Document:

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                                                                    EXHIBIT 10.1

                                              As amended as of December 16, 1999

                                 TRUETIME, INC.

                         1999 NON-EMPLOYEE DIRECTOR PLAN

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                 TRUETIME, INC. 1999 NON-EMPLOYEE DIRECTOR PLAN

                                TABLE OF CONTENTS

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                                                                      Section

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PURPOSE................................................................  1

ADMINISTRATION.........................................................  2

AVAILABLE SHARES.......................................................  3

AUTHORITY TO GRANT OPTIONS AND STOCK...................................  4

ELIGIBILITY FOR OPTIONS AND STOCK......................................  5

OPTION GRANT SIZE AND GRANT DATES......................................  6

OPTION PRICE...........................................................  7

FAIR MARKET VALUE......................................................  8

DURATION OF OPTIONS....................................................  9

WHEN EXERCISABLE......................................................  10

EXERCISE OF OPTIONS...................................................  11

TRANSFERABILITY OF OPTIONS............................................  12

TERMINATION OF DIRECTORSHIP OF OPTIONEE...............................  13

ISSUANCE OF SHARES IN LIEU OF PAYMENT OF RETAINER FEE.................  14

REQUIREMENTS OF LAW...................................................  15

NO RIGHTS AS STOCKHOLDERS.............................................  16

NO EMPLOYMENT OR NOMINATION OBLIGATION................................  17

CHANGES IN THE COMPANY'S CAPITAL STRUCTURE............................  18
</TABLE>

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<TABLE>

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TERMINATION AND AMENDMENT OF PLAN.....................................    19

WRITTEN AGREEMENT.....................................................    20

COMPLIANCE WITH SEC REGULATIONS.......................................    21

GENDER................................................................    22

HEADINGS..............................................................    23

GOVERNING LAW.........................................................    24
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                                 TRUETIME, INC.

                         1999 Non-Employee Director Plan

                  1. PURPOSE. The 1999 Non-Employee Director Plan (the "Plan")
is a plan for non-employee directors and advisors to the Board of Directors (the
"Board") of TrueTime, Inc. (the "Company") and its subsidiary corporations and
is intended to advance the best interests of the Company, its subsidiaries and
its stockholders by providing the Company's non-employee directors and advisors
to the Board an opportunity to obtain or increase their proprietary interest in
the success of the Company and its subsidiaries by becoming owners of the common
stock, $.01 par value, of the Company (the "Stock") or, in the event that the
outstanding shares of common stock are later changed into or exchanged for a
different class of stock or securities of the Company or another corporation,
that other stock or security.

                  2. ADMINISTRATION. The Plan shall be administered by the
Board. Subject to the terms of the Plan, the Board shall have the power to
construe the provisions of the Plan, or of options granted hereunder (the
"Options") or Stock issued hereunder, to determine all questions arising
thereunder, and to adopt and amend such rules and regulations for administering
the Plan as the Board deems desirable.

                  3. AVAILABLE SHARES. The total amount of the Stock with
respect to with Options and Stock paid in lieu of the directors' annual
retainers that may be granted under this Plan shall not exceed in the aggregate
150,000 shares; provided, that the class and aggregate number of shares of Stock
which may be granted hereunder shall be subject to adjustment in accordance with
the provisions of Paragraph 18 hereof. Such shares of Stock may be treasury
shares or authorized but unissued shares of Stock. In the event that any
outstanding Option for any reason shall expire or is terminated or cancelled,
the shares of Stock allocable to the unexercised portion of such Option may
again be subject to an Option or Options or Stock issuance under the Plan.

                  4. AUTHORITY TO GRANT OPTIONS AND STOCK. All Options granted
under the Plan shall be non-qualified stock options which are not intended to be
governed by section 422 of the Internal Revenue Code of 1986, as amended. No
Options or Stock shall be granted under the Plan subsequent to December 9, 2009.

                  5. ELIGIBILITY FOR OPTIONS AND STOCK. The individuals who
shall be eligible to receive Options under the Plan shall be (1) the
non-employee directors ("Non-Employee Directors"), (2) persons who have, with
their consent, been named in the Company's Registration Statement (the
"Registration Statement") on Form S-1 (Reg. No. 333-90269) as being about to
become a director in connection with the Company's initial public offering of
the Stock of the Company (the "IPO") and (3) those Board advisors as the Board
shall from time to time determine (collectively, the "Eligible Directors") of
the Company.

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                  6. OPTION GRANT SIZE AND GRANT DATES. (a) An Option to
purchase 10,000 shares of Stock (as adjusted pursuant to Paragraph 18) shall be
granted to each Eligible Director on the date the Registration Statement is
declared effective by the Securities and Exchange Commission at an exercise
price equal to the IPO per share price to the public. (b) Thereafter, an Option
to purchase 3,000 shares of Stock (as adjusted pursuant to Paragraph 18) shall
be granted each year to each Eligible Director who continues to serve the
Company in that capacity on the date following the Annual Meeting of the
stockholders of the Company ("Annual Grants"). (c) Subject to the availability
under the Plan of a sufficient number of shares of Stock that may be issued upon
the exercise of outstanding options, each person who shall become a Non-Employee
Director after the closing date of the IPO shall be granted, on the date of his
election, whether by the stockholders of the Company or the Board in accordance
with applicable law, an Option under the Plan to purchase 10,000 shares of
Stock. Notwithstanding the foregoing, no Non-Employee Director who has received
an Option pursuant to subsection (a) of this Paragraph shall be eligible to
receive an Option pursuant to this subsection (c).

                  7. OPTION PRICE. The price at which shares of Stock may be
purchased by an Eligible Director pursuant to an Option (the "Optionee") shall
be the fair market value of the shares of Stock on the date the Option is
granted.

