SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549




                                    Form 8-K


              Current Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934


Date of Report (Date of earliest event reported) April 22, 2002 (April 22, 2002)




                          CHESAPEAKE ENERGY CORPORATION
-------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its Charter)


        Oklahoma                       1-13726                   73-1395733
-------------------------------------------------------------------------------
(State or other jurisdiction     (Commission File No.)         (IRS Employer
          of incorporation)                                  Identification No.)


              6100 North Western Avenue,  Oklahoma City,  Oklahoma     73118
-------------------------------------------------------------------------------
                   (Address of principal executive offices)          (Zip Code)


                                 (405) 848-8000
-------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)
















                    INFORMATION TO BE INCLUDED IN THE REPORT


ITEM 5.  OTHER EVENTS

         Chesapeake Energy Corporation ("Chesapeake") issued a Press Release on
April 22, 2002 announcing the execution of an Agreement and Plan of Merger among
Chesapeake, CHK Acquisition, Inc., a wholly-owned subsidiary of Chesapeake, and
Canaan Energy Corporation on April 19, 2002. The following was included in the
Press Release:

               "CHESAPEAKE ENERGY CORPORATION ANNOUNCES AGREEMENT
                      TO ACQUIRE CANAAN ENERGY CORPORATION
                          FOR $18.00 PER SHARE IN CASH

            Company Acquires 100 Bcfe of Proved Reserves, 50 Bcfe of
               Probable and Possible Reserves and 22,000 Mcfe Per
                     Day of Gas Production for $118 Million

Chesapeake and Canaan Energy Corporation (Nasdaq:KNAN) today jointly announced
that Chesapeake has agreed to acquire the 4.5 million shares of fully diluted
Canaan common stock not already owned by Chesapeake for $18.00 per share in
cash. Including assumed debt (net of stock option proceeds and working capital)
of approximately $33 million and $4 million of Canaan common stock previously
acquired by Chesapeake at $12.00 per share, the estimated total cost of the
transaction will be $118 million. Chesapeake intends to pay for the transaction
by using cash on hand.

Chesapeake values Canaan's estimated 100 billion cubic feet of natural gas
equivalent (bcfe) of proved reserves at $1.14 per mcfe after allocation of $4
million of the purchase price to Canaan's undeveloped leasehold inventory and
other assets. Canaan's proved reserves are 91% natural gas, 74% proved developed
and are located almost exclusively in Chesapeake's core Mid-Continent operating
area. Based on current production rates of 22,000 thousand cubic feet of natural
gas equivalent (mcfe) per day (8 bcfe per year), Canaan's reserves-to-production
ratio is an attractive 12.5.

                               Management Comments

Aubrey K. McClendon, Chesapeake's Chairman and Chief Executive Officer
commented, "We are pleased to announce this negotiated acquisition of Canaan.
This acquisition fits perfectly with Chesapeake's business strategy of creating
value by acquiring and developing low-cost, long-lived natural gas assets in the
Mid-Continent region of the U.S. Canaan has built a strong foundation of gas
production and an attractive inventory of drilling projects, which Chesapeake
intends to develop more aggressively than Canaan could have.

Although we originally offered $12.00 per share, we were provided the
opportunity to review Canaan's assets through negotiation with Canaan's
management. We were impressed with what we saw and agreed to increase our offer
to the mutually acceptable price of $18.00 per share. The transaction will be
accretive to Chesapeake's asset value, cash flow and ebitda in the second half
of 2002, in 2003 and beyond."

John K. Penton, Canaan's President and Chief Operating Officer, commented, "We
are pleased to enter into this transaction with Chesapeake. This transaction
creates value for both companies and we enthusiastically recommend that our
shareholders join us in voting for this merger."

                              Terms and Conditions

Although definitive purchase documents have been signed and both Boards of
Directors have unanimously approved the transaction, the agreement is subject to
normal regulatory approvals and a Canaan shareholder vote. Completion of the
transaction is expected in the third quarter of 2002.

Canaan presently has 4.4 million common shares outstanding, plus employee and
director options of 0.5 million shares. Of the outstanding shares, Chesapeake
owns 0.3 million shares. Canaan's management and directors have agreed to vote
their 1.2 million common shares in favor of the agreement.

Chesapeake will record the transaction using purchase accounting. In addition,
under certain circumstances, Canaan has agreed to provide Chesapeake with a $5.0
million break-up fee in the event the transaction is not completed. CIBC World
Markets advised Canaan in the transaction.

                           Conference Call Information

Chesapeake's management invites your participation in its regularly scheduled
earnings release conference call on Tuesday, April 30, 2002 at 9:00 am EDT. In
addition to discussing first quarter results and the outlook for the remainder
of 2002, the company will discuss the Canaan transaction and other important
operational developments. You may participate in the call by dialing
913-981-5533 or listen to the call on the Internet by visiting our home page at
chkenergy.com and clicking on the link under Shareholder Information or by going
directly to Vcall.com. In addition, a replay of the call will be available by
dialing 719-457-0820 through May 13. The passcode for the replay is 563827.

Canaan Energy Corporation ("Canaan") and the Directors and Executive Officers of
Canaan may be deemed to be participants in any solicitation of proxies in
connection with seeking approval of holders of common stock of Canaan of the
proposed acquisition of Canaan by Chesapeake Energy Corporation. A description
of the interests of the Directors and Executive Officers of Canaan is set forth
in the proxy statement on Schedule 14A for Canaan's 2001 annual meeting of
shareholders filed with the Securities and Exchange Commission. The Directors
and Executive Officers as a group beneficially own approximately 1,167,000
shares of Canaan common stock, which constitutes approximately 27% of the shares
outstanding. All of such Directors and Executive Officers have agreed to vote in
favor of the merger. For additional information about the interest of the
foregoing participants in the transaction, please refer to the preliminary and
definitive proxy statements, which will be filed with the SEC, in connection
with the solicitation described above. Securityholders are urged to read the
proxy statement when it is available because it will contain important
information. Investors and securityholders can obtain a free copy of the proxy
statement (when it is available) and other relevant documents on the SEC's web
site at www.sec.gov. The proxy statement and related materials may also be
obtained for free, when filed and available, by directing such request to Canaan
at 405-604-9200.

Chesapeake Energy Corporation is one of the largest independent natural gas
producers in the U.S. Headquartered in Oklahoma City, the company's operations
are focused on developmental drilling and property acquisitions in the
Mid-Continent region of the United States. The company's Internet address is
www.chkenergy.com.

Canaan Energy Corporation is an independent oil and gas exploration and
production company headquartered in Oklahoma City, Oklahoma. Canaan trades on
the NASDAQ NMS under the symbol KNAN. The company's Internet address is
www.canaanenergy.com"

         The following are included as exhibits to this Form 8-K: Agreement and
Plan of Merger dated April 19, 2002; form of Agreement and Limited Irrevocable
Proxy; and form of Goodwill Protection Agreement.

ITEM 7.      FINANCIAL STATEMENTS AND EXHIBITS

        (c)  Exhibits.  The following exhibits are filed herewith:

             99. (a)   Agreement  and Plan of  Merger,  dated as of April 19,
                       2002,  by and  among  Canaan Energy Corporation,
                       Chesapeake Energy Corporation and CHK Acquisition, Inc;

                 (b)   Form of Agreement  and Limited  Irrevocable  Proxy,
                       executed on April 19, 2002, in connection with the
                       Agreement  and  Plan of  Merger  by John  K.  Penton,
                       Leo E. Woodard, Michael S. Mewbourn, Thomas Henson, and
                       Mischa Gorkuscha; and

                 (c)   Form of Goodwill  Protection  Agreement to be executed
                       by John K.  Penton, Leo E. Woodward, and Michael S.
                       Mewbourn on  consummation  of the  Agreement  and Plan
                       of Merger.

ITEM 9.    REGULATION FD DISCLOSURE

The following was included in the Press Release:

"Chesapeake's estimated proved reserves at the end of 2001 were 1.8 tcfe.
Because of successful drilling during the first quarter and increased commodity
prices, Chesapeake's estimated proved reserves at March 31, 2002 have increased
to 1.9 tcfe. The Canaan transaction will increase Chesapeake's proved reserves
by 5% to 2.0 tcfe and will increase Chesapeake's previously projected production
for 2002 by 4 bcfe to 172 bcfe (assuming the transaction closes in the third
quarter). Chesapeake's previously projected production for 2003 of 175 bcfe will
increase by 8 bcfe to 183 bcfe."






                                    SIGNATURE


         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                                CHESAPEAKE ENERGY CORPORATION



                                                By: /s/ Aubrey K. McClendon
                                                   ----------------------------
                                                       Aubrey K. McClendon
                                                    Chairman of the Board and
                                                     Chief Executive Officer

Dated:  April 22, 2002






                                                                  EXHIBIT 99(a)











                          AGREEMENT AND PLAN OF MERGER


                                      among


                           CANAAN ENERGY CORPORATION,

                              CHK ACQUISITION, INC.

                                       and

                          CHESAPEAKE ENERGY CORPORATION



















                           COMMERCIAL LAW GROUP, P.C.
                             ATTORNEYS & COUNSELORS
                              2725 Oklahoma Tower
                                210 Park Avenue
                       Oklahoma City, Oklahoma 73102-5604
                            Telephone (405)232-3001
                           Telecopier (405) 232-5553






                          AGREEMENT AND PLAN OF MERGER

                                TABLE OF CONTENTS

1.       Definitions..........................................................1
   1.1   Affiliate(s).........................................................1
   1.2   Agreement............................................................2
   1.3   Alternative Proposal.................................................2
   1.4   Bank Credit Agreement................................................2
   1.5   Canaan 2
   1.6   Canaan Area..........................................................2
   1.7   Canaan Certificate...................................................2
   1.8   Canaan Common Stock..................................................2
   1.9   Canaan Disclosure Schedule...........................................2
   1.10  Canaan Employee(s)...................................................2
   1.11  Canaan Employee Benefit Plans........................................2
   1.12  Canaan Financial Statements..........................................2
   1.13  Canaan Material Agreements...........................................2
   1.14  Canaan Permits.......................................................2
   1.15  Canaan Plans.........................................................2
   1.16  Canaan Predecessor...................................................2
   1.17  Canaan Representative................................................3
   1.18  Canaan Rights........................................................3
   1.19  Canaan Rights Agreement..............................................3
   1.20  Canaan SEC Documents.................................................3
   1.21  Canaan Severance Policy..............................................3
   1.23  Canaan Stock Option(s)...............................................3
   1.24  Canaan Stockholder Meeting...........................................3
   1.25  Canaan Termination Fee...............................................3
   1.26  CERCLA 3
   1.27  Certificate of Merger................................................3
   1.28  Closing..............................................................3
   1.29  Closing Date.........................................................3
   1.30  COBRA  3
   1.31  Code   4
   1.32  Confidentiality Agreement............................................4
   1.33  Contract Employee....................................................4
   1.34  Defensible Title.....................................................4
   1.35  Dissenting Stockholders..............................................4
   1.36  Effective Time.......................................................4
   1.37  Environmental Law....................................................4
   1.38  ERISA  4
   1.39  Exchange Act.........................................................4
   1.40  Exchange Agent.......................................................4
   1.41  Exchange Fund........................................................4
   1.42  GAAP   4
   1.43  Goodwill Protection Agreement........................................5
   1.44  Governmental Authority...............................................5
   1.45  Hazardous Material...................................................5
   1.46  HSR Act..............................................................5
   1.47  Hydrocarbons.........................................................5
   1.48  Indemnified Parties..................................................5
   1.49  Irrevocable Proxy....................................................5
   1.50  Lien(s)..............................................................5
   1.51  Material Adverse Effect..............................................5
   1.52  Merger 6
   1.53  Merger Consideration.................................................6
   1.54  Net Revenue Interests................................................6
   1.55  Office Space Agreement...............................................6
   1.56  OGCA   6
   1.57  Oil and Gas Interests................................................6
   1.58  Ownership Interests..................................................7
   1.59  Parent 7
   1.60  Parent Companies.....................................................7
   1.61  Parent Representative................................................7
   1.62  Parent Subsidiaries..................................................7
   1.63  Parties..............................................................7
   1.64  Payout Balance.......................................................7
   1.65  Permitted Encumbrances...............................................7
   1.66  Per Share Merger Consideration.......................................8
   1.67  Person(s)............................................................8
   1.68  Proxy Statement......................................................8
   1.69  Returns..............................................................8
   1.70  SEC    8
   1.71  Securities Act.......................................................8
   1.72  Sub    8
   1.73  Sub Common Stock.....................................................8
   1.74  Superior Proposal....................................................8
   1.75  Surviving Corporation................................................8
   1.76  Tax(es)..............................................................9
   1.77  Third-Party Consent..................................................9
   1.78  Transaction Documents................................................9
   1.79  Working Interest.....................................................9

2.       Consummation of the Merger...........................................9
   2.1   The Merger...........................................................9
   2.2   Effect of the Merger.................................................9
   2.3   Governing Instruments, Directors and Officers of the Surviving
         Corporation..........................................................9
      2.3.1     Certificate of Incorporation..................................9
      2.3.2     Bylaws     9
      2.3.3     Name       10
      2.3.4     Directors and Officers.......................................10
   2.4   Effect on Securities................................................10
      2.4.1     Sub Common Stock.............................................10
      2.4.2     Canaan Common Stock..........................................10
      2.4.3     Canaan Stock Options.........................................10
      2.4.4     Treasury Stock and Parent Owned Stock........................11
      2.4.5     Dissenting Stockholder Shares................................11
   2.5   Exchange of Certificates............................................12
      2.5.1     Exchange Fund................................................12
      2.5.2     Notice and Surrender.........................................12
      2.5.3     Full Satisfaction............................................13
      2.5.4     Unclaimed Exchange Fund......................................13
      2.5.5     No Liability.................................................13
      2.5.6     Lost, Stolen or Destroyed Certificates.......................14
      2.5.7     Investment of Exchange Fund..................................14
   2.6   Closing.............................................................14
   2.7   Effective Time of the Merger........................................14
   2.8   Taking of Necessary or Further Action...............................14

3.       Canaan Representations and Warranties...............................15
   3.1   Corporate Organization..............................................15
   3.2   Authority and Enforceability........................................15
   3.3   No Violations.......................................................16
   3.4   Consents and Approvals..............................................16
   3.5   Canaan SEC Documents................................................16
   3.6   Financial Statements................................................17
   3.7   Capital Structure...................................................17
   3.8   Governmental Regulation.............................................18
   3.9   Litigation..........................................................18
   3.10  Brokers.............................................................18
   3.11  Absence of Certain Changes or Events................................18
   3.12  Compliance with Laws, Material Agreements and Permits...............18
   3.13  No Restrictions.....................................................19
   3.14  Taxes  19
   3.15  Employee Benefit Plans..............................................21
   3.16  Environmental Matters...............................................23
   3.17  Vote Required.......................................................24
   3.18  Canaan Board of Directors Actions...................................24
   3.19  Employment Contracts and Benefits...................................24
   3.20  Labor Matters.......................................................24
   3.21  Insurance...........................................................25
   3.22  Intangible Property.................................................25
   3.23  Title to Assets.....................................................25
   3.24  Opinion of Financial Advisor........................................26
   3.25  Oil and Gas Operations..............................................26
   3.26  Financial and Commodity Hedging.....................................26
   3.27  Books and Records...................................................26
   3.28  Other Entities......................................................26
   3.29  Account Information.................................................26
   3.30  Powers of Attorney..................................................26
   3.31  Plugging Status.....................................................27
   3.32  No Knowledge of Breach of Representations...........................27
   3.33  Proxy Statement.....................................................27
   3.34  Equipment...........................................................27
   3.35  Current Commitments.................................................27
   3.36  Payout Balances, Gas Imbalances and Take or Pay.....................28
   3.37  Full Disclosure.....................................................28
   3.38  Certain Agreements..................................................28
   3.39  Affiliate Transactions..............................................28

4.       Parent and Sub Representations and Warranties.......................28
   4.1   Organization and Standing...........................................28
   4.2   Authority and Enforceability........................................28
   4.3   No Restriction......................................................29
   4.4   Consents and Approvals..............................................29
   4.5   Authorization.......................................................29
   4.6   Litigation..........................................................29
   4.7   Broker's or Finder's Fees...........................................30
   4.8   Funding.............................................................30
   4.9   Interim Operations of Sub...........................................30
   4.10  Proxy Statement.....................................................30
   4.11  No Knowledge of Breach of Representations...........................30
   4.12  Prior Purchases.....................................................30

5.       Covenants...........................................................31
   5.1   Conduct of Canaan Business Pending Closing..........................31
   5.2   Access to Information...............................................33
   5.3   No Solicitation.....................................................34
   5.4   Canaan Stockholder Meeting..........................................35
   5.5   Proxy Statement.....................................................35
   5.6   Public Announcements................................................36
   5.7   Notification of Certain Matters.....................................36
   5.8   Indemnification.....................................................37
   5.9   Employee and Severance Matters......................................38
   5.10  Reasonable Best Efforts.............................................41
   5.11  Stock Options.......................................................41
   5.12  Stockholder Litigation..............................................42
   5.13  Further Assurances..................................................42
   5.14  Rights Agreement; Consequences if Rights Triggered..................42
   5.15  Payment of Expenses.................................................43
   5.16  Canaan Termination Fee..............................................43
   5.17  Dissenting Stockholder Payments.....................................43
   5.18  Name   43
   5.19  Related Agreements..................................................43

6.       Conditions Precedent................................................44
   6.1   Conditions to Each Party's Obligation to Effect the Merger..........44
      6.1.1     Stockholder Approval.........................................44
      6.1.2     Other Approvals..............................................44
      6.1.3     No Injunctions or Restraints.................................44
   6.2   Conditions to Obligations of Parent and Sub.........................44
      6.2.1     Representations and Warranties...............................44
      6.2.2     Performance of Covenants and Agreements by Canaan............45
      6.2.3     No Adverse Change............................................45
      6.2.4     Dissenting Stockholders......................................45
      6.2.5     Releases   45
      6.2.6     Opinion of Counsel...........................................45
   6.3   Conditions to Obligation of Canaan..................................45
      6.3.1     Representations and Warranties...............................45
      6.3.2     Performance of Covenants and Agreements by Parent and Sub....46

7.       Termination.........................................................46
   7.1   Termination Rights..................................................46
      7.1.1     Mutual Consent...............................................46
      7.1.2     Date Certain.................................................46
      7.1.3     By Parent  46
      7.1.4     By Canaan  47
      7.1.5     Superior Proposal............................................47
   7.2   Effect of Termination...............................................47

8.       Miscellaneous.......................................................47
   8.1   Nonsurvival of Representations and Warranties.......................47
   8.2   Amendment...........................................................48
   8.3   Notices.............................................................48
   8.4   Counterparts........................................................49
   8.5   Severability........................................................49
   8.6   Entire Agreement; No Third Party Beneficiaries......................49
   8.7   Applicable Law......................................................49
   8.8   No Remedy in Certain Circumstances..................................49
   8.9   Enforcement of Agreement............................................49
   8.10  Assignment..........................................................50
   8.11  Waivers.............................................................50
   8.12  References and Titles...............................................50
   8.13  Incorporation.......................................................50







Exhibit "A"     -  Irrevocable Proxy
Exhibit "B"     -  Goodwill Protection Agreement
Exhibit "C"     -  Office Space Agreement
Exhibit "D"     -  Release
Exhibit "E"     -  Opinion






                          AGREEMENT AND PLAN OF MERGER

                THIS AGREEMENT AND PLAN OF MERGER is entered into effective the
19th day of April, 2002, by and among CANAAN ENERGY CORPORATION, an Oklahoma
corporation ("Canaan"), CHK ACQUISITION, INC., an Oklahoma corporation ("Sub"),
and CHESAPEAKE ENERGY CORPORATION, an Oklahoma corporation ("Parent").

                              B A C K G R O U N D:

A. The board of directors of each of Parent, Sub and Canaan has determined that
it is in the best interests of its respective stockholders to approve the
acquisition by Parent of Canaan by means of the merger of Sub with and into
Canaan, upon the terms and subject to the conditions set forth in this Agreement
and the applicable provisions of the OGCA;

B. The board of directors of each of Parent, Sub and Canaan has unanimously
adopted resolutions approving the Merger, this Agreement and the transactions
contemplated hereby, and the board of directors of Canaan has unanimously agreed
to recommend that the stockholders of Canaan approve this Agreement, the Merger
and the transactions contemplated hereby;

C.  Parent,  Sub and Canaan desire to make certain representations, warranties,
covenants and agreements in
connection with the Merger and also to prescribe various conditions to the
Merger;

D. Parent has advised Canaan and the Canaan Specified Stockholders that it will
not enter into this Agreement unless the Canaan Specified Stockholders execute
and deliver to Parent an Irrevocable Proxy in the form set forth in Exhibit "A"
attached hereto and made a part hereof;

E. Parent has advised Canaan that Parent will not consummate  this Agreement
unless Leo E. Woodard,  John K. Penton and Michael S. Mewbourn execute and
deliver to Parent a Goodwill  Protection  Agreement  in the form set forth in
Exhibit "B" attached hereto and made a part hereof; and

F. Upon consummation of the Merger pursuant to this Agreement, all of the issued
and outstanding Canaan Common Stock and Canaan Stock Options will be converted
into the right to receive the Merger Consideration as determined in accordance
with the terms of this Agreement.

    NOW, THEREFORE, for and in consideration of the recitals and the
mutual covenants and agreements set forth in this Agreement, the Parties hereby
agree as follows:

10  Definitions.  As used in this  Agreement, each of the following terms has
the meaning given in this paragraph or in the paragraphs referred to below:

         1.1    Affiliate(s). With respect to any Person, each other Person that
                directly or indirectly (through one or more intermediaries or
                otherwise) controls, is controlled by, or is under common
                control with such Person.








                                     - 53 -
     1.2 Agreement. This Agreement and Plan of Merger, as amended, supplemented
or modified from time to time.

     1.3 Alternative Proposal. As defined in paragraph 5.3.2 of this Agreement.

     1.4 Bank Credit Agreement. The Restated and Consolidated Agreement dated
         October 23, 2000, by and among Canaan and a lending group led by
         Bank One,  Oklahoma, N.A. as amended October 9, 2001 and November 21,
         2001.

     1.5 Canaan. Canaan Energy Corporation, an Oklahoma corporation.

     1.6 Canaan Area.   As defined in paragraph 5.1.10 of this Agreement.

     1.7 Canaan Certificate.  A certificate representing shares of Canaan
         Common Stock.

     1.8 Canaan Common Stock.  Canaan's common stock, $0.01 par value per
         share.

     1.9 Canaan Disclosure Schedule. The disclosure schedule attached
         hereto entitled the Canaan Disclosure Schedule and any documents
         listed on such disclosure schedule or expressly incorporated
         therein by reference.

    1.10 Canaan Employee(s).  As defined in paragraph 5.9 of this Agreement.

    1.11 Canaan Employee Benefit Plans. As defined in paragraph 3.15 of this
         Agreement.

    1.12 Canaan Financial Statements. The audited and unaudited
         consolidated financial statements of Canaan (including the
         related notes) included (or incorporated by reference) in
         Canaan's Annual Report on Form 10-K for the year ended December
         31, 2001, as filed with the SEC.

    1.13 Canaan  Material  Agreements.  The:  (1)  Bank  Credit  Agreement;
         (2) the  Cedar  Brush  Prospect Agreement dated November 5, 2001,
         between Canaan and Union Gas Corporation,  a Texas  corporation;
         (3) all  agreements  or  instruments  filed with or listed in the
         Canaan SEC  Documents as material contracts; and (4) any other written
         or oral agreements,  contracts,  commitments or understandings
         to which Canaan is a party,  by which any of Canaan is directly or
         indirectly  bound, or to which any asset of any of Canaan may be
         subject,  involving total value,  consideration or obligations in
         excess of One Million Dollars ($1,000,000.00).

    1.14 Canaan Permits. As defined in paragraph 3.12 of this Agreement.


    1.15 Canaan  Plans.  The stock  option  plans and  related  agreements
         listed in  section  2.4.3 of the Canaan Disclosure Schedule.

    1.16 Canaan Predecessor.  As defined in paragraph 3.14.1 of this Agreement.






     1.17 Canaan  Representative.   Any  director,  officer,  employee,  agent,
          advisor  (including  legal, accounting and financial advisors),
          Affiliate or other representative of Canaan.

     1.18 Canaan Rights. The preferred share purchase rights issued pursuant to
          the Canaan Rights Agreement for each share of Canaan Common
          Stock outstanding on March 25, 2002.

     1.19 Canaan Rights  Agreement.  The Rights  Agreement  dated as of
          March 13, 2002 between Canaan and UMB Bank, N.A., as rights agent
          setting forth the terms and conditions of the Canaan Rights.

     1.20 Canaan SEC Documents. As defined in paragraph 3.5 of this Agreement.

     1.21 Canaan Severance Policy.  As defined in paragraph 5.9.1(b) of this
          Agreement.

     1.22 Canaan  Specified  Stockholders.  The  stockholders  of Canaan who
          are:  (a) on  Canaan's  board of directors; or (b) executive
          officers of Canaan.

     1.23 Canaan Stock Option(s). Any unexpired option or other right to
          purchase Canaan Common Stock issued under the Canaan Plans and
          outstanding as of the Effective Time (regardless of whether
          vested, unvested or currently exercisable).

     1.24 Canaan  Stockholder  Meeting.  The meeting of the  stockholders of
          Canaan for the purpose of voting on this Agreement and the Merger.

     1.25 Canaan Termination Fee.  As defined in paragraph 5.16 of this
          Agreement.

     1.26 CERCLA.  The  Comprehensive  Environmental  Response,  Compensation
          and Liability Act of 1980, as amended.

     1.27 Certificate of Merger. The Certificate of Merger to be prepared
          and executed in accordance with the applicable provisions of the
          OGCA and filed with the Secretary of State of Oklahoma to
          reflect the consummation of the Merger.

     1.28 Closing.  The closing of the Merger and the  consummation  of the
          other  transactions contemplated by this Agreement.

     1.29 Closing Date. Unless otherwise agreed to by Parent and Canaan in
          writing, the Closing will take place on the second business day
          following the day after which both of the following have
          occurred: (a) the Canaan Stockholder Meeting; and (b) the
          satisfaction of the conditions to the Merger as set forth in
          this Agreement (other than conditions that by their nature are
          to be satisfied at Closing).

     1.30 COBRA. The Consolidated  Omnibus  Reconciliation  Act of 1985, as
          amended, as contained in section 4980B of the Code.






     1.31 Code.  The Internal Revenue Code of 1986, as amended.

     1.32 Confidentiality Agreement. The letter agreement dated March 28,
          2002 between Canaan and Parent relating to Canaan's furnishing
          of information to Parent in connection with Parent's evaluation
          of a possible transaction between Parent and Canaan.

     1.33 Contract Employee. As defined in paragraph 5.9.1(d) of this Agreement.


     1.34 Defensible Title. Such right, title and interest to an asset
          that is: (a) evidenced by an instrument or instruments filed of
          record in accordance with the conveyance and recording laws of
          the applicable jurisdiction to the extent necessary to prevail
          against competing claims of bona fide purchasers for value
          without notice; (b) subject to Permitted Encumbrances; and (c)
          free and clear of all other Liens, claims, infringements,
          burdens or other defects.

     1.35 Dissenting  Stockholders.  Any  holder or  holders  of Canaan  Common
          Stock  who  validly  perfect appraisal rights under Section 1091 of
          the OGCA.

     1.36 Effective Time.  As defined in paragraph 2.7 of this Agreement.

     1.37 Environmental Law. Any federal, state, local or foreign statute,
          code, ordinance, rule, regulation, policy, guideline, permit,
          consent, approval, license, judgment, order, writ, decree,
          injunction or other authorization relating to: (a) emissions,
          discharges, releases or threatened releases of Hazardous
          Materials into the natural environment (including, without
          limitation, ambient air, soil, sediments, land surface or
          subsurface, buildings or facilities, surface water, groundwater,
          publicly-owned treatment works, septic systems or land); (b) the
          generation, treatment, storage, disposal, use, handling,
          manufacture, transportation or shipment of Hazardous Materials;
          or (c) the pollution of the environment, solid waste or
          operation or reclamation of mines.

     1.3  ERISA.  The Employee Retirement Income Security Act of 1974, as
          amended from time to time.

     1.39 Exchange Act.  The Securities Exchange Act of 1934, as amended from
          time to time.

     1.40 Exchange Agent.  UMB Bank, N.A., the paying agent for shares of
          Canaan Common Stock.

     1.41 Exchange Fund. As defined in paragraph 2.5.1 of this Agreement.

     1.42 GAAP.  Generally accepted  accounting  principles,  as recognized by
          the U.S. Financial  Accounting Standards Board (or any generally
          recognized successor).






     1.43 Goodwill  Protection  Agreement.  The  agreement to be executed and
          delivered at the Closing by Leo E. Woodard,  John K. Penton and
          Michael S. Mewbourn in favor of Canaan and Parent  substantially in
          the form attached hereto as Exhibit "B."

     1.44 Governmental Authority. Any national, state, county or municipal
          government, (whether domestic or foreign), agency, board,
          bureau, commission, court, department or other instrumentality
          of any such government, or any arbitrator in any case that has
          jurisdiction over Canaan, Parent or Sub or any of their
          respective properties or assets.

     1.45 Hazardous  Material.  Any: (a) "hazardous  substance" as defined by
          CERCLA; (b) "hazardous waste" as defined by the Resource Conservation
          and Recovery Act, as amended; (c) hazardous,  dangerous or toxic
          chemical,  material,  waste  or  substance,  within  the  meaning of
          and  regulated  by any Environmental  Law; (d) radioactive  material,
          including  any  naturally  occurring  radioactive material, and any
          source,  special or byproduct  material as defined in 42 U.S.C. 2011
          et seq. and any amendments or authorizations thereof; (3) asbestos-
          containing  materials  in any  form or condition; or
          (f) polychlorinated biphenyls in any form or condition.

     1.46 HSR Act. The Hart-Scott-Rodino  Antitrust Improvements Act of 1976, as
          amended from time to time.

     1.47 Hydrocarbons. Oil, condensate, gas, casinghead gas and other liquid or
          gaseous hydrocarbons.


     1.48 Indemnified Parties. As defined in paragraph 5.8.1 of this Agreement.

     1.49 Irrevocable  Proxy. The irrevocable  proxy in the form attached hereto
          as Exhibit  "A" to be executed  by the Canaan  Specified  Stockholders
          granting to Parent the right to vote such holders' Canaan Common Stock
          in connection  with the  stockholders'  vote concerning the Merger and
          any and all related matters.

     1.50 Lien(s).  Any lien,  mortgage,  security  interest,  pledge,  deposit,
          production  payment,  restriction,  burden,  encumbrance,  rights of a
          vendor under any title  retention or conditional  sale  agreement,  or
          lease or other arrangement substantially equivalent thereto.






     1.51 Material Adverse Effect.  An event or condition or a series of related
          events or conditions that: (1) has an adverse financial impact of more
          than Five Million Dollars  ($5,000,000) on Canaan;  (2) materially and
          adversely  affects the  business,  assets,  liabilities  or  financial
          condition of Canaan;  or (3) with respect to either Party,  materially
          and  adversely  affects  the  ability of the party to  consummate  the
          transactions  contemplated by this Agreement in accordance herewith or
          fulfill the conditions to Closing.  Notwithstanding  the foregoing the
          following will not be taken into account in determining  whether there
          has been a Material  Adverse Effect:  (x) any adverse affect or change
          that is caused by or  results  from  conditions  affecting  the United
          States  economy  generally  or the  economy of any nation or region in
          which  Canaan or Parent (as the case may be)  conducts  business  on a
          consolidated basis; (y) any adverse affect or change that is caused by
          or  results  from  conditions  generally  affecting  the  natural  gas
          industry including,  without limitation, the prices of natural gas and
          oil; and (z) any adverse affect or change that is caused by or results
          from the announcement or pendency of this Agreement, the Merger or the
          transactions contemplated hereby.

     1.52 Merger. As defined in paragraph 2.1 of this Agreement.

     1.53 Merger  Consideration.  The aggregate  amount equal to the sum of: (1)
          the total number of shares of Canaan  Common Stock that are issued and
          outstanding  as of the Effective  Time other than those held by Parent
          or Sub multiplied by the Per Share Merger Consideration;  plus (2) the
          aggregate amount by which the Per Share Merger  Consideration  exceeds
          the exercise  price of each of the Canaan Stock Options  identified in
          Section 2.4.3 of the Canaan Disclosure Schedule which are in the money
          (based  on  the  Per  Share  Merger   Consideration)   and  which  are
          outstanding at the Effective Time.

     1.54 Net Revenue Interests. Canaan's interest in Hydrocarbons produced from
          or attributable to Canaan's Oil and Gas Interests, after deducting all
          lessor's royalties,  overriding  royalties,  production payments,  and
          other interests or burdens on Hydrocarbons  produced from Canaan's oil
          and gas properties or any well thereon.

     1.55 Office Space  Agreement.  The agreement to be executed  between Canaan
          and LJ Natural Gas Company,  in substantially the form attached hereto
          as Exhibit "C."

     1.56 OGCA. The Oklahoma General Corporation Act, as amended.


     1.57 Oil and Gas Interests.  Any and all: (a) direct and indirect interests
          in and rights with respect to oil, gas, mineral and related properties
          and  assets  of any kind and  nature,  direct or  indirect,  including
          working,   royalty  and  overriding  royalty   interests,   production
          payments,  operating rights, net profits interests,  other non-working
          interests  and  non-operating  interests;  (b) interests in and rights
          with respect to Hydrocarbons and other minerals or revenues  therefrom
          and  contracts in connection  therewith and claims and rights  thereto
          (including oil and gas leases,  operating agreements,  unitization and
          pooling  agreements  and orders,  division  orders,  transfer  orders,
          mineral  deeds,  royalty  deeds,  oil  and  gas  sales,  exchange  and
          processing  contracts and agreements  and interests  related to any of
          the  foregoing),   surface  interests,  fee  interests,   reversionary
          interests, reservations and concessions; (c) easements, rights of way,
          licenses,  permits,  leases,  and  other  interests  associated  with,
          appurtenant  to,  or  necessary  for  the  operation  of  any  of  the
          foregoing;  and (d)  interests in fixtures,  equipment  and  machinery
          (including  well  equipment and  machinery),  oil and gas  production,
          gathering, transmission, compression, treating, processing and storage
          facilities  (including tanks, tank batteries,  pipelines and gathering
          systems),  pumps,  water  plants,  electric  plants,  gasoline and gas
          processing plants, refineries and other tangible personal property and
          fixtures  associated  with,  appurtenant  to,  or  necessary  for  the
          operation of any of the foregoing.





     1.58 Ownership Interests. The Net Revenue Interests,  Working Interests and
          other ownership  interests,  if any, of Canaan in Canaan's Oil and Gas
          Interests  which  were  classified  as having  proved  reserves  as of
          December  31, 2001 as reported in the Canaan SEC Reports and listed in
          Section 1.58 of the Canaan Disclosure Schedule.

     1.59 Parent. Chesapeake Energy Corporation, an Oklahoma corporation.


     1.60 Parent Companies. Parent and the Parent Subsidiaries.

     1.61 Parent Representative. Any director, officer, employee, agent, advisor
          (including  legal,  accounting and financial  advisors),  Affiliate or
          other representative of Parent or Parent Subsidiaries.

     1.62 Parent Subsidiaries. Sub and all other direct or indirect wholly owned
          subsidiaries of Parent.

     1.63 Parties. The collective reference to Parent, Sub and Canaan.


     1.64 Payout Balance. As defined in paragraph 3.36 of this Agreement.






     1.65 Permitted Encumbrances. Any: (a) Liens for Taxes, assessments or other
          governmental  charges or levies that are not at the particular time in
          question due and  delinquent,  foreclosure,  distraint,  sale or other
          similar proceedings have not been commenced or if commenced, have been
          stayed or are being contested in good faith by appropriate proceedings
          and if  Canaan  will  have  set  aside  on  its  books  such  reserves
          (segregated to the extent required by sound  accounting  practices) as
          may be  required  by GAAP or  otherwise  determined  by its  board  of
          directors to be adequate with respect thereto;  (b) Liens of carriers,
          warehousemen,  mechanics, laborers,  materialmen,  landlords, vendors,
          workmen and  operators  arising by  operation  of law in the  ordinary
          course of business or by a written  agreement  existing as of the date
          hereof and  necessary  or  incident to the  exploration,  development,
          operation  and  maintenance  of  Hydrocarbon  properties  and  related
          facilities and assets for sums not yet due or being  contested in good
          faith by appropriate proceedings, if Canaan will have set aside on its
          books  such  reserves  (segregated  to the  extent  required  by sound
          accounting  practices)  as  may  be  required  by  GAAP  or  otherwise
          determined  by its board of  directors  to be  adequate  with  respect
          thereto;  (c) Liens  incurred  in the  ordinary  course of business in
          connection  with  worker's  compensation,  unemployment  insurance and
          other  social  security  legislation  (other  than  ERISA);  (d) Liens
          incurred in the ordinary  course of business to secure the performance
          of bids,  tenders,  trade contracts,  leases,  statutory  obligations,
          surety and appeal bonds,  performance  and  repayment  bonds and other
          obligations  of a like nature;  (e) Liens,  easements,  rights-of-way,
          restrictions,  servitudes, permits, conditions, covenants, exceptions,
          reservations and other similar  encumbrances  incurred in the ordinary
          course of business or existing on property  and not (i)  reducing  the
          Canaan Net Revenue  Interest  set forth in Section  1.58 of the Canaan
          Disclosure  Schedule,  (ii) increasing the Canaan Working Interests in
          any Oil and Gas  Interest  set  forth in  Section  1.58 of the  Canaan
          Disclosure  Schedule  or (iii)  impairing  the value of the  assets of
          Canaan or  interfering  with the  ordinary  conduct of the business of
          Canaan or rights to any of their assets;  (f) Liens created or arising
          by operation of law to secure a party's  obligations as a purchaser of
          oil and gas;  (g) all  rights to  consent  by,  required  notices  to,
          filings with, or other  actions by any  Governmental  Authority to the
          extent  customarily  obtained  subsequent  to  Closing;  (h)  farmout,
          carried  working  interest,  joint  operating,  unitization,  royalty,
          overriding  royalty,  sales and  similar  agreements  relating  to the
          exploration  or  development  of,  or  production  from,   Hydrocarbon
          properties entered into in the ordinary course of business that do not
          (x) reduce the Canaan Net Revenue  Interests set forth in Section 1.58
          of the Canaan  Disclosure  Schedule,  (y) increase the Canaan  Working
          Interests in any Oil and Gas Interest set forth in Section 1.58 of the
          Canaan  Disclosure  Schedule or (z) adversely  affect the value of any
          asset of Canaan;  (i) any defects,  irregularities  or deficiencies in
          title to easements, rights-of-way or other surface use agreements that
          do not (x)  reduce  the  Canaan  Net  Revenue  Interests  set forth in
          Section  1.58 of the Canaan  Disclosure  Schedule,  (y)  increase  the
          Canaan  Working  Interests  in any Oil and Gas  Interest  set forth in
          Section 1.58 of the Canaan Disclosure Schedule or (z) adversely affect
          the value of any asset of Canaan; (j) preferential  rights to purchase
          and  Third-Party  Consents  disclosed  in  Section  1.65 of the Canaan
          Disclosure  Schedule;  (k) Liens arising under or created  pursuant to
          the Bank Credit  Agreement;  and (l) Liens  specifically  described in
          Section 1.65 of the Canaan Disclosure Schedule.

     1.66 Per Share Merger Consideration. Eighteen Dollars ($18.00) per share of
          Canaan Common Stock including the associated Canaan Rights.

     1.67 Person(s).  Any  natural  person,  corporation,  company,  limited  or
          general partnership,  joint stock company, joint venture, association,
          limited liability company, limited liability partnership, trust, bank,
          trust  company,   land  trust,  business  trust  or  other  entity  or
          organization, whether or not a Governmental Authority.

     1.68 Proxy  Statement.  A proxy  statement in a definitive form relating to
          the Canaan Stockholder Meeting.

     1.69 Returns. As defined in paragraph 3.14.1 of this Agreement.

     1.70 SEC. The Securities and Exchange Commission.

     1.71 Securities  Act. The  Securities  Act of 1933, as amended from time to
          time.

     1.72 Sub. CHK Acquisition,  Inc., an Oklahoma  corporation and wholly-owned
          subsidiary of Parent.

     1.73 Sub Common Stock. Sub's common stock, par value $1.00 per share.

     1.74 Superior Proposal. As defined in paragraph 5.3.2 of this Agreement.

     1.75 Surviving Corporation. As defined in paragraph 2.2 of this Agreement.





     1.76 Tax(es). Any and all taxes, fees, levies,  duties,  tariffs,  imposts,
          and other  charges of any kind  (together  with any and all  interest,
          penalties,  additions  to tax  and  additional  amounts  imposed  with
          respect  thereto)  imposed  by any  Governmental  Authority  or taxing
          authority including,  without limitation, taxes or other charges on or
          with respect to income,  franchises,  windfall or other profits, gross
          receipts,  property,  sales, use, capital stock, payroll,  employment,
          social security, workers' compensation,  unemployment compensation, or
          net  worth,   taxes  or  other   charges  in  the  nature  of  excise,
          withholding, ad valorem, stamp, transfer, value added, or gains taxes,
          license,  registration  and  documentation  fees,  and custom  duties,
          tariffs, and similar charges.

     1.77 Third-Party  Consent. The consent or approval of any Person other than
          Canaan, Parent, Sub or any Governmental Authority.

     1.78 Transaction  Documents.  This Agreement,  the Irrevocable  Proxy,  the
          Goodwill  Protection  Agreement,  the Office Space  Agreement  and the
          other documents and  instruments  executed and delivered in connection
          with any of the foregoing.

     1.79 Working  Interest.  Canaan's  share  of all of  the  costs,  expenses,
          burdens,  and  obligations  of any  type  or  nature  attributable  to
          Canaan's interests in its oil and gas properties or any well thereon.

20       Consummation of the Merger.  The Merger will be consummated as follows:

     2.1  The  Merger.  Subject  to the terms and  conditions  set forth in this
          Agreement,  at the  Effective  Time,  Sub will be merged with and into
          Canaan in accordance  with the  provisions  of this  Agreement and the
          OGCA. Such merger is referred to in this Agreement as the "Merger."

     2.2  Effect  of the  Merger.  Upon the  effectiveness  of the  Merger,  the
          separate  existence  of Sub will cease and  Canaan,  as the  surviving
          corporation in the Merger (the "Surviving Corporation"), will continue
          its corporate  existence under the laws of the State of Oklahoma.  The
          Merger will have the effects specified in this Agreement and the OGCA.

     2.3  Governing  Instruments,   Directors  and  Officers  of  the  Surviving
          Corporation.

          2.3.1  Certificate    of   Incorporation.    The   certificate   of
          incorporation  of  Canaan,  as in  effect  immediately  prior  to  the
          Effective  Time  amended  to  reflect  the  change  in the name of the
          Surviving  Corporation as provided herein,  will be the certificate of
          incorporation  of the  Surviving  Corporation  until  duly  amended in
          accordance with its terms and applicable law.

          2.3.2  Bylaws.  The  bylaws of Canaan,  as in effect  immediately
          prior to the  Effective  Time,  will be the  bylaws  of the  Surviving
          Corporation  until duly  amended in  accordance  with their  terms and
          applicable law.






          2.3.3 Name.  The name of the  Surviving  Corporation  will be CHK
          Acquisition,  Inc., however, ---- at the option of Parent, the name of
          the Surviving Corporation may be changed.

          2.3.4  Directors and Officers.  The directors and officers of Sub
          at  the   Effective   Time  will  be  the   directors   and  officers,
          respectively,  of the Surviving  Corporation  from the Effective  Time
          until their respective  successors have been duly elected or appointed
          in accordance with the certificate of incorporation  and bylaws of the
          Surviving Corporation and applicable law.

     2.4  Effect  on  Securities.  As of the  Effective  Time,  by virtue of the
          Merger and without any action on the part of any holder  thereof,  the
          Sub Common Stock, the Canaan Common Stock and other Canaan  securities
          will be treated as follows subject to the terms and conditions of this
          Agreement:

          2.4.1  Sub  Common   Stock.   Each  share  of  Sub  Common  Stock
          outstanding   immediately   prior  to  the  Effective   Time  will  be
          automatically  converted into and become one (1) share of common stock
          of the Surviving  Corporation  on a one for one basis.  As a result of
          the Merger the  foregoing  stock will  represent  one hundred  percent
          (100%) of the issued and  outstanding  capital  stock of the Surviving
          Corporation immediately after the Effective Time.

          2.4.2 Canaan  Common Stock.  At the Effective  Time, by virtue of
          the Merger and without  any action on the part of any holder  thereof,
          each  share of Canaan  Common  Stock  that is issued  and  outstanding
          immediately  prior to the  Effective  Time will be converted  into the
          right to receive the Per Share Merger  Consideration.  Notwithstanding
          the foregoing,  the shares of Canaan Common Stock covered by paragraph
          2.4.4 of this  Agreement will be controlled by such paragraph and will
          not receive the Per Share Merger  Consideration.  Each share of Canaan
          Common Stock,  when so converted,  will  automatically be canceled and
          retired,  will cease to exist and will no longer be  outstanding,  and
          the holder of any Canaan Certificate representing any such shares will
          cease to have any rights  with  respect  thereto,  except the right to
          receive the Per Share Merger  Consideration upon the surrender of such
          Canaan Certificate in accordance with paragraph 2.5.




          2.4.3  Canaan  Stock   Options.   Section  2.4.3  of  the  Canaan
          Disclosure  Schedule lists: (a) each of the Canaan Plans; and (b) each
          Canaan Stock Option  outstanding as of the date hereof  specifying the
          Canaan  Plan under  which such Canaan  Stock  Option was  issued,  the
          number of shares of Canaan  Common Stock  covered by such Canaan Stock
          Option, the term of such Canaan Stock Option, the vesting schedule for
          such Canaan Stock Option and the exercise  price for such Canaan Stock
          Option.  Each  Canaan  Stock  Option  remaining   outstanding  at  the
          Effective  Time will be or become fully vested at the Effective  Time.
          At the Effective  Time, by virtue of the Merger and without any action
          on the part of the holder  thereof,  each Canaan  Stock Option will be
          canceled and each Canaan Stock Option will be converted into the right
          to  receive,  for each share of Canaan  Common  Stock with  respect to
          which such Canaan Stock Option is exercisable, cash in an amount equal
          to the Per Share  Merger  Consideration,  less the per share  exercise
          price of such Canaan Stock Option.  On  presentation  to Parent of the
          Canaan Stock Option or  compliance  with the  provisions  of paragraph
          2.5.6 with respect thereto, the Parent will pay or cause to be paid to
          each holder of a Canaan Stock Option,  for each share of Canaan Common
          Stock with respect to which such Canaan  Stock Option is  exercisable,
          cash in an amount  equal to (i) the  amount by which (A) the Per Share
          Merger Consideration, exceeds (B) the per share exercise price of such
          Canaan  Stock  Option,  less (ii)  amounts  required to be withheld by
          Parent or  Canaan,  if any,  in  respect  of  federal  taxes and other
          payroll   withholding  as  a  consequence  of  the   cancellation  and
          conversion of such Canaan Stock Option in accordance herewith. Without
          limiting the foregoing, except as expressly disclosed in Section 2.4.3
          of the Canaan  Disclosure  Schedule,  Canaan further hereby represents
          and warrants to Parent that: (i) all  adjustments  required to be made
          to the number of shares  issuable or the  exercise  price for exercise
          under each of the Canaan  Stock  Options has been  accurately  made as
          disclosed in Section 2.4.3 of the Canaan Disclosure Schedule; and (ii)
          all  required  notices  have been  given to the  holders of the Canaan
          Stock Options including, without limitation, adjustment notices. As of
          the Effective  Time, as a result of the Merger,  the provisions in any
          of the Canaan Plans or any other program, arrangement, option, warrant
          or other agreement providing for the issuance or grant of any interest
          in respect of the capital  stock of Canaan will be canceled,  cease to
          exist and no longer be outstanding as of the Effective Time and Canaan
          will take all action  necessary to ensure that following the Effective
          Time no Person  will  have any  right  thereunder  to  acquire  equity
          securities of Canaan,  the  Surviving  Corporation  or any  subsidiary
          thereof.

          2.4.4  Treasury  Stock and Parent Owned Stock.  At the  Effective
          Time, by virtue of the Merger,  all shares of Canaan Common Stock that
          are  issued  and held as  treasury  stock,  if any,  and all shares of
          Canaan  Common  Stock held by Parent will be canceled  and retired and
          will   cease  to  exist,   and  no  Merger   Consideration   or  other
          consideration will be paid or payable in exchange therefor.






          2.4.5 Dissenting  Stockholder Shares.  Except as provided herein,
          any issued and  outstanding  shares of Canaan  Common  Stock held by a
          Dissenting  Stockholder  will be  converted  into the right to receive
          such  consideration  as may be determined to be due to such Dissenting
          Stockholder  pursuant  to  the  OGCA.  If  a  Dissenting   Stockholder
          effectively  withdraws  the demand for appraisal or loses the right of
          appraisal  as  provided  under the OGCA,  the shares of Canaan  Common
          Stock  held by  such  Dissenting  Stockholder  will  be  deemed  to be
          converted under paragraph 2.4.2 of this Agreement (without  interest).
          Canaan will provide prompt notice to Parent of any written demands for
          appraisal,   withdrawals  of  demands  for  appraisal  and  any  other
          instruments served pursuant to the OGCA and will provide to Parent the
          opportunity to direct all negotiations and proceedings with respect to
          demands for appraisal under the OGCA. Absent the prior written consent
          of  Parent  and Sub,  Canaan  will not  negotiate,  settle or offer to
          settle any demand for  appraisal,  provided,  however that any and all
          payments made to settle such appraisal  rights or made pursuant to the
          OGCA will be made solely out of Canaan  assets and neither  Parent nor
          Sub  will  have  any  liability  therefor.   Notwithstanding  anything
          contained  in this  paragraph  2.4.5,  if the Merger is  rescinded  or
          abandoned or if the  stockholders  of Canaan  revoke the  authority to
          effect the Merger,  then the right of any  Dissenting  Stockholder  to
          receive such  consideration  as may be determined to be due in respect
          of such Dissenting  Stockholder's  Canaan Common Stock pursuant to the
          OGCA will cease.

     2.5  Exchange of Certificates.  The exchange of Canaan Common Stock for the
          Per Share Merger Consideration will be consummated as follows:

          2.5.1 Exchange Fund. At the Effective  Time,  Parent will deposit
          with the Exchange  Agent,  for the benefit of the holders of shares of
          Canaan  Common  Stock  and  for  exchange  in  accordance   with  this
          Agreement,  funds representing the Merger  Consideration to be paid in
          exchange  for shares of Canaan  Common  Stock  pursuant  to  paragraph
          2.5.2,  less the amount of the Merger  Consideration  which: (i) would
          have been payable to Dissenting Stockholders; and (ii) will be payable
          with respect to the Canaan Stock Options.  The funds  delivered to the
          Exchange Agent pursuant hereto are referred to herein as the "Exchange
          Fund."  The  Exchange  Agent,  pursuant  to  irrevocable  instructions
          consistent  with the terms of this  Agreement,  will  deliver  the Per
          Share Merger  Consideration to be paid pursuant to paragraph 2.5.2 out
          of the Exchange  Fund,  and the Exchange Fund will not be used for any
          other purpose whatsoever.




          2.5.2 Notice and  Surrender.  As soon as  reasonably  practicable
          after the Effective Time, Parent will cause the Exchange Agent to mail
          to each  holder of record of Canaan  Common  Stock  that,  immediately
          prior to the Effective  Time, were converted into the right to receive
          the Per Share  Merger  Consideration  pursuant to paragraph  2.4.2,  a
          letter of transmittal to be used to effect the exchange of such Canaan
          Common  Stock  for the Per  Share  Merger  Consideration,  along  with
          instructions  for using  such  letter of  transmittal  to effect  such
          exchange. The letter of transmittal (or the instructions thereto) will
          specify that delivery of any Canaan Certificate will be effected,  and
          the risk of loss and title  thereto will pass,  only upon  delivery of
          such Canaan Certificate to the Exchange Agent and will be in such form
          and have such other  provisions as Parent may reasonably  specify.  On
          surrender  to  the  Exchange  Agent  of  a  Canaan   Certificate   for
          cancellation,  together with a duly  completed and executed  letter of
          transmittal and any other required  documents:  (a) the holder of such
          Canaan  Certificate  will be entitled to receive in exchange  therefor
          the Per Share  Merger  Consideration  for each share of Canaan  Common
          Stock represented by such Canaan  Certificate  (after giving effect to
          any required  withholding of Taxes); and (b) the Canaan Certificate so
          surrendered  will  forthwith be canceled.  No interest will be paid or
          accrued  on the Per  Share  Merger  Consideration.  In the  event of a
          transfer of ownership of Canaan Common Stock that is not registered in
          the transfer records of Canaan, the Per Share Merger Consideration may
          be paid to a transferee if the Canaan  Certificate  representing  such
          shares of Canaan  Common  Stock is  presented  to the  Exchange  Agent
          accompanied  by all  documents  required to  evidence  and effect such
          transfer and to evidence that any applicable stock transfer Taxes have
          been paid. Until  surrendered as contemplated by this paragraph 2.5.2,
          each Canaan Certificate will be deemed at any time after the Effective
          Time to represent  only the right to receive on such surrender the Per
          Share Merger  Consideration  for the number of shares of Canaan Common
          Stock represented by such Canaan  Certificate as provided in paragraph
          2.4.2.

          2.5.3  Full  Satisfaction.   Payment  of  the  Per  Share  Merger
          Consideration  upon the  surrender  for  exchange  of shares of Canaan
          Common  Stock in  accordance  with the terms  hereof will be deemed to
          have been paid in full  satisfaction of all rights  pertaining to such
          shares of Canaan Common Stock. After the Effective Time, there will be
          no further  registration  of transfers on the Surviving  Corporation's
          stock  transfer  books of the shares of Canaan  Common Stock that were
          outstanding  immediately  prior to the Effective  Time.  If, after the
          Effective  Time, a Canaan  Certificate  is presented to the  Surviving
          Corporation  or  Parent  for  any  reason,  it will  be  canceled  and
          exchanged as provided in this paragraph 2.5.

          2.5.4  Unclaimed  Exchange Fund. Any portion of the Exchange Fund
          held by the  Exchange  Agent  in  accordance  with  the  terms of this
          paragraph  2.5 that remains  unclaimed by the former  stockholders  of
          Canaan for a period of one (1) year  following the Effective Time will
          be delivered to Parent, on demand. Thereafter, any former stockholders
          of Canaan who have not  theretofore  complied  with the  provisions of
          this paragraph 2.5 will look only to Parent for payment of their claim
          for the Per Share  Merger  Consideration  for the  number of shares of
          Canaan Common Stock owned.  No interest will be paid or payable on any
          Per Share Merger Consideration regardless of the date actually paid.






          2.5.5 No Liability.  Neither Parent,  Sub, Canaan,  the Surviving
          Corporation, the Exchange Agent nor any other Person will be liable to
          any  former  holder of shares of Canaan  Common  Stock for any  amount
          properly  delivered to any public official  pursuant to any applicable
          abandoned  property,  escheat or similar  law.  Any amounts  remaining
          unclaimed  by former  holders of Canaan  Common  Stock for a period of
          three (3) years  following  the  Effective  Time (or such earlier date
          immediately  prior to the time at which such amounts  would  otherwise
          escheat to or become property of any Governmental  Authority) will, to
          the extent permitted by applicable law, become the property of Parent,
          free and clear of any claims or interest of any such  holders or their
          successors,  assigns or personal  representatives  previously entitled
          thereto.

          2.5.6  Lost,  Stolen or  Destroyed  Certificates.  If any  Canaan
          Certificate  is lost,  stolen  or  destroyed,  upon the  making  of an
          affidavit of that fact by the Person claiming such Canaan  Certificate
          to be lost,  stolen or  destroyed  and,  if  required  by Parent,  the
          posting by such Person of a bond, in such reasonable  amount as Parent
          may direct,  as  indemnity  against any claim that may be made against
          Parent with respect to such Canaan  Certificate,  the  Exchange  Agent
          will pay in  exchange  for  such  lost,  stolen  or  destroyed  Canaan
          Certificate  the  Per  Share  Merger  Consideration  deliverable  with
          respect thereto pursuant to this Agreement.

          2.5.7 Investment of Exchange Fund. The Exchange Agent will invest
          any cash  included in the Exchange Fund from time to time, as directed
          by Parent,  in short term money market  assets or similar  securities.
          Any interest and other income  resulting from such investments will be
          payable to Parent on demand and will be the sole property of Parent.

     2.6  Closing.  The Closing will take place on the Closing Date at such time
          and place as is agreed upon by Parent and Canaan.

     2.7  Effective  Time  of the  Merger.  The  Merger  will  become  effective
          immediately  when the  Certificate of Merger is accepted for filing by
          the  Secretary of State of Oklahoma or at such time  thereafter  as is
          provided in the  Certificate  of Merger (the  "Effective  Time").  The
          Certificate  of Merger  will be filed on the  Closing  Date as soon as
          practicable after the Closing; provided, however, that the Certificate
          of  Merger  may be  filed  prior to the  Closing  Date or prior to the
          Closing so long as it provides for an Effective Time that occurs after
          the Closing.

     2.8  Taking of Necessary or Further Action.  Each of Parent, Sub and Canaan
          will use all  reasonable  efforts  to take all such  actions as may be
          necessary or  appropriate  in order to effectuate the Merger under the
          OGCA as promptly as  commercially  practicable.  If, at any time after
          the Effective  Time,  any further  action is necessary or desirable to
          carry out the  purposes of this  Agreement  and to vest the  Surviving
          Corporation  with full  right,  title and  possession  to all  assets,
          property, rights,  privileges,  powers and franchises of either Sub or
          Canaan,  the officers and directors of the Surviving  Corporation  are
          fully  authorized,  in  the  name  of  the  Surviving  Corporation  or
          otherwise to take, and will take all such lawful and necessary action.






     3. Canaan Representations and Warranties. Except as set forth in the Canaan
     Disclosure  Schedule with a reference to each  paragraph of this  Agreement
     modified by such item of disclosure,  Canaan hereby represents and warrants
     to Parent and Sub that:

     3.1  Corporate  Organization.  Canaan: (a) is a corporation duly organized,
          validly  existing and in good standing  under the laws of the state of
          Oklahoma;  (b) has all requisite corporate power and authority to own,
          lease  and  operate  its  properties  and  assets  and to carry on its
          business as it is presently being conducted; and (c) is duly qualified
          to do business as a foreign corporation,  and is in good standing,  in
          each  jurisdiction  where the  character  of the  properties  owned or
          leased by it or the nature of its activities makes such  qualification
          necessary  (except  where any failure to be so  qualified as a foreign
          corporation  or to be in good standing would not,  individually  or in
          the aggregate,  have a Material  Adverse Effect on Canaan).  Copies of
          the certificate or articles of incorporation and bylaws of Canaan have
          heretofore  been  delivered to Parent and such copies are accurate and
          complete as of the date hereof.

     3.2  Authority and  Enforceability.  The board of directors of Canaan (at a
          meeting duly called and held) has: (a)  determined  that the Merger is
          advisable;  and (b) resolved to approve the Merger and  recommend  the
          approval and adoption of this Agreement by Canaan's  stockholders.  In
          addition,  the  board of  directors  of Canaan  has  taken all  action
          necessary to render the Control Share  Acquisition Act,  Sections 1145
          through 1155 of Title 18 of the Oklahoma  Statutes and Section  1090.3
          of the OGCA  inapplicable  to the  Merger  and the other  transactions
          contemplated  by this  Agreement.  No other state takeover  statute or
          similar  statute or regulation  applies or purports to apply to Canaan
          with respect to this  Agreement,  the Merger or any other  transaction
          contemplated  by this  Agreement.  Canaan has the requisite  corporate
          power and  authority to execute and deliver this  Agreement  and (with
          respect to consummation  of this Agreement and the Merger,  subject to
          the  approval  of  the  stockholders  of  Canaan)  to  consummate  the
          transactions  contemplated  hereby. The execution and delivery of this
          Agreement  and (with the approval by the  stockholders  of Canaan) the
          consummation of the  transactions  contemplated  hereby have been duly
          and validly  authorized by all necessary  corporate action on the part
          of Canaan, including approval by the board of directors of Canaan, and
          no other corporate  proceedings on the part of Canaan are necessary to
          authorize  the  execution  or  delivery  of this  Agreement  or  (with
          approval by the stockholders of Canaan) to consummate the transactions
          contemplated  hereby.  The board of  directors of Canaan has taken all
          action  necessary  to render the Canaan  Rights  inapplicable  to this
          Agreement,  the other Transaction  Documents and the Merger and ensure
          that neither Parent nor Sub nor any of their  Affiliates or associates
          is or will  become an  "Acquiring  Person"  (as  defined in the Canaan
          Rights Agreement) by reason of any of the Transaction Documents or the
          Merger. In addition,  a "Distribution  Date" (as defined in the Canaan
          Rights  Agreement)  will not occur by reason of the  execution of this
          Agreement,  the execution of any of the  Transaction  Documents or the
          consummation  of the Merger.  This Agreement has been duly and validly
          executed and  delivered by Canaan and  constitutes a valid and binding
          obligation of Canaan,  enforceable  against Canaan in accordance  with
          its terms.






     3.3  No Violations.  The execution and delivery of this Agreement does not,
          and the  consummation  of the  transactions  contemplated  hereby  and
          compliance  by Canaan with the  provisions  hereof will not,  conflict
          with, result in any violation of or default (with or without notice or
          lapse of time or both)  under,  give  rise to a right of  termination,
          cancellation or  acceleration of any obligation  (excluding any change
          of control put or  acceleration)  or to the loss of a material benefit
          under,  or result in the creation of any Lien on any of the properties
          or assets of Canaan under,  any provision of: (a) the  certificate  of
          incorporation or bylaws of Canaan;  (b) any loan or credit  agreement,
          note, bond, mortgage, indenture, lease, permit, concession, franchise,
          license or other agreement or instrument  applicable to Canaan; or (c)
          assuming  the  consents,  approvals,  authorizations  or  permits  and
          filings or  notifications  referred to in  paragraph  3.4 are duly and
          timely obtained or made, any judgment,  order, decree,  statute,  law,
          ordinance,  rule or regulation applicable to Canaan or any of Canaan's
          properties  or assets,  other  than,  in the case of clause (b) or (c)
          above,  any such conflict,  violation,  default,  right,  loss or Lien
          that,  individually  or in the  aggregate,  would not have a  Material
          Adverse Effect on Canaan.

     3.4  Consents and Approvals. No consent,  approval,  order or authorization
          of,  registration,  declaration,  or filing with, or permit from,  any
          Governmental  Authority  is required  by or with  respect to Canaan in
          connection with the execution and delivery of this Agreement by Canaan
          or the consummation by Canaan of the transactions  contemplated hereby
          except  for the  following:  (1) any such  consent,  approval,  order,
          authorization,  registration,  declaration, filing or permit which the
          failure to obtain or make would not, individually or in the aggregate,
          have a  Material  Adverse  Effect  on  Canaan;  (2) the  filing of the
          Certificate of Merger with the Secretary of State of Oklahoma pursuant
          to the  provisions of the OGCA;  (3) the filing,  if  necessary,  of a
          pre-merger notification report under the HSR Act and the expiration or
          termination of the applicable  waiting period; (4) the filing with the
          SEC of the Proxy  Statement and such other reports under Section 13(a)
          of the  Exchange Act and such other  compliance  with the Exchange Act
          and the  Securities  Act  and the  rules  and  regulations  of the SEC
          thereunder  as may be required in connection  with this  Agreement and
          the transactions contemplated hereby and the obtaining from the SEC of
          such orders as may be so required;  and (5) such filings and approvals
          as may be required by any applicable state  securities,  "blue sky" or
          takeover  laws  or  Environmental  Laws.  No  Third-Party  Consent  is
          required by or with respect to Canaan in connection with the execution
          and delivery of this Agreement or the consummation of the transactions
          contemplated  hereby,  except for:  (x) any such  Third-Party  Consent
          which  the  failure  to  obtain  would  not,  individually  or in  the
          aggregate,  have a Material  Adverse  Effect on Canaan;  (y) the valid
          approval  of this  Agreement  and the  Merger by the  stockholders  of
          Canaan; and (z) any consent,  approval or waiver required by the terms
          of the Bank Credit Agreement, which consent, approval or waiver Canaan
          agrees to use  reasonable  efforts to obtain if requested by Parent or
          Sub.






     3.5  Canaan SEC Documents.  Parent has had available to it a true,  correct
          and complete copy of each report, schedule, registration statement and
          definitive proxy statement filed by Canaan with the SEC since December
          31,  2000,   and  prior  to  the  Effective   Time  (the  "Canaan  SEC
          Documents"),  which are all the  documents  that Canaan was or will be
          required to file with the SEC since such date. As of their  respective
          dates,  the  Canaan  SEC  Documents  complied  or will  comply  in all
          material  respects with the  requirements of the Securities Act or the
          Exchange Act, as the case may be, and the rules and regulations of the
          SEC thereunder  applicable to such Canaan SEC  Documents,  and none of
          the  Canaan  SEC  Documents  contained  or  will  contain  any  untrue
          statement  of a  material  fact or  omitted  or will  omit 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.

     3.6  Financial Statements. The Canaan Financial Statements were prepared in
          accordance with the applicable  published rules and regulations of the
          SEC with  respect  thereto and in  accordance  with GAAP  applied on a
          consistent  basis  during  the  periods  involved  (except  as  may be
          indicated  in the notes  thereto)  and fairly  present in all material
          respects,  in accordance  with  applicable  requirements  of GAAP, the
          financial  position  of  Canaan as of their  respective  dates and the
          results of  operations  and the cash  flows of Canaan for the  periods
          presented therein.






     3.7  Capital Structure.  The authorized capital stock of Canaan consists of
          50,000,000  shares of Canaan  Common  Stock  and  1,000,000  shares of
          preferred  stock,  25,000 of which  have been  designated  as Series A
          Junior Participating Preferred Stock , par value $.01. As of April 17,
          2002: (a) 4,353,646  shares of Canaan Common Stock were validly issued
          and  outstanding;  (b)  500,000  shares of Canaan  Common  Stock  were
          reserved for issuance  pursuant to the Canaan  Plans,  of which Canaan
          Stock  Options to purchase a total of 470,450  shares of Canaan Common
          Stock were issued and outstanding;  (c) there are no shares of capital
          stock of Canaan of any class  authorized,  issued or outstanding other
          than the Canaan Common Stock ; and (d) 578,169 shares of Canaan Common
          Stock  were held by Canaan  as  treasury  stock.  Except  for  changes
          resulting  from the exercise of Canaan Stock Options listed in section
          2.4.3 of the Canaan  Disclosure  Schedule Canaan will notify Parent in
          writing simultaneously with any change after April 17, 2002, in any of
          the  numbers  of  securities  set forth in the  immediately  preceding
          sentence together with a detailed explanation of the event giving rise
          to such change. Except as described in subpart (a) above, as described
          in Section  2.4.3 of the  Canaan  Disclosure  Schedule  and the Canaan
          Rights  under the Canaan  Rights Plan,  there are: (i) no  outstanding
          shares of capital stock or other voting securities of Canaan;  (ii) no
          outstanding  securities of Canaan or any other Person convertible into
          or  exchangeable  or exercisable  for shares of capital stock or other
          voting securities of Canaan;  and (iii) no outstanding  subscriptions,
          options,  warrants,  calls, rights (including preemptive rights, stock
          appreciation   rights,   phantom  stock  rights,   conversion  rights,
          commitments,  understandings  or agreements to which Canaan is a party
          or by which it is bound)  obligating Canaan to issue,  deliver,  sell,
          purchase,   redeem  or  acquire  shares  of  capital  stock  or  other
          securities  of Canaan or obligating  Canaan to grant,  extend or enter
          into any such subscription,  option, warrant, call, right, commitment,
          understanding or agreement. All outstanding shares of capital stock of
          Canaan  are  validly  issued,  fully  paid and  nonassessable  and not
          subject to any  preemptive  right.  As of the date hereof there is no,
          and  at  the  Effective  Time  there  will  not  be  any,  stockholder
          agreement,  voting trust or other agreement or  understanding to which
          Canaan is a party or by which it is bound  relating  to the  voting of
          any shares of the capital stock of Canaan.

     3.8  Governmental Regulation. Canaan is not subject to regulation under the
          Public Utility Holding Company Act of 1935, the Federal Power Act, the
          Investment Company Act of 1940 or any state public utilities laws.

     3.9  Litigation.  There is no  litigation,  arbitration,  investigation  or
          other proceeding of any Governmental Authority or other Person pending
          or, to the knowledge of Canaan,  threatened against Canaan or Canaan's
          assets which, if adversely determined, could reasonably be expected to
          have a Material  Adverse Effect on Canaan.  Canaan has no knowledge of
          any facts that are likely to give rise to any litigation, arbitration,
          investigation  or other  proceeding of any  Governmental  Authority or
          other Person which, individually or in the aggregate, could reasonably
          be expected to have a Material Adverse Effect on Canaan. Canaan is not
          subject to any  outstanding  injunction,  judgment,  order,  decree or
          ruling (other than routine oil and gas field regulatory orders and any
          injunction,   judgment,   order,   decree  or  ruling   that,   either
          individually or in the aggregate,  would not reasonably be expected to
          have a Material  Adverse  Effect on Canaan).  There is no  litigation,
          investigation  or other  proceeding of any  Governmental  Authority or
          other  Person  pending  or, to the  knowledge  of  Canaan,  threatened
          against  or   affecting   Canaan  that   questions   the  validity  or
          enforceability of this Agreement or any other document,  instrument or
          agreement to be executed and  delivered by Canaan in  connection  with
          the transactions contemplated hereby.

     3.10 Brokers.  No broker,  finder,  investment banker or other Person is or
          will be, in  connection  with the  transactions  contemplated  by this
          Agreement,  entitled  to  any  brokerage,  finder's  or  other  fee or
          compensation  based  on any  arrangement  or  agreement  made by or on
          behalf  of  Canaan  for  which  Canaan  or Parent or Sub will have any
          obligation or liability.

     3.11 Absence of Certain Changes or Events.  Since December 31, 2001, Canaan
          has  conducted  its business  only in the ordinary  course of business
          consistent  with past practices  and,  since such date,  there has not
          been any event (financial or otherwise, whether or not in the ordinary
          course of  business),  circumstance  or condition  that:  (a) would be
          reasonably  likely to have a Material Adverse Effect on Canaan; or (b)
          would have  required the consent of Parent  pursuant to paragraph  5.1
          had such event occurred after the date of this Agreement.






     3.12 Compliance with Laws, Material  Agreements and Permits.  Canaan is not
          in violation of, or in default  under,  and no event has occurred that
          (with  notice  or the  lapse  of  time or  both)  would  constitute  a
          violation  of or default  under:  (a) its  certificate  or articles of
          incorporation  or  bylaws  or  other  governing   document;   (b)  any
          applicable law, rule,  regulation,  order, writ, decree or judgment of
          any  Governmental  Authority;  or (c) any Canaan  Material  Agreement,
          except (in the case of clause (b) or (c) above) for any  violation  or
          default  that  would not,  individually  or in the  aggregate,  have a
          Material  Adverse Effect on Canaan.  Canaan has obtained and holds all
          permits,   licenses,   variances,   exemptions,   orders,  franchises,
          approvals and authorizations of all Governmental Authorities necessary
          for the lawful  conduct of its business or the lawful  ownership,  use
          and  operation  of its assets  ("Canaan  Permits"),  except for Canaan
          Permits which the failure to obtain or hold would not, individually or
          in the aggregate,  have a Material Adverse Effect on Canaan. Canaan is
          in  compliance  with the terms of each of the Canaan  Permits,  except
          where  the  failure  to  comply  would  not,  individually  or in  the
          aggregate,  have a Material Adverse Effect on Canaan. No investigation
          or review by any  Governmental  Authority  with  respect  to Canaan is
          pending or, to the knowledge of Canaan, threatened,  other than those,
          the outcome of which would not, individually or in the aggregate, have
          a Material  Adverse Effect on Canaan.  To the knowledge of Canaan,  no
          party to any Canaan  Material  Agreement is in material  breach of the
          terms, provisions and conditions of such Canaan Material Agreement.

     3.13 No  Restrictions.  Canaan  is  not a  party  to:  (a)  any  agreement,
          indenture or other instrument that contains  restrictions with respect
          to the payment of dividends or other distributions with respect to its
          capital  stock;  (b) any  financial  arrangement  with  respect  to or
          creating  any  indebtedness  to any Person  (other  than  indebtedness
          reflected in the Canaan Financial Statements or indebtedness  incurred
          in the ordinary  course of business);  (c) any agreement,  contract or
          commitment relating to the making of any advance to, or investment in,
          any  Person;  (d) any  guaranty  or other  contingent  liability  with
          respect to any  indebtedness  or  obligation of any Person (other than
          the  endorsement  of  negotiable  instruments  for  collection  in the
          ordinary  course  of  business);  or (e) any  agreement,  contract  or
          commitment  limiting in any  respect  its ability to compete  with any
          Person or otherwise conduct business of any line or nature.

     3.14 Taxes.  During the period  beginning on January 1, 1998, and ending on
          the date hereof, except as expressly provided below:






          3.14.1  Canaan and any  affiliated,  combined or unitary group of
          which Canaan or any  subsidiary is or was a member and any Person that
          has been  acquired  by Canaan (a "Canaan  Predecessor")  has  properly
          completed and timely  (taking into account any  extensions)  filed all
          federal,  state,  local and foreign  returns,  declarations,  reports,
          estimates,  information returns and statements ("Returns") required to
          be filed in respect of any Tax and has timely  paid all Taxes that are
          shown by such Returns to be due and payable and the Returns  correctly
          and accurately (except for one or more matters the aggregate effect of
          which would not  reasonably  be  expected  to have a Material  Adverse
          Effect) reflect the facts  regarding the income,  business and assets,
          operations,  activities, status or other matters of Canaan required to
          be shown thereon or any other information required to be shown thereon
          and are not  subject  to  penalties  under  Section  6662 of the Code,
          relating to accuracy-related penalties, or any corresponding provision
          of  applicable  state,  local or  foreign  tax law or any  predecessor
          provision.  Canaan has  established  reserves that are adequate in the
          aggregate  for  the  payment  of all  material  Taxes  not yet due and
          payable with respect to the results of  operations  of Canaan  through
          the date hereof,  and has complied with all applicable laws, rules and
          regulations  relating to the payment and  withholding of Taxes and the
          filing of material  federal,  state or local Returns  except where the
          failure to comply would not  reasonably be expected to have a Material
          Adverse Effect.

          3.14.2  Section  3.14.2 of the Canaan  Disclosure  Schedule  sets
          forth the last taxable  period  through  which the federal  income Tax
          Returns of Canaan and any Canaan Predecessor have been examined by the
          IRS. Except to the extent being contested in good faith,  all material
          deficiencies  asserted  as a  result  of  such  examinations  and  any
          examination  by any  applicable  state or local taxing  authority have
          been paid,  fully settled or adequately  provided for in Canaan's most
          recent  audited   financial   statements.   No  Tax  audits  or  other
          administrative  proceedings or court proceedings are presently pending
          with  regard to any Taxes for which  Canaan  would be  liable,  and no
          deficiency  which  has not yet been  paid for any such  Taxes has been
          proposed,  asserted or  assessed  against  Canaan with  respect to any
          period which would  reasonably be expected to have a Material  Adverse
          Effect. No claim has been asserted by an authority in any jurisdiction
          where Canaan do not file Returns that any Canaan Company is subject to
          Tax in that jurisdiction.

          3.14.3  Canaan and the Canaan  Predecessors  have not executed or
          entered  into (or prior to the close of business  on the Closing  Date
          will execute or enter into) with the IRS or any taxing authority:  (a)
          any agreement extending the period for assessment or collection of any
          Tax for which  Canaan is liable for any period  that is open under the
          applicable statute of limitations; or (b) a closing agreement pursuant
          to Section 7121 of the Code or any similar provision of state or local
          income tax law that  relates  to Canaan for the  current or any future
          taxable period.  Canaan and the Canaan  Predecessors  have not made an
          election  under  Section  341(f) of the Code or agreed to have Section
          341(f)(2) of the Code apply to any  disposition  of a  subsection  (f)
          asset (as such term is defined in Section 341(f)(4) of the Code) owned
          by  Canaan.  Canaan  is not a party  to,  is not  bound  by and has no
          obligation  under any tax sharing  agreement  or similar  agreement or
          arrangement.  Canaan  is  not  a  party  to  any  agreement  or  other
          arrangement  that would result  separately  or in the aggregate in the
          payment of any  "excess  parachute  payments"  within  the  meaning of
          Section 280G of the Code.

          3.14.4 There are no Liens for Taxes (other than for current Taxes
          not yet due and payable) on the assets of Canaan.

          3.14.5 Canaan has never been a member of an "affiliated  group of
          corporations"  within the meaning of Section  1504 of the Code,  other
          than as a common parent corporation.




          3.14.6 After the date hereof,  no election which is  inconsistent
          with  past  practices  with  respect  to Taxes  will be made by Canaan
          without the written consent of Parent.

          3.14.7 None of the assets of Canaan are property that is required
          to be treated as being owned by any other Person pursuant to the "safe
          harbor lease" provisions of former Section 168(f)(8) of the Code.

          3.14.11  Canaan  and  the  Canaan  Predecessors  have  not  had a
          permanent  establishment  in any  foreign  country,  as defined in any
          applicable tax treaty or convention between the United States and such
          foreign country.

          3.14.12  Section  3.14.12  of  the  Canaan  Disclosure   Schedule
          identifies  each  arrangement to which Canaan is currently a party and
          which is a partnership  for federal  income tax purposes and which was
          required  to file an income  tax  return  for a  taxable  year of such
          partnership  which ended in 2001  (taking  into  account any  election
          which permitted such arrangement not to file a return).

          3.14.13  Canaan  did  not  have an  excess  loss  account  in any
          subsidiary  which had on December 31, 2001,  assets with a fair market
          value in excess of $500,000.

          3.14.14 Canaan is in compliance with all applicable laws,  rules,
          regulations and orders  applicable to the Oil and Gas Interests to the
          extent pertaining to escheatment or similar laws affecting the payment
          of revenues except where the failure to comply would not reasonably be
          expected to have a Material Adverse Effect on Canaan.

     3.15 Employee Benefit Plans.






          3.15.1 Section 3.15.1 of the Canaan  Disclosure  Schedule  lists:
          (i) the "employee  benefit  plans" (within the meaning of Section 3(3)
          of ERISA), which Canaan maintains or sponsors or with respect to which
          Canaan has any material  liability  (actual or contingent,  primary or
          secondary);  and (ii) all other (A) director or employee  compensation
          or benefit plans, programs or arrangements,  (B) stock purchase, stock
          option,  severance,  bonus, incentive and deferred compensation plans,
          (C)   written   employment   or   consulting   contracts,    and   (D)
          change-in-control agreements which Canaan maintains,  sponsors or is a
          party  to or with  respect  to  which  Canaan  has or  could  have any
          material liability (such plans, programs, arrangements,  contracts and
          agreements are collectively referred to herein as the "Canaan Employee
          Benefit Plans").

          3.15.2 (i) The reserves  reflected in the balance sheet contained
          in the Canaan Financial  Statements for the period ending December 31,
          2001  (together  with all  footnotes  attached  thereto,  the "Balance
          Sheet")  relating to any unfunded  benefits under the Canaan  Employee
          Benefit Plans were adequate in the aggregate under GAAP as of December
          31,  2001;  and (ii) Canaan has not  incurred  any  material  unfunded
          liability in respect of any such Canaan  Employee  Benefit Plans since
          that date.

          3.15.3 There are no suits,  investigations  or claims (other than
          undisputed claims for benefits) pending or, to the knowledge of Canaan
          threatened (or any basis  therefor)  relating to or for benefits under
          the Canaan Employee Benefit Plans.

          3.15.4 Each Canaan Employee Benefit Plan has been established and
          administered  in all material  respects in accordance  with its terms,
          and in  all  material  respects  in  compliance  with  the  applicable
          provisions of ERISA,  the Code and other  applicable  laws,  rules and
          regulations and each Canaan Employee Benefit Plan which is intended to
          be  qualified  within  the  meaning  of  Code  Section  401(a)  is  so
          qualified.

          3.15.5 (i) No Canaan  Employee  Benefit  Plan  currently  has any
          "accumulated  funding  deficiency"  as such term is  defined  in ERISA
          Section 302 and Code  Section 412  (whether  or not  waived);  (ii) no
          event  or  condition  exists  or  is  expected  to  occur  which  is a
          reportable event within the meaning of ERISA Section 4043 with respect
          to any  Canaan  Employee  Benefit  Plan that is subject to Title IV of
          ERISA and with respect to which the 30-day notice  requirement has not
          been  waived;  (iii)  each  member of  Canaan's  Controlled  Group (as
          defined below) has made all required  premium payments when due to the
          Pension Benefit Guaranty Corporation ("PBGC"); (iv) neither Canaan nor
          any member of its Controlled  Group is subject to any liability to the
          PBGC  for  any  Canaan  Employee  Benefit  Plan  termination;  (v)  no
          amendment  has  occurred  which  requires  Canaan or any member of its
          Controlled  Group  to  provide  security   pursuant  to  Code  Section
          401(a)(29);  and (vi) neither  Canaan nor any member of its Controlled
          Group has  engaged  in a  transaction  which is  reasonably  likely to
          subject it to liability  under ERISA Section 4069. For the purposes of
          this   paragraph   3.15,  the  term   "Controlled   Group"  means  all
          corporations,  trades or businesses which,  together with Canaan,  are
          treated as a single employer under Section 414 of the Code.






          3.15.6 No Canaan Employee  Benefit Plan is a  multiemployer  plan
          (within the meaning of Section 3(37) of ERISA) and neither  Canaan nor
          any  member of its  Controlled  Group has  incurred  or is  reasonably
          likely to incur any liability to any multiemployer  plan nor has or is
          engaged  in a  transaction  which is  reasonably  expected  to subject
          Canaan or any member of its  Controlled  Group to any liability  under
          ERISA Section 4212(c).

          3.15.7 Each Canaan  Employee  Benefit  Plan  described in subpart
          3.15.1(i) above can be  unilaterally  terminated at any time by Canaan
          without material liability to Canaan.

     3.16 Environmental Matters.

          3.16.1  (i)  The  reserves  reflected  in  the  Canaan  Financial
          Statements relating to environmental  matters were adequate under GAAP
          as of December 31, 2001,  and Canaan has not incurred any liability in
          respect  of any  environmental  matter  since  that date  which  would
          reasonably be expected to have a Material Adverse Effect; and (ii) the
          Canaan SEC Documents include all information relating to environmental
          matters   required  to  be  included   therein  under  the  rules  and
          regulations of the SEC applicable thereto.






          3.16.2 To the  knowledge of Canaan,  except for any matters which
          would not  reasonably be expected to have a Material  Adverse  Effect:
          (i) each of Canaan and Canaan  Predecessors has conducted its business
          and operated its assets,  and is conducting its business and operating
          its assets, in compliance with all Environmental Laws; (ii) Canaan has
          not  been  notified  by any  Governmental  Authority  that  any of the
          operations or assets of Canaan is the subject of any  investigation or
          inquiry by any Governmental  Authority evaluating whether any material
          remedial  action is needed to respond  to a release  of any  Hazardous
          Material or to the improper storage or disposal  (including storage or
          disposal  at  offsite  locations)  of any  Hazardous  Material;  (iii)
          neither  Canaan nor any other  Person  has filed any notice  under any
          federal,  state or local law indicating  that (A) Canaan or any Canaan
          Predecessor  is  responsible   for  the  improper   release  into  the
          environment,  or the  improper  storage or disposal  of any  Hazardous
          Material,  or (B) any  Hazardous  Material  is  improperly  stored  or
          disposed  of upon any  property  of Canaan or any Canaan  Predecessor;
          (iv) Canaan does not have any contingent  liability in connection with
          a release into the environment at or on the property now or previously
          owned or leased by Canaan or any Canaan Predecessor, or the storage or
          disposal of any Hazardous  Material;  (v) neither Canaan or any of the
          Canaan Predecessor has received any claim, complaint,  notice, inquiry
          or request for  information  which  remains  unresolved as of the date
          hereof with respect to any alleged  violation of any Environmental Law
          or regarding  potential liability under any Environmental Law relating
          to  operations or  conditions  of any  facilities  or property  owned,
          leased or operated by Canaan or any Canaan Predecessor; (vi) there are
          no  sites,  locations  or  operations  at which  Canaan  is  currently
          undertaking,  or  has  completed,  any  remedial  or  response  action
          relating to any such disposal or release, as required by Environmental
          Laws; and (vii) all underground storage tanks and solid waste disposal
          facilities  owned or  operated  by  Canaan  are used and  operated  in
          material compliance with Environmental Laws.

     3.17 Vote Required.  The  affirmative  vote of the holders of a majority of
          the  outstanding  shares of Canaan Common Stock voting as one class is
          the only vote of the holders of any class or series of Canaan  capital
          stock or other voting  securities  necessary to approve this Agreement
          and the Merger.  The affirmative vote of the holders of Canaan capital
          stock,  or any  of  them,  is  not  necessary  to  approve  any of the
          Transaction  Documents  other than this Agreement or to consummate any
          transaction other than the Merger.

     3.18 Canaan  Board of Directors  Actions.  The board of directors of Canaan
          has by requisite vote of all directors  present:  (a) determined  that
          the Merger is advisable;  (b) approved the Merger in  accordance  with
          the  provisions  of  Section  1081 of the  OGCA  and the  transactions
          contemplated  by this  Agreement;  and (c) recommended the approval of
          this  Agreement  and the Merger by the holders of Canaan  Common Stock
          and directed  that the Merger be submitted  for  consideration  by the
          holders  of  Canaan  Common  Stock at a meeting  of such  stockholders
          contemplated by paragraph 5.4 hereof.

     3.19 Employment Contracts and Benefits. Except as otherwise provided for in
          any Canaan  Employee  Benefit  Plan:  (a) Canaan is not  subject to or
          obligated under any consulting,  employment, severance, termination or
          similar  arrangement,  any  employee  benefit,  incentive  or deferred
          compensation  plan with  respect to any Person,  or any bonus,  profit
          sharing,  pension,  stock  option,  stock  purchase or similar plan or
          other  arrangement  or  other  fringe  benefit  plan  entered  into or
          maintained  for the benefit of employees or any other Person;  and (b)
          no  employee of Canaan,  the Canaan  Predecessor  or any other  Person
          owns, or has any rights granted by Canaan to acquire,  any interest in
          any of the assets or  business of Canaan.  Section  3.19 of the Canaan
          Disclosure Schedule sets forth all indebtedness,  promissory notes and
          other  obligations  owing by any  employee,  officer  or  non-employee
          director of Canaan  including,  without  limitation,  by any employee,
          officer or non-employee  director,  the principal amount thereof,  the
          interest rate  applicable  thereto,  any collateral  securing  payment
          thereof, the payment terms and the maturity date thereof.






     3.20 Labor  Matters.  No employees of Canaan are  represented  by any labor
          organization.  No labor  organization  or group of employees of Canaan
          has made a demand for recognition or certification as a union or other
          labor  organization,  and there are no representation or certification
          proceedings or petitions seeking a representation proceeding presently
          pending  or  threatened  in  writing  to be  brought or filed with the
          National Labor Relations  Board or any other labor relations  tribunal
          or authority.  There are no  organizing  activities  involving  Canaan
          pending with any labor  organization  or group of employees of Canaan.
          Canaan is in material compliance with all laws, rules, regulations and
          orders  relating to the employment of labor,  including all such laws,
          rules,  regulations  and orders relating to wages,  hours,  collective
          bargaining,  discrimination, civil rights, safety and health, workers'
          compensation  and the  collection and payment of withholding or social
          security Taxes and similar  Taxes,  except where the failure to comply
          would not, individually or in the aggregate, reasonably be expected to
          have a Material Adverse Effect on Canaan.

     3.21 Insurance.  Each of the  insurance  policies  currently  maintained by
          Canaan is described in Section 3.21 of the Canaan Disclosure Schedule.
          Canaan  maintains,  and through the Closing Date will  maintain,  such
          insurance in full force and effect.  Canaan may terminate  each of its
          insurance  policies  or binders at or after the Closing and will incur
          no penalties or other  material costs in doing so other than any short
          rate  premium  adjustments.  None  of such  policies  or  binders  was
          obtained  through the use of false or  misleading  information  or the
          failure to provide the insurer with all information requested in order
          to evaluate the  liabilities  and risks insured.  There is no material
          default with respect to any provision  contained in any such policy or
          binder,  nor has Canaan failed to give any notice or present any claim
          under any such policy or binder in due and timely  fashion.  There are
          no billed  but  unpaid  premiums  past due  under  any such  policy or
          binder. There (a) are no outstanding claims under any such policies or
          binders and, to the  knowledge  of Canaan,  there has not occurred any
          event that  might  reasonably  form the basis of any claim  against or
          relating  to Canaan  that is not  covered by any of such  policies  or
          binders;  (b)is no notice of  cancellation  or non-renewal of any such
          policies or binders which has been  received;  and (c) no  performance
          bonds outstanding with respect to Canaan.

     3.22 Intangible Property.  There are no material  trademarks,  trade names,
          patents,  service marks, brand names,  computer  programs,  databases,
          industrial  designs,  copyrights or other intangible property that are
          necessary for the operation,  or continued operation,  of the business
          of Canaan or for the ownership and operation,  or continued  ownership
          or  operation,  of any of Canaan's  assets,  for which Canaan does not
          hold  valid  and  continuing  authority  in  connection  with  the use
          thereof.  Section 3.22 of the Canaan  Disclosure  Schedule  lists each
          seismic agreement to which Canaan is a party.

     3.23 Title to Assets. Canaan has Defensible Title subject only to Permitted
          Encumbrances  to: (1) all Oil and Gas Interests of Canaan  included or
          reflected in the  Ownership  Interests and included in section 1.58 of
          the Canaan  Disclosure  Schedule as having  proved  reserves;  (2) all
          other Oil and Gas Interests of Canaan as listed in section 3.23 of the
          Canaan Disclosure  Schedule detailing the type of interest and general
          location;  (30 all  other  assets  owned by  Canaan.  Each Oil and Gas
          Interest  included or reflected in the  Ownership  Interests  entitles
          Canaan to receive not less than the undivided Net Revenue Interest set
          forth in (or derived from) the Ownership Interests of all Hydrocarbons
          produced,  saved  and sold  from or  attributable  to such Oil and Gas
          Interest,  and the portion of such costs and expenses of operation and
          development  of such Oil and Gas Interest that is borne or to be borne
          by Canaan is not greater than the undivided Working Interest set forth
          in (or derived from) the Ownership Interests.






     3.24 Opinion of  Financial  Advisor.  The board of  directors of Canaan has
          received the opinion of CIBC World  Markets,  Inc.,  that,  as of such
          date, the Per Share Merger Consideration to be received by the holders
          of Canaan Common Stock is fair to such holders from a financial  point
          of view.

     3.25 Oil and Gas  Operations.  (a) All  wells  included  in the Oil and Gas
          Interests  of Canaan have been drilled and (if  completed)  completed,
          operated and produced in accordance  with  generally  accepted oil and
          gas field  practices and in  compliance  with  applicable  oil and gas
          leases and  applicable  laws,  rules,  regulations,  except  where the
          failure  or  violation  would not  reasonably  be  expected  to have a
          Material  Adverse Effect on Canaan;  and (b) proceeds from the sale of
          Hydrocarbons  produced  from  Canaan's Oil and Gas Interests are being
          received  by  Canaan  in a timely  manner  and are not  being  held in
          suspense for any reason  (except for amounts,  individually  or in the
          aggregate,  not in excess of $250,000 held in suspense in the ordinary
          course of business).

     3.26 Financial and Commodity Hedging. Section 3.26 of the Canaan Disclosure
          Schedule  accurately   summarizes  the  outstanding   Hydrocarbon  and
          financial hedging positions of Canaan (including fixed price controls,
          collars, swaps, caps, hedges and puts) as of the date reflected on the
          Canaan Disclosure Schedule.  After the date hereof, Canaan has not and
          will not enter into, terminate or modify any hedging positions without
          Parent's  prior  written  consent,  which  will  not  be  unreasonably
          withheld.

     3.27 Books and Records.  All books,  records and files of Canaan (including
          those  pertaining to Canaan's Oil and Gas  Interests,  wells and other
          assets,  the  production,   gathering,   transportation  and  sale  of
          Hydrocarbons,  and  corporate,   accounting,  financial  and  employee
          records):  (a)  have  been  prepared,   assembled  and  maintained  in
          accordance with usual and customary  policies and procedures;  and (b)
          fairly and  accurately  reflect  the  ownership,  use,  enjoyment  and
          operation by Canaan of their respective assets.

     3.28 Other  Entities.  Canaan has no direct or indirect  equity interest in
          any  corporation,   partnership,   limited  liability  company,  joint
          venture,  business  association  or other  entity  (other  than  joint
          venture,  joint operating or ownership arrangements related to oil and
          gas  activities  entered  into in the  ordinary  course of business or
          other  partnerships  that,  individually or in the aggregate,  are not
          material to the operations or businesses of Canaan).

     3.29 Account  Information.  Section 3.29 of the Canaan Disclosure  Schedule
          contains an accurate list of the names and addresses of every bank and
          other  financial  institution  in which  Canaan  maintains  an account
          (whether  checking,  savings or  otherwise),  lock box or safe deposit
          box, and the account numbers and Persons having signature authority or
          legal access thereto.

     3.30 Powers of  Attorney.  There  are no  outstanding  powers  of  attorney
          relating to or affecting Canaan.






     3.31 Plugging   Status.   All  wells  operated  by  Canaan  or  any  Canaan
          Predecessor that have been permanently plugged and abandoned have been
          so  plugged  and  abandoned  in  accordance  in  with  all  applicable
          requirements of each Governmental  Authority having  jurisdiction over
          Canaan and the Oil and Gas  Interests  except where  failure to comply
          would not reasonably be expected to have a Material Adverse Effect.

     3.32 No  Knowledge  of  Breach  of  Representations.  Canaan  has no actual
          knowledge that any of the  representations  of Parent or Sub contained
          in this Agreement are untrue as of the date of this Agreement.  If and
          to the extent  that  Canaan has any such  knowledge  as of the date of
          this Agreement, Canaan will not assert any remedy under this Agreement
          for breach of such representation  (including, but not limited to, any
          right  to not  close  the  Merger  due to a  failure  to  satisfy  the
          condition to Closing set forth in paragraph  6.3.1 arising solely as a
          result of any such breach).

     3.33 Proxy Statement. None of the information supplied or to be supplied by
          Canaan  for  inclusion  or  incorporation  by  reference  in the Proxy
          Statement and any amendments or supplements  thereto will, at the time
          the Proxy  Statement or any amendment or  supplement  thereto is first
          mailed to stockholders of Canaan,  at the time such  stockholders vote
          on approval and adoption of this Agreement and at the Effective  Time,
          contain any untrue  statement of a material  fact or omit to state any
          material fact  required to be stated  therein or necessary in order to
          make the statements made therein,  in light of the circumstances under
          which  they  were  made,  not  misleading.  If at any  time  prior  to
          Effective  Time any event with respect to Canaan or Canaan's  officers
          and directors occurs which is required to be described in an amendment
          of, or a  supplement  to, the Proxy  Statement,  such event will be so
          described,  and such  amendment or supplement  will be promptly  filed
          with the SEC and, as required by law, disseminated to the stockholders
          of Canaan.  The Proxy Statement will comply as to form in all material
          respects with the provisions of the Exchange Act.

     3.34 Equipment.  All  equipment  constituting  part  of  the  Oil  and  Gas
          Interests  operated  by Canaan  has been  installed,  maintained,  and
          operated by Canaan as a prudent  operator in  accordance  with oil and
          gas industry standards, and is currently in a state of repair so as to
          be adequate for normal operations by Canaan,  except where the failure
          to do so would not, individually or in the aggregate,  have a Material
          Adverse Effect on Canaan.

     3.35 Current  Commitments.  Section 3.35 of the Canaan Disclosure  Schedule
          contains a true and reasonably  complete list as of April 17, 2002, of
          all oral or  written  commitments  for  Canaan's  portion  of  capital
          expenditures  of more than  $50,000 with respect to any of the Oil and
          Gas  Interests  for which all of the  activities  anticipated  in such
          commitments are not reasonably  expected to have been completed by the
          Effective  Time.  Except  for those set forth in  Section  3.35 of the
          Canaan  Disclosure  Schedule or as  otherwise  permitted  by paragraph
          5.1.10  of this  Agreement,  as of  Closing  there  will be no oral or
          written  commitments for capital  expenditures with respect to the Oil
          and Gas Interests.






     3.36 Payout  Balances,  Gas Imbalances and Take or Pay. To the knowledge of
          Canaan the Payout  Balance for each well owned and  operated by Canaan
          is  properly  reflected  in  Section  3.36  of the  Canaan  Disclosure
          Schedule as of the respective date(s) shown thereon.  To the knowledge
          of Canaan,  the Payout Balance for any such third-party  operated well
          in which Canaan owns an interest is properly reflected in Section 3.36
          of the Canaan Disclosure  Schedule as of the respective  date(s) shown
          thereon.  "Payout Balance(s)" means the status, as of the dates of the
          Canaan's calculations, of the recovery by Canaan or a third party of a
          cost amount  specified in the  contract  relating to a well out of the
          revenue  from  such  well  where the Net  Revenue  Interest  of Canaan
          therein  will be  reduced  or the  Working  Interest  therein  will be
          increased when such amount has been recovered. With respect to the Oil
          and Gas  Interests  (a) there  are no  production,  transportation  or
          processing  imbalances  existing with respect to Canaan or the Oil and
          Gas  Interests,  and (b) Canaan have received no  deficiency  payments
          under gas contracts for which any party has a right to take deficiency
          gas from Canaan,  nor has Canaan  received any payments for production
          which are subject to refund or recoupment out of future production.

     3.37 Full Disclosure.  The representations,  warranties or other statements
          by Canaan in this  Agreement or in the Canaan  Disclosure  Schedule or
          Exhibits  hereto or any  documents  distributed  generally to Canaan's
          stockholders, taken as a whole, do not contain any untrue statement of
          a material fact or omit to state a material fact necessary to make the
          statements contained therein not misleading.

     3.38 Certain Agreements. There are no contracts,  agreements,  arrangements
          or understandings  to which Canaan is a party which create,  govern or
          purport to govern the right of another  party  (other  than  Parent or
          Sub) to acquire Canaan.

     3.39 Affiliate  Transactions.  There are no transactions between Canaan and
          any of Canaan's Affiliates,  which are required to be disclosed in the
          Canaan SEC Documents which are not disclosed.

     4. Parent and Sub  Representations  and  Warranties.  Parent and Sub hereby
     jointly and severally represent and warrant to Canaan that:

     4.1  Organization  and  Standing.  Each of Parent and Sub is a  corporation
          duly formed,  validly  existing and in good standing under the laws of
          the State of Oklahoma and has the corporate power and authority to own
          its  property  and to carry on its  business  as such  business is now
          being conducted.






     4.2  Authority and Enforceability. Each of Parent and Sub has the requisite
          corporate  power and  authority to execute and deliver this  Agreement
          and to consummate the transactions  contemplated hereby. The execution
          and  delivery  of  this   Agreement  and  the   consummation   of  the
          transactions contemplated hereby have been duly and validly authorized
          by all  necessary  corporate  action  on the part of  Parent  and Sub,
          including approval by the respective boards of directors of Parent and
          Sub  and by  Parent  as the  sole  stockholder  of Sub,  and no  other
          corporate  proceedings  on the part of Parent or Sub are  necessary to
          authorize the execution or delivery of this Agreement or to consummate
          the transactions contemplated hereby. This Agreement has been duly and
          validly  executed  and  delivered  by each of Parent and Sub and (with
          respect to  consummation  of this  Agreement and the Merger,  assuming
          that this  Agreement  constitutes  a valid and binding  obligation  of
          Canaan)  constitutes a valid and binding  obligation of each of Parent
          and Sub,  enforceable  against  Parent and Sub in accordance  with its
          terms.

     4.3  No  Restriction.  Neither  Parent  nor Sub is  subject  to any  order,
          judgment  or  decree,  or the  subject  of any  litigation,  claim  or
          proceeding,  pending or  threatened,  or any other  restriction of any
          kind or character  known to either  Parent or Sub,  which would affect
          its  ability  to  carry  out  the  transactions  contemplated  by this
          Agreement.

     4.4  Consents and Approvals. No consent,  approval,  order or authorization
          of,  registration,  declaration,  or filing with, or permit from,  any
          Governmental Authority is required by or with respect to Parent or Sub
          in connection  with the  execution  and delivery of this  Agreement by
          Parent  or  Sub  or  the   consummation  by  Parent  and  Sub  of  the
          transactions  contemplated  hereby except for the  following:  (a) any
          such   consent,   approval,   order,   authorization,    registration,
          declaration,  filing or permit  which  the  failure  to obtain or make
          would not,  individually or in the aggregate,  have a Material Adverse
          Effect; (b) the filing of the Certificate of Merger with the Secretary
          of State of Oklahoma  pursuant to the  provisions of the OGCA; (c) the
          filing, if necessary,  of a pre-merger  notification  report by Parent
          under the HSR Act and the  expiration or termination of the applicable
          waiting period; (d) the filing with the SEC of the Proxy Statement and
          such reports  under  Section  13(a) of the Exchange Act and such other
          compliance  with the Exchange Act and the Securities Act and the rules
          and regulations of the SEC thereunder as may be required in connection
          with this Agreement and the transactions  contemplated  hereby and the
          obtaining from the SEC of such orders as may be so required;  (e) such
          filings  and  approvals  as may be required  by any  applicable  state
          securities, "blue sky" or takeover laws or Environmental Laws; and (f)
          the valid  approval of this  Agreement  and the Merger by the board of
          directors of Parent and Sub.

     4.5  Authorization.  All corporate action on the part of each of Parent and
          Sub, their  directors and  stockholders  necessary for the transaction
          contemplated  by this  Agreement  has been taken.  This  Agreement  is
          legal, valid and binding with respect to each of Parent and Sub and is
          enforceable in accordance with its terms except as the  enforceability
          thereof  may be  limited by  bankruptcy,  insolvency  or similar  laws
          affecting creditors' rights generally.

     4.6  Litigation.  There  are no  actions,  proceedings,  or  investigations
          pending,  or to the  knowledge  of Parent or Sub,  any basis or threat
          thereof,  which  question the validity of this  Agreement or any other
          action taken or to be taken in connection herewith or which would have
          a material  adverse  effect on the ability of either  Parent or Sub to
          consummate the transactions contemplated hereby.






     4.7  Broker's or Finder's  Fees.  Neither  Parent nor Sub has  incurred any
          liability,  contingent or otherwise,  for brokers' or finders' fees in
          respect  of this  Agreement  for  which  either  Canaan  or any of its
          stockholders will have any responsibility whatsoever.

     4.8  Funding.  Parent has available  adequate  funds or the means to obtain
          adequate  funds  in an  aggregate  amount  sufficient  to pay  (a) all
          amounts  required  to be paid by Parent and Sub under  this  Agreement
          including  payment  in full  of all  amounts  under  the  Bank  Credit
          Agreement; and (b) all expenses which have been or will be incurred by
          Parent or Sub in connection  with this Agreement and the  transactions
          contemplated hereby.

     4.9  Interim  Operations  of Sub. Sub was formed  solely for the purpose of
          engaging in the  transactions  contemplated  by this Agreement and has
          not engaged in any business or activity (or conducted any  operations)
          of any  kind,  entered  into any  agreement  or  arrangement  with any
          Person, or incurred,  directly or indirectly, any material liabilities
          or  obligations,  except in  connection  with its  incorporation,  the
          negotiation   of  this   Agreement,   the  Merger   and   transactions
          contemplated hereby.

     4.10 Proxy Statement. None of the information supplied or to be supplied by
          Parent  for  inclusion  or  incorporation  by  reference  in the Proxy
          Statement, and any amendments or supplements thereto will, at the time
          the Proxy  Statement or any amendment or  supplement  thereto is first
          mailed to stockholders of Canaan,  at the time such  stockholders vote
          on approval and adoption of this Agreement and at the Effective  Time,
          contain any untrue  statement of a material  fact or omit to state any
          material fact  required to be stated  therein or necessary in order to
          make the statements made therein,  in light of the circumstances under
          which  they  were  made,  not  misleading.  If at any  time  prior  to
          Effective  Time any event with respect to any of the Parent  Companies
          or their  officers  and  directors  will occur which is required to be
          described in an amendment of, or a supplement to, the Proxy Statement,
          such event will be so described, and such amendment or supplement will
          be promptly  filed with the SEC and, as required by law,  disseminated
          to the stockholders of Canaan.

     4.11 No  Knowledge  of  Breach  of  Representations.  Parent  has no actual
          knowledge  that  any of  Canaan's  representations  contained  in this
          Agreement are untrue as of the date of this  Agreement.  If and to the
          extent  that  Parent  has any  such  knowledge  as of the date of this
          Agreement,  Parent will not assert any remedy under this Agreement for
          breach of such  representation  (including,  but not  limited  to, any
          right  to not  close  the  Merger  due to a  failure  to  satisfy  the
          condition to Closing set forth in paragraph  6.2.1 arising solely as a
          result of any such breach).

     4.12 Prior  Purchases.  The  Schedule  13D,  as  amended,  filed by  Parent
          pursuant to the Exchange Act with respect to prior purchases of Canaan
          Common  Stock  complies  with  the  Exchange  Act  and all  rules  and
          regulations  promulgated  thereunder.   Except  as  disclosed  in  the
          Schedule  13D as  previously  filed there are no other  agreements  or
          arrangements pursuant to which the sellers of the shares to the Parent
          are entitled to receive any additional  consideration  from any Parent
          Company or any Affiliate of the Parent.






     5. Covenants.  From the date hereof until the Effective Time,  Parent,  Sub
     and Canaan hereby covenant and --------- agree as follows:

     5.1  Conduct of Canaan Business Pending Closing. From the date hereof until
          the Effective Time,  Canaan  covenants and agrees that,  unless Parent
          otherwise  agrees  in  writing,  the  businesses  of  Canaan  will  be
          conducted  only in, and Canaan will not take any action except in, the
          ordinary  course  of  business  and in a manner  consistent  with past
          practice,  and Canaan will use its reasonable best efforts to preserve
          substantially  intact the  business  organization  of Canaan,  to keep
          available  the  services  of  the  current  officers,   employees  and
          consultants  of Canaan and to preserve the  goodwill of those  current
          relationships  of Canaan with  customers,  suppliers and other Persons
          with which  Canaan  have  significant  business  relations.  By way of
          amplification  and not  limitation,  except  as  contemplated  by this
          Agreement, Canaan will not, between the date of this Agreement and the
          Effective  Time,  directly or indirectly  do, or propose to do, any of
          the following without the prior written consent of Parent:

          5.1.1 Amend or otherwise  change the certificate of incorporation
          or bylaws or equivalent organizational documents of Canaan;

          5.1.2  Issue,  sell,  pledge,  dispose of,  grant,  encumber,  or
          authorize  the  issuance,   sale,   pledge,   disposition,   grant  or
          encumbrance  of:  (a) any  shares  of any  class of  capital  stock of
          Canaan,  or any options,  warrants,  convertible  securities  or other
          rights of any kind to acquire any shares of such capital stock, or any
          other ownership interest (including,  without limitation,  any phantom
          interest),  of Canaan  (except  for the  issuance  of shares of Canaan
          Common Stock issuable pursuant to Canaan Stock Options  outstanding on
          the date hereof and disclosed in the Canaan Disclosure  Schedule);  or
          (b) any assets of Canaan,  except for sales of oil and gas  production
          in the ordinary course of business;

          5.1.3  Declare,  set  aside,  make or pay any  dividend  or other
          distribution,  payable in cash,  stock,  property or  otherwise,  with
          respect to any of its capital stock;

          5.1.4 Reclassify,  combine,  split, subdivide or redeem, purchase
          or otherwise  acquire,  directly or  indirectly,  any capital stock or
          amend or modify any  warrant or other  right to  acquire  any  capital
          stock;






          5.1.5 (a) Acquire (including,  without limitation,  by formation,
          merger, consolidation, or acquisition of stock or assets) any interest
          in any corporation,  partnership,  other business  organization or any
          division  thereof or any  material  amount of assets other than in the
          ordinary course of business;  (b) incur any  indebtedness for borrowed
          money in excess of the existing  borrowing base under the current Bank
          Credit Agreement or issue any debt securities or assume,  guarantee or
          endorse, or otherwise as an accommodation  become responsible for, the
          obligations  of any  Person,  or make any loans,  advances  or capital
          contribution  to, or investments  in, any other Person,  except in the
          ordinary course of business and consistent with past practice,  but in
          no event  in  excess  of  $100,000;  or (c)  enter  into or amend  any
          contract,  agreement,  commitment or  arrangement  with respect to any
          matter set forth in this paragraph 5.1.5;

          5.1.6 Increase the  compensation  payable or to become payable to
          any officers or employees,  except for  increases in  accordance  with
          past practices in salaries or wages of employees of Canaan who are not
          officers of Canaan,  or grant any severance or termination  pay to, or
          enter into any employment or severance  agreement  with, any director,
          officer  or other  employee  of Canaan  (except as  permitted  by this
          Agreement),  or  establish,  adopt,  enter  into,  modify or amend any
          collective bargaining,  bonus, profit sharing,  thrift,  compensation,
          stock  option,   restricted  stock,  pension,   retirement,   deferred
          compensation, employment, termination, severance phantom stock plan or
          other plan,  agreement,  trust,  fund,  policy or arrangement  for the
          benefit of any director, officer or employee;

          5.1.7 Make any material Tax election or settle or compromise  any
          material federal, state, local or foreign Tax liability;

          5.1.8  Pay,   discharge  or  satisfy  any  claim,   liability  or
          obligation (absolute,  accrued, asserted or unasserted,  contingent or
          otherwise), other than the payment, discharge or satisfaction,  in the
          ordinary  course of business and  consistent  with past  practice,  of
          liabilities  reflected  or  reserved  against in the Canaan  Financial
          Statements or subsequently incurred in the ordinary course of business
          and consistent with past practices;

          5.1.9 Settle or compromise any pending or threatened suit, action
          or claim which is material or which relates to any of the transactions
          contemplated hereby, except if such settlement or compromise would not
          have a Material Adverse Effect;






          5.1.10 Undertake or agree to: (a) any capital  commitment outside
          Arkansas,  Oklahoma and Texas (the "Canaan Area"); (b) any new land or
          lease initiatives or acquisitions; (c) any capital expenditures in the
          Canaan  Area in an  individual  amount  greater  than  $10,000  net to
          Canaan's   interest  or,  when   aggregated  with  all  other  capital
          commitments,  in an  aggregate  amount  greater  than  $200,000 net to
          Canaan's interest unless such capital expenditure is in an oil and gas
          well  proposed  by a Parent  Company,  proposed  by a third  party and
          participated in by a Parent Company or approved by the Parent;  or (d)
          any new well  proposals  or  regulatory  or  governmental  action with
          respect to any well  activities,  provided  however,  Canaan agrees to
          provide notice to the Parent of any new well proposal within three (3)
          days  after  receipt  and the  Parent  will  have  fifteen  (15)  days
          thereafter  to consent to the  proposal,  in which  case  Canaan  will
          participate in such well proposal (to the extent Canaan is required to
          act in a shorter time period the notice and  response  periods will be
          shortened  so that  Parent  will be  provided a minimum of 24 hours to
          consent);

          5.1.11  Make any  change in  accounting  methods,  principles  or
          practices  materially  affecting  the  reported  consolidated  assets,
          liabilities or results of operations of Canaan,  except insofar as may
          have been required by a change in GAAP;

          5.1.12 Make, enter into or renew, extend, amend, modify, or waive
          any provisions of any Canaan Material  Agreement or any other material
          commitment or relinquish or waive any Canaan Material Agreement rights
          or agree to the termination of any material Canaan Material Agreement,
          except  in the  ordinary  course of  business  consistent  with  prior
          practice;

          5.1.13 Agree to any covenant of Canaan not to compete (other than
          pursuant to any radius restriction contained in any lease,  reciprocal
          easement or development, construction, operating or similar agreement)
          or  any  other  covenant  restricting  the  development,  manufacture,
          marketing  or  distribution  of the products and services of Canaan or
          otherwise  limiting  the  freedom  of Canaan to compete in any line of
          business or with any Person or in any area or to own,  operate,  sell,
          transfer,  pledge or  otherwise  dispose of or encumber  any  material
          assets  or which  would so limit the  freedom  of Parent or any of its
          Affiliates after the consummation of the Merger;

          5.1.14  Amend,  modify,  terminate,  waive or permit to lapse any
          material right of first refusal,  preferential  right,  right of first
          offer or any other material right of Canaan; or

          5.1.15  Take or offer  or  propose  to take,  or agree to take in
          writing,  or  otherwise,  any of the actions  described in  paragraphs
          5.1.1 through  5.1.14 of this  paragraph 5.1 or any action which would
          result in any of the conditions to the Merger not being satisfied.

          5.2  Access to  Information.  Canaan  will afford to Parent and Parent
               Representatives   (including,   without  limitation,   directors,
               officers and employees of Parent and its Affiliates, and counsel,
               accountants  and other  professionals  retained  by Parent)  such
               access,  during normal business hours throughout the period prior
               to the Effective  Time, to Canaan's  books,  records  (including,
               without  limitation,  Tax  returns  and work  papers of  Canaan's
               independent  auditors),  properties,  personnel and to such other
               information as Parent reasonably  requests and will permit Parent
               to make such  inspections  as Parent may  reasonably  request and
               will cause the  officers of all of Canaan to furnish  Parent with
               such  financial and  operating  data and other  information  with
               respect to the  business,  properties  and personnel of Canaan as
               Parent  may  from  time to  time  reasonably  request,  provided,
               however,  that no  investigation  pursuant to this  paragraph 5.2
               will affect or be deemed to modify any of the  representations or
               warranties  made by Canaan  in this  Agreement.  All  information
               exchanged  pursuant to this  paragraph 5.2 will be subject to the
               Confidentiality Agreement.






5.3 No  Solicitation.  Immediately  following the  execution of this  Agreement,
Canaan:


               5.3.1 Will (and will cause each of the Canaan Representatives to)
          terminate   any  and  all   existing   activities,   discussions   and
          negotiations  with third  parties  (other than Parent) with respect to
          any possible transaction  involving any proposal to acquire all or any
          part of the Canaan  Common  Stock or all or a material  portion of the
          assets,  business  or  equity  interests  of  Canaan  (other  than the
          transactions  contemplated  by this  Agreement),  whether  by  merger,
          purchase of assets, tender offer, exchange offer or otherwise.






               5.3.2  Will not (and will cause the  Canaan  Representatives  not
          to): (a) solicit,  initiate or encourage the  submission of, any offer
          or proposal to acquire any of the Canaan  Common Stock (other than the
          exercise of Canaan Stock  Options) or all or any  material  portion of
          the  assets,  business  or  equity  interests  of  Canaan or any other
          transaction  the  consummation  of which would or could  reasonably be
          expected to impede,  interfere with,  prevent or materially  delay the
          consummation of the Merger (other than the  transactions  contemplated
          by this  Agreement),  whether by merger,  purchase  of assets,  tender
          offer,  exchange offer or otherwise (an "Alternative  Proposal");  (b)
          engage in  negotiations  or  discussions  concerning  or  provide  any
          non-public  information  to  any  Person  relating  to an  Alternative
          Proposal;  or  (c)  agree  to,  approve  or  recommend,  or  otherwise
          facilitate any effort or attempt to make or implement, any Alternative
          Proposal,  or withdraw  its  recommendation  of the Merger,  provided,
          however,  that:  (i) Canaan's board of directors may take and disclose
          to the  stockholders of Canaan a position  contemplated by Rules 14d-9
          or  14e-2(a)  promulgated  under the  Exchange  Act with  regard to an
          Alternative  Proposal;  and (ii) following  receipt from a third party
          (without any  solicitation,  initiation or  encouragement by Canaan or
          any  Canaan  Representatives)  of  a  bona  fide  written  Alternative
          Proposal,  (x) Canaan may,  upon written  notice to Parent,  engage in
          discussions or negotiations with such third party and may furnish such
          third party non-public  information  concerning  Canaan,  and Canaan's
          business,   properties  and  assets  if,  prior  to  furnishing   such
          information  to  such  third  party,   such  third  party  executes  a
          confidentiality agreement not materially less favorable to Canaan than
          the Confidentiality  Agreement (but containing  provisions  permitting
          Canaan to comply with  paragraphs  5.3.2 and 5.3.3 hereof) and (y) the
          board of directors of Canaan may recommend such  Alternative  Proposal
          or  withdraw,  modify or not make its  recommendation  referred  to in
          paragraph  3.18,  if and only to the  extent  that  Canaan's  board of
          directors  determines  in good faith that:  (1) based on the advice of
          Canaan's counsel,  the failure to recommend such Alternative  Proposal
          would  constitute a breach of the board's  fiduciary  duties;  and (2)
          based on the advice of Canaan's  financial  advisor,  such Alternative
          Proposal, if consummated, would result in a transaction more favorable
          to  Canaan's  stockholders  from a  financial  point of view  than the
          transaction contemplated by this Agreement (a "Superior Proposal") and
          the Person making such Superior  Proposal has the financial  means, or
          the  ability to obtain  the  necessary  financing,  to  conclude  such
          transaction.

               5.3.3 Will promptly  notify Parent after receipt by Canaan or any
          of  the  Canaan  Representatives  of  any  Alternative  Proposal,  any
          inquiries  indicating that any Person is considering  making or wishes
          to  make  an  Alternative  Proposal  or  any  requests  for  nonpublic
          information  and the terms and  conditions  of any proposals or offers
          and the  status  of any  actions,  including  any  discussions,  taken
          pursuant to such Alternative Proposal. Canaan agrees that it will keep
          Parent  informed,  on a current basis,  of the status and terms of any
          such  Alternative  Proposal  and of any  discussions  or  negotiations
          regarding same.

               5.3.4  Will  use  Canaan's  best  efforts  to  cause  each of the
          Irrevocable   Proxies  to  be  executed   and   delivered   to  Parent
          simultaneously  with the execution of this Agreement,  all in form and
          substance satisfactory to Parent and its legal counsel.

               Nothing in this  paragraph  5.3 will permit  Canaan to  terminate
          this Agreement or to change or withdraw its  recommendation  except as
          specifically provided in paragraph 7.1.

5.4 Canaan  Stockholder  Meeting.  As  promptly  as  practicable  after the date
hereof, Canaan will: (a) take all action necessary in accordance with applicable
law and its certificate of incorporation  and bylaws to convene a meeting of its
stockholders  for the purpose of voting on this  Agreement  and the Merger;  (b)
distribute to its stockholders the Proxy Statement in accordance with applicable
federal  and state law and with its  certificate  of  incorporation  and bylaws,
which Proxy Statement will contain the  recommendation of the board of directors
of Canaan  that its  stockholders  approve the  merger;  (c) use all  reasonable
efforts to solicit  from its  stockholders  proxies in favor of the approval and
adoption of the Merger, this Agreement and the transactions  contemplated hereby
and to secure the Canaan  stockholders  approval;  and (d) cooperate and consult
with  Parent  with  respect to each of the  foregoing  matters;  provided,  that
nothing in this  paragraph  will  prohibit the board of directors of Canaan from
failing to make or from withdrawing or modifying its  recommendation to Canaan's
stockholders  hereunder  to the  extent  permitted  by  paragraph  5.3.2 of this
Agreement

5.5 Proxy  Statement.  With respect to the Proxy  Statement,  the Parties  agree
that:


     5.5.1 Parent and Canaan will  cooperate and promptly  prepare a preliminary
Proxy  Statement and Canaan will file the  preliminary  Proxy Statement with the
SEC as soon as practicable after the date hereof.

     5.5.2 Parent and Canaan will cause the Proxy  Statement,  at the time it is
delivered  to the  Canaan  stockholders,  to comply  as to form in all  material
respects with the applicable  provisions of the Securities Act, the Exchange Act
and the rules and regulations of the SEC thereunder.





     5.5.3  Canaan  hereby  covenants  and  agrees  with  Parent  that the Proxy
Statement (at the time it is first mailed to stockholders of Canaan, at the time
of the Canaan Stockholder  Meeting,  and at the Effective Time) will not contain
an 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 are made, not misleading. If, at any
time prior to the  Effective  Time,  any event with  respect to Canaan,  or with
respect to other  information  included in the Proxy Statement,  occurs and such
event is required to be described in a supplement to the Proxy  Statement,  such
event will be so described and such supplement will be promptly prepared,  filed
and disseminated.

     5.5.4  Parent  hereby  covenants  and  agrees  with  Canaan  that the Proxy
Statement (at the time it is first mailed to stockholders of Canaan, at the time
of the Canaan Stockholder  Meeting,  and at the Effective Time) will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated  herein or necessary in order to make the  statements  therein,  in
light of the circumstances  under which they are made, no misleading  (provided,
however, that this provision will only apply to any information contained in the
Proxy Statement that was supplied by Parent specifically for inclusion therein).
If, at any time prior to the Effective  Time,  any event with respect to Parent,
or with  respect to any  information  concerning  Parent  included  in the Proxy
Statement,  occurs and such event is required to be described in a supplement to
the Proxy  Statement,  such event will be disclosed to Canaan to be so described
and such supplement will be promptly prepared, filed and disseminated.

     5.5.5 Neither the Proxy  Statement nor any amendment or supplement  thereto
will be filed or disseminated to the stockholders of Canaan without the approval
of both Parent and Canaan which approval will not be unreasonably withheld.

5.6 Public  Announcements.  Prior to Closing,  Canaan will  consult  with Parent
before issuing any press release or otherwise making any public  statements with
respect to the  transactions  contemplated  by this Agreement and will not issue
any press  release or make any such  public  statement  prior to  obtaining  the
approval of Parent;  provided,  however, that such approval will not be required
where such release or  announcement  is required by applicable law; and provided
further,  that Canaan may respond to inquiries by the press or others  regarding
the transactions  contemplated by this Agreement,  so long as such responses are
consistent with previously issued press releases.






5.7  Notification of Certain  Matters.  Canaan will give prompt notice to Parent
of: (a) any  representation  or warranty of Canaan  contained in this  Agreement
being  untrue  or  inaccurate  when  made;  (b) the  occurrence  of any event or
development  that would  cause (or could  reasonably  be  expected to cause) any
representation or warranty of Canaan contained in this Agreement to be untrue or
inaccurate  on the Closing  Date; or (c) any failure of Canaan to comply with or
satisfy any covenant,  condition,  or agreement to be complied with or satisfied
by it  hereunder.  Parent  will  give  prompt  notice  to  Canaan  of:  (i)  any
representation or warranty of Parent contained in this Agreement being untrue or
inaccurate when made; (ii) the occurrence of any event or development that would
cause (or could reasonably be expected to cause) any  representation or warranty
of Parent  contained in this Agreement to be untrue or inaccurate on the Closing
Date;  or (iii) any failure of Parent to comply  with or satisfy  any  covenant,
condition, or agreement to be complied with or satisfied by it hereunder.

5.8 Indemnification. From and after the Effective Time, Parent agrees that:

     5.8.1  Parent will  indemnify  and hold  harmless  each  present and former
director  and/or  officer of Canaan,  determined as of the  Effective  Time (the
"Indemnified Parties"), that is made a party or threatened to be made a party to
any threatened, pending or completed, action, suit, proceeding or claim, whether
civil, criminal,  administrative or investigative, by reason of the fact that he
or she was a  director  or  officer of Canaan  prior to the  Effective  Time and
arising  out of  actions  or  omissions  of the  Indemnified  Party  in any such
capacity  occurring at or prior to such Effective  Time (a "Claim")  against any
costs or expenses  (including  reasonable  attorneys' fees),  judgments,  fines,
losses,  claims,  damages or liabilities  reasonably incurred in connection with
any Claim, whether asserted or claimed prior to, at or after the Effective Time,
to the fullest extent that Canaan would have been permitted  under Oklahoma law,
the certificate of incorporation or bylaws of Canaan or written  indemnification
agreements in effect at the date hereof,  including  provisions therein relating
to the advancement of expenses incurred in the defense of any action or suit.






     5.8.2  Any  Indemnified  Party  wishing  to  claim   indemnification  under
paragraph  5.8.1,  upon learning of any such Claim,  will promptly notify Parent
thereof,  but the failure to so notify  Parent  will not  relieve  Parent of any
liability  it may  have to such  Indemnified  Party  if such  failure  does  not
materially  prejudice  Parent.  In the event of any such Claim (whether  arising
before or after the  Effective  Time):  (a) Parent will have the right to assume
the defense thereof and Parent will not be liable to such Indemnified  Party for
any legal expenses of other counsel or any other expenses  subsequently incurred
by such Indemnified Party in connection with the defense thereof, except that if
Parent  elects not to assume  such  defense,  the  Indemnified  Party may retain
counsel  reasonably  satisfactory to Parent, and Parent will pay reasonable fees
and expenses of such counsel for the Indemnified Party; provided,  however, that
Parent will be obligated  pursuant to this  paragraph  5.8.2 to pay for only one
firm or counsel for all  Indemnified  Parties  unless the use of one counsel for
such Indemnified Parties would present such counsel with a conflict of interest;
(b) such  Indemnified  Parties will cooperate in the defense of any such matter;
and (c) Parent will not be liable for any settlement  effected without its prior
written consent,  which consent will not be unreasonably withheld; and provided,
further,  however,  that Parent will not have any  obligation  hereunder  to any
Indemnified Party when and if a court of competent  jurisdiction will ultimately
determine,  and such  determination  will have become final and  non-appealable,
that the  indemnification  of such Indemnified Party in the manner  contemplated
hereby is prohibited by applicable  law. If such indemnity is not available with
respect to any Indemnified  Party,  then Parent and the  Indemnified  Party will
contribute to the amount payable in such proportion as is appropriate to reflect
relative  faults  and  benefits,  with  any  allocation  of  respective  "fault"
otherwise allocable to Canaan being allocated to Parent.

     5.8.3 The rights of each  Indemnified  Party  shall be in  addition  to any
other  rights  such  Indemnified   Party  may  have  under  the  certificate  of
incorporation   or  bylaws  of   Canaan,   under   the  OGCA,   under   existing
indemnification  agreements,  or otherwise,  all of which will be assumed by the
Surviving Corporation.

     5.8.4  In  the  event  Parent  or  any of its  successors  or  assigns  (i)
consolidates  with  or  merges  into  any  other  Person  and  shall  not be the
continuing or surviving  corporation or entity in such  consolidations or merger
or (ii) transfers all or  substantially  all of its properties and assets to any
Person,  then and in either case,  proper  provisions  shall be made so that the
successors and assigns of Parent,  as case may be, shall assume the  obligations
as set forth in this paragraph.

     5.8.5 The  provisions of this paragraph 5.8 shall survive  consummation  of
the  Merger and  expressly  are  intended  to  benefit  each of the  Indemnified
Parties.

5.9 Employee and Severance Matters.

     5.9.1 Attached as Section 5.9 of the Canaan  Disclosure  Schedule is: (1) a
current list of each of Canaan's employees (the "Canaan Employees");  (2) a copy
of Canaan's  severance policy (the "Canaan Severance  Policy");  (3) a severance
package  table which lists the cost of all  severance  pay to be paid to each of
the Canaan  Employees;  (4) a list of Canaan  Employees with written  employment
agreements (the "Contract  Employees");  (5) a list of all contract  pumpers and
other independent  contractors (the "Independent  Contractors") and a summary of
the terms of such  arrangements  including,  without  limitation,  any severance
package;  and (6) a list of each of the Canaan  Employees with change in control
agreements ("CIC Employees")  together with the amounts and terms of such change
in control agreements.






     5.9.2 On or  immediately  prior to the  Closing  Date,  Canaan will pay the
amounts  payable to the CIC  Employees  under the  applicable  change in control
agreements  in an amount  not to exceed  the  amounts  disclosed  in the  Canaan
Disclosure  Schedule,  provided the CIC Employee has tendered the CIC Employee's
resignation  and executed  all other  documents  and taken all actions  required
under this  Agreement,  the change of control  agreement  or the CIC  Employee's
employment agreement. Canaan will also pay the severance pay as indicated on the
severance package table to the Canaan Employees. Notwithstanding the immediately
preceding  sentence,  Canaan will not pay such  severance pay to: (1) any Canaan
Employee  who is not a  Contract  Employee  and to whom  Parent or Sub  offers a
substantially  comparable  job  (as  determined  by  Parent  in  its  reasonable
discretion)  with  equal  or  better  base  salary  at such  employee's  current
location;  (2) any Contract Employee who chooses not to terminate his employment
agreement with Canaan on the Closing Date; (3) any Independent Contractor who is
covered by the Canaan Severance Policy and chooses not to terminate his contract
with Canaan on the Closing Date; or (4) any Canaan Employee who does not execute
a severance agreement in substantially the form required by the Canaan Severance
Policy.  With respect to any Canaan Employee who is not paid severance pay on or
immediately  prior to the Effective  Date,  all the terms and  provisions of the
Canaan Severance Policy and the Contract Employees'  employment  agreements will
continue in full force and effect. Parent shall provide funding to Canaan at the
Closing  sufficient  in amount  for  Canaan  to make all  payments  required  or
permitted by this paragraph 5.9.2.

     5.9.3 Neither  Canaan nor Parent is under any  obligation to retain or hire
any Canaan  Employee after the Effective Time. At least five (5) days before the
Closing Date,  Parent will provide to Canaan a list of those Canaan Employees to
whom an offer of employment  has been or will be made to be effective on the day
after the Closing Date. On reasonable prior notice during normal business hours,
Parent and the Parent  Representatives  will be given  reasonable  access to the
facilities and to personnel, safety and other relevant records of Canaan (to the
extent access to such records does not violate any law or the legitimate privacy
rights of the Canaan  Employee  concerned)  for the purpose of preparing for and
conducting  employment  interviews  with any Canaan  Employees.  Canaan  will be
responsible for and pay, on or before the Closing Date, any and all severance or
other payments due to the Canaan Employees.






     5.9.4 To the extent  legally  required by COBRA,  for a period of 18 months
following  the  Effective  Time,  Parent  will,  or  will  cause  the  Surviving
Corporation  to: (a) maintain  Canaan's  health benefit plans for the benefit of
the continuing and terminated Canaan  Employees;  or (b) provide such continuing
and  terminated  Canaan  Employees  with the rights  and  benefits  of  Parent's
employee  health  benefit plans;  provided,  that Parent will not be required to
pay, or cause the Surviving  Corporation to pay, the premiums for coverage under
such plans for any terminated  Canaan  Employee.  Parent will, or will cause the
Surviving Corporation to, fulfill all coverage continuation  obligations imposed
by Section 4980B of the Code and Section 601 of ERISA for those Canaan Employees
who are not retained by Parent or the Surviving  Corporation.  The provisions of
this  Section  5.9.4  are  intended  to be for  the  benefit  of,  and  will  be
enforceable  by, the Parties and the Canaan  Employees  covered by the  Employee
Plans at the Effective Time and their respective heirs and representatives.

     5.9.5 The Parent  shall give to all Canaan  employees  who  continue  their
employment  with  a  Parent  Company  or the  Surviving  Corporation  after  the
Effective  Time  ("Affected  Employees")  the  opportunity to participate in all
employee  benefit plans  maintained  by Parent for its  employees  generally and
shall give full  credit for their  continuous  service  with  Canaan  (including
deemed service credited by Canaan) for purposes of eligibility to participate in
vesting (but not benefit  accruals under any defined benefit pension plan) under
all  employee  benefit  plans,  programs,  policies  or  arrangements  which are
maintained by Parent or any Parent  Company for such  Affected  Employees to the
same extent  recognized by Canaan  immediately prior to the Effective Time under
any similar Canaan Employee Benefit Plans. Parent and the Surviving  Corporation
shall (i) waive all  limitations as to pre-existing  conditions,  exclusions and
waiting  periods  with  respect  to  participation  and  coverage   requirements
applicable to the Affected  Employees  under any welfare benefit plan, that such
employees may be eligible to participate in after the Effective Time (other than
limitations  or waiting  periods  that are already in effect with respect to any
such employees under the Canaan plans and that have not been satisfied as of the
Effective  Time) and (ii) provide  each  Affected  Employee  with credit for any
co-payments  and  deductibles  paid prior to the Effective Time (in the calendar
year  of the  Effective  Time)  and  satisfying  any  applicable  deductible  or
out-of-pocket  requirements  for the year in which the  Effective  Time occurred
under any welfare plans that such employees are eligible to participate in after
the Effective  Time. For any Affected  Employee who is terminated  without cause
within six months  following the Effective  Time,  such Affected  Employee shall
receive a severance payment equal to the greater of the amount payable under the
Canaan  Severance  Policy or any Parent  severance plan or policy  applicable to
employees generally.

     5.9.6 Canaan will use its best  efforts to cause  Canaan's  Profit  Sharing
Plan and Indian Oil's 401(k) to be terminated  immediately  prior to the Closing
with the result that all participants  therein shall be 100% vested.  The Parent
shall cause the Surviving Corporation to take all of such action as is necessary
as promptly as reasonably  possible to receive IRS approval for the  termination
of such plans and promptly  thereafter to distribute to the  participants in the
plans all amounts that they are entitled to receive under the plans. Parent will
permit Affected Employees receiving distributions from the Canaan Profit Sharing
Plan to be eligible for rollover  contributions  to any similar plans maintained
by the Parent and will permit any outstanding  plan loans that are in compliance
with the applicable plan and the applicable law to be continued.






     5.10 Reasonable Best Efforts.  Upon the terms and subject to the conditions
set forth in this  Agreement,  each of the Parties will use all reasonable  best
efforts to take,  or cause to be taken,  all actions,  and to do, or cause to be
done,  and to assist and cooperate  with the other Parties in doing,  all things
necessary,  proper or advisable to consummate  and make  effective,  in the most
expeditious   manner   practicable,   the  Merger  and  the  other  transactions
contemplated  hereby,  including:  (a) the obtaining of all necessary actions or
non-actions,  waivers,  consents and approvals from Governmental Authorities and
the making of all necessary  registrations and filings  (including  filings with
Governmental Authorities,  if any) and the taking of all reasonable steps as may
be  necessary  to obtain an  approval or waiver  from,  or to avoid an action or
proceeding  by, any  Governmental  Entity;  (b) the  obtaining of all  necessary
consents,  approvals or waivers  from third  parties;  (c) the  defending of any
lawsuits  or  other  legal  proceedings,  whether  judicial  or  administrative,
challenging the Transaction  Documents or the  consummation of the  transactions
contemplated hereby, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed; and
(d) the  execution  and  delivery of any  additional  instruments  necessary  to
consummate  the Merger and to fully carry out the  purposes  of the  Transaction
Documents. In connection with and without limiting the foregoing, the Canaan and
Canaan's board of directors  will: (i) take all action  necessary to ensure that
no state  takeover  statute  or  similar  statute  or  regulation  is or becomes
applicable  to the Merger or the  Transaction  Documents;  and (ii) if any state
takeover  statute or similar  statute or  regulation  becomes  applicable to the
Merger or the Transaction  Documents,  take all action  necessary to ensure that
the Merger and the other transactions  contemplated hereby may be consummated as
promptly as practicable on the terms  contemplated by the Transaction  Documents
and  otherwise  to  minimize  the effect of such  statute or  regulation  on the
Merger.

5.11 Stock Options.

     5.11.1  As soon  as  practicable  following  the  date  of this  Agreement,
Canaan's board of directors (or, if appropriate, any committee administering the
Canaan  Plans)  will adopt such  resolutions  or take such other  actions as are
required to adjust the terms of all  outstanding  Canaan Stock  Options  granted
under  any  Canaan  Plan to  confirm  that  each  of the  Canaan  Stock  Options
outstanding  immediately prior to the acceptance for payment of shares of Canaan
Common Stock pursuant to the terms of this Agreement will be canceled,  with the
holder  thereof  becoming  entitled  to  receive  an amount of cash equal to the
product of (a) the  excess,  if any, of (i) the Per Share  Merger  Consideration
over (ii) the exercise  price per share of Canaan  Common Stock  subject to such
Canaan Stock  Option,  multiplied  by (b) the number of shares of Canaan  Common
Stock issuable pursuant to the unexercised  portion of such Canaan Stock Option.
Subject to the Closing of the Merger,  Parent  agrees to provide any funding out
of the Merger Consideration necessary to make the foregoing payments.






     5.11.2 All amounts payable  pursuant to paragraph 5.11.1 will be subject to
any required  withholding of Taxes and will be paid at or as soon as practicable
at or following the Effective Time, but in any event within seven days following
the Effective Time, without interest.  The cancellation of a Canaan Stock Option
in exchange for the cash payment  described in paragraph 5.11.1 will be deemed a
release of any and all rights the holder of such Canaan  Stock Option had or may
have had in respect thereof.

     5.11.3  As soon  as  practicable  following  the  date  of this  Agreement,
Canaan's board of directors (or, if appropriate, any committee administering the
Canaan  Plans)  will take or cause to be taken such  actions as are  required to
cause (i) the Canaan Plans to terminate  as of the  Effective  Time and (ii) the
provisions in any other plan,  program or agreement  providing for the issuance,
transfer or grant of any capital  stock of Canaan or any  interest in respect of
any capital stock of Canaan to be terminated  as of the Effective  Time.  Canaan
will ensure that following the Effective Time no holder of a Canaan Stock Option
or any  participant  in any  Canaan  Plan or  other  benefit  plan,  program  or
agreement will have any right  thereunder to acquire any capital stock of Canaan
or the Surviving Corporation.

     5.12  Stockholder  Litigation.  Canaan will give Parent the  opportunity to
participate in the defense or settlement of any stockholder  litigation  against
Canaan and its directors relating to the Merger and Canaan will not agree to any
settlement of such litigation without Parent's consent.

     5.13 Further Assurances.  At and after the Effective Time, the officers and
directors  of the  Surviving  Corporation  will be  authorized  to  execute  and
deliver,  in the name and on behalf of Canaan or Sub, any deeds,  bills of sale,
assignments  or  assurances  and to take and do,  in the name and on  behalf  of
Canaan or Sub,  any other  actions  and  things to vest,  perfect  or confirm of
record or otherwise in the Surviving  Corporation  any and all right,  title and
interest  in,  to and under any of the  rights,  properties  or assets of Canaan
acquired or to be acquired by the  Surviving  Corporation  as a result of, or in
connection with, the Merger.






     5.14 Rights Agreement;  Consequences if Rights Triggered. Canaan's board of
directors will take all action requested in writing by Parent in order to render
the Canaan Rights  inapplicable to the Merger and the transactions  contemplated
by this  Agreement.  Except as approved in writing by Parent,  Canaan's board of
directors will not (i) amend the Canaan Rights Agreement, (ii) redeem the Canaan
Rights or (iii)  take any  action  with  respect  to, or make any  determination
under, the Canaan Rights  Agreement,  in each case in a manner adverse to Parent
or Sub. If any triggering  event occurs under the Canaan Rights Agreement at any
time during the period from the date of this  Agreement to the  Effective  Time,
Canaan  and  Parent  will  make  such   adjustment   to  the  Per  Share  Merger
Consideration  as Canaan and Parent will  mutually  agree so as to preserve  the
economic benefits that Canaan and Parent each reasonably expected on the date of
this Agreement to receive as a result of the  consummation of the Merger and the
other transactions.

     5.15 Payment of Expenses.  Except as set forth in this paragraph  5.15, all
expenses  incurred in connection  with this  Agreement will be paid by the party
incurring such expenses, whether or not the Merger is consummated. "Expenses" as
used in this  Agreement  will  include  all  reasonable  out-of-pocket  expenses
(including,  without limitation, all fees and expenses of counsel,  accountants,
experts and  consultants  to a party  hereto and its  affiliates)  incurred by a
party or on its  behalf in  connection  with or  related  to the  authorization,
preparation,  negotiation,  execution and  performance  of this  Agreement,  the
preparation,   printing,   filing  and  mailing  of  the  Proxy  Statement,  the
solicitation  of  stockholder  approvals  and all other  matters  related to the
closing of the Merger.

     5.16 Canaan  Termination  Fee.  Parent and Canaan agree that: (a) if Canaan
terminates  this  Agreement  pursuant to  paragraph  7.1.4(a);  or (b) if Parent
terminates this Agreement  pursuant to paragraph  7.1.5; or (c) if (i) Canaan or
Parent terminates this Agreement  pursuant to paragraph 7.1.2 due to the failure
of Canaan's stockholders to approve and adopt this Agreement, the Merger and the
transactions  contemplated  hereby or by Parent pursuant to paragraph 7.1.3, and
(ii) at the time of such termination,  there exists an Alternative Proposal with
respect to Canaan which has been  publicly  announced  and remains  pending and,
prior to or within  twelve (12)  months of the  termination  of this  Agreement,
Canaan enters into a definitive  agreement  with any third party with respect to
such   Alternative   Proposal   with  respect  to  Canaan  which  is  ultimately
consummated,   then  Canaan  will  pay  to  Parent  $5,000,000.00  (the  "Canaan
Termination  Fee"). The Canaan Termination Fee will be paid to Parent: (i) prior
to,  and  will  be a  pre-condition  to  effectiveness  of  termination  of this
Agreement  pursuant to  paragraph  7.1.4(a);  (ii) within three (3) business day
after a termination of this  Agreement  pursuant to paragraph  7.1.5;  and (iii)
within one (1) business day after consummation of a definitive agreement entered
into  with a  third  party  with  respect  to an  Alternative  Proposal  if this
Agreement is  terminated  pursuant to paragraph  7.1.2 or paragraph  7.1.3.  All
payments  under this paragraph 5.16 will be made by wire transfer of immediately
available funds to an account designated by Parent.

     5.17 Dissenting  Stockholder Payments.  Any and all payments made to settle
appraisal rights of Dissenting Stockholders or made pursuant to the OGCA will be
made  solely  out of Canaan  assets  and  neither  Parent  nor Sub will have any
liability therefor.

     5.18 Name. As of the Effective  Time, the Surviving  Corporation and Parent
hereby  release any claim to the use of the name  "Canaan"  and will  provide an
assignment of such rights to LJ Natural Gas Company, an Oklahoma corporation.






     5.19 Related Agreements.  As of the Effective Time the parties will execute
or cause to be executed the Goodwill Protection  Agreements and the Office Space
Agreement. The periodic payments to be paid under: (1) Leo E. Woodard's Goodwill
Protection Agreement will be $500,000;  (2) John K. Penton's Goodwill Protection
Agreement will be $500,000;  and (3) Michael S. Mewbourn's  Goodwill  Protection
Agreement will be $300,000.  6.  Conditions  Precedent.  The  obligations of the
Parties  under  this  Agreement  will be  subject  to the  following  conditions
precedent:

     6.1  Conditions  to Each  Party's  Obligation  to Effect  the  Merger.  The
respective  obligations  of each of the  Parties to effect  the  Merger  will be
subject to the  satisfaction,  at or prior to the Closing Date, of the following
conditions:

     6.1.1  Stockholder  Approval.  This Agreement and the Merger will have been
duly and validly  approved and adopted by a majority of the  outstanding  Canaan
Common Stock voting as one class.

     6.1.2 Other Approvals. If applicable,  the waiting period applicable to the
consummation  of the  Merger  under  the  HSR  Act  will  have  expired  or been
terminated and all filings required to be made prior to the Effective Time with,
and all consents,  approvals, permits and authorizations required to be obtained
prior to the Effective Time from, any Governmental  Authority in connection with
the  execution  and  delivery  of this  Agreement  and the  consummation  of the
transactions  contemplated hereby by Canaan,  Parent and Sub will have been made
or  obtained  (as the case may be),  except  where the  failure  to obtain  such
consents,  approvals,  permits and authorizations would not be reasonably likely
to result in a Material Adverse Effect.

     6.1.3  No  Injunctions  or  Restraints.  No  temporary  restraining  order,
preliminary  or  permanent  injunction  or other  order  issued  by any court of
competent  jurisdiction or other legal  restraint or prohibition  preventing the
consummation of the Merger will be in effect;  provided,  however, that prior to
invoking  this  condition,   each  party  will  have  complied  fully  with  its
obligations  under this  Agreement  and, in  addition,  will use all  reasonable
efforts to have any such decree, ruling,  injunction or order vacated, except as
otherwise contemplated by this Agreement.

     6.2 Conditions to Obligations of Parent and Sub. The  obligations of Parent
and Sub to effect the Merger are subject to the  satisfaction  of the  following
conditions,  any or all of which may be waived in whole or in part by Parent and
Sub:






     6.2.1 Representations and Warranties. The representations and warranties of
the Company contained in this Agreement and any document delivered in connection
herewith:  (1) to the extent  qualified by Material  Adverse Effect or any other
materiality  qualification  will  be true  and  correct  as of the  date of this
Agreement  and as of the Closing  Date;  and (2) to the extent not  qualified by
Material Adverse Effect or any other materiality  qualification will be true and
correct in all material  respects as of the date of this Agreement and as of the
Closing Date;  provided that the foregoing condition will be deemed to have been
satisfied unless the failure of such  representations  and warranties to be true
and  correct  (without  regard  to any  Material  Adverse  Effect  or any  other
materiality  qualification  or  threshold  set  forth  in  paragraph  3 of  this
Agreement),  individually or in the aggregate, results in or would reasonably be
expected to result in a Material Adverse Effect on Canaan. At Closing the Parent
will have received a certificate  of the Company,  executed on its behalf by its
chief  executive  officer,  dated  as of the  Closing  Date,  certifying  to the
foregoing.

     6.2.2 Performance of Covenants and Agreements by Canaan. Canaan will
have performed in all material respects all covenants and agreements required to
be performed by it under this  Agreement  at or prior to the Closing  Date,  and
Parent will have received a certificate signed by the chief executive officer of
Canaan to such effect.

     6.2.3  No  Adverse  Change.  From the date of this  Agreement  through  the
Closing,  there will not have occurred any change in the condition (financial or
otherwise), operations or business of Canaan that would have or would reasonably
be expected to have a Material Adverse Effect on Canaan.

     6.2.4 Dissenting Stockholders. Holders of no more than ten percent (10%) of
the outstanding shares of Canaan Common Stock will have exercised, nor will they
have any continued right to exercise,  appraisal,  dissenters' or similar rights
under  applicable  law with  respect to their  shares of Canaan  Common Stock by
virtue of the Merger.

     6.2.5 Releases.  Each officer and director of Canaan will have executed and
delivered a Release in substantially the form attached hereto as Exhibit "D" and
resignation as officer and director.

     6.2.6  Opinion of Counsel.  Parent will have received from Crowe & Dunlevy,
counsel to Canaan,  an opinion in form and substance  substantially as set forth
in Exhibit "E" attached  hereto  addressed to Parent and dated as of the Closing
Date.

     6.3 Conditions to Obligation of Canaan.  The obligation of Canaan to effect
the Merger is subject to the  satisfaction of the following  conditions,  any or
all of which may be waived in whole or in part by Canaan:






     6.3.1 Representations and Warranties. The representations and warranties of
Parent  and Sub set  forth in  paragraph  4 will be true and  correct  as of the
Closing  Date as  though  made on and as of that  time,  and  Canaan  will  have
received  a  certificate  signed by the  chief  executive  officer  or the chief
financial  officer  of  Parent  to such  effect;  provided,  however,  that  the
condition set forth in this paragraph  6.3.1 will be deemed to be satisfied even
if one or more of such  representations and warranties are not true and correct,
so long as the failure of such  representations  and  warranties  to be true and
correct (in the aggregate)  does not result in Parent and/or Sub being unable to
perform its obligations under this Agreement.

     6.3.2 Performance of Covenants and Agreements by Parent and Sub. Parent and
Sub will have  performed in all material  respects all covenants and  agreements
required to be performed by them under this Agreement at or prior to the Closing
Date, and Canaan will have received a certificate  signed by the chief executive
officer or the chief financial officer of Parent to such effect.

7. Termination. This Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective  Time,  whether  before or after  approval of
this  Agreement  and the Merger by the  stockholders  of Canaan on the following
terms.

     7.1 Termination Rights. Any termination of this Agreement will be:

     7.1.1 Mutual Consent. By mutual written consent of Parent and Canaan;


     7.1.2 Date  Certain.  By either Canaan or Parent if: (a) the Merger has not
been  consummated  by December 31, 2002  (provided,  however,  that the right to
terminate  this  Agreement  pursuant to this clause (a) will not be available to
any party whose breach of any  representation  or warranty or failure to perform
any covenant or agreement under this Agreement has been the cause of or resulted
in the  failure  of the  Merger  to  occur  on or  before  such  date);  (b) any
Governmental  Authority has issued an order, decree or ruling or taken any other
action permanently  restraining,  enjoining or otherwise  prohibiting the Merger
and  such  order,   decree,   ruling  or  other  action  has  become  final  and
nonappealable  (provided,  however,  that the right to terminate  this Agreement
pursuant to this clause (b) will not be  available to any party until such party
has used all reasonable efforts to remove such injunction,  order or decree); or
(c) this  Agreement  and the Merger  have not been  approved by the holders of a
majority  of the  outstanding  Canaan  Common  Stock  voting as one class at the
Canaan Stockholder Meeting or at any adjournment thereof;




     7.1.3 By  Parent.  By Parent  if: (a) there has been a breach of any of the
representations  and  warranties  made by Canaan in this Agreement or the Canaan
Disclosure  Schedule the aggregate of which would have a Material Adverse Effect
on Canaan and such breach has not been,  or cannot be, cured within  twenty (20)
days  after  notice and  demand  for cure  thereof;  or (b) Canaan has failed to
comply in any material respect with any of its covenants or agreements contained
in this  Agreement  and such  failure has not been,  or cannot be,  cured within
twenty  (20) days after  notice and demand for cure  thereof,  provided  however
Parent  will not have the right to  terminate  this  Agreement  pursuant to this
paragraph  7.1.3 if at the  time  Parent  is in  breach  of any  representation,
warranty or covenant  under this  Agreement  such that the conditions to Closing
under paragraph 6.3 of this Agreement will not be satisfied.

     7.1.4 By  Canaan.  By Canaan  if:  (a) as a result of a  Superior  Proposal
received by Canaan from a Person other than a party to this  Agreement or any of
its Affiliates,  Canaan's board of directors  determines to accept such Superior
Proposal as provided in paragraph 5.3.2;  provided,  however,  that prior to the
effective  date of any such  termination,  Canaan  will  provide  Parent with an
opportunity  (of not  less  than  five  (5) full  business  days)  to make  such
adjustments in the terms and conditions of this Agreement or the Merger as would
enable Canaan to proceed with the transactions  contemplated  hereby;  provided,
further,  that it will be a condition to the  effectiveness  of  termination  by
Canaan pursuant to this paragraph  7.1.4,  that Canaan will have paid the Canaan
Termination Fee to Parent  required by paragraph 5.16 of this Agreement;  or (b)
there has been a breach of the  representations and warranties made by Parent in
paragraph 4 of this  Agreement the aggregate  effect of which would cause Parent
to be unable to perform its obligations under this Agreement,  and the condition
described in paragraph 6.3.1,  other than the provision  thereof relating to the
certificate  signed by the chief executive officer or chief financial officer of
Parent,  would not be satisfied if the Closing were to occur on the day on which
Canaan  gives  Parent  notice of such  termination;  or (c) Parent has failed to
comply in any material respect with any of its covenants or agreements contained
in this  Agreement  and such  failure has not been,  or cannot be,  cured within
twenty (20) days after notice and demand for cure thereof; or

     7.1.5 Superior Proposal. By Parent if the board of directors of Canaan: (a)
recommends any Alternative Proposal to Canaan's  stockholders;  or (b) withdraws
or modifies in a manner  adverse to Parent,  its approval or  recommendation  of
this Agreement or the Merger,  or, on request by Parent,  fails to reaffirm such
approval or recommendation.

     7.2 Effect of Termination. If this Agreement is terminated by either Canaan
or Parent  pursuant to the  provisions  of paragraph  7.1, this  Agreement  will
forthwith become void and there will be no further obligation on the part of any
party hereto or its respective Affiliates,  directors,  officers or stockholders
except  pursuant to, the provisions of this  paragraph 7.2 and paragraphs  3.10,
4.7, 5.2, 5.5, 5.15 and 5.16 (which will continue pursuant to their terms).  The
termination  of this  Agreement  will not  relieve  any  party  hereto  from any
liability  for  damages  incurred  as a result of a breach by such  party of its
representations,   warranties,   covenants,   agreements  or  other  obligations
hereunder occurring prior to such termination.

8. Miscellaneous. It is further agreed as follows:






     8.1   Nonsurvival  of   Representations   and   Warranties.   None  of  the
representations and warranties  contained in this Agreement or in any instrument
delivered pursuant to this Agreement,  and no agreements or obligations  arising
under the  Confidentiality  Agreement,  will  survive  the  consummation  of the
Merger,  except for the  agreements  contained in paragraphs 2, 5.8, 5.9, and in
this paragraph 8.

     8.2  Amendment.  This  Agreement  may be amended by the Parties at any time
before or after approval of the Merger and this Agreement by the stockholders of
Canaan;  provided,  however,  that after any such approval, no amendment will be
made that by law requires  further  approval by such  stockholders  without such
further  approval.  This  Agreement  may  not be  amended  except  by a  written
instrument signed on behalf of each of the Parties.

     8.3  Notices.  Any  notice or other  communication  required  or  permitted
hereunder  will be in writing  and either  delivered  personally,  by  facsimile
transmission  or by  registered or certified  mail  (postage  prepaid and return
receipt  requested) and will be deemed given when received (or, if mailed,  five
(5)  business  days after the date of mailing)  at the  following  addresses  or
facsimile   transmission   numbers  (or  at  such  other  address  or  facsimile
transmission number for a party as will be specified by like notice):

                To Parent or Sub:               Chesapeake Energy Corporation
                                                6100 North Western Avenue
                                                Oklahoma City, Oklahoma 73118
                                                Attention: Aubrey K. McClendon
                                                Telephone:        405-879-9226
                                                Facsimile:        405-848-8588

                With a copy to:                 Commercial Law Group, P.C.
                                                2725 Oklahoma Tower
                                                210 Park Avenue
                                                Oklahoma City, Oklahoma 73102
                                                Attention: Ray Lees
                                                Telephone:        405-232-3001
                                                Facsimile:        405-232-5553

                To Canaan:                      Canaan Energy Corporation
                                                211 North Robinson, Suite 1000N
                                                Oklahoma City, Oklahoma 73102
                                                Attention: John K. Penton
                                                Telephone:       (405) 604-9200
                                                Facsimile:       (405) 604-9295

                With a copy to:                 Crowe & Dunlevy
                                                20 North Broadway, Suite 1800
                                                Oklahoma City, Oklahoma 73102
                                                Attention: Michael M. Stewart
                                                Telephone:       (405) 235-7747
                                                Facsimile:       (405) 272-5238






     8.4   Counterparts.   This  Agreement  may  be  executed  in  two  or  more
counterparts,  all of which will be  considered  one and the same  agreement and
will become effective when two or more  counterparts have been signed by each of
the Parties and delivered to the other  Parties,  it being  understood  that all
Parties need not sign the same counterpart.

     8.5  Severability.  Any term or provision of this Agreement that is invalid
or  unenforceable  in  any  jurisdiction  will,  as  to  such  jurisdiction,  be
ineffective  to the  extent  of  such  invalidity  or  unenforceability  without
rendering  invalid or  unenforceable  the remaining terms and provisions of this
Agreement or affecting  the  validity or  enforceability  of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.

     8.6  Entire  Agreement;  No  Third  Party  Beneficiaries.   This  Agreement
(together  with the  documents  and  instruments  delivered  by the  Parties  in
connection  with this  Agreement):  (a)  constitutes  the entire  agreement  and
supersedes all other prior agreements and understandings, both written and oral,
among the Parties with respect to the subject matter  hereof;  and (b) except as
provided in paragraph 2 or  paragraphs  5.8 or 5.9, is solely for the benefit of
the Parties and their respective  successors,  legal representatives and assigns
and does not confer on any other Person any rights or remedies hereunder.

     8.7  Applicable  Law.  This  Agreement  will be governed  in all  respects,
including  validity,  interpretation  and  effect,  by the laws of the  State of
Oklahoma  regardless of the laws that might  otherwise  govern under  applicable
principles of conflicts of laws thereof.

     8.8 No Remedy in Certain Circumstances.  Each party agrees that, should any
court or other competent  authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable,  or order any party to take any action
inconsistent  herewith or not to take an action consistent  herewith or required
hereby, the validity,  legality and  enforceability of the remaining  provisions
and obligations contained or set forth herein will not in any way be affected or
impaired  thereby,  unless the foregoing  inconsistent  action or the failure to
take an action  constitutes  a material  breach of this  Agreement or makes this
Agreement  impossible to perform,  in which case this  Agreement  will terminate
pursuant  to  paragraph  7 hereof.  Except  as  otherwise  contemplated  by this
Agreement,  to the  extent  that a  party  hereto  took an  action  inconsistent
herewith  or  failed to take  action  consistent  herewith  or  required  hereby
pursuant  to an order or  judgment  of a court or other  competent  Governmental
Authority,  such party will not incur any  liability or  obligation  unless such
party breached its obligation under paragraph 5.10 or did not in good faith seek
to resist or object to the imposition or entering of such order or judgment.






     8.9  Enforcement of Agreement.  The Parties agree that  irreparable  damage
would occur in the event that any of the  provisions of this  Agreement were not
performed  in  accordance  with the  terms  hereof or were  otherwise  breached.
Accordingly, the Parties hereby agree that each party hereto will be entitled to
specific performance of the terms and provisions hereof in addition to any other
remedy at law or in equity.

     8.10 Assignment. Neither this Agreement nor any of the rights, interests or
obligations  hereunder  will  be  assigned  by any of the  Parties  (whether  by
operation of law or otherwise)  without the prior  written  consent of the other
Parties,  except that Sub may assign, in its sole discretion,  any or all of its
rights,  interests  and  obligations  hereunder  to any newly  formed  direct or
indirect wholly-owned  subsidiary of Parent.  Subject to the preceding sentence,
this Agreement will be binding upon,  inure to the benefit of and be enforceable
by the Parties and their respective successors and assigns.

     8.11 Waivers.  At any time prior to the Effective Time, the Parties may, to
the extent legally  allowed:  (a) extend the time for the  performance of any of
the obligations or other acts of the other Parties;  (b) waive any  inaccuracies
in the  representations  and  warranties  contained  herein  or in any  document
delivered  pursuant hereto; and (c) waive performance of any of the covenants or
agreements,  or  satisfaction of any of the conditions,  contained  herein.  Any
agreement on the part of a party hereto to any such  extension or waiver will be
valid only if set forth in a written  instrument signed on behalf of such party.
Except  as  provided  in  this  Agreement,  no  action  taken  pursuant  to this
Agreement,  including any  investigation  by or on behalf of any party,  will be
deemed to constitute a waiver by the party taking such action of compliance with
any  representations,  warranties,  covenants  or  agreements  contained in this
Agreement.  The waiver by any party hereto of a breach of any  provision  hereof
will not operate or be construed as a waiver of any prior or  subsequent  breach
of the same or any other provisions hereof.

     8.12  References and Titles.  All references in this Agreement to Exhibits,
Schedules, Sections, paragraphs, subsections and other subdivisions refer to the
corresponding Exhibits, Schedules, Sections,  paragraphs,  subsections and other
subdivisions of or to this Agreement and/or the schedules attached hereto unless
expressly  provided  otherwise.  Except for the defined  terms in  paragraph  1,
titles  appearing at the beginning of any Sections,  paragraphs,  subsections or
other subdivisions of this Agreement are for convenience only, do not constitute
any part of this  Agreement,  and will be disregarded in construing the language
hereof.

     8.13 Incorporation.  Exhibits and Schedules referred to herein are attached
to and by this reference incorporated herein for all purposes.


                           [SIGNATURE PAGES TO FOLLOW]








                                 SIGNATURE PAGE

                         (Agreement and Plan of Merger)

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

ATTEST:                                     CANAAN ENERGY CORPORATION,
                                            an Oklahoma corporation


By /s/ Sue Barnard                          By Leo E. Woodard
  --------------------------------------    -----------------------------------
  Sue Barnard, Secretary                    Leo E. Woodard, Chairman and Chief
                                            Executive Officer


ATTEST:

By /s/ Sue Barnard                           By /s/ John K. Penton
  --------------------------------------     ----------------------------------
  Sue Barnard, Secretary                     John K. Penton, President


                                   ("Canaan")







                                 SIGNATURE PAGE

                         (Agreement and Plan of Merger)

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

ATTEST:                                 CHESAPEAKE ENERGY CORPORATION,
                                        an Oklahoma corporation


By /s/ Jennifer M. Grigsby              By /s/ Aubrey K. McClendon
  ----------------------------------       ------------------------------------
  Secretary                                Aubrey K. McClendon, Chief Executive
                                           Officer

                                   ("Parent")

ATTEST:                                  CHK ACQUISITION, INC.,
                                         an Oklahoma corporation


By /s/ Jennifer M. Grigsby               By /s/ Aubrey K. McClendon
  ----------------------------------       ------------------------------------
  Secretary                                Aubrey K. McClendon, Chief Executive
                                           Officer

                                     ("Sub")





                                                                  EXHIBIT 99(b)

                     AGREEMENT AND LIMITED IRREVOCABLE PROXY

                  This Agreement and Irrevocable Proxy, dated as of April 19,
2002 (the "Agreement"), is by and between Chesapeake Energy Corporation, an
Oklahoma corporation ("Chesapeake"), and the party identified as the
"Stockholder" on the signature page hereof (the "Stockholder").

                                    RECITALS:

                  WHEREAS, Chesapeake, CHK Acquisition, Inc., an Oklahoma
corporation and wholly owned subsidiary of Chesapeake ("Merger Sub"), and Canaan
Energy Corporation, an Oklahoma corporation ("Canaan"), propose to enter into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), providing, among other things, for the merger of Merger Sub with
and into Canaan in accordance with the terms and provisions of, and subject to
the conditions set forth in, the Merger Agreement (the "Merger"); and

                  WHEREAS, the Stockholder is the owner, beneficially and of
record, of the number of shares of Canaan Common Stock (the "Shares") identified
on the signature page of this Agreement; and

                  WHEREAS, the Stockholder has agreed to vote the Shares in
favor of the Merger Agreement and the consummation of the Merger at the Canaan
Stockholder Meeting;

                  NOW, THEREFORE, to induce Chesapeake and Merger Sub to enter
into the Merger Agreement and in consideration of the aforesaid and the
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, including the benefits that the parties hereto expect to
derive from the Merger, the receipt and sufficiency of all of which are hereby
acknowledged by the parties, the parties hereto agree as follows:

     1. Revocation of Prior Proxies. The Stockholder hereby revokes all previous
     proxies  granted with respect to any of the Shares owned by the Stockholder
     that would conflict with the terms of the Proxy granted hereby.






     2. Grant of Limited  Irrevocable  Proxy.  The  Stockholder,  solely in such
     capacity, hereby irrevocably constitutes and appoints Chesapeake and Aubrey
     K.  McClendon,  Chairman  of the  Board  and  Chief  Executive  Officer  of
     Chesapeake,   Tom  L.  Ward,  President  and  Chief  Operating  Officer  of
     Chesapeake,  and Marcus C.  Rowland,  Executive  Vice  President  and Chief
     Financial Officer of Chesapeake, in their respective capacities as officers
     of Chesapeake,  and any individual who hereafter  succeeds to the office of
     Chairman  of the Board  and Chief  Executive  Officer,  President  or Chief
     Financial  Officer,   respectively,   of  Chesapeake,   and  each  of  them
     individually,   as  the   Stockholder's   true   and   lawful   proxy   and
     attorney-in-fact (the "Agents"),  with full power of substitution,  for and
     in the name, place and stead of the Stockholder, to call and attend any and
     all meetings of Canaan's  stockholders,  including  the Canaan  Stockholder
     Meeting,  at which the Merger  Agreement or the Merger are to be considered
     and voted upon by Canaan's  stockholders,  and any adjournments thereof, to
     execute any and all written  consents of stockholders of Canaan and to vote
     all of the  Shares  and any and all  shares of any other  class of  capital
     stock of Canaan  presently or at any future time owned  beneficially  or of
     record by the Stockholder,  including any and all securities  having voting
     rights  issued or issuable in respect  thereof,  which the  Stockholder  is
     entitled to vote (all of the foregoing  being  collectively  referred to as
     the "Subject Stock"), and to represent and otherwise act as the Stockholder
     could  act,  in  the  same  manner  and  with  the  same  effect  as if the
     Stockholder were personally present,  at any such annual,  special or other
     meeting of the  stockholders  of Canaan  (including the Canaan  Stockholder
     Meeting), and at any adjournment thereof (a "Meeting"),  or pursuant to any
     written consent in lieu of meeting or otherwise;  provided,  however,  that
     this Proxy  will be limited to any such vote or consent in lieu  thereof or
     any other  action so taken  will be solely  for the  purposes  of voting in
     favor  of  the  Merger  and  the  Merger  Agreement  and  any  transactions
     contemplated  thereby. The Agents are hereby authorized to vote the Subject
     Stock in accordance with the terms of the Proxy contemplated hereby.

     3. Vote in Favor of Merger and Merger Agreement. If Chesapeake is unable or
     declines to exercise the power and  authority  granted by the Proxy for any
     reason, the Stockholder  covenants and agrees to vote all the Subject Stock
     in favor of approval of the Merger and the Merger  Agreement at any Meeting
     at which such matters are  considered  and voted upon and,  upon request of
     Chesapeake, to provide the Stockholder's written consent thereto.

     4. No Action Without Chesapeake's Consent. The Stockholder hereby covenants
     and agrees that the Stockholder will not vote or take any action by written
     consent of stockholders in lieu of meeting on any matter that is subject to
     the Proxy without Chesapeake's prior written consent.

     5. Negative Covenants of the Stockholder. Except to the extent contemplated
     herein or in the Merger  Agreement,  the Stockholder  hereby  covenants and
     agrees that the  Stockholder  will not, and will not agree to,  directly or
     indirectly:  (a) sell, transfer,  assign, cause to be redeemed or otherwise
     dispose of any of the Subject Stock or enter into any  contract,  option or
     other  agreement  or  understanding  with  respect  to the sale,  transfer,
     assignment,  redemption or other  disposition of any Subject Stock;  or (b)
     grant any proxy, power-of-attorney or other authorization or interest in or
     with respect to such  Subject  Stock  pertaining  or relating to the Merger
     Agreement,  the Merger or any of the transactions  contemplated thereby; or
     (c) deposit such  Subject  Stock into a voting trust or enter into a voting
     agreement or  arrangement  with respect to such Subject  Stock,  unless and
     until, in the case of (a), (b) or (c) above,  the Stockholder has taken all
     actions (including,  without limitation, the endorsement of a legend on the
     certificates  evidencing such Subject Stock) reasonably necessary to ensure
     that such  Subject  Stock will at all times be  subject to all the  rights,
     powers  and  privileges  granted  or  conferred,  and  subject  to all  the
     restrictions,  covenants and limitations imposed, by this Agreement and has
     caused any transferee of any of the Subject Stock to execute and deliver to
     Chesapeake,  an Agreement and Irrevocable  Proxy, in substantially the form
     of this  Agreement  with respect to the Subject  Stock.  Nothing  contained
     herein  will  be  construed  in  any  way as  affecting  the  right  of the
     Stockholder  to  grant  a  security   interest,   by  way  of  pledge,   by
     hypothecation  or otherwise,  in the Subject Stock in connection  with bona
     fide  credit  arrangements  or as  requiring  the  lender in such bona fide
     credit  arrangement  to be bound by the terms of this  Agreement,  provided
     that the Stockholder will promptly notify Chesapeake of any such grant.






     6. Stockholder's Representations and Warranties. The Stockholder represents
     and warrants to Chesapeake  that: (a) the Stockholder has duly  authorized,
     executed and  delivered  this  Agreement and this  Agreement  constitutes a
     valid and binding  agreement,  enforceable in accordance with its terms and
     neither the execution and delivery of this  Agreement nor the  consummation
     by the Stockholder of the transactions  contemplated hereby will constitute
     a violation of, a default under, or conflict with any contract, commitment,
     agreement,  understanding,  arrangement or restriction of any kind to which
     the  Stockholder  is a party or by which  the  Stockholder  is  bound;  (b)
     consummation by the  Stockholder of the  transactions  contemplated  hereby
     will not violate,  or require any consent,  approval,  or notice under, any
     provision  of law other than filing on Form 13D that may be required  under
     the Securities Exchange Act of 1934, as amended;  (c) the Subject Stock and
     the certificates representing same are now and at all times during the term
     of this  Agreement  will be held by the  Stockholder,  or by a  nominee  or
     custodian for the benefit of the Stockholder,  free and clear of all liens,
     claims, security interests, proxies, voting trust or agreement or any other
     encumbrances  whatsoever  ("Encumbrances") with respect to the ownership or
     voting of the Subject Stock or otherwise,  other than Encumbrances  created
     by or arising  pursuant  to this  Agreement,  and there are no  outstanding
     options,   warrants  or  rights  to   purchase  or  acquire,   or  proxies,
     powers-of-attorney, voting agreements, trust agreements or other agreements
     relating to, the Subject Stock other than this  Agreement;  (d) the Subject
     Stock constitutes all of the securities of Canaan owned  beneficially or of
     record by the  Stockholder on the date hereof;  and (e) the Stockholder has
     the  present  power  and  right  to  vote  all  of  the  Subject  Stock  as
     contemplated herein.

     7. Certain Defined Terms.  Unless otherwise  expressly provided herein, all
     capitalized  terms used herein  without  definition  will have the meanings
     assigned to them in the Merger Agreement.

     8.  Choice of Law.  The  terms and  provisions  of this  Agreement  will be
     governed  by and  construed  in  accordance  with the laws of the  State of
     Oklahoma  without  giving  effect to the  provisions  thereof  relating  to
     conflicts of law.

     9.  Binding  Effect;  Assignability.  The  terms  and  provisions  of  this
     Agreement will be binding upon, inure to the benefit of, and be enforceable
     by the  successors  and  permitted  assigns  of the  parties  hereto.  This
     Agreement and the rights  hereunder may not be assigned or  transferred  by
     Chesapeake, except with the prior written consent of the Stockholder.

     10. Term. This Agreement will terminate,  and the Proxy granted hereby will
     be  automatically  revoked,  at the earlier of: (a) the Effective Time; (b)
     the  termination of the Merger  Agreement in accordance  with its terms; or
     (c)  upon  written  notice  of  termination  of  this  Agreement  given  by
     Chesapeake to the Stockholder expressly referring to this paragraph.

     11.   Irrevocable   Proxy  Coupled  with  an  Interest.   The   Stockholder
     acknowledges  that  Chesapeake  will  enter into the  Merger  Agreement  in
     reliance upon this  Agreement,  including the Proxy,  and that the Proxy is
     granted in  consideration  for the  execution  and  delivery  of the Merger
     Agreement  by  Chesapeake.  THE  STOCKHOLDER  AGREES THAT THE PROXY AND ALL
     OTHER POWER AND AUTHORITY  INTENDED TO BE CONFERRED  HEREBY IS COUPLED WITH
     AN INTEREST  SUFFICIENT IN LAW TO SUