Document:

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                                                                   Exhibit 10.9

                             CONTRIBUTION AGREEMENT

                                     BETWEEN

                         UNION OIL COMPANY OF CALIFORNIA

                                       AND

                          MATADOR PETROLEUM CORPORATION

                               January 20, 1998

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                            CONTRIBUTION AGREEMENT

This Contribution Agreement (this "Agreement") is entered into as of the 20th
day of January, 1998, between UNION OIL COMPANY OF CALIFORNIA, a California
corporation whose address is 14141 Southwest Freeway, Sugar Land, TX 77478
(herein referred to as "Unocal") and MATADOR PETROLEUM CORPORATION (formerly
named Matador Hold Co.), a Texas corporation, whose address is 8340 Meadow
Road, Suite 158, Dallas, TX 75231-3751 (herein referred to as "Matador").

1.    TRANSFER: For and in consideration of the mutual benefits to be derived
      herefrom, and subject to the terms and conditions hereinafter set forth,
      Unocal hereby transfers, assigns, conveys and delivers to Matador the
      following:

      (a)   Unocal's leasehold interest in the oil, gas and other mineral leases
            described in Exhibit "A" insofar as same cover and affect the lands
            described in Exhibit "A";

      (b)   the wells, equipment and facilities permanently located on the lands
            described in Exhibit "A", including, but not limited to, pumps,
            surface and subsurface well equipment, gas plants, saltwater
            disposal wells, lines and facilities, sulfur recovery facilities,
            compressors, compressor stations, dehydration facilities, treating
            facilities, gathering lines, flow lines, valves, meters, separators,
            tanks, tank batteries and other fixtures;

      (c)   the oil, condensate and natural gas liquids produced after the
            Effective Date (as defined in Section 2 of this Agreement),
            including line fill below the pipeline connections as of the
            Effective Date, attributable to the leasehold interests described in
            Exhibit "A";

      (d)   all personal property, warehouse stock and idle equipment pertaining
            to the properties described on Exhibit "A";

      (e)   all contracts and agreements concerning the properties described in
            Exhibit "A", including, but not limited to, unit agreements, pooling
            agreements, areas of mutual interest agreements, farmout agreements,
            farm-in agreements, saltwater disposal agreements, water injection
            agreements, water rights agreements, surface use agreements, line
            well injection agreements, road use agreements, drilling contracts,
            seismic agreements, operating agreements, well service contracts,
            production sales contracts, gas contracts, gas balancing agreements,
            storage or warehouse agreements, supplier contracts, service
            contracts, construction agreements, division orders and transfer
            orders, insofar as and only insofar as they relate to the interests
            and properties described in Exhibit "A" ("Existing Contracts");

      (f)   authorizations, permits, and similar rights and interests applicable
            to, or used in connection with, any or all of the interests and
            properties described in Exhibits "A"; and

      (g)   all files, compilations, reports, seismic data, logs, records,
            information and data relating to the properties described in Exhibit
            "A", including, without limitation: (i) land and title records
            (including abstracts of title, title opinions, and title curative
            documents), (ii)

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            contract files, (iii) correspondence, (iv) operations,
            environmental, production and accounting records, (v) facility and
            well records and (vi) geological, geophysical, engineering and other
            scientific and technical data and information, including seismic
            lines, maps and interpretations, relating to the properties
            described on Exhibit "A", provided, however, that Unocal shall not
            be required to assign to Matador any interest in items (i) through
            (vi) above, if such an assignment, in Unocal's sole determination,
            is precluded by existing contractual obligations, such as
            confidentiality agreements, which restrict such assignment. To the
            extent that any such items are precluded from assignment, Unocal
            shall provide reasonable access to such items to Matador or its
            agents, to the full extent such access is available under the terms
            of any contracts or other agreements restricting an assignment to
            Matador hereunder.

      (h)   all other real and personal property interests of Unocal regarding
            property located in Lea, Eddy or Chaves Counties, New Mexico.

      All of the property and contract rights, titles and interests described
      above are hereinafter collectively called the "SENM Properties." It is the
      intention of the parties that Unocal convey to Matador all of its property
      interests, both real and personal, in Lea, Eddy and Chaves Counties, New
      Mexico, whether or not specifically set forth on Exhibit "A" or delineated
      above; provided that the interests described in this Section 1, the
      interests transferred under this Agreement and the term "SENM Properties"
      only includes interests owned by Unocal or an affiliate of Unocal as of
      the Effective Date before the consummation of this Agreement.

2.    CLOSING AND EFFECTIVE DATE. The Effective Date of the Transfer will be
      7:00 a.m. on October 1, 1997, (the "Effective Date") with closing to occur
      contemporaneously with the execution of this Agreement (the "Closing
      Date"). Unocal shall be entitled to all amounts realized from, and
      accruing to, the SENM Properties prior to the Effective Date, including
      the right to all production in storage, processing and inventory, and
      shall be responsible for all expenses for the development and operation of
      the SENM Properties prior to the Effective Date, and Matador shall be
      entitled to all amounts realized from, and accruing to, the SENM
      Properties subsequent to the Effective Date, and shall be responsible for
      all expenses for the development and operation of the SENM Properties
      subsequent to the Effective Date. It is understood and agreed, however,
      that any amounts attributable to suspense accounts or other revenues not
      properly credited to the account of Unocal due to accounting errors, title
      discrepancies, improperly calculated royalties, oil or gas marketing and
      sales adjustments, refunds, improperly calculated interests or other
      discrepancies attributable to periods prior to the Effective Date that are
      disclosed and collected by or through the efforts of Matador, shall belong
      to, and are hereby assigned to, Matador. At Unocal's request, Matador
      shall provide documentation to demonstrate the efforts made to collect any
      amount that Matador claims an entitlement to pursuant to this paragraph.
      The parties agree that Matador shall have the burden to demonstrate that
      monies attributable to the period prior to the Effective Date are
      collected by and through its own efforts.

3.    EXISTING OBLIGATIONS

      The SENM Properties will be conveyed subject to any and all Existing
      Contracts and all other agreements contained in Unocal's files and
      disclosed to Matador ("Other Agreements"), or filed for record in the
      records of the Lea, Eddy or Chaves County Clerk's office, the New Mexico
      Oil Conservation Division or the Bureau of Land Management for the SENM
      Properties, or otherwise

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      actually known to Matador prior to Closing. To the extent of the interest
      acquired by Matador hereunder, Matador agrees to and shall assume and be
      responsible for all obligations of Unocal under such Existing Contracts
      and Other Agreements as of the Effective Date.

4.    ADJUSTMENTS

      (a)   Oil, gas and other production from or attributable to the SENM
            Properties which was produced prior to the Effective Date and
            proceeds from the sale thereof shall belong to Unocal.

      (b)   Matador will assume all responsibility for notifying the buyer(s) of
            production of the change of ownership. The parties shall execute
            such letters in-lieu of transfer orders or such other documents as
            may be reasonably required by any purchaser of production. Within
            one hundred twenty (120) days after closing, Matador and Unocal will
            effect a cash adjustment to account for (1) any production prior to
            the Effective Date the proceeds from which are reserved to Unocal;
            (2) any payments received by Unocal for production which was
            produced after the Effective Date the proceeds from which are due to
            Matador; (3) costs, expenses, charges, and credits relating to
            operations of the SENM Properties incurred and paid by Unocal
            between the Effective Date and the Closing for which Matador should
            reimburse Unocal; (4) any costs and expenses for operations incurred
            prior to the Effective Date attributable to the SENM Properties
            which have not been paid by Unocal as of the Closing Date for which
            Unocal should be responsible; and (5) such other adjustments
            (including prepayments) as may be agreed upon by the parties hereto.

5.    WARRANTY: Unocal agrees to convey the SENM Properties without any warranty
      whatsoever, express or implied, as to description, contractual
      obligations, title, condition, fitness for purpose, merchantability,
      completeness or otherwise, but with full substitution and subrogation of
      Unocal, and all persons claiming by, through and under Unocal, to the
      extent assignable, in and to all covenants and warranties of Unocal's
      predecessors in title and with full subrogation of all rights accruing
      under the applicable statutes of limitation or prescription under the laws
      of the state where the assets are located and all rights of actions of
      warranty against all former owners of the SENM Properties.

6.    INDEMNIFICATION:

      (a)   Matador agrees to assume any and all responsibility which Unocal may
            have under applicable governmental laws, rules and regulations
            concerning the plugging and abandonment of wells which are part of,
            or located on, the SENM Properties, and agrees to defend, indemnify
            and hold Unocal harmless from any and all liabilities arising from
            Matador's failure, or alleged failure, to properly plug and abandon
            such wells from and after the Closing Date.

      (b)   From and after the Closing Date, Matador agrees to assume all
            responsibility and liability related to the environmental condition
            of the SENM Properties arising from events or occurrences occurring
            after the Closing Date and agrees to defend, indemnify and hold
            Unocal harmless from any and all claims arising from the presence of
            NORM, asbestos and any other environmental contaminants which may be
            deposited or released on the SENM Properties after the Closing Date.

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      (c)   In addition to provisions (a) and (b) above, Matador agrees to
            indemnify and hold harmless Unocal from and against all losses,
            costs, claims, demands, suits, fees, liability and expense with
            respect to the SENM Properties which arise out of or relate to
            Matador's ownership and/or operation of such properties, or which in
            any manner relates to the condition of the premises and equipment
            with regard to any event or occurrence occurring after the Closing
            Date.

