Section 6.8   Public Disclosures. Any public announcements regarding this
Agreement, the Related Agreements or the transactions contemplated hereby and
thereby, or the financial performance of the Company shall be made only with the
mutual consent of all Investors, which consent shall not be unreasonably
withheld or delayed, except as may be required, and to the extent required, by
applicable law or stock exchange regulations, in which case the Investor
required to issue the public announcement shall allow the other Investors
reasonable time to comment on such release or statement in advance of its
issuance.

      Section 6.9   Brokers' Fees. No broker, finder or investment banker (other
than Sanders Morris Harris, the fees and expenses of which shall be paid by RMG)
is entitled to any brokerage, finder's fee or other fee or commission payable by
the Company or any subsidiary of the Company in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
Company or any subsidiary of the Company.

      Section 6.10   Company Records. Until the later of six years after the
Closing Date and two years after the expiration of any related indemnification
obligations of the Investors in connection with this Agreement, the Company
shall:

         (a) (i) preserve and retain the Records, (ii) furnish copies of the
      Records, to the extent not retained by the Investors, to the Investors at
      the Investors' expense and (iii) make such Records available to the
      Investors and their respective officers, employees, consultants and
      representative upon reasonable notice and during normal business hours;
      provided, however, that (A) in the event that the Company transfers all or
      a portion of the Contributed Assets to any third party during such period,
      the Company may transfer to such third party all or a portion of the
      Records relating to the Contributed Assets being transferred, provided
      that such third party expressly assumes in writing the obligations of the
      Company set forth in this Section 6.10 and the Company first offers the
      Investors the opportunity, at the Investors' expense, to copy such
      Records, and (B) in the event that Buyer desires to destroy or dispose of
      all or any portion of the Records during such period, Buyer shall first
      offer the Investors the opportunity, at the Investors' expense, to obtain
      such Records prior to destruction or disposition thereof by the Company;
      and

         (b) permit reasonable access of representatives of the Investors to
      employees of the Company and its affiliates on a mutually convenient basis
      to obtain additional information with respect to the continuing
      obligations or rights, if any, of the Investors in connection with this
      Agreement.

      Section 6.11 Retention of Stock Certificates; Negative Pledge. The Company
shall retain possession of the certificates representing the Common Stock issued
to each of RMG and CCBM pursuant hereto until July 1, 2004; provided that in the
event the Company shall bring a Claim prior to such date with respect to a
breach of representation or warranty by RMG or CCBM, the Company shall retain
possession of the certificates representing the Common Stock issued to RMG or
CCBM, as the case may be, until the earlier of (i) the date such Claim shall be
resolved pursuant to Section 13.2 without liability to RMG or CCBM, as the case
may be, and

                                       25
<PAGE>

(ii) the date on which any Award with respect to such Claim shall be satisfied
by RMG or CCBM, as the case may be. Prior to the return of their respective
stock certificates pursuant hereto, neither RMG nor CCBM shall create, incur,
assume or suffer to exist any lien upon or security interest in any of the
Common Stock beneficially owned by such party and represented by such
certificates.

                                  ARTICLE VII.
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

      The Company represents and warrants to each Investor as of the Closing
Date that:

      Section 7.1   Organization; Qualification and Authority; Binding
Obligations. The Company is a corporation duly formed and validly existing in
good standing under the laws of the State of Delaware. The Company has been
recently incorporated and has not engaged in any activities other than those
related to this Agreement. The Company has no subsidiaries. The Company is duly
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the character of its properties or the nature of
its business makes such qualification necessary, except where the failure to so
qualify or to be in good standing would not reasonably be expected to have a
Material Adverse Effect. Subject to Customary Filings, the Company has the
corporate power to own its properties and to carry on its business as it is now
being conducted. The Company has all requisite corporate power and authority to
enter into this Agreement and each Related Agreement to which it is a party and
to issue and sell the Shares and the Warrants and to issue the Additional Shares
upon payment therefor and Common Stock upon exercise of the Warrants and has the
requisite power and authority to carry out the transactions contemplated hereby
to be performed by it, and the execution, delivery and performance of this
Agreement and each other agreement or instrument executed and delivered by the
Company pursuant hereto or in connection herewith have been duly authorized by
all necessary action. This Agreement and each other agreement or instrument
executed and delivered by the Company pursuant hereto or in connection herewith
constitute the legal, valid and binding obligations of the Company and, except
as may be affected (i) by applicable bankruptcy, insolvency, moratorium,
reorganization and other similar laws and judicial decisions affecting the
rights of creditors generally and (ii) by general principles of equity and
public policy (regardless of whether considered at law or in equity), are
enforceable against the Company in accordance with their respective terms.

      Section 7.2  Authorized Shares and Related Matters. As of the date of this
Agreement (a) the aggregate authorized Shares of the Company consists of
2,000,000 Shares, of which 1,000,000 are shares of Common Stock and 1,000,000
are shares of Preferred Stock; (b) prior to the issuances contemplated hereby,
no shares of Common Stock or Preferred Stock are issued and outstanding; (c)
except as expressly provided in this Agreement, the Warrants, the Certificate of
Designations or the Securityholders Agreement, the Company does not have
outstanding any securities convertible into or exchangeable for any Shares, any
rights to subscribe for or to purchase or any options for the purchase of, or,
except pursuant to this Agreement, any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any other
character relating to the issuance of, any Shares, or any securities convertible
into or exchangeable for any Shares; and (d) except pursuant to the terms

                                       26
<PAGE>

of the Preferred Stock contemplated to be issued hereby, the Company is not
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any Shares.

      Section 7.3 Defaults; Indebtedness. The Company is not in violation of and
is not in default (a) under its certificate of incorporation or bylaws or any
Related Agreement or (b) with respect to any Law and there exists no condition,
event or act which constitutes, or which after notice, lapse of time, or both,
would constitute, such a default under any of the foregoing. The Company has no
outstanding Indebtedness.

      Section 7.4  No Violation. The execution and delivery of this Agreement by
the Company and the Investors do not, and the consummation by the Company and
the Investors of the agreements and transactions contemplated by this Agreement
(including the Contributions and the Assumptions) will not, (a) conflict with,
or result in any violation of or default or loss of any benefit under, any
provision of the certificate of incorporation or bylaws of the Company, (b)
violate any Approval, Law or Permit to which the Company is a party or to which
the Company or any of its property is subject or (c) conflict with, or result in
a breach or violation of, or accelerate the performance required by, the terms
of any agreement, contract, indenture or other instrument to which the Company
is a party or to which any of its property is subject, or constitute a default
or loss of any right thereunder or an event which, with the lapse of time or
notice or both, is likely to result in a default or loss of any right thereunder
or the creation of any Lien upon any of the assets or properties of the Company,
except, in the case of clause (b) and (c) above, for any such violations,
conflicts, breaches or accelerations which would not, individually or in the
aggregate, have a Material Adverse Effect.

      Section 7.5 Offering of Shares. Based in part on the representations and
warranties of the Investors in Article VIII, the offer, sale and issuance of the
Securities pursuant to this Agreement do not require registration of such
securities under the Securities Act or registration or qualification under any
applicable state "blue sky" or securities laws. The Company, directly or
indirectly, has not taken and will not take any action which would subject the
issuance or sale of any of the Securities to the provisions of Section 5 of the
Securities Act or violate the provisions of any securities, "blue sky" law or
similar law of any applicable jurisdiction.

                                 ARTICLE VIII.
                REPRESENTATIONS, AND WARRANTIES OF THE INVESTORS

      Each Investor severally but not jointly, represents and warrants solely
with respect to itself to the Company and to the other Investors as of the
Closing Date that:

      Section 8.1   Investment Matters.

         (a) Such Investor is acquiring Securities solely for its beneficial
      account, for investment purposes, and not with a view to, or for resale in
      connection with, any distribution of Securities in violation of applicable
      securities laws;

         (b) Such Investor understands that the Securities have not been
      registered under the Securities Act or any state securities laws by reason
      of specific exemptions under the provisions thereof, the availability of
      which depend in part upon the bona fide

                                       27
<PAGE>

     nature of its investment intent and upon the accuracy of its representa-
     tions made in this Article VIII;

         (c) Such Investor understands that the Company is relying in part upon
      the representations and agreements contained in this Article VIII for the
      purpose of determining whether the offer, sale and issuance of the
      Securities meets the requirements for such exemptions;

         (d) Such Investor is an "accredited investor" as defined in Rule 501(a)
      under the Securities Act;

         (e) Such Investor has such knowledge, skill and experience in business,
      financial and investment matters that it is capable of evaluating the
      merits and risks of an investment in Securities to which it is
      subscribing;

         (f) Such Investor understands that the Securities will be "restricted
      securities" under applicable federal securities laws and that the
      Securities Act and the rules of the Commission provide in substance that
      it may dispose of the Securities only pursuant to an effective
      registration statement under the Securities Act or an exemption therefrom,
      and it understands that the Company has no obligation or intention to
      register any of the Securities thereunder (except pursuant to the
      registration rights granted in the Securityholders Agreement); and

         (g) Such Investor has been furnished by the Company all information (or
      provided access to all information) regarding the business and financial
      condition of the Company, its expected plans for future business
      activities, the attributes of the Securities for which such Investor is
      subscribing and the merits and risks of an investment in such Securities
      which it has requested or otherwise needs to evaluate the investment in
      such Securities; that in making the proposed investment decision, such
      Investor is relying solely on such information, the representations,
      warranties and agreements of each other Investor and on investigations
      made by it and its representatives; and that the offer to sell the
      Securities hereunder was communicated to such Investor in such a manner
      that it was able to ask questions of and receive answers from the
      management of the Company concerning the terms and conditions of the
      proposed transaction and that at no time was it presented with or
      solicited by or through any leaflet, public promotional meeting,
      television advertisement or any other form of general or public
      advertising or solicitation.

      Section 8.2   Authority.

         (a) Such Investor has full power and authority to enter into and
      perform its obligations under this Agreement; and

         (b) This Agreement has been duly authorized, executed and delivered by
      a Person authorized to do so, constitutes the legal, valid and binding
      obligation of such Investor and, except as may be affected (i) by
      bankruptcy, insolvency, moratorium, reorganization and other similar laws
      and judicial decisions affecting the rights of creditors generally and
      (ii) by general principles of equity and public policy (regardless

                                       28
<PAGE>

      of whether considered at law or in equity), is enforceable against such
      Investor in accordance with its terms.

      Section 8.3 No Conflicts. The execution, delivery and performance by such
Investor of this Agreement and the consummation by such Investor of the
transactions contemplated hereby will not, without the giving of notice or the
lapse of time, or both, (i) violate any provision of Law to which such Investor
is subject, or (ii) conflict with, or result in a breach or default under, any
term or condition of its certificate of incorporation or bylaws, or partnership
agreement or other organizational document, as applicable, or any agreement or
other instrument to which such Investor is a party or by which such Investor is
bound.

      Section 8.4 Other Agreements. Such Investor has not entered into any
agreement, written or otherwise, to dispose of the Securities (or any interest
therein) it receives pursuant to this Agreement.

                                  ARTICLE IX.
                     REPRESENTATIONS AND WARRANTIES OF CCBM

      In addition to the representations and warranties contained in Article
VIII hereof, CCBM, represents and warrants to the other Investors and the
Company as of the Closing Date that:

      Section 9.1   Organization; Qualification and Authority; Binding
                    Obligations.

         (a) CCBM (i) is a corporation duly formed and validly existing in good
      standing under the laws of the State of Delaware, (ii) is duly qualified
      to transact business as a foreign corporation and is in good standing in
      each jurisdiction in which the character of its properties or the nature
      of its business makes such qualification necessary, except where the
      failure to so qualify or to be in good standing would not reasonably be
      expected to have a Material Adverse Effect, (iii) has the corporate power
      to own its properties and to carry on its business as it is now being
      conducted, (iv) has all requisite corporate power and authority to enter
      into this Agreement and each Related Agreement to which it is a party and
      has the requisite power and authority to carry out the transactions
      contemplated hereby and thereby to be performed by it, and the execution,
      delivery and performance hereof and thereof have been duly authorized by
      all necessary action;

         (b) no Approval of any stockholders of CCBM or any stockholders of any
      Affiliate is required for consummation of the transactions contemplated by
      this Agreement or the Related Agreements; and

         (c) this Agreement, each Related Agreement to which it is a party and
      each other agreement or instrument executed and delivered by CCBM pursuant
      hereto or in connection herewith constitutes the legal, valid and binding
      obligations of CCBM and, except as may (i) be affected by applicable
      bankruptcy, insolvency, moratorium, reorganization and other similar laws
      and judicial decisions affecting the rights of creditors generally and
      (ii) by general principles of equity and public policy (regardless of
      whether considered at law or in equity), are enforceable against CCBM in
      accordance with their respective terms.

                                       29
<PAGE>

      Section 9.2   Defaults; Outstanding Debt. CCBM has not violated nor is it
in default under (a) its certificate of incorporation or bylaws, (b) any
Indebtedness, (c) any indenture, mortgage, lease, or any other contract,
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected or (d) with respect to any order, writ,
injunction or decree of any court or any federal, state, municipal or other
domestic department, commission, board, bureau, agency or instrumentality, and
to CCBM's knowledge there exists no condition, event or act which constitutes,
or which after notice, lapse of time, or both, would constitute, such a default
under any of the foregoing, except for such violations or defaults described in
clauses (b), (c) or (d) above which would not, in the aggregate, have a Material
Adverse Effect.

      Section 9.3 No Violation. The execution and delivery by CCBM of this
Agreement and each Related Agreement to which it is a party does not, and the
execution and delivery by Carrizo of the Carrizo Transition Services Agreement
and the consummation of the agreements and transactions contemplated by this
Agreement and such Related Agreements will not (a) conflict with, or result in
any violation of or default or loss of any benefit under, any provision of the
certificate of incorporation and bylaws of Carrizo, CCBM or any subsidiary
thereof, (b) to CCBM's knowledge, violate any Approval, Law or Permit to which
Carrizo, CCBM or any subsidiary thereof is a party or to which the Company or
any subsidiary thereof or any of their respective property is subject or (c)
subject to receipt of the Required Consents, conflict with, or result in a
breach or violation of, or accelerate the performance required by, the terms of
any agreement, contract, indenture or other instrument (including oil and gas
leases) to which Carrizo, CCBM or any subsidiary thereof is a party or, to the
knowledge of CCBM, to which any of the CCBM Contributed Assets are subject, or
constitute a default thereunder or an event which, with the lapse of time or
notice or both, is likely to result in a default thereunder or the creation of
any Lien upon any of the assets or properties of CCBM or any subsidiary thereof,
except, in the case of clauses (b) and (c) above, for any such violations,
conflicts, breaches or accelerations not directly pertaining to the CCBM
Contributed Assets which would not, individually or in the aggregate, have a
Material Adverse Effect.

      Section 9.4 Consents. Neither the nature of CCBM nor any of its businesses
or properties, nor any relationship between CCBM and any other Person is such as
to require on behalf of CCBM any Approval, other than Customary Filings, of any
Governmental Entity in connection with the valid execution, delivery and
performance of this Agreement or fulfillment of or compliance with the terms and
provisions hereof, other than Customary Filings and other filings which have
been made or consents obtained or not required to be made until after the
Closing Date.

      Section 9.5 Investment Company Status. CCBM is not and, upon the
consummation of the transactions contemplated by this Agreement and the Related
Agreements, will not be, an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act.

      Section 9.6 Taxes. To the knowledge of CCBM, all ad valorem, property,
production, severance and similar taxes and assessments based on or measured by
the ownership of property or the production or removal of Hydrocarbons or the
receipt of proceeds therefrom and relating to the CCBM Contributed Assets, to
the extent such taxes and assessments have become due and payable as of the
Closing, have been timely paid and all applicable tax returns required to be

                                       30
<PAGE>

filed have been filed and there are no material claims by any applicable taxing
authority pending against CCBM or any Affiliate thereof applicable to the CCBM
Contributed Assets.

      Section 9.7  Compliance with Law. CCBM and each of its subsidiaries (i) is
not in violation of any applicable Law (including without limitation Laws
relating to environmental matters, securities, properties, production, sales,
gathering and transportation of Hydrocarbons, occupational safety and health and
product safety), except for any violations which would not, individually or in
the aggregate, have a Material Adverse Effect, (ii) has not received any written
notice, which has not been dismissed or otherwise disposed of, that it has
violated any applicable Laws, (iii) has not been charged or, to the knowledge of
CCBM, formally threatened with or, to the knowledge of CCBM, under investigation
with respect to any violation of any applicable Law and (iv) is not a party to
or subject to the provisions of any judgment, order, writ, injunction, decree or
award of any court, arbitrator, board, panel or Governmental Entity.

      Section 9.8 Proceedings. Except as disclosed on Schedule 9.8, there are no
Proceedings pending or, to the knowledge of CCBM, threatened against CCBM or any
of its subsidiaries relating to or against or affecting any CCBM Contributed
Assets, any Assumed CCBM Liabilities or the Company or any of the Company's
properties, at law or in equity, or before or by any Governmental Entity or
before any arbitration board or panel, wherever located.

      Section 9.9 Title. CCBM has, and on the Closing Date the Company will have
(a) Defensible Title to the CCBM Contributed Assets which constitute Proven
Properties, free and clear of (i) all Liens arising by, through or under CCBM or
any Affiliate thereof (other than in the case of nonoperated properties, Liens
arising through the actions or omissions of the operator of which CCBM had no
knowledge) and (ii) to the knowledge of CCBM, all other Liens, in any case,
other than Permitted Encumbrances, and (b) Good and Legal Title in all of the
CCBM Contributed Assets that do not constitute Proven Properties, free and clear
of all Liens created by, through and under CCBM or any Affiliate thereof, but
not otherwise, in the case of mineral rights or other real property, other than
Permitted Encumbrances.

      Section 9.10 Contracts. Except as disclosed on Schedule 9.10, and except
where the failure of any of the following statements to be true and correct
would not have a Material Adverse Effect: (i) to the knowledge of CCBM, the
leases, contracts, agreements, licenses and permits included in the CCBM
Contributed Assets (the "CCBM CONTRACTS") to which CCBM is a party are in full
force and effect and, to the knowledge of CCBM, all rental obligations with
respect any leases have been paid when due; and (ii) CCBM is not in breach or
default (and, to the knowledge of CCBM, no situation exists which with the
passing of time or giving of notice would create a breach or default) of its
obligations under the CCBM Contracts and none of the Contributions, the
Assumptions, the execution or delivery of this Agreement or any Related
Agreement or the consummation of the transactions contemplated by this Agreement
or any Related Agreement will result in a breach or default of its obligations
under the CCBM Contracts. To the knowledge of CCBM, no breach or default by any
third party (or situation which with the passage of time or giving of notice
would create a breach or default) exists under any CCBM Contract. CCBM has not
received any notice of any claimed defaults, offsets or cancellations from any
lessors with respect to the CCBM Contributed Assets. CCBM has made available to
the other Investors, upon request, copies of al

                                       31
<PAGE>

      Section 9.11 Permits. To the knowledge of CCBM (a) the operator of the
CCBM Contributed Assets has all Permits required to own and operate the CCBM
Contributed Assets, and such Permits are in full force and effect, and to CCBM's
knowledge, there have not been any violations with respect to any such Permits
nor is there any action pending or threatened that would change the terms of
such Permits and (b) subject to Customary Filings, the execution and delivery by
CCBM of this Agreement and each of the Related Agreements to which it is a party
and the consummation by it of the transactions contemplated hereby will not
result in any revocation cancellation, suspension or modification of any such
Permits.

      Section 9.12 Consents, Preferential Rights, etc. Other than the applicable
Required Consents set forth on Schedule 9.12, none of the CCBM Contribution, the
execution or delivery by CCBM of this Agreement or any Related Agreement to
which it is a party or the consummation of the agreements and transactions
contemplated by this Agreement or any such Related Agreement requires any
consent, approval or waiver from any Person that is not a Governmental Entity
for the assignment to the Company of the CCBM Contributed Assets including,
without limitation, with respect to any CCBM Contract, oil and gas lease, area
of mutual interest or seismic data license that have not already been obtained
(and such consents or waivers that have been obtained do not contain any
requirements on the part of the Company or any Investor and are not conditional
upon any future event occurring except conditions satisfied on or prior to
Closing) and, to the knowledge of CCBM, all preferential rights to purchase,
rights of first refusal and any similar rights affecting the CCBM Contributed
Assets have been waived.

      Section 9.13  Marketing. To the knowledge of CCBM, except as disclosed on
Schedule 9.13, no amounts of Hydrocarbons produced from the CCBM Contributed
Assets are subject to a sales contract (except for contracts terminable without
penalty by CCBM on not more than 30 days notice), and except as may be contained
in any document described on Schedule 9.13, no Person has any call upon, option
to purchase or similar rights under any agreement with respect to the CCBM
Contributed Assets or to the production therefrom. CCBM has not in any respect
collected, nor will CCBM in any respect collect, any proceeds from the sale of
Hydrocarbons produced from the CCBM Contributed Assets that are subject to
refund except as disclosed on Schedule 9.13. To the knowledge of CCBM, except as
disclosed on Schedule 9.13, as of the date hereof, proceeds from the sale of
Hydrocarbons from the CCBM Contributed Assets are being received in all respects
by CCBM in a timely manner and were not being held in suspense for any reason.
To the knowledge of CCBM, CCBM has not been nor will CCBM be obligated by virtue
of any prepayment made under any production sales contract or any other contract
containing a "take or pay" clause, or under any gas balancing, deferred
production or similar arrangement to deliver gas or other minerals produced from
or allocated to any of the CCBM Contributed Assets at some future time without
receiving full payment therefor at the time of delivery. To the knowledge of
CCBM, except as disclosed on Schedule 9.13, there are no material gas imbalances
as between CCBM and any third party with respect to operations relating to the
CCBM Contributed Assets.

      Section 9.14  Change in Condition. To the knowledge of CCBM, there has
occurred no physical change in the CCBM Contributed Assets (other than
operations and production in the ordinary course) or other casualty since
December 31, 2002 that materially adversely affects the value, use or operation
of any of the CCBM Contributed Assets (other than declines due to actual
depletion).

                                       32
<PAGE>

      Section 9.15   No Other Activities. To the knowledge of CCBM, except as
contemplated by this Agreement, the Company has not engaged in any material
business activity.

      Section 9.16   Contributed Assets. With the exception of the assets
described on Schedule 9.16, CCBM is contributing to the Company, pursuant to
this Agreement, all of its assets, real and intangible in, or relating to the
production of oil and gas in, the States of Montana and Wyoming

                                   ARTICLE X.
                      REPRESENTATIONS AND WARRANTIES OF RMG

      In addition to the representations and warranties contained in Article
VIII hereof RMG represents and warrants to the other Investors and the Company
as of the Closing Date that:

      Section 10.1   Organization; Qualification and Authority; Binding
                     Obligations.

         (a) RMG (i) is a corporation duly formed and validly existing in good
      standing under the laws of the State of Wyoming, (ii) is duly qualified to
      transact business as a foreign corporation and is in good standing in each
      jurisdiction in which the character of its properties or the nature of its
      business makes such qualification necessary, except where the failure to
      so qualify or to be in good standing would not reasonably be expected to
      have a Material Adverse Effect, (iii) has the corporate power to own its
      properties and to carry on its business as it is now being conducted, (iv)
      has all requisite corporate power and authority to enter into this
      Agreement and each Related Agreement to which it is a party and has the
      requisite power and authority to carry out the transactions contemplated
      hereby and thereby to be performed by it, and the execution, delivery and
      performance hereof and thereof have been duly authorized by all necessary
      action;

         (b) no Approval of any stockholders of RMG or any stockholders of any
      Affiliate, is required for consummation of the transactions contemplated
      by this Agreement and each Related Agreement; and

         (c) this Agreement, each Related Agreement to which it is a party and
      each other agreement or instrument executed and delivered by RMG pursuant
      hereto or thereto or in connection herewith or therewith constitute the
      legal, valid and binding obligations of RMG and, except as may (i) be
      affected by applicable bankruptcy, insolvency, moratorium, reorganization
      and other similar laws and judicial decisions affecting the rights of
      creditors generally and (ii) by general principles of equity and public
      policy (regardless of whether considered at law or in equity), are
      enforceable against RMG in accordance with their respective terms.

      Section 10.2 Defaults; Outstanding Debt. RMG has not violated nor is it in
default under (a) its certificate of incorporation or bylaws, (b) any
Indebtedness, (c) any indenture, mortgage, lease, or any other contract,
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected or (d) with respect to any order, writ,
injunction or decree of any court or any federal, state, municipal or other
domestic department, commission, board, bureau, agency or instrumentality, and
to RMG's knowledge there exists no condition,

                                       33
<PAGE>

event or act which constitutes, or which after notice, lapse of time, or both,
would constitute, such a default under any of the foregoing, except for such
violations or defaults described in clauses (b), (c) or (d) above which would
not, in the aggregate, have a Material Adverse Effect.

      Section 10.3   No Violation. The execution and delivery by RMG of this
Agreement and each Related Agreement to which it is a party does not, and the
consummation of the agreements and transactions contemplated by this Agreement
and such Related Agreements will not (a) conflict with, or result in any
violation of or default or loss of any benefit under, any provision of the
certificate of incorporation and bylaws of RMG or any subsidiary thereof, (b) to
RMG's knowledge, violate any Approval, Law or Permit to which RMG or any
subsidiary thereof is a party or to which the Company or any subsidiary thereof
or any of their respective property is subject or (c) subject to receipt of the
Required Consents, conflict with, or result in a breach or violation of, or
accelerate the performance required by, the terms of any agreement, contract,
indenture or other instrument (including oil and gas leases) to which RMG or any
subsidiary thereof is a party or to which any of the RMG Contributed Assets are
subject, or constitute a default thereunder or an event which, with the lapse of
time or notice or both, is likely to result in a default thereunder or the
creation of any Lien upon any of the assets or properties of RMG or any
subsidiary thereof, except, in the case of clauses (b) and (c) above, for any
such violations, conflicts, breaches or accelerations not directly pertaining to
the RMG Contributed Assets which would not, individually or in the aggregate,
have a Material Adverse Effect.

      Section 10.4 Consents. Neither the nature of RMG nor any of its businesses
or properties, nor any relationship between RMG and any other Person is such as
to require on behalf of RMG any Approval, other than Customary Filings, of any
Governmental Entity in connection with the valid execution, delivery and
performance of this Agreement or the Related Agreements or fulfillment of or
compliance with the terms and provisions hereof or thereof, other than Customary
Filings and other filings which have been made or consents obtained or not
required to be made until after the Closing Date, except for any Approvals
which, if not obtained, would not, individually or in the aggregate, have a
Material Adverse Effect.

      Section 10.5   Investment Company Status. RMG is not and, upon the
consummation of the transactions contemplated by this Agreement and the Related
Agreements, will not be, an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act.

      Section 10.6  Taxes. All ad valorem, property, production, severance and
similar taxes and assessments based on or measured by the ownership of property
or the production or removal of Hydrocarbons or the receipt of proceeds
therefrom and relating to the RMG Contributed Assets, to the extent such taxes
and assessments have become due and payable as of the Closing, have been timely
paid and all applicable tax returns required to be filed have been filed and
there are no material claims by any applicable taxing authority pending against
RMG or any Affiliate thereof applicable to the RMG Contributed Assets.

      Section 10.7  Compliance with Law. RMG and each of its subsidiaries (i) is
not in violation of any applicable Law (including without limitation Laws
relating to environmental matters, securities, properties, production, sales,
gathering and transportation of Hydrocarbons, occupational safety and health and
product safety), except for any violations which would not,

                                       34
<PAGE>

individually or in the aggregate, have a Material Adverse Effect, (ii) has not
received any written notice, which has not been dismissed or otherwise disposed
of, that it has violated any applicable Laws, (iii) has not been charged or, to
the knowledge of RMG, formally threatened with or, to the knowledge of RMG,
under investigation with respect to any violation of any applicable Law and (iv)
is not a party to or subject to the provisions of any judgment, order, writ,
injunction, decree or award of any court, arbitrator, board, panel or
Governmental Entity.

      Section 10.8 Proceedings.  Except as disclosed on Schedule 10.8, there are
no Proceedings pending or, to the knowledge of RMG, threatened against RMG or
any of its subsidiaries relating to or against or affecting any RMG Contributed
Assets, any Assumed RMG Liabilities or the Company or any of the Company's
properties, at law or in equity, or before or by any Governmental Entity or
before any arbitration board or panel, wherever located.

      Section 10.9 Title.   RMG has, and on the Closing Date the Company will
have, (a) Defensible Title to the RMG Contributed Assets that constitute Proven
Properties, free and clear of all Liens other than Permitted Encumbrances and
(b) Good and Legal Title in all of the RMG Contributed Assets that do not
constitute Proven Properties free and clear of all Liens created by, through or
under RMG or any affiliate thereof, but not otherwise, in the case of mineral
rights or other real property other than Permitted Encumbrances.

      Section 10.10 Contracts. Except as disclosed on Schedule 10.10, and except
where the failure of any of the following statements to be true and correct
would not have a Material Adverse Effect: (i) the leases, contracts, agreements,
licenses and permits included in the RMG Contributed Assets (the "RMG
CONTRACTS") to which RMG is a party are in full force and effect and all rental
obligations with respect any leases have been paid when due; and (ii) RMG is not
in breach or default (and, to the knowledge of RMG, no situation exists which
with the passing of time or giving of notice would create a breach or default)
of its obligations under the RMG Contracts and none of the Contributions, the
Assumptions, the execution or delivery of this Agreement or any Related
Agreement or the consummation of the transactions contemplated by this Agreement
or any Related Agreement will result in a breach or default of its obligations
under the RMG Contracts. To the knowledge of RMG, no breach or default by any
third party (or situation which with the passage of time or giving of notice
would create a breach or default) exists under any RMG Contract. RMG has not
received any notice of any claimed defaults, offsets or cancellations from any
lessors with respect to the RMG Contributed Assets. RMG has made available to
the other Investors, upon request, copies of all RMG Contracts and any
amendments thereto to which RMG is a party.

      Section 10.11 Permits. (a) RMG has all Permits required to own and operate
the RMG Contributed Assets that it operates as presently being owned and
operated, and such Permits are in full force and effect, and to RMG's knowledge,
there have not been any violations with respect to any such Permits nor is there
any action pending or threatened that would change the terms of such Permits and
(b) subject to Customary Filings, the execution and delivery by RMG of this
Agreement and each of the Related Agreements to which it is a party and the
consummation by it of the transactions contemplated hereby and thereby will not
result in any revocation cancellation, suspension or modification of any such
Permit.

                                       35
<PAGE>

      Section 10.12  Consents, Preferential Rights, etc. Other than the
applicable Required Consents set forth on Schedule 10.12, none of the RMG
Contribution, the execution or delivery by RMG of this Agreement or any Related
Agreement to which it is a party, or the consummation of the agreements and
transactions contemplated by this Agreement or any such Related Agreement
requires any consent, approval or waiver from any Person that is not a
Governmental Entity for the assignment to the Company of the RMG Contributed
Assets including, without limitation, with respect to any RMG Contract, oil and
gas lease, area of mutual interest or seismic data license that have not already
been obtained (and such consents or waivers that have been obtained do not
contain any requirements on the part of the Company or any Investor and are not
conditional upon any future event occurring except conditions satisfied on or
prior to Closing) and all preferential rights to purchase, rights of first
refusal and any similar rights affecting the RMG Contributed Assets have been
waived.

      Section 10.13 Marketing. Except as disclosed on Schedule 10.13, no amounts
of Hydrocarbons produced from the RMG Contributed Assets are subject to a sales
contract (except for contracts terminable without penalty by RMG on not more
than 30 days notice), and except as may be contained in any document described
on Schedule 10.13, no Person has any call upon, option to purchase or similar
rights under any agreement with respect to the RMG Contributed Assets or to the
production therefrom. RMG has not in any respect collected, nor will RMG in any
respect collect, any proceeds from the sale of Hydrocarbons produced from the
RMG Contributed Assets that are subject to refund except as disclosed on
Schedule 10.13. Except as disclosed on Schedule 10.13, As of the date hereof,
proceeds from the sale of Hydrocarbons from the RMG Contributed Assets are being
received in all respects by RMG in a timely manner and were not being held in
suspense for any reason. RMG has not been nor will RMG be obligated by virtue of
any prepayment made under any production sales contract or any other contract
containing a "take or pay" clause, or under any gas balancing, deferred
production or similar arrangement to deliver gas or other minerals produced from
or allocated to any of the RMG Contributed Assets at some future time without
receiving full payment therefor at the time of delivery. Except as disclosed on
Schedule 10.13, there are no material gas imbalances as between RMG and any
third party with respect to operations relating to the RMG Contributed Assets.

      Section 10.14  Change in Condition. There has occurred no physical change
in the RMG Contributed Assets (other than operations and production in the
ordinary course) or other casualty since December 31, 2002 that materially
adversely affects the value, use or operation of any of the RMG Contributed
Assets (other than declines due to actual depletion).

      Section 10.15 No Other Activities. To the knowledge of RMG, except as
contemplated by this Agreement, the Company has not engaged in any material
business activity.

      Section 10.16 Contributed Assets. With the exception of the assets
described on Schedule 10.16, RMG is contributing to the Company, pursuant to
this Agreement, all of its assets, real and intangible in, or relating to the
production of oil and gas in, the States of Montana and Wyoming

      Section 10.17 Environmental Matters. Except as set forth on Schedule
10.17, (i) the Contributed Assets and the operations thereon are in compliance
with all applicable

                                       36
<PAGE>

Environmental Laws, except where the failure to comply would not have a Material
Adverse Effect; (ii) the Contributed Assets and the operations thereon are not
subject to any existing, pending or, to the knowledge of RMG, threatened
Proceedings under any Environmental Law; (iii) all Permits required to be
obtained or filed with respect to the Contributed Assets or operations thereon
under any Environmental Law have been obtained or filed and are valid, currently
in full force and effect, and have not been violated; (iv) there has been no
unauthorized release of any Hazardous Material, pollutant or contaminant into
the environment affecting the Contributed Assets; (v) there has been no exposure
of any Person or property to any Hazardous Material, pollutant or contaminant in
connection with the properties, operations and activities related to the
Contributed Assets; and (vi) RMG has made available to the other Investors all
internal and external environmental audits, reports and studies and all
correspondence on substantial environmental matters (in each case relevant to
the Company and/or the Contributed Assets).

      Section 10.18 Operation of the Proven Properties. RMG has at all times
developed, maintained and operated the Proven Properties in accordance with
customary practices in the oil and gas production industry, in compliance with
applicable laws, ordinances, rules, regulations and orders and in a prudent,
good and workmanlike manner. All equipment used in connection with the operation
of the Proven Properties is in good working order, ordinary wear and tear
excepted, and has been constructed and maintained in accordance with sound
oilfield operating practices. All such equipment is owned or co-owned by CCBM
and/or RMG or leased or co-leased from non-affiliated lessors.

                                  ARTICLE XI.
                             TRANSFER OF SECURITIES

      Section 11.1 Restriction on Transfer. The Securities shall not be
transferable except a holder of Securities may transfer such Securities upon the
conditions specified in this Article XI, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the transfer
thereof; provided, however, that any such transfer shall be subject to the
restrictions contained in the Securityholders Agreement and any transferee, by
acceptance of the Securities, shall be deemed to have agreed to be bound by and
entitled to the benefits of such agreement.

      Section 11.2 Restrictive Legends.

      Each certificate for the Securities, and each certificate for any such
securities issued to subsequent transferees of any such certificate shall be
stamped or otherwise imprinted with a legend in substantially the following
form:

      "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
      INVESTMENT AND THE OFFER AND SALE OF SUCH SECURITIES HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES OR
      BLUE SKY LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
      ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR
      APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.

                                       37
<PAGE>

      ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE
      CONDITIONS SPECIFIED IN THE CONTRIBUTION AND SUBSCRIPTION AGREEMENT DATED,
      AS OF JUNE 23, 2003, AMONG THE ISSUER HEREOF AND CERTAIN OTHER PARTIES
      THERETO AND THE SECURITYHOLDERS AGREEMENT, DATED AS OF JUNE 23, 2003,
      AMONG THE ISSUER HEREOF AND CERTAIN OTHER PARTIES THERETO, AND NO TRANSFER
      OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE
      BEEN FULFILLED. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED AT NO COST BY
      WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
      SECRETARY OF THE ISSUER HEREOF."

                                   ARTICLE XII.
                                   TERMINATION

      Section 12.1 Termination. This Agreement may be terminated prior to the
Closing:

         (a) by mutual agreement of the parties hereto;

         (b) by any Investor in the event of a breach by any other Investor of
      any representation or warranty contained in this Agreement or any covenant
      or agreement required by the terms of this Agreement to be performed prior
      to the Closing Date which would give rise to the failure of a condition
      set forth in Article IV which cannot be cured or, if curable, has not been
      cured within 15 Business Days following receipt by the breaching party of
      written notice of such breach;

         (c) by any Investor if a court of competent jurisdiction or other
      Governmental Entity shall have issued an order, decree or ruling or taken
      any other action (which order, decree or ruling the Company and the
      Investors shall use all commercially reasonable efforts to lift), in each
      case permanently restraining, enjoining, or otherwise prohibiting the
      transactions contemplated by this Agreement, and such order, decree,
      ruling or other action shall have become final and nonappealable;
      provided, however, that the right to terminate this Agreement under this
      Section 12.1(c) shall not be available to any party whose breach of this
      Agreement has been the cause of, or resulted in, such order, decree,
      ruling or other action; or

         (d) by any Investor if the Closing shall not have occurred within 45
      days of the date hereof, provided, however, that the right to terminate
      this Agreement under this Section 12.1(d) shall not be available to any
      party whose breach of this Agreement has been the cause of, or resulted
      in, the failure of the Closing Date to occur within such period.

      Section 12.2 Effect of Termination. In the event of the termination of
this Agreement, written notice thereof shall be given to all other parties
hereto by the terminating party specifying the provision pursuant to which the
termination is made, and this Agreement shall forthwith become null and void,
except for liability of a party arising out of willful breach of, or
misrepresentation under, this Agreement prior to such termination.

                                       38
<PAGE>

                                  ARTICLE XIII.
                                  MISCELLANEOUS

      Section 13.1  Indemnification.

         (a) Subject to the limitations set forth herein, each of CCBM and RMG
      severally agrees to indemnify and hold the Company and the other Investors
      harmless from and against any liabilities, claims, losses, damages, costs
      and expenses of any kind (including, without limitation, the reasonable
      fees and disbursements of the Company's counsel and counsel to each of the
      Investors in connection with any investigative, administrative or judicial
      proceeding, whether or not the Company or either other Investor is
      designated as a party thereto) that may be incurred by the Company or
      either other Investor, relating to or arising out of (i) any breach of the
      representations and warranties made by such Contributing Party in Article
      IX and Article X hereof or, with respect to the representations made in
      Section 9.9 and Section 10.9, any breach which cannot be cured or, if
      curable, has not been cured within 60 calendar days following receipt by
      the breaching party of written notice of such breach, (ii) any operation
      of assets of such Contributing Party not contributed to the Company under
      this Agreement, (iii) any Excluded CCBM Liabilities (in the case of CCBM's
      obligation of indemnification) or Excluded RMG Liabilities (in the case of
      RMG's obligation of indemnification), as the case may be, or (iv)
      ownership or operation of the CCBM Contributed Assets and the RMG
      Contributed Assets by CCBM and RMG, respectively, prior to the Closing
      Date including any liabilities arising with respect to such period
      (collectively, the "CLAIMS").

         (b) Notwithstanding the provisions of this Section 13.1, (i) neither
      Indemnifying Party (as defined below) shall be required to indemnify or
      hold harmless any of the Indemnified Parties (as defined below) on account
      of any Claims under clause (i) of Section 13.1(a) unless and until the
      aggregate liability of such Indemnifying Party in respect of all such
      Claims exceeds the Threshold Amount; provided, however, that once such
      aggregate Claims exceed the Threshold Amount, the Indemnifying Party shall
      be required to indemnify and hold harmless the Indemnified Parties to the
      fullest extent permitted by law from all such Claims, excluding those
      within the Threshold Amount and (ii) neither Indemnifying Party's
      aggregate liability in respect of all such Claims under clause (i) of
      Section 13.1(a) will exceed the Ceiling Amount.

         (c) NO PARTY HERETO (OR ITS AFFILIATES) SHALL HAVE THE RIGHT TO
      INDEMNIFICATION HEREUNDER FOR ANY CONSEQUENTIAL, EXEMPLARY, SPECIAL,
      INCIDENTAL, SPECULATIVE, TREBLE OR PUNITIVE DAMAGES (INCLUDING ANY LOSS OF
      EARNINGS OR PROFITS, LOSS OF REVENUE OR INCOME, COST OF CAPITAL OR LOSS OF
      BUSINESS REPUTATION OR OPPORTUNITY) SUFFERED BY SUCH PARTY UNLESS SUCH
      DAMAGES WERE INCURRED BY A THIRD PARTY AND ARE THE SUBJECT OF A THIRD
      PARTY CLAIM FOR WHICH A PARTY HERETO MAY OTHERWISE BE INDEMNIFIED PURSUANT
      HERETO.

         (d) THE PARTIES HERETO INTEND THAT THE INDEMNITIES SET FORTH IN SECTION
      13.2(A) BE CONSTRUED AND APPLIED

                                       39
<PAGE>

      AS WRITTEN ABOVE NOTWITHSTANDING ANY RULE OF CONSTRUCTION TO THE CONTRARY.
      WITHOUT LIMITING THE FOREGOING, THE INDEMNITIES SHALL APPLY
      NOTWITHSTANDING ANY STATE'S "EXPRESS NEGLIGENCE RULE" OR SIMILAR RULE THAT
      WOULD DENY COVERAGE BASED ON AN INDEMNITEE'S SOLE, CONCURRENT OR
      CONTRIBUTORY ACTIVE OR PASSIVE NEGLIGENCE OR GROSS NEGLIGENCE OR STRICT
      LIABILITY. IT IS THE INTENT OF THE PARTIES THAT, TO THE EXTENT PROVIDED IN
      SECTION 13.2(A), THE INDEMNITIES SET FORTH HEREIN SHALL APPLY TO AN
      INDEMNITEE'S SOLE, CONCURRENT OR CONTRIBUTORY ACTIVE OR PASSIVE
      NEGLIGENCE, GROSS NEGLIGENCE OR STRICT LIABILITY. THE PARTIES AGREE THAT
      THIS PROVISION IS "CONSPICUOUS" FOR PURPOSES OF ALL STATE LAWS.

      Section 13.2  Indemnification Procedures.

         (a) Any Person seeking indemnification under Section 13.1 (the
      "INDEMNIFIED PARTY") with respect to a Claim that is not a Third Party
      Claim shall commence and resolve such Claim solely in accordance with the
      dispute resolution procedures set forth in Section 13.3.

         (b) If any Third Party Claim is asserted against any Indemnified Party
      and such Indemnified Party intends to seek indemnification hereunder from
      a party to this Agreement (the "INDEMNIFYING PARTY"), then such
      Indemnified Party shall give notice of the Third Party Claim to the
      Indemnifying Party as soon as practicable after the Indemnified Party has
      reason to believe that the Indemnifying Party will have an indemnification
      obligation with respect to such Third Party Claim and shall provide the
      Indemnifying Party with all papers served with respect to such Third Party
      Claim. Such notice shall describe in reasonable detail the nature of the
      Third Party Claim, an estimate of the amount of damages attributable to
      the Third Party Claim and the basis of the Indemnified Party's request for
      indemnification under this Agreement. The failure of the Indemnified Party
      to so notify the Indemnifying Party of the Third Party Claim shall not
      relieve the Indemnifying Party from any duty to indemnify hereunder unless
      and to the extent that the Indemnifying Party demonstrates that the
      failure of the Indemnified Party to promptly notify it of such Third Party
      Claim materially prejudiced its ability to defend such Third Party Claim;
      provided, that the failure of the Indemnified Party to notify the
      Indemnifying Party shall not relieve the Indemnifying Party from any
      liability which it may have to the Indemnified Party otherwise than under
      this Agreement. Thereafter, the Indemnified Party shall deliver to the
      Indemnifying Party, within five Business Days after the Indemnified
      Party's receipt thereof, copies of all notices and documents (including
      court papers) received by the Indemnified Party relating to the Third
      Party Claim.

         (c) The Indemnifying Party shall have the right to participate in, or
      assume control of, and the Indemnifying Party's insurance carrier shall
      have the right to participate in, the defense of the Third Party Claim at
      its own expense by giving prompt written notice to the Indemnified Party,
      using counsel of its choice reasonably acceptable

                                       40
<PAGE>

      to the Indemnified Party. If it elects to assume control of the defense of
      such Third Party Claim, the Indemnifying Party shall defend such Third
      Party Claim by promptly and vigorously prosecuting all appropriate
      proceedings to a final conclusion or settlement. After notice from the
      Indemnifying Party to the Indemnified Party of its election to assume the
      defense of such Third Party Claim, the Indemnified Party shall have the
      right to participate in the defense of the Third Party Claim using counsel
      of its choice, but the Indemnifying Party shall not be liable to the
      Indemnified Party hereunder for any legal or other expenses subsequently
      incurred by the Indemnified Party in connection with its participation in
      the defense thereof unless (i) the employment thereof has been
      specifically authorized in writing by the Indemnifying Party, (ii) the
      Indemnifying Party fails to assume the defense or diligently prosecute the
      Third Party Claim or (iii) there shall exist or develop a conflict that
      would ethically prohibit counsel to the Indemnifying Party from
      representing the Indemnified Party. If requested by the Indemnifying
      Party, the Indemnified Party agrees to cooperate with the Indemnifying
      Party and its counsel in contesting any Third Party Claim that the
      Indemnifying Party elects to contest, including the making of any related
      counterclaim against the Third Party asserting the Third Party Claim or
      any cross-complaint against any Person, in each case only if and to the
      extend that any such counterclaim or cross-complaint arises from the same
      actions or facts giving rise to the Third Party Claim. The Indemnifying
      Party shall have the right, acting in good faith and with due regard to
      the interests of the Indemnified Party, to control all decisions regarding
      the handling of the defense without the consent of the Indemnified Party,
      but shall not have the right to admit liability with respect to, or
      compromise, settle or discharge any Third Party Claim or consent to the
      entry of any judgment with respect to such Third Party Claim without the
      consent of the Indemnified Party, which consent shall not be unreasonably
      withheld, unless such settlement, compromise or consent includes an
      unconditional release of the Indemnified Party from all liability and
      obligations arising out of such Third Party Claim and which would not
      otherwise adversely affect the Indemnified Party.

         (d) If the Indemnifying Party fails to assume the defense of a Third
      Party Claim within 30 days after receipt of written notice of the Third
      Party Claim, then the Indemnified Party shall have the right to defend the
      Third Party Claim by promptly and vigorously prosecuting all appropriate
      proceedings to a final conclusion or settlement. The Indemnifying Party
      shall have the right to participate in the defense of the Third Party
      Claim using counsel of its choice, but the Indemnified Party shall not be
      liable to the Indemnifying Party hereunder for any legal or other expenses
      incurred by the Indemnifying Party in connection with its participation in
      the defense thereof. If requested by the Indemnified Party, the
      Indemnifying Party agrees to cooperate with the Indemnified Party and its
      counsel in contesting any Third Party Claim that the Indemnified Party
      elects to contest, including the making of any related counterclaim
      against the Third Party asserting the Third Party Claim or any
      cross-complaint against any Person, in each case only if and to the extent
      that any such counterclaim or cross-complaint arises from the same actions
      or facts giving rise to the Third Party Claim. The Indemnified Party shall
      have the right, acting in good faith and with due regard to the interests
      of the Indemnifying Party, to control all decisions regarding the handling
      of the defense without the consent of the Indemnifying Party, but shall
      not have the right to compromise or settle any Third Party Claim or
      consent to the entry of any judgment with

                                       41
<PAGE>

      respect to such Third Party Claim without the consent of the Indemnifying
      Party, which consent shall not be unreasonably withheld, unless such
      settlement compromise or consent includes an unconditional release of the
      Indemnifying Party from all liability and obligations arising out of such
      Third Party Claim.

         (e) In the event an Indemnifying Party is determined to be liable with
      respect to any Claim pursuant to Section 13.3, such Indemnifying Party,
      within five Business Days after any such determination, shall pay to the
      Company in cash the full amount for which it is determined liable (an
      "AWARD"); provided, however, in lieu of any such cash payment the
      Indemnifying Party may, at its option, tender to the Company all of its
      right, title and interest in and to that number of shares of Common Stock
      (rounded to the nearest whole share) equal to the Award divided by $100,
      free and clear of all Encumbrances which, if accepted by the Company shall
      constitute a full accord and satisfaction with respect to the Award.

      Section 13.3   Dispute Resolution.

         (a) Any controversy, dispute or claim arising out of or relating to
      this Agreement or the Related Agreements, or the transactions contemplated
      thereby (a "DISPUTE") shall be resolved in accordance with this Section
      13.3.

         (b) Any party may give the other party written notice (a "DISPUTE
      NOTICE") of any Dispute which has not been resolved in the normal course
      of business. Within 15 Business Days after delivery of the Dispute Notice,
      the receiving party shall submit to the other party a written response
      (the "RESPONSE"). The Dispute Notice and the Response shall each include
      (i) a statement setting forth the position of the party giving such
      notice, a summary of the arguments supporting such position and, if
      applicable, the relief sought and (ii) the name and title of a senior
      manager of such party who has authority to settle the Dispute and will be
      responsible for the negotiations related to the settlement of the Dispute
      (the "SENIOR MANAGER").

         (c) Within 10 days after delivery of the Response provided for in
      Section 13.3(b), the Senior Managers of both parties shall meet or
      communicate by telephone at a mutually acceptable time and place, and
      thereafter as often as they reasonably deem necessary, and shall negotiate
      in good faith to attempt to resolve the Dispute that is the subject of
      such Dispute Notice. If such Dispute has not been resolved within 30 days
      after delivery of the Dispute Notice, then the parties shall attempt to
      settle the Dispute pursuant to Section 13.3(d).

         (d) In the event the Dispute has not been resolved within 30 days after
      the delivery of the Dispute Notice, the Dispute shall be resolved by
      arbitration administered by the American Arbitration Association (the
      "AAA") in accordance with the terms of this Section 13.3(d), the
      Commercial Arbitration Rules of the AAA, and, to the maximum extent
      applicable, the United States Arbitration Act. Judgment on any matter
      rendered by arbitrators may be entered in any court having jurisdiction.
      Any arbitration shall be conducted before three arbitrators. The
      arbitrators shall be individuals knowledgeable in the subject matter of
      the Dispute. Each party shall select one arbitrator and the two

                                       42
<PAGE>

      arbitrators so selected shall select the third arbitrator. If the third
      arbitrator is not selected within 30 Business Days after the request for
      an arbitration, then any party may request the AAA to select the third
      arbitrator. The arbitrators may engage engineers, accountants or other
      consultants they deem necessary to render a conclusion in the arbitration
      proceeding. To the maximum extent practicable, an arbitration proceeding
      hereunder shall be concluded within 90 Business Days of filing a Dispute
      with the AAA. Arbitration proceedings shall be conducted in Houston,
      Texas. Arbitrators shall be empowered to impose sanctions and to take such
      other actions as the arbitrators deem necessary to the same extent a judge
      could impose sanctions or take such other actions pursuant to the Federal
      Rules of Civil Procedure and applicable Law. At the conclusion of any
      arbitration proceeding, the arbitrators shall make specific written
      findings of fact and conclusions of law. The arbitrators shall have the
      power to award recovery of all costs and fees to the prevailing party. All
      fees of the arbitrators and any engineer, accountant or other consultant
      engaged by the arbitrators, shall be shared equally unless otherwise
      awarded by the arbitrators. Notwithstanding the foregoing, if the amount
      in controversy is less than $1,000,000, then, instead of selecting three
      arbitrators by the process described above, one arbitrator shall be
      selected in accordance with the rules of AAA. In this event the
      arbitration proceeding shall be conducted for all purposes as set forth in
      this Section 13.3(d), except that the proceeding shall be conducted by the
      one arbitrator, instead of the three.

         (e) All negotiations between the Senior Managers pursuant to this
      Section 13.3 shall be treated as compromise and settlement negotiations.
      Nothing said or disclosed, nor any document produced, in the course of
      such negotiations that is not otherwise independently discoverable shall
      be offered or received as evidence or used for impeachment or for any
      other purpose in any current or future arbitration or litigation.

      Section 13.4 Consent to Amendments. This Agreement may be amended and the
observance of any term of this Agreement may be waived with (and only with) the
written consent of the Company and each Investor.

      Section 13.5 Survival of Representations and Warranties. Unless this
Agreement is terminated pursuant to Section 12.1, in which case the
representations and warranties do not survive termination, all representations
and warranties contained herein or made in writing by or on behalf of any party
to this Agreement in connection herewith shall survive the execution and
delivery of this Agreement until July 1, 2004, regardless of any investigation
made by or on behalf of any party. No party may bring any Claim based upon a
breach of the representations or warranties contained in this Agreement after
such date.

      Section 13.6 Successors and Assigns; No Third Party Benefit. All covenants
and agreements in this Agreement contained by or on behalf of the parties hereto
shall bind and inure to the benefit of the respective successors and assigns of
the parties hereto and, to the extent provided in this Agreement, to the benefit
of any future holders of Shares issued pursuant to this Agreement, but in no
event to the purchaser of Shares in any registered offering under the Securities
Act or any "brokers' transactions" effected pursuant to Rule 144 of the
Securities Act. Subject to the foregoing and except as provided in Section 13.1,
nothing in this Agreement shall confer upon any person or entity not a party to
this Agreement, or the legal representatives of

                                       43
<PAGE>

such person or entity, any rights or remedies of any nature or kind whatsoever
under or by reason of this Agreement. No transfer of Securities shall relieve
any party of its obligations hereunder, if the transferee of such Securities
does not perform any assumed obligation.

      Section 13.7 Notices. Any and all notices, designations, consents, offers,
acceptances, or other communications provided for herein (each a "NOTICE") shall
be given in writing by registered or certified mail, personal delivery,
overnight courier or facsimile, which shall be addressed, or sent, to the
respective addresses as follows (or such other address as the Company or any
Investor may specify to the Company and all other Investors by Notice):

      If to the Company, addressed to:

               Pinnacle Gas Resources, Inc.
               1 E. Alger, Suite 206
               Sheridan, Wyoming  82801
               Attention:  Peter G. Schoonmaker
                           Gary W. Uhland
               Facsimile:  (307) 673-9711

      If to the CSFB Parties, addressed to:

               Credit Suisse First Boston Private Equity
               1100 Louisiana Street, Suite 4600
               Houston, Texas  77002
               Attention:   Steven A. Webster
                            Robert L. Cabes
               Facsimile:   (713) 890-1500

      with a copy to (which does not constitute Notice):

               Credit Suisse First Boston Private Equity
               Eleven Madison Avenue, 16th Floor
               New York, New York 10010
               Attention:  Benjamin A. Silbert
               Facsimile:  (917) 326-8076

      with a copy to (which does not constitute Notice):

               Akin Gump Strauss Hauer & Feld LLP
               711 Louisiana Street, Suite 1900
               Houston, Texas  77002
               Attention:   James L. Rice III
                            J. Michael Chambers
               Facsimile:   (713) 236-0822

                                       44
<PAGE>

      If to CCBM, addressed to:

               CCBM, Inc.
               14701 St. Mary's Lane, Suite 800
               Houston, Texas  77079
               Attention:  S.P. Johnson IV
               Facsimile:  (281) 496-0884

      with a copy to (which does not constitute Notice):

               Baker Botts L.L.P.
               One Shell Plaza
               910 Louisiana
               Houston, Texas  77002
               Attention:  Gene J. Oshman
               Facsimile:  (713) 229-7778

      If to RMG, addressed to:

               Rocky Mountain Gas, Inc.
               877 North 8th West
               Riverton, Wyoming  82501
               Attention:  Keith G. Larsen
               Facsimile:  (307) 857-3050

      with a copy to (which does not constitute Notice):

               Davis Graham & Stubbs LLP
               1550 Seventeenth Street, Suite 500
               Denver, Colorado  80202
               Attention:  Scot W. Anderson
               Facsimile:  (303) 893-1379

Each such communication shall for all purposes of this Agreement be treated as
effective or having been given when delivered if delivered personally, or, if
sent by courier, on the next business day following the day of dispatch or, if
sent by facsimile transmission, on the date of such transmission if confirmation
of such transmission is received or if sent by registered or certified mail
shall be deemed to have been received on the fifth Business Day after the date
of such mailing.

      Section 13.8 Descriptive Headings. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.

      Section 13.9 Satisfaction Requirement. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to the Investors, the determination of
such satisfaction shall be made collectively by the Investors in their
reasonable judgment exercised in good faith.

                                       45
<PAGE>

      Section 13.10 Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of Texas, without giving effect to the choice of law or
conflicts principles thereof.

      Section 13.11 Entire Agreement. This Agreement and the Related Agreements
contain the entire agreement among the parties with respect to the subject
matter herein and therein and supersede all prior and contemporaneous
arrangements or understandings with respect thereto.

      Section 13.12 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable Law, but if any provision of this Agreement is held to be prohibited
or unenforceable in any jurisdiction, such provision will be ineffective only to
the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

                           [Signature Page to Follow]

                                       46
<PAGE>

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

                                       PINNACLE GAS RESOURCES, INC.

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

                                       CCBM, INC.

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

                                       ROCKY MOUNTAIN GAS, INC.

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

                                       MILLENNIUM PARTNERS II, L.P.

                                       By:  DLJ Merchant Banking III, Inc.,
                                            a Managing General Partner

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

                                       DLJ MERCHANT BANKING III, INC.,
                                       as Advisory General Partner on behalf
                                       of DLJ Offshore Partners III, C.V.

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

                                       47
<PAGE>

                                       DLJ MERCHANT BANKING III, INC.,
                                       as Advisory General Partner on
                                       behalf of DLJ Offshore Partners III-1,
                                       C.V. and as attorney-in-fact for
                                       DLJ Merchant Banking III, L.P., as
                                       Associate General Partner of DLJ
                                       Offshore Partners III-1, C.V.

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

                                       DLJ MERCHANT BANKING III, INC.,
                                       as Advisory General Partner on behalf
                                       of DLJ Offshore Partners III-2,
                                       C.V. and as attorney-in-fact for
                                       DLJ Merchant Banking III, L.P., as
                                       Associate General Partner of DLJ
                                       Offshore Partners III-2, C.V.

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

                                       DLJ MERCHANT BANKING PARTNERS III, L.P.

                                       By:   DLJ Merchant Banking III, Inc.,
                                             as Managing General Partner

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

                                       DLJ MB PARTNERS III GMBH & CO. KG

                                       By:   DLJ Merchant Banking III, L.P.,
                                             as Managing Limited Partner

                                             By: DLJ Merchant Banking III, LLC,
                                                 as General Partner

                                                 By: DLJ Merchant Banking III,
                                                     Inc., as Managing Member

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

                                       48
<PAGE>

                                       MBP III PLAN INVESTORS, L.P.

                                       By:   DLJ Merchant Banking III, Inc.,
                                             as General Partner

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

                                       49
<PAGE>

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