                  8. FAIR MARKET VALUE. With respect to the initial option grant
described in Section 6(a), fair market value shall mean the IPO price. Fair
market value of the Stock as of any date thereafter means (a) the closing price
of the Stock on that date on the principal securities exchange on which the
Stock is listed; or (b) if the Stock is not listed on a securities exchange, the
average of the high and low sale prices of the Stock on that date as reported on
the National Association of Securities Dealers Automated Quotation National
Market System (or successor system); or (c) if the Stock is not listed on the
National Association of Securities Dealers Automated Quotation National Market
System (or successor system), the average of the high and low bid quotations for
the Stock on that date as reported by the National Quotation Bureau
Incorporated; or (d) if none of the foregoing is applicable, an amount at the
election of the Board equal to (x) the average between the closing bid and ask
prices per share of Stock on the last preceding date on which those prices were
reported or (y) that amount as determined by the Board.

                  9. DURATION OF OPTIONS. The term of each Option hereunder
shall be until the the last day of the ten year period commencing on the date
the Option is granted, and no Option shall be exercisable after the expiration
of ten years from the date such Option is granted.

                  10. WHEN EXERCISABLE. Unless otherwise stated in the Option
Agreement (as defined in Section 20), an Option shall be fully exercisable from
the date of grant for all purposes of this Plan.

                  11. EXERCISE OF OPTIONS. Options shall be exercised by the
delivery of written notice to the Company setting forth the number of shares of
Stock with respect to which the Option

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is to be exercised, together with cash, wire transfer, certified check, bank
draft or postal or express money order payable to the order of the Company (the
"Acceptable Funds") for an amount equal to the Option price of such shares of
Stock, or at the election of the Optionee, by exchanging shares of Stock owned
by the Optionee, so long as the total fair market value (determined in
accordance with Paragraph 8, as of the date of exercise) of the exchanged shares
of Stock plus the Acceptable Funds paid, if any, equals the purchase price of
the shares to be acquired upon exercise of that Option, and specifying the
address to which the certificates for such shares are to be mailed. Whenever an
Option is exercised by exchanging shares of Stock theretofore owned by the
Optionee: (1) no shares of Stock received upon exercise of that Option
thereafter may be exchanged to pay the Option price for additional shares of
Stock within the following six months; (2) the aggregate fair market value of
the shares of Stock tendered must be equal to or less than the aggregate
exercise price of the shares being purchased upon exercise of the Option, and
any difference must be paid in Acceptable Funds; and (3) the Optionee shall
deliver to the Company certificates registered in the name of such Optionee
representing a number of shares of Stock legally and beneficially owned by such
Optionee, free of all liens, claims, and encumbrances of every kind, accompanied
by stock powers duly endorsed in blank by the record holder of the share
represented by such certificates, with signature guaranteed by a commercial bank
or trust company or by a brokerage firm having a membership on a registered
national stock exchange. Such notice may be delivered in person to the Secretary
of the Company, or may be sent by mail to the Secretary of the Company, in which
case delivery shall be deemed made on the date such notice is received. As
promptly as practicable after receipt of such written notification and payment,
the Company shall deliver to the Optionee certificates for the number of shares
with respect to which such Option has been so exercised, issued in the
Optionee's name; provided, that such delivery to the Optionee shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited such certificates in the United States mail, addressed to the
Optionee, at the address specified by the Optionee. The delivery of certificates
upon the exercise of Options is subject to the condition that the person
exercising such Option provide the Company with such information as the Company
may reasonably request to such exercise, sale or other disposition.

                  12. TRANSFERABILITY OF OPTIONS. (a) Except as set forth in
this Section 12, Options shall not be transferable by the Optionee other than by
will or under the laws of decent and distribution, and shall be exercisable,
during the Optionee's lifetime, only by the Optionee or his legal guardian or
representative.

                  (b) The Board may, in its discretion, permit an Optionee to
transfer all or any part of an Option, or may grant an Option with terms that
expressly permit all or any part of that Option to be transferred by the
Optionee, in either case to (i) the spouse, children, stepchildren,
grandchildren, parents, grandparents, siblings (including half brothers and
sisters), and individuals who are family members by adoption, of the Optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of one or more of the Optionee's Immediate Family Members, or (iii) a
partnership or other legal entity in which only the Optionee's Immediate Family
Members have equity or ownership interests (collectively, "Permitted
Transferees"); provided that (x) there may be

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no consideration for any such transfer and (y) subsequent transfers of Options
so transferred (other than transfers by will or under the laws of decent and
distribution, transfers back to the Optionee to whom the Option was originally
granted and transfers to other Permitted Transferees of such Optionee) shall be
void.

                  (c) Following the transfer of any Option pursuant to paragraph
(b) above, that Option shall continue to have the same terms and provisions and
be subject to the same restrictions as were applicable immediately before that
transfer, except that references in the Plan and in the Option Agreement
applicable to such Optionee shall be deemed to be references to the Permitted
Transferee or Permitted Transferees; provided that any provision of Section 13
that would have been triggered by the cessation of the Optionee to whom the
Option was originally granted acting as a director or advisor to the Board will
continue to be triggered by such cessation.

                  13. TERMINATION OF DIRECTORSHIP OF OPTIONEE. If, before the
date of expiration of the Option, the Optionee shall cease to be a director of
the Company or an advisor to the Board (as determined by the Board), the Option
shall terminate on the earlier of the date of expiration or three years after
the date the Optionee ceases to be a director or advisor to the Board. In such
event, the Optionee shall have the right prior to the termination of such Option
to exercise all or any part of such Option, subject to Paragraph 10, if
applicable.

                  14. ISSUANCE OF SHARES IN LIEU OF PAYMENT OF RETAINER FEE. At
the Company's option, all or any portion of each Non-Employee Director's annual
retainer fee for service as a member of the Company's Board may be paid in Stock
(a "Stock Award"). If the Company elects to pay all or any portion of the annual
retainer fees in Stock, the shares of the Stock shall be issued the day
following each Annual Meeting of the stockholders of the Company, to each
Non-Employee Director who continues to serve on that date. The number of shares
to be issued shall be that number equal to (i) the lesser of all or that portion
of the annual retainer fee then in effect for service as a member of the
Company's Board to be paid in Stock divided by (ii) the fair market value of the
Stock on that date, as determined pursuant to Paragraph 8 above. No fractional
shares shall be issued, but the number of shares shall be rounded up to the
nearest whole share.

                  15. REQUIREMENTS OF LAW. The Company shall not be required to
issue any shares under any Option or as partial payment for annual retainer fees
if the issuance of such shares would result in a violation by the Optionee or
the Company of any provisions of any law or regulation of any governmental
authority. Specifically, in connection with any applicable statute or regulation
relating to the registration of securities, upon exercise of any Option or
pursuant to any Stock Award, the Company shall not be required to issue any
Stock unless the Board has received evidence satisfactory to it to the effect
that the holder of that Option or Stock Award will not transfer the Stock except
in accordance with applicable law, including receipt of an opinion of counsel
satisfactory to the Company to the effect that any proposed transfer complies
with applicable law. The determination by the Board on this matter shall be
final, binding and conclusive. The Company may, but shall in no event be
obligated to, register any Stock covered by the Plan pursuant to

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applicable securities laws of any country or any political subdivision. In the
event the Stock issuable on exercise of an Option or pursuant to a Stock Award
is not registered, the Company may imprint on the certificate evidencing the
Stock any legend that counsel for the Company considers necessary or advisable
to comply with applicable law. The Company shall not be obligated to take any
other affirmative action in order to cause the exercise of an Option or vesting
under a Stock Award, or the issuance of shares under either of them, to comply
with any law or regulation of any governmental authority.

                  16. NO RIGHTS AS STOCKHOLDERS. No Optionee shall have rights
as a stockholder with respect to shares covered by an Option until the date of
issuance of a stock certificate for such shares; and, except as otherwise
provided in Paragraph 18 hereof, no adjustment for dividends, or otherwise,
shall be made if the record date thereof is prior to the date of issuance of
such certificate.

                  17. NO EMPLOYMENT OR NOMINATION OBLIGATION. The granting of
any Option shall not require the Company or its stockholders to retain any
Optionee or to continue to nominate any Optionee for election as a director of
the Company.

                  18. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence
of outstanding Options or Stock Awards shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock or its rights, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.

         If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without receiving
compensation for it in money, services or property, then (a) the number, class,
and per share price of shares of Stock subject to outstanding Options under this
Plan shall be appropriately adjusted in such a manner as to entitle an Eligible
Director to receive upon exercise of an Option, for the same aggregate cash
consideration, the equivalent total number and class of shares he would have
received had he exercised his Option in full immediately prior to the event
requiring the adjustment; and (b) the number and class of shares of Stock then
reserved to be issued under the Plan shall be adjusted by substituting for the
total number and class of shares of Stock then reserved, that number and class
of shares of Stock that would have been received by the owner of an equal number
of outstanding shares of each class of Stock as the result of the event
requiring the adjustment.

         If while unexercised Options remain outstanding under the Plan (i) the
Company shall not be the surviving entity in any merger, consolidation or other
reorganization (or survives only as a subsidiary of an entity other than an
entity that was wholly-owned by the Company immediately

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prior to such merger, consolidation or other reorganization), (ii) the Company
sells, leases or exchanges or agrees to sell, lease or exchange all or
substantially all of its assets to any other person or entity (other than an
entity wholly-owned by the Company), (iii) the Company is to be dissolved, or
(iv) the Company is a party to any other corporate transaction (as defined under
section 424(a) of the Code and applicable Treasury Regulations) that is not
described in clauses (i), (ii) or (iii) of this sentence (each such event is
referred to herein as a "Corporate Change"), then (x) except as otherwise
provided in an Option Agreement or as a result of the Board's effectuation of
one or more of the alternatives described below, there shall be no acceleration
of the time at which any Option then outstanding may be exercised, and (y) no
later than ten days after the approval by the stockholders of the Company of
such Corporate Change, the Board, acting in its sole and absolute discretion
without the consent or approval of any Optionee, shall act to effect one or more
of the following alternatives, which may vary among individual Optionees and
which may vary among Options held by any individual Optionee:

                  (1) accelerate the time at which some or all of the Options
         then outstanding may be exercised so that such Options may be exercised
         in full for a limited period of time on or before a specified date
         (before or after such Corporate Change) fixed by the Board, after which
         specified date all such Options that remain unexercised and all rights
         of Optionees thereunder shall terminate,

                  (2) require the mandatory surrender to the Company by all or
         selected Optionees of some or all of the then outstanding Options held
         by such Optionees (irrespective of whether such Options are then
         exercisable under the provisions of this Plan or the Option Agreements
         evidencing such Options) as of a date, before or after such Corporate
         Change, specified by the Board, in which event the Board shall
         thereupon cancel such Options and the Company shall pay to each such
         Optionee an amount of cash per share equal to the excess, if any, of
         the per share price offered to stockholders of the Company in
         connection with such Corporate Change over the exercise price(s) under
         such Options for such shares,

                  (3) with respect to all or selected Optionees, have some or
         all of their then outstanding Options (whether vested or unvested)
         assumed or have a new Option substituted for some or all of their then
         outstanding Options (whether vested or unvested) by an entity which is
         a party to the transaction resulting in such Corporate Change and of
         which he is a director or advisor to the Board, or a parent or
         subsidiary of such entity, provided that (A) such assumption or
         substitution is on a basis where the excess of the aggregate fair
         market value of the shares subject to the Option immediately after the
         assumption or substitution over the aggregate exercise price of such
         shares is equal to the excess of the aggregate fair market value of all
         shares subject to the Option immediately before such assumption or
         substitution over the aggregate exercise price of such shares, and (B)
         the assumed rights under such existing Option or the substituted rights
         under such new Option as the case may be

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         will have the same terms and conditions as the rights under the
         existing Option assumed or substituted for, as the case may be,

                  (4) provide that the number and class of shares of Stock
         covered by an Option (whether vested or unvested) theretofore granted
         shall be adjusted so that such Option when exercised shall thereafter
         cover the number and class of shares of stock or other securities or
         property (including, without limitation, cash) to which the Optionee
         would have been entitled pursuant to the terms of the agreement and/or
         plan relating to such Corporate Change if, immediately prior to such
         Corporate Change, the Optionee had been the holder of record of the
         number of shares of Stock then covered by such Option, or

                  (5) make such adjustments to Options then outstanding as the
         Board deems appropriate to reflect such Corporate Change (provided,
         however, that the Board may determine in its sole and absolute
         discretion that no such adjustment is necessary).

                  In effecting one or more of alternatives (3), (4) or (5)
         above, and except as otherwise may be provided in an Option Agreement,
         the Board, in its sole and absolute discretion and without the consent
         or approval of any Optionee, may accelerate the time at which some or
         all Options then outstanding may be exercised.

         In the event of changes in the outstanding Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Option and not otherwise provided for by this Section 18,
any outstanding Options and any agreements evidencing such Options shall be
subject to adjustment by the Board in its sole and absolute discretion as to the
number and price of shares of stock or other consideration subject to such
Options. In the event of any such change in the outstanding Stock, the aggregate
number of shares available under this Plan may be appropriately adjusted by the
Board, whose determination shall be conclusive.

         The issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe for them, or upon conversion of shares or obligations of
the Company convertible into shares or other securities, shall not affect, and
no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Options
or Stock Awards.

                  19. TERMINATION AND AMENDMENT OF PLAN. The Board of Directors
of the Company may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion.

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                  20. WRITTEN AGREEMENT. Each Option granted hereunder shall be
embodied in a written agreement (an "Option Agreement"), which shall be subject
to the terms and conditions prescribed above and shall be signed by the Optionee
and by the Chairman of the Board, the President or any Vice President of the
Company for and in the name and on behalf of the Company.

                  21. COMPLIANCE WITH SEC REGULATIONS. It is the Company's
intent that the Plan comply in all respects with Rule 16b-3 of the Exchange Act,
and any successor rule pursuant thereto. If any provision of this Plan is later
found not to be in compliance with the Rule, the provision shall be deemed null
and void or shall be reformed by the Board in such manner so as to comply. All
grants of Options and issuance of Stock and all exercises of Options under this
Plan shall be executed in accordance with the requirements of Section 16 of the
Exchange Act and any regulations promulgated thereunder, so as to avoid the
consequences of noncompliance to the Eligible Directors.

                  22. GENDER. If the context requires, words of one gender when
used in this Plan shall include the others and words used in the singular or
plural shall include the other.

                  23. HEADINGS. Headings of Articles and Sections are included
for convenience of reference only and do not constitute part of the Plan and
shall not be used in construing the terms of the Plan.

                  24. GOVERNING LAW. This Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
Delaware, without reference to principles of conflict of laws, and shall be
construed accordingly.

                                        8<PAGE>   1
                                                                    EXHIBIT 10.3

THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY
STATE SECURITIES LAWS ("STATE LAWS") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED UNLESS THE OFFER AND SALE IS REGISTERED UNDER THE SECURITIES ACT OR
THE ISSUER RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER
THAT THE OFFER AND SALE IS EXEMPT FROM SECURITIES ACT REGISTRATION.

                          SECURITIES PURCHASE AGREEMENT

         This agreement is made and entered into as of the 29th day of December,
1999, by and between Contango Oil & Gas Company (the "Issuer") and Trust Company
of the West, a California trust company, in its capacities as Investment Manager
pursuant to the Investment Management Agreement dated as of June 6, 1988 between
General Mills, Inc. and the Trust Company of the West and as Custodian pursuant
to the Custody Agreement dated as of February 6, 1989 among General Mills, Inc.,
the Trust Company of the West and State Street Bank and Trust Company, as
Trustee (the "Purchaser").

         1. AGREEMENT TO PURCHASE SECURITIES. On the terms and subject to the
conditions set forth in this agreement, the Purchaser hereby agrees to purchase
from the Issuer 3,703,704 shares of the Issuer's common stock (the "Shares") and
warrants to purchase an additional 370,370 shares of common stock (the
"Warrant") for an aggregate purchase price of $2,500,000 (the "Purchase Price"),
payable by wire transfer to the account of the Issuer.. The shares of Issuer's
common stock that may be issued upon exercise of the Warrant are referred to
herein as the "Warrant Shares" and the Shares, the Warrant and the Warrant
Shares are collectively referred to herein as the "Securities").

         2. WIRE TRANSFER OF PAYMENT FOR AND DELIVERY OF THE SECURITIES.
Promptly after the Purchaser has wired the Purchase Price for the Securities to
the Issuer's account as instructed, the Issuer shall issue and deliver a
certificate representing the Shares, and the Warrant in the form attached hereto
as Exhibit A, in the name and to the address specified by the Purchaser in the
registration and delivery instructions on the signature page of this agreement.

         3. PURCHASER'S REPRESENTATIONS AND WARRANTIES. The Purchaser hereby
represents and warrants to the Issuer that:

            3.1 Investment Intent. The Purchaser is acquiring the Securities
solely for the Purchaser's own account for investment purposes, and not with a
view to, or for offer or sale in connection with, any distribution of the
Securities in violation of the Securities Act.

            3.2 Access to Information. The Purchaser has received a copy of the
Issuer's annual report on Form 10-KSB for the year ended June 30, 1999 (the
"Annual Report") and quarterly report on Form 10-QSB for the quarter ended
September 30, 1999 (the "Quarterly Report") and has reviewed them carefully,
including the risk factors set forth under the heading, "Management's Discussion
and Analysis or Plan of Operation -- Risk Factors." In addition, the Purchaser
has received and reviewed a copy of the Issuer's proxy statement for its annual
meeting of stockholders held on September 28, 1999 (the "Proxy Statement"). If
desired, the

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Purchaser has also sought and obtained from management of the Issuer such
additional information concerning the business, management and financial affairs
of the Issuer as the Purchaser has deemed necessary or appropriate in evaluating
an investment in the Issuer and determining whether or not to purchase the
Securities.

            3.3 Accredited Investor. By completing the Accredited Investor
Certification attached as Exhibit A, the Purchaser represents and warrants that
it is an accredited investor, as defined by Rule 501(a) of Regulation D under
the Securities Act.

            3.4 Preexisting Relationship; Knowledge and Experience. The
Purchaser has a preexisting personal and/or business relationship with the
Issuer and certain of its officers, directors and/or controlling persons, is
experienced in evaluating and investing in the securities of businesses in the
development stage, and has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of an
investment in the Securities and of protecting its interests in connection with
an acquisition of the Securities.

            3.5 Suitability. The Purchaser has carefully considered, and has, to
the extent the Purchaser deems it necessary, discussed with the Purchaser's own
professional legal, tax and financial advisers the suitability of an investment
in the Securities for the Purchaser's particular tax and financial situation,
and the Purchaser has determined that the Securities are a suitable investment
for the Purchaser.

            3.6 Illiquidity; Ability to Bear Risk of Loss. The Purchaser has no
need for liquidity in its investment in the Securities, is financially able to
hold the Securities subject to restrictions on transfer for an indefinite period
of time, and is capable of bearing the economic risk of losing up to the entire
amount of its investment in the Securities.

            3.7 Private Offering. The offer of the Securities was directly
communicated to the Purchaser by the Issuer. At no time was the Purchaser
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such directly communicated offer.

            3.8 Truth and Accuracy. All representations and warranties made by
the Purchaser in this agreement are true and accurate as of the date hereof and
shall be true and accurate as of the date the Issuer issues the Securities. If
at any time prior to the issuance of the Securities any representation or
warranty shall not be true and accurate in any respect, the Purchaser shall so
notify the Issuer.

            3.9 Authority. The individual executing and delivering this
agreement on behalf of the Purchaser has been duly authorized to execute and
deliver this agreement on behalf of the Purchaser, the signature of such
individual is binding upon the Purchaser, the Purchaser is duly organized and
subsisting under the laws of the jurisdiction in which is was organized, and the
Purchaser was not formed for the specific purpose of acquiring the Securities.

            3.10 No Violation. The execution and delivery of this agreement and
the consummation of the transactions or performance of the obligations
contemplated by this agreement do not and will not violate any term of the
Purchaser's organizational documents and will not result in a breach of any term
of, or constitute a default under, any statute, indenture,

<PAGE>   3

mortgage, other agreement or instrument to which the Purchaser is a party or by
which it is bound, or any order, writ, judgment or decree.

            3.11 Enforceability. The Purchaser has duly executed and delivered
this agreement and (subject to its execution by the Issuer) it constitutes a
valid and binding agreement of the Purchaser enforceable in accordance with its
terms against the Purchaser, except as such enforceability may be limited by
principles of public policy, and subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.

            3.12 Reliance on Own Advisers. In connection with the Purchaser's
investment in the Securities, the Purchaser has not relied upon the Issuer or
its advisers for legal or tax advice, and has, if desired, in all cases sought
the advice of the Purchaser's own legal counsel and tax advisers.

            3.13 Scope of Business. The Purchaser has been advised and
understands that the Issuer will be exposed to numerous investment opportunities
in all areas of the oil and gas industry and may therefore pursue various types
of opportunities, even if they do not fit within the primary focus of the
Issuer's current business plan. For example, such opportunities could include
investments both onshore and offshore the United States and also international
investments. Potential opportunities could also include such things as
downstream investments in oil and gas service companies, pipelines, and gas
processing and gas storage facilities.

         4. ISSUER'S REPRESENTATIONS AND WARRANTIES. The Issuer hereby
represents and warrants to the Purchaser that:

            4.1 Authority. The individual executing and delivering this
agreement on behalf of the Issuer has been duly authorized to execute and
deliver this agreement on behalf of the Issuer, the signature of such individual
is binding upon the Issuer, and the Issuer is duly organized and subsisting
under the laws of the jurisdiction in which it was organized.

            4.2 Enforceability. The Issuer has duly executed and delivered this
agreement and (subject to its execution by the Purchaser) it constitutes a valid
and binding agreement of the Issuer enforceable in accordance with its terms
against the Issuer, except as such enforceability may be limited by principles
of public policy, and subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.

            4.3 Capitalization. The Issuer has no outstanding capital stock
other than common stock as of the date of this agreement. The Issuer is
authorized to issue 50,000,000 shares of common stock, of which 12,253,625
shares are issued and outstanding, and 125,000 shares of preferred stock, none
of which are issued and outstanding. All of the outstanding shares of common
stock of the Issuer have been duly and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights. The Shares
have been duly authorized and when issued and delivered to the Purchaser against
payment therefor as provided by this agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights. If and when issued, the Warrant Shares will
have been duly authorized and when issued and delivered to the Purchaser against
payment therefor as provided by in the Warrant, will be validly issued, fully
paid and non-assessable,

<PAGE>   4

and the issuance of such Warrant Shares will not be subject to any preemptive or
similar rights.

            4.4 No Conflicts. The issuance and sale of the Securities to the
Purchaser as contemplated hereby will not violate or conflict with the Issuer's
Articles of Incorporation or By-laws or any agreements to which the Issuer is a
party or by which it is otherwise bound or, to the Issuer's knowledge, any
statute, rule or regulation (federal, state, local or foreign) to which it is
subject.

            4.5 SEC Documents. The Issuer has provided the Annual Report and the
Proxy Statement to the Purchaser. As of the date hereof, the Annual Report and
the Proxy Statement do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Issuer included
in the Annual Report have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
financial position of the Issuer as of the dates thereof and the results of its
operations and cash flows for the periods then ended. The Issuer has included in
the Annual Report all material agreements, contracts and other documents that it
reasonably believes are required to be filed as exhibits to the Annual Report.

         5. RESTRICTIONS ON TRANSFER.

            5.1 Resale Restrictions. The Purchaser understands that the offer
and sale of the Securities to the Purchaser has not been registered under the
Securities Act or under any State Laws. The Purchaser agrees not to offer, sell
or otherwise transfer the Securities, or any interest in the Securities, unless
(i) the offer and sale is registered under the Securities Act, (ii) the
Securities may be sold in accordance with the applicable requirements and
limitations of Rule 144 under the Securities Act and any applicable State Laws
and, if the Issuer so requests, the Purchaser delivers to the Issuer an opinion
of counsel to such effect, or (iii) the Purchaser delivers to the Issuer an
opinion of counsel reasonably satisfactory to the Issuer that the offer and sale
is otherwise exempt from Securities Act registration.

            5.2 Restrictive Legend. The Purchaser understands and agrees that a
legend in substantially the following form will be placed on the certificates or
other documents representing the Securities:

        "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
        UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
        UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR
        OTHERWISE TRANSFERRED UNLESS (i) THE OFFER AND SALE IS REGISTERED UNDER
        THE SECURITIES ACT, OR (ii) THE OFFER AND SALE IS EXEMPT FROM SECURITIES
        ACT REGISTRATION AND THE TERMS OF SECTION 5.2 OF THE SUBSCRIPTION
        AGREEMENT PURSUANT TO WHICH THE SECURITIES WERE ORIGINALLY PURCHASED
        HAVE BEEN COMPLIED WITH. (A COPY OF THE SUBSCRIPTION AGREEMENT IS ON
        FILE AT THE CORPORATE OFFICE OF THE ISSUER.)"

<PAGE>   5

            5.3 Illiquid Investment. The Purchaser acknowledges that it must
bear the economic risk of its investment in the Securities for an indefinite
period of time, until such time as the Securities are registered or as an
exemption from registration is available. The Purchaser acknowledges that the
soonest that the Rule 144 exemption from registration could become available
would be after the Purchaser has paid for and held the Securities for one year.

         6. RIGHT TO PURCHASE ADDITIONAL SECURITIES

            6.1 First Refusal Rights. Subject to the terms and conditions of
this Article 6, the Company hereby grants to the Purchaser a right of first
refusal to purchase its Pro Rata Share (as defined below) of any issue of New
Securities (as defined below) that the Company (or any subsidiary whose capital
stock will not be wholly owned, directly or indirectly, by the Company upon
completion of any such issuance) may from time to time after the date of this
Agreement propose to issue.

            6.2 New Securities. "New Securities" shall mean any capital stock,
any rights, options or warrants to purchase or subscribe for capital stock, and
any securities or other instruments of any type whatsoever that are, or may
become, convertible into or exchangeable for capital stock, which are issued for
cash; provided, however, that "New Securities" shall not include: (i) securities
offered and sold by the Company pursuant to a Public Offering (as hereinafter
defined); (ii) shares of the Company's Common Stock (or related options or
rights) issued to the Company's employees and directors pursuant to a plan
adopted by the Board of Directors; and (iii) shares of the Company's capital
stock issued in connection with any existing warrant, option or right, stock
split or stock dividend by the Company.

            6.3 Notice and Allocation Periods. If the Company or, when
applicable, its subsidiary, proposes to undertake a bona fide issuance of New
Securities, then it shall give the Purchaser written notice of its intention,
describing the type of New Securities, the price, the number of shares to be
offered, and the general terms upon which such securities are proposed to be
offered. The Purchaser shall be given at least 20 days' prior written notice
within which to agree to purchase all or any part of its Pro Rata Share (as
hereinafter defined) of such issuance of New Securities for the price and upon
the general terms specified in said notice by giving written notice to the
issuer within such period and stating therein the quantity of New Securities to
be purchased by it. "Pro Rata Share" shall mean that portion of the number of
shares of New Securities proposed to be issued that equals the proportion that
(a) the number of shares of common stock held by the Purchaser immediately prior
to the proposed issuance, plus the number of shares of common stock that would
then be issuable to the Purchaser assuming that the Warrant had been fully
exercised, bears to (b) the total number of shares of common stock issued and
outstanding immediately prior to the proposed issuance, assuming that all
securities of the Company convertible into or exchangeable for common stock had
been converted or exchanged.

            6.4 Right of Company to Sell New Securities. If the Purchaser fails
to exercise in full its rights of first refusal within the applicable period set
forth above, then the Company or, when applicable, its subsidiary shall have 120
days thereafter to sell the New Securities respecting that the rights set forth
herein were not exercised at a price and upon general terms no more favorable to
the purchaser thereof than specified in the notice to the Purchaser. If such New
Securities have not been sold within such 120-day period, then the

<PAGE>   6

Company or, when applicable, its subsidiary shall not thereafter issue or sell
any New Securities without first offering them to the Purchaser in the manner
provided above.

            6.5 Public Offering. Reference to the term "Public Offering" in this
Agreement shall mean a bona fide firm commitment underwritten public offering of
shares of the Company's Common Stock made through a nationally recognized
underwriting firm pursuant to an effective registration statement under the
Securities Act, which results in gross proceeds to the Company of not less than
$15,000,000.

            6.6 Termination. This Article 6 shall continue in effect from the
date of this Agreement until the Company has completed a Public Offering.

         7. REGISTRATION PROCEDURES.

            7.1 Within 90 days after the issuance of the Shares, the Issuer
shall prepare and file or cause to be filed with the SEC a registration
statement (the "Registration Statement") with respect to the Shares. The Issuer
shall thereafter use diligence in attempting to cause the Registration Statement
to be declared effective by the SEC and shall thereafter use diligence to
maintain the effectiveness of the Registration Statement until the earlier to
occur of (i) the date which is one year from the effective date of the
Registration Statement, (ii) the date on which all of the Shares have been sold
by the Purchaser or (iii) the date on which the Shares can be resold pursuant to
SEC Rule 144.

            7.2 Following effectiveness of the Registration Statement, the
Issuer shall furnish to the Purchaser a prospectus as well as such other
documents as the Purchaser may reasonably request.

            7.3 The Issuer shall use diligent efforts to (i) register or
otherwise qualify the common stock covered by the Registration Statement for
sale under the securities laws of such jurisdictions as the Purchaser may
reasonably request, (ii) prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements as may be required, (iii)
take such other actions as may be necessary to maintain such registrations
and/or qualifications in effect at all times while the Registration Statement is
likewise maintained effective and (iv) take all other actions reasonably
necessary or advisable to qualify the Shares for sale in such jurisdictions;
provided, however, that the Issuer shall not be required in connection therewith
or as a condition thereto to (I) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 7.3,
(II) subject itself to general taxation in any such jurisdiction, (III) file a
general consent to service of process in any such jurisdiction, (IV) provide any
undertakings that cause more than nominal expense or burden to the Issuer or (V)
make any change in its certificate of incorporation or bylaws, which in each
case the Board determines to be contrary to the best interests of the Issuer and
its stockholders.

            7.4 The Issuer shall, following effectiveness of the Registration
Statement, as promptly as practicable after becoming aware of any such event,
notify the Purchaser of the happening of any event of which the Issuer has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the

<PAGE>   7

Registration Statement to correct such untrue statement or omission, and deliver
a number of copies of such supplement or amendment to the Purchaser or as the
Purchaser may reasonably request. The Issuer may voluntarily suspend the
effectiveness of such Registration Statement for a limited time, which in no
event shall be longer than 90 days, if the Issuer has been advised by legal
counsel that the offering of common stock pursuant to the Registration Statement
would adversely affect, or would be improper in view of (or improper without
disclosure in a prospectus), a proposed financing, a reorganization,
recapitalization, merger, consolidation, or similar transaction involving the
Issuer or its subsidiaries, in which event the one year period referred to in
clause (i) of Section 7.1 shall be extended for an additional period of time
beyond such one year period equal to the number of days the effectiveness
thereof has been suspended pursuant to this sentence.

            7.5 Following effectiveness of the Registration Statement, the
Issuer, as promptly as practicable after becoming aware of any such event, will
notify the Purchaser of the issuance by the SEC of any stop order or other
suspension of effectiveness of the Registration Statement at the earliest
possible time.

            7.6 Following effectiveness of the Registration Statement, the
Issuer will use diligence either to (i) cause all the common stock covered by
the Registration Statement to be listed on each national securities exchange on
which similar securities issued by the Issuer are then listed, if any, if the
listing of such common stock is then permitted under the rules of such exchange,
or (ii) secure the quotation of all the common stock covered by the Registration
Statement on The Nasdaq SmallCap Market, if the listing of such common stock is
then permitted under the rules of such The Nasdaq SmallCap Market, or (iii) if,
despite the Issuer's best efforts to satisfy the preceding clause (i) or (ii),
the Issuer is unsuccessful in satisfying the preceding clause (i) or (ii) and
without limiting the generality of the foregoing, to use its best efforts to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. as such with respect to such common stock.

            7.7 Provide a transfer agent and registrar, which may be a single
entity, for the common stock not later than the effective date of the
Registration Statement.

            7.8 It shall be a condition precedent to the obligations of the
Issuer to take any action pursuant to this Section 7 that the Purchaser shall
furnish to the Issuer such information regarding itself as the Issuer may
reasonably request to effect the registration of the common stock and shall
execute such documents in connection with such registration as the Issuer may
reasonably request.

            7.9 The Purchaser agrees to cooperate with the Issuer in any manner
reasonably requested by the Issuer in connection with the preparation and filing
of the Registration Statement hereunder.

            7.10 The Purchaser agrees that, upon receipt of any notice from the
Issuer of the happening of any event of the kind described in Section 7.4 or
7.5, the Purchaser will immediately discontinue disposition of Shares pursuant
to the Registration Statement until the Purchaser's receipt of notice from the
Issuer that sales may resume and copies of the supplemented or amended
prospectus and, if so directed by the Issuer, shall deliver to the Issuer (at
the expense of the Issuer) or destroy (and deliver to the Issuer a certificate
of destruction) all copies in the Purchaser's possession of the prospectus
covering such Common Stock current at the time of receipt of such notice.

<PAGE>   8

            7.11 All expenses, other than (i) underwriting discounts and
commissions, (ii) other fees and expenses of investment bankers and (iii)
brokerage commissions, incurred in connection with registrations, filings or
qualifications pursuant to this Section 7, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees and
the fees and disbursements of counsel to the Issuer, shall be borne by the
Issuer.

            7.12 To the extent permitted by law, the Issuer will indemnify and
hold harmless the Purchaser, the directors, if any, of the Purchaser, the
officers, if any, of the Purchaser, each person, if any, who controls the
Purchaser within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), any underwriter (as defined in the
Securities Act) for the Purchaser, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, expenses or liabilities (joint or several) (collectively, "Claims") to
which any of them may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations in the Registration
Statement, or any post effective amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post effective amendment thereof
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Issuer files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Issuer of the Securities Act,
any state securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (the matters in the foregoing clauses
(i) through (iii) are hereinafter collectively referred to as the "Violations").
Subject to the restrictions set forth in Section 7.14 with respect to the number
of legal counsel, the Issuer shall reimburse the Purchaser and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnity
contained in this Section 7.12 shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Issuer by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (II) with respect to any preliminary prospectus shall not
inure to the benefit of any person from whom the person asserting any Claim
purchased the Shares that are the subject thereof (or to the benefit of any
person controlling such person) if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected in the prospectus, as
then amended or supplemented, if such final prospectus was timely made available
by the Issuer; and (III) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Issuer, which consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the Shares by
the Purchaser.

<PAGE>   9

            7.13 The Purchaser agrees to indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 7.12, the Issuer, each
of its directors, each of its officers who signs the Registration Statement,
each person, if any, who controls the Issuer within the meaning of the
Securities Act or the Exchange Act, any underwriter and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder or underwriter
within the meaning of the Securities Act or the Exchange Act (each such person
and each Indemnified Person, an "Indemnified Party"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation by
the Purchaser, in each case to the extent (and only to the extent) that (I) such
Violation occurs in reliance upon and in conformity with written information
furnished to the Issuer by the Purchaser expressly for use in connection with
such Registration Statement or such prospectus or (II) is a result of the breach
of federal or state securities laws pertaining to the transfer by the Purchaser
of the Shares or the securities underlying the Shares; and the Purchaser will
reimburse any reasonable legal or other expenses reasonably incurred by any
Indemnified Party in connection with investigating or defending any such Claim;
provided, however, that the indemnity contained in this Section 7.13 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Purchaser, which consent shall not be
unreasonably withheld; provided, further, that the Purchaser shall be liable
under this Section 7.13 for only that amount of a Claim as does not exceed the
net proceeds to the Purchaser as a result of the sale of Shares pursuant to such
Registration Statement or such prospectus. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Shares (or underlying
securities) by the Purchaser. Notwithstanding anything to the contrary contained
herein the indemnity contained in this Section 7.13 with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.

            7.14 Promptly after receipt by an Indemnified Person or Indemnified
Party under Section 7.12 or 7.13 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is made against any indemnifying
party under this Section 7, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying parties;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. Except as provided in the preceding sentence, the Issuer shall pay
for only one separate legal counsel for the Indemnified Persons. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 7,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnity required by this Section 7 shall be

<PAGE>   10

made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

         8. TRANSFER AGENT INSTRUCTIONS. Promptly following the delivery by the
Purchaser of the Purchase Price, the Issuer's transfer agent will be instructed
by the Issuer to issue one or more certificates representing the Shares
purchased, bearing the restrictive legend specified in Section 5.2 of this
Agreement, registered in the name of the Purchaser or its nominee and in such
denominations as shall be specified by the Purchaser. The Issuer warrants that
no instruction other than such instructions referred to in this Section 8 and
stop transfer instructions to give effect to Section 5.1 and 5.2 hereof will be
given by the Issuer to the transfer agent and that the Shares shall otherwise be
freely transferable on the books and records of the Issuer as and to the extent
provided in this Agreement. Nothing in this Section shall affect in any way the
Purchaser's obligations and agreement to comply with all applicable federal and
state securities laws upon resale of the Shares. If the Purchaser provides the
Issuer with an opinion of counsel reasonably satisfactory in form, scope and
substance to the Issuer that registration of a resale by the Purchaser of any of
the Shares in accordance with Section 5.1 is not required under the Securities
Act or applicable state securities laws, the Issuer shall permit the transfer
agent to issue one or more share certificates in such name and in such
denominations as specified by the Purchaser.

         9. BOARD OF DIRECTORS. If, at any time it could elect a director based
on the number of shares of common stock it holds, Purchaser chooses not to
designate a candidate for election to the Board, Purchaser shall still be
entitled, at its option, to designate a person (the "Observer") who shall attend
any meeting of the Board for the sole purpose of observing such meeting for and
on behalf of the Purchaser. The Observer shall have no right or obligation to
vote or otherwise to participate in the discussion or consideration of any
matter addressed at any such meeting; provided, however, that notwithstanding
anything else in this Section 9, Purchaser shall have the right to designate an
Observer for as long as Purchaser holds at least 10% of the Issuer's common
stock on a fully diluted basis.

         10. RELIANCE. The Purchaser understands and agrees that the Issuer and
its officers, directors, employees and agents may, and will, rely on the
accuracy of the Purchaser's representations and warranties in this agreement to
establish compliance with applicable securities laws. The Purchaser agrees to
indemnify and hold harmless all such parties against all losses, claims, costs,
expenses and damages or liabilities which they may suffer or incur caused or
arising from their reliance on such representations and warranties.

         11. MISCELLANEOUS.

            11.1 Survival. The representations and warranties made in this
agreement shall survive the closing of the transactions contemplated by this
agreement.

            11.2 Assignment. This agreement is not transferable or assignable.

            11.3 Execution and Delivery of Agreement. The Issuer shall be
entitled to rely on delivery by facsimile transmission of an executed copy of
this agreement, and acceptance by the Issuer of such facsimile copy shall create
a valid and binding agreement between the Purchaser and the Issuer.

<PAGE>   11

            11.4 Titles. The titles of the sections and subsections of this
agreement are for the convenience of reference only and are not to be considered
in construing this agreement.

            11.5 Severability. The invalidity or unenforceability of any
particular provision of this agreement shall not affect or limit the validity or
enforceability of the remaining provisions of this agreement.

            11.6 Entire Agreement. This agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matters herein and supersedes and replaces any prior agreements and
understandings, whether oral or written, between them with respect to such
matters.

            11.7 Waiver and Amendment. Except as otherwise provided herein, the
provisions of this agreement may be waived, altered, amended or repealed, in
whole or in part, only upon the mutual written agreement of the Purchaser and
the Issuer.

            11.8 Counterparts. This agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.

            11.9 Governing Law. This agreement is governed by and shall be
construed in accordance with the laws of the State of Nevada.

<PAGE>   12

         IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above mentioned.

THE "ISSUER"                                 THE "PURCHASER"

CONTANGO OIL & GAS COMPANY                   TRUST COMPANY OF THE WEST,
                                             a California trust company, in its
                                             capacities as Investment Manager
                                             pursuant to the Investment
                                             Management Agreement dated as of
                                             June 6, 1988 between General Mills,
                                             Inc. and the Trust Company of the
                                             West and as Custodian pursuant to
                                             the Custody Agreement dated as of
                                             February 6, 1989 among General
                                             Mills, Inc., the Trust Company of
                                             the West and State Street Bank and
                                             Trust Company, as trustee

By:  /s/ KENNETH R. PEAK                     By:  /s/ ARTHUR R. CARLSON
    -------------------------------              -----------------------------
     Kenneth R. Peak                              Arthur R. Carlson
     President and Chief Executive                Managing Director
      Officer

                                             By:   /s/ THOMAS F. MEHLBERG
                                                  ----------------------------
                                                   Thomas F. Mehlberg
                                                   Senior Vice President

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