      (d)   For a period of three years after the Closing Date, Unocal agrees to
            retain all responsibility and liability related to any material
            adverse environmental condition on or arising from, or any violation
            of environmental laws related to, the SENM Properties that existed
            or occurred on or prior to the Closing Date, and agrees to defend,
            indemnify and hold Matador, its officers, directors, agents,
            employees and affiliated companies, harmless from any and all
            claims, losses, damages, fines, penalties, expenses (including, but
            not limited to, reasonable attorneys' fees) and costs (collectively,
            "Damages") arising therefrom or related thereto. For purposes of
            this paragraph, "material adverse environmental condition" shall
            mean only those environmental conditions for which (i) remediation
            is required, or a fine, penalty, claim, damage, loss, cost or
            expense is payable, under applicable law, rules, regulations or
            governmental agency action or third- party actions or claims, (ii)
            Damages from such condition exceed $10,000 and (iii) the aggregate
            of all Damages (including, but not limited to, costs to remediate)
            for which indemnity claimed during the three-year period immediately
            following the Closing Date exceeds $100,000. For purposes of this
            paragraph, "environmental laws" means all laws, rules, regulations,
            pronouncements, policies and similar items of any governmental body,
            agency or subdivision that deal with the protection of the
            environment or the release of contaminants or regulated substances
            into the environment. Matador shall notify Unocal, in writing,of any
            remedial efforts for which Matador seeks indemnification from Unocal
            under this Section and the parties shall mutually agree upon a plan
            for remediation; provided, however, that no failure by Matador to
            give notice pursuant to this Section will relieve Unocal of any
            liability under this Section, except to the extent that such failure
            has a material adverse effect on Unocal's liability under this
            Section.

      (e)   In addition to provision (d) above, Unocal agrees to defend,
            indemnify and hold harmless Matador and its affiliated companies,
            and its and their officers, directors, agents, and employees, from
            and against all losses, costs, claims, demands, suits, fees,
            liability and expense with respect to the SENM Properties which
            arise out of or relate to (i) Unocal's ownership and/or operation of
            such SENM Properties, or which in any manner relates to the
            condition of the SENM Properties and equipment with regard to any
            event or occurrence occurring or arising prior to the Closing Date,
            (ii) any instrument, contract or other agreement not disclosed to
            Matador or filed of record or (iii) any lien, claim or encumbrance
            other than those usual and customary permitted encumbrances in
            transactions of this type, the net cumulative effect of which do not
            operate to reduce the net revenue interest with respect to any
            property set forth in Exhibit "A" by more than a proportionately
            reduced 5% or to increase the costs and expenses relating to the
            operations and development of any Property by more than a
            proportionately reduced 5% of the working interest indicated on
            Exhibit "A".

      (f)   Matador further covenants and agrees to defend any suits brought
            against Unocal based upon any claim for which Matador has agreed to
            provide indemnification under this Section 6, and to pay any
            demands, assessments, judgments, costs, and expenses

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            incident to its indemnity obligations hereunder; provided, that
            Unocal shall, nevertheless, have the right to participate (at
            Unocal's expense if Matador is defending the suit or claim) in the
            defense of any such suit or suits without relieving Matador of its
            obligation to defend the same.

      (g)   Unocal further covenants and agrees to defend any suits brought
            against Matador based upon any claim for which Unocal has agreed to
            provide indemnification under this Section 6, and to pay any
            demands, assessments, judgments, costs, and expenses incident to its
            indemnity obligations hereunder; provided, that Matador shall,
            nevertheless, have the right to participate (at Matador's expense if
            Unocal is defending the suit or claim) in the defense of any such
            suit or suits without relieving Unocal of its obligation to defend
            the same.

7.    RECORDS:  At or promptly after the Closing, Unocal shall deliver to
      Matador either originals or copies of all of Unocal's records relating
      to the SENM Properties.

8.    TAXES: Ad valorem taxes for 1997 personal property, severance taxes and
      similar obligations shall be prorated as of the Effective Date hereof.
      Matador will be responsible for payment of the taxes assessed for the tax
      year 1997 and will bill Unocal, and provide supporting data, for its pro
      rata share. Matador will bear all applicable sales taxes or similar taxes
      imposed by any state, county, municipal or other governmental entity as a
      result of the sale of SENM Properties.

9.    GAS OVER AND UNDER PRODUCTION: Notwithstanding anything to the contrary
      contained in this Agreement, Matador acknowledges and agrees to the
      following regarding possible gas imbalance on the SENM Properties.

      (a)   GAS UNDERPRODUCTION: In the event Unocal is underproduced as to any
            well(s) appurtenant to the SENM Properties, Matador agrees not to
            hold Unocal liable for such underproduction. Unocal, however, agrees
            that if Closing occurs, Matador is hereby assigned all of its
            contractual rights to make up such underproduction.

      (b)   GAS OVERPRODUCTION: In the event Unocal is overproduced as to any
            wells(s) appurtenant to the SENM Properties, Matador acknowledges
            and agrees that its share of gas from any such overproduced well(s)
            may at some point be curtailed by underproduced working interest
            owner(s) or in the event production should cease prior to achieving
            volumetric balancing Matador may be subject to cash balancing. The
            parties to this Agreement agree that Unocal shall not be liable to
            Matador in the event such curtailment or cash balancing occurs, and
            Matador shall accept the SENM Properties subject to and assume any
            obligations created by such overproduction.

10.   OTHER ACTIONS: The parties agree to execute such further documents or take
      such further actions after the Closing Date, which may be necessary in
      order to effectuate the transactions contemplated hereunder.

11.   WAIVER: No waiver of any of the provisions of this Agreement shall be
      deemed or shall constitute a waiver of any other provision hereof
      (regardless of whether such provision is similar), nor shall any such
      waiver constitute a continuing waiver unless otherwise expressly provided.

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12.   SEVERABILITY: If any term or other provision of this Agreement is invalid,
      illegal or incapable of being enforced by any rule of law or public
      policy, all other conditions and provisions of this Agreement shall
      nevertheless remain in full force and effect so long as the economic or
      legal substance of the transactions contemplated hereby is not affected in
      any manner adverse to any party. Upon such determination that any term or
      other provision is invalid, illegal or incapable of being enforced, the
      parties hereto shall negotiate in good faith to modify this Agreement so
      as to effect the original intent of the parties as closely as possible in
      an acceptable manner to the end that transactions contemplated hereby are
      fulfilled to the extent possible.

13.   BULK TRANSFER: Buyer hereby waives compliance by Unocal with the
      provisions of any applicable Bulk Transfer Act under the Uniform
      Commercial Code, and Unocal warrants and agrees to pay and discharge when
      due all claims of creditors which could be asserted by reason of such
      noncompliance.

14.   WARRANTY DISCLAIMERS: ALL PERSONAL PROPERTY, MACHINERY, FIXTURES,
      EQUIPMENT AND MATERIALS CONVEYED HEREBY ARE SOLD AND ASSIGNED AND ACCEPTED
      BY MATADOR, IN THEIR "WHERE IS, AS IS" CONDITION, WITHOUT ANY WARRANTIES
      WHATSOEVER, EXPRESS OR IMPLIED OR STATUTORY, OF MARKETABILITY, QUALITY,
      CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, ALL
      OF WHICH ARE EXPRESSLY DISCLAIMED. THE PARTIES AGREE THAT TO THE EXTENT
      REQUIRED TO BE OPERATIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED
      IN THIS SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR THE PURCHASE OF ANY
      APPLICABLE LAW.

15.   COMMUNICATIONS: Unless otherwise provided in this Agreement,
      communications (including notices) under this Agreement that must be in
      writing and delivered by a specified date will be deemed to have been made
      when received at the following addresses by registered or certified mail,
      postage prepaid, or by messenger (or at such other address as a party may
      specify by notice to the other party):

            Union Oil Company of California     Matador Petroleum Corporation
            14141 Southwest Freeway             8340 Meadow Road, Suite 158
            Sugar Land, TX  77478               Dallas, TX  75231-3751
            Attn: Mike Buswell                  Attn: Joseph Wm. Foran

            Office: 281-491-7600                Office: 214-987-3650
            Fax:    281-287-7340                Fax:    214-691-1415

16.   HART-SCOTT RODINO ANTITRUST: The parties have determined that the
      Hart-Scott-Rodino Antitrust Improvements Act of 1976 does not apply to
      this transaction.

17.   COUNTERPARTS: This Agreement may be executed in multiple counterparts,
      each of which shall be deemed an original, but all of which together shall
      constitute one and the same instrument.

18.   ENTIRE AGREEMENT: This Agreement and the Stock Purchase Agreement and
      Shareholders Agreement of even date herewith among Unocal, Matador and
      others and the other agreements

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      contemplated hereby and thereby constitute the entire agreement among the
      parties pertaining to the subject matter hereof and supersede all prior
      agreements, understandings, negotiations and discussions, whether oral,
      written or inferred, of the parties, and there are no other warranties,
      representations or agreements between the parties in connection with the
      subject matter hereof.

19.   GOVERNING LAW: This Agreement shall be governed by, and construed and
      enforced in accordance with, the laws of the State of Texas.

20.   BINDING EFFECT AND ASSIGNMENT: This Agreement shall be binding upon and
      inure to the benefit of the parties hereto and their respective heirs,
      successors and assigns. Nothing in this Agreement, express or implied, is
      intended to confer upon any person other than the parties hereto and their
      respective heirs, successors and assigns, any rights, benefits or
      obligations hereunder.

21.   HEADINGS: The headings contained herein are inserted for convenience of
      reference only and are not intended to be a part of or affect the meaning
      or interpretation of this Agreement.

22.   SURVIVAL. The provisions of this Agreement shall survive the closing of
      the transactions contemplated hereby.

      IN WITNESS WHEREOF, Matador and Unocal have caused their names to be
affixed to this Contribution Agreement as of the date first above written.

                                          UNION OIL COMPANY OF CALIFORNIA

                                          BY:   /s/ Robert C. Gnagy
                                                --------------------------------

                                          MATADOR PETROLEUM CORPORATION

                                          BY:   /s/ Joseph Wm. Foran
                                                --------------------------------
                                                Joseph Wm. Foran
                                                Chairman and CEO

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                                CO-SALE AGREEMENT

      THIS CO-SALE AGREEMENT is made as of January 20, 1998 by and among the
Principals who are signatories hereto (collectively, the "PRINCIPALS"), Matador
Petroleum Corporation (formerly named Matador Hold Co.), a Texas corporation
(the "COMPANY"), and the holders of Series A Convertible Preferred Stock of the
Company (the "PREFERRED STOCK") who are signatories hereto (the "SHAREHOLDERS").

      WHEREAS, the Principals and the Shareholders were parties to that certain
Co-Sale Agreement dated as of May 30, 1996 relating to their shares of common
stock and preferred stock in Matador E&P Company (formerly named Matador
Petroleum Corporation), a Texas corporation ("OLD MATADOR") which Agreement
terminated pursuant to Section 4.1(i) thereof;

      WHEREAS, pursuant to that certain Agreement and Plan of Merger dated as of
January 20, 1998 (the "PLAN OF MERGER") by and among the Company, Old Matador
and Matador Merge Co., a Texas corporation, the shares of Series A Convertible
Preferred Stock of Old Matador held by the Shareholders were converted into the
same number of shares of Preferred Stock of the Company and the shares of common
stock of Old Matador owned by the Principals were converted into the same number
of shares of common stock, $.10 par value per share of the Company (the "COMMON
STOCK") and the Co-Sale Agreement relating to the stock of Old Matador
terminated in accordance with its terms;

      WHEREAS, in connection with the Plan of Merger, the Principals and
Shareholders agreed to enter into this Agreement;

      WHEREAS, in connection with the Plan of Merger, the parties hereto have
entered into that certain Shareholders Agreement dated as of January 20, 1998
(the "SHAREHOLDERS AGREEMENT") pursuant to which the Company, the Principals,
the Shareholders and certain other shareholders of the Company will have certain
options to purchase shares of Common Stock of the Company upon any proposed
Disposition of such stock, as defined therein;

      WHEREAS, the Principals are presently the legal or beneficial owners of
129,457 shares of Common Stock; and

      WHEREAS, in consideration of the Shareholders' continuing investment in
the Company, the Principals have agreed to grant the Shareholders and their
respective successors and assigns the opportunity to participate, upon the terms
and conditions set forth in this Agreement, in subsequent sales of the shares of
Common Stock made by any of the Principals;

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      NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

                                    ARTICLE 1
                               SALES BY PRINCIPAL

     SECTION 1.1. NOTICE OF PURCHASE OFFERS. Should any Principal or Principals
propose to accept a letter of intent or bona fide offer (each, a "PURCHASE
OFFER"), at any time and from time to time, to purchase shares of Common Stock
(such Principal or Principals being referred to as the "PRINCIPAL SELLING GROUP"
(regardless of whether only one Principal is proposing to sell Common Stock)),
then such Principal Selling Group shall promptly notify each Shareholder of the
terms and conditions of such Purchase Offer.

     SECTION 1.2. RIGHT TO PARTICIPATE. Each Shareholder shall have the right,
upon written notice to such Principal Selling Group within 10 business days
after receipt of the written notice of the Purchase Offer, to participate, upon
the terms and conditions set forth herein, in the sale of the shares of Common
Stock referred to in Section 1.1 by such Principal Selling Group on the same
terms and conditions as the sale by such Principal Selling Group. The right of
participation of each Shareholder shall also apply to any sale by a Principal
pursuant to the exercise of any options under the Shareholders Agreement except
as provided in Section 1.5(iv) hereof.

      To the extent a Shareholder exercises such right of participation, the
number of shares of Common Stock which such Principal Selling Group may sell
pursuant to such Purchase Offer shall be correspondingly reduced. The right of
participation of a Shareholder shall be subject to the following terms and
conditions:

            (a) In connection with each Purchase Offer, each Shareholder may
      sell that number of shares of Common Stock equal to the product obtained
      by multiplying (i) the aggregate number of shares of Common Stock covered
      by the Purchase Offer by (ii) a fraction the numerator of which is the
      number of shares of Common Stock at the time owned by the Shareholder and
      the denominator of which is the combined number of shares of Common Stock
      at the time owned by (A) the Principals (including any shares transferred
      to Permitted Transferees (as hereinafter defined) in accordance herewith)
      and (B) the Shareholders. For purposes of this Agreement, including making
      computations pursuant to this Section 1.2, the Shareholders shall be
      deemed to own the number of shares of Common Stock of the Company issuable
      upon conversion of the Preferred Stock with respect to which such
      Preferred Stock has not been converted.

            (b) Each Shareholder may participate in the sale by delivering to
      the purchase offeror directly, or to any member of the Principal Selling
      Group for delivery to the purchase offeror, one or more certificates,
      properly endorsed for transfer, which represent the number of shares of
      Common Stock of the Company which such Shareholder elects to sell pursuant
      to this Section 1.2 together with such other documentation required by the
      proposed purchaser, which other documentation is also required to be
      delivered by the Principal Selling Group.

            (c) Should any Shareholder decline to participate in the proposed
      sale, each other selling Shareholder shall have one opportunity to sell
      all or any part of an additional number of shares of Common Stock equal to
      the product obtained by multiplying (i) the aggregate number of shares of
      Common Stock which each non-participating Shareholder had the right to
      sell pursuant to subparagraph (a) of this Section 1.2 by (ii) a fraction
      the numerator of which is the number of shares of Common Stock at the time
      owned by the Shareholder wishing to sell additional shares

<PAGE>

      of Common Stock and the denominator of which is the combined number of
      shares of Common Stock at the time owned by all Shareholders wishing to
      sell additional shares of Common Stock. The Principal Selling Group
      shall notify in writing each selling Shareholder of the number of
      additional shares of Common Stock it may sell pursuant to this Section
      1.2(c) and the selling Shareholders shall have five (5) business days
      after receipt of such notice to notify the Principal Selling Group
      whether it shall exercise its right to sell such additional shares.

            (d) Should the right to sell any shares of Common Stock which any
      non-participating Shareholder had the right to sell pursuant to
      subparagraph (a) of this Section 1.2 not be allocated to Shareholders
      desiring to sell additional shares of Common Stock after the allocation
      procedure provided for in subparagraph (c) of this Section 1.2, the right
      to sell such shares of Common Stock shall revert to the Principal(s).

     SECTION 1.3. CONSUMMATION OF SALE. The stock certificate or certificates
which any selling Shareholder delivers to a member of the Principal Selling
Group pursuant to Section 1.2 shall be delivered by the Principal Selling Group
to the purchase offeror in consummation of the sale of the shares of Common
Stock pursuant to the terms and conditions specified in the Section 1.1 notice
to the Shareholders and the Principal Selling Group shall contemporaneously
remit to each Shareholder that portion of the sale proceeds to which such
Shareholder is entitled by reason of its participation in such sale. In the
alternative, each selling Shareholder may deliver the stock certificate or
certificates to and receive the sale proceeds directly from the purchase offeror
of shares of Common Stock.

     SECTION 1.4. ONGOING RIGHTS. The exercise or non-exercise of the rights of
the Shareholders hereunder to participate in one or more sales of Common Stock
made by any of the Principals shall not adversely affect their rights to
participate in subsequent sales of shares of Common Stock by the Principals
pursuant to this Article 1. The conversion of the Preferred Stock into shares of
Common Stock of the Company by the Shareholders shall not adversely affect the
Shareholders' rights to participate in subsequent sales of shares of Common
Stock by the Principals pursuant to this Article 1.

      SECTION 1.5. PERMITTED EXEMPTIONS. The participation rights of the
Shareholders pursuant to this Article I shall not apply to:

            (i) any transfer to the spouse of any Principal, PROVIDED, that any
      such transferee (other than Joseph Wm. Foran or Nancy N. Foran)
      acknowledge and agree in writing to be bound to the terms and provisions
      hereof as a Principal hereunder,

           (ii) the sale by the Principals in the aggregate of not more than
      25,891 shares of Common Stock (with such number of shares to be
      appropriately adjusted for any stock dividend, stock split or reverse
      stock split),

          (iii) the pledge as security by the Principals in the aggregate of not
      more than 51,783 shares of Common Stock or any foreclosure thereon or any
      transfer in lieu of a

<PAGE>

      foreclosure thereon (with such number of shares to be appropriately
      adjusted for any stock dividend, stock split or reverse stock split), or

           (iv) the sale or transfer by the Principal of shares of Common Stock
      to Union Oil Company of California ("UNOCAL") as contemplated by Section
      5(b) of the Shareholders Agreement,

PROVIDED, that the aggregate number of shares of Common Stock that have been
sold, pledged or otherwise transferred by the Principals pursuant to clauses
(ii) and (iii) above during the term of this Agreement shall not exceed 64,728
shares (with such number of shares to be appropriately adjusted for any stock
dividend, stock split or reverse stock split). (The items described in clauses
(ii), (iii) and (iv) of the preceding sentence are referred to herein as "THIRD
PARTY PERMITTED TRANSFERS").

                                    ARTICLE 2
                              PROHIBITED TRANSFERS

     SECTION 2.1. TREATMENT OF PROHIBITED TRANSFERS. In the event that a
Principal or Principals should sell any shares of Common Stock of the Company in
contravention of the participation rights of the Shareholders under this
Agreement (a "PROHIBITED TRANSFER"), each Shareholder, in addition to such other
remedies as may be available at law, in equity or hereunder, shall have the put
option provided in Section 2.2 below, and the selling Principal or Principals
shall be bound by the applicable provisions of such put options.

     SECTION 2.2. PUT OPTION. In the event of a Prohibited Transfer, each
Shareholder shall have the right to sell to the Principal or Principals
effectuating such Prohibited Transfer (collectively, the "ARTICLE 2 PRINCIPALS")
a number of shares of Common Stock equal to the number of shares each such
Shareholder would have been entitled to transfer to the purchaser in the
Prohibited Transfer pursuant to the terms hereof. Such sale shall be made on the
following terms and conditions:

            (a) The price per share at which the shares are to be sold to the
      Article 2 Principals shall be equal to the price per share paid by the
      purchaser to the Article 2 Principals in the Prohibited Transfer. The
      Article 2 Principals shall also reimburse each Shareholder for any and all
      reasonable fees and expenses, including reasonable legal fees and
      expenses, incurred pursuant to the exercise or the attempted exercise of
      the Shareholders' rights under this Article 2.

            (b) Within 45 days after the later of the dates on which each
      Shareholder (i) received notice from the Article 2 Principals of the
      Prohibited Transfer or (ii) otherwise became aware of the Prohibited
      Transfer, each Shareholder shall, if exercising the put option created
      hereby, tender for delivery to the Article 2 Principals the certificate or
      certificates representing shares to be purchased, each certificate to be
      properly endorsed for transfer.

<PAGE>

            (c) The Article 2 Principals shall, upon receipt of the certificate
      or certificates for the shares to be sold by the Shareholder pursuant to
      Section 2.2(b), pay the aggregate purchase price therefor and the amount
      of reimbursable fees and expenses, as specified in Section 2.2(a), by
      certified check or bank draft made payable to the order of the
      Shareholder.

            (d) Notwithstanding the foregoing, any attempt to transfer Common
      Stock in violation of Article 1 hereof shall, to the extent enforceable by
      law, be void and the Company agrees it will not effect such a transfer nor
      will it treat any alleged transferee as the holder of such shares without
      the written consent of the Shareholders.

                                    ARTICLE 3
                              LEGENDED CERTIFICATES

      SECTION 3.1. LEGEND. Each certificate representing shares of Common Stock
now or hereafter owned by the Principals shall be endorsed with the following
legend:

                  "THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY
            THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A
            CERTAIN CO-SALE AGREEMENT DATED AS OF JANUARY 20, 1998 BY AND
            AMONG THE CORPORATION AND CERTAIN SHAREHOLDERS OF THE CORPORATION.
            COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO
            THE SECRETARY OF THE CORPORATION."

     SECTION 3.2. LEGEND REMOVAL. The Section 3.1 legend shall be removed upon
termination of this Agreement in accordance with the provisions of Section 4.1
or upon such stock otherwise not being subject to the restriction of this
Co-Sale Agreement including, but not limited to, a Third Party Permitted
Transfer.

                                    ARTICLE 4
                            MISCELLANEOUS PROVISIONS

     SECTION 4.1. TERMINATION OF CO-SALE RIGHTS. The rights of the Shareholders
under this Agreement and the obligations of the Principals with respect to the
Shareholders shall terminate at the earlier of (i) such time as the Shareholders
collectively shall no longer own any portion of the Preferred Stock and/or
Common Stock issued in connection with the exercise or partial exercise of said
Preferred Stock and (ii) the end of the 365 day period during which Joseph Foran
has not been a director, and by action of the Board of Directors of the Company,
Joseph Foran has not been an officer, employee, advisor or consultant of the
Company. Unless sooner terminated in accordance with the preceding sentence,
this Agreement shall terminate upon the occurrence of any one of the following
events:

            (a) the liquidation, dissolution or winding up of the business
      operations of the Company;

<PAGE>

            (b) the execution by the Company of a general assignment for the
      benefit of creditors or the appointment of a receiver or trustee to take
      possession of the property and assets of the Company;

            (c) the consummation of any firmly underwritten public offering of
      the Common Stock of the Company registered under the Securities Act of
      1933, as amended, the net proceeds from such sale to the Company which are
      at least $15,000,000; or

            (d) the first date on which the Company has more than 300
      shareholders and the bid and asked price quotations for shares of Common
      Stock of the Company are reported by the National Association of
      Securities Dealers, Inc. Automated Quotation System or by a comparable
      system.

     SECTION 4.2. VIOLATIONS OR REMEDIES. The parties agree that any violation
of this Agreement (other than a default in payment of money) cannot be
compensated for by damages, and any aggrieved party shall have the right, and is
hereby granted the privilege, of obtaining specific performance of this
Agreement in any court of competent jurisdiction in the event of any breach
hereunder.

     SECTION 4.3. REQUIRED SALE BY HOLDERS. In the event of any proposed
Qualified Take-Along Transaction (as hereinafter defined) then subject to the
terms and conditions of this Section 4.3, the Principals shall have the right to
require the Shareholders to sell, assign or transfer, and the Shareholders
hereby agree to sell, assign and transfer, all of their respective Preferred
Stock and/or Common Stock issued pursuant to conversion of the Preferred Stock
(collectively, the "SHAREHOLDERS' INTERESTS") as hereinafter provided:

          (i)   The Principals shall give written notice ("TAKE-ALONG NOTICE")
      to each Shareholder, at least thirty (30) days prior to the consummation
      of a Qualified Take-Along Transaction, specifying (i) the identity of the
      proposed purchaser of such shares, (ii) the consideration to be paid to
      the Principals and any affiliate thereof in connection with the Qualified
      Take-Along Transaction and the terms and conditions upon which such
      consideration shall be payable and (iii) the other material terms of the
      Qualified Take-Along Transaction.

          (ii)  Any sale of Shareholders' Interests by a Shareholder pursuant
      to the provisions of this Section 4.3 shall be made concurrently with the
      closing of the Qualified Take-Along Transaction on the same terms and
      conditions (except that no Shareholder shall be subject to indemnities or
      liabilities which are not reasonably customary), and for the same
      consideration, as the sale of shares by the Principals thereunder.

          (iii) For purposes of this Section 4.3, "Qualified Take-Along
      Transaction" shall mean a sale, transfer or assignment of at least 90%
      (exclusive of any shares held by the Shareholders or their successors or
      assigns) of the Common Stock of the Company (including 100% of the Common
      Stock of the Principals) for aggregate consideration

<PAGE>

      which in the opinion of a nationally recognized investment banking firm
      reasonably acceptable to the Principals and the Shareholders (the cost
      of which opinion shall be borne by the Company), is fair from a
      financial point of view to the Company's shareholders and in any event
      the price per share is at least $18.00 (adjusted as appropriate to
      reflect any stock dividends, stock splits, or reverse stock splits).

     SECTION 4.4. NOTICES. Any notice required or permitted to be given to a
party pursuant to the provisions of this Agreement shall be in writing and shall
be effective upon personal delivery or upon deposit in the U.S. mail, postage
prepaid and properly addressed to the party to be notified as set forth below
such party's signature or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties hereto.

      SECTION 4.5. SUCCESSORS AND ASSIGNS. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon their respective successors, assigns and legal representatives.

      SECTION 4.6. SEVERABILITY. In the event one or more of the provisions of
this Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or enforceable provision had
never been contained herein.

     SECTION 4.7. AMENDMENTS. Any amendment or modification of this Agreement
shall be effective only if evidenced by a written instrument executed by each of
the Principals and duly authorized representatives of the Shareholders. Any
waiver by a party of its rights hereunder shall be effective only if evidenced
by a written instrument executed by a duly authorized representative of such
party. In no event shall such waiver of any rights hereunder constitute the
waiver of such rights in any future instance unless the waiver so specifies in
writing.

      SECTION 4.8. DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings set forth in the Conversion Agreement.

      SECTION 4.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas.

      SECTION 4.10. OTHER OBLIGATIONS OF COMPANY. The Company agrees to use
commercially reasonable efforts to enforce the terms of this Agreement, to
inform the Shareholders of any breach hereof and to assist the Shareholders in
the exercise of their rights and performance of their obligations under this
Agreement.

<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Co-Sale Agreement as of
the day and year first written above.

COMPANY:                               MATADOR PETROLEUM CORPORATION

                                       By /s/ Joseph Wm. Foran
                                         --------------------------------------
                                         Its President, Chief Executive Officer
                                             and Chairman of the Board

PRINCIPALS:                            JOSEPH W. FORAN

                                       /s/ Joseph Wm. Foran
                                       ----------------------------------------

                                       NANCY N. FORAN

                                       /s/ Nancy N. Foran
                                       ----------------------------------------

<PAGE>

SHAREHOLDERS:                        THE LINCOLN NATIONAL LIFE INSURANCE
                                       COMPANY

                                         By Lincoln Investment Management, Inc.
                                         Its Attorney-In-Fact

                                     By /s/ R. Gordon Marsh
                                       -----------------------------------------
                                            R. Gordon Marsh
                                        Its Vice President
                                           -------------------------------------

                                     Address: 200 East Berry Street
                                     Fort Wayne, Indiana 46802
                                     Attn: Investments-Private Placements

<PAGE>

                                       THE TRAVELERS INSURANCE COMPANY

                                       By /s/ John F. Gilsenan
                                         ---------------------------------------
                                             John F. Gilsenan
                                         Its Second Vice President

                                       One Tower Square
                                       Hartford, CT  06183-2030

                                       THE TRAVELERS INDEMNITY COMPANY

                                       By /s/ John F. Gilsenan
                                         ---------------------------------------
                                             John F. Gilsenan
                                         Its Second Vice President

                                       One Tower Square
                                       Hartford, CT  06183-2030

                                       THE PHOENIX INSURANCE COMPANY

                                       By /s/ John F. Gilsenan
                                         ---------------------------------------
                                             John F. Gilsenan
                                         Its Second Vice President

                                       One Tower Square
                                       Hartford, CT  06183-2030

                                       THE TRAVELERS LIFE AND ANNUITY
                                         COMPANY

                                       By /s/ John F. Gilsenan
                                         ---------------------------------------
                                             John F. Gilsenan
                                         Its Second Vice President

                                       One Tower Square
                                       Hartford, CT  06183-2030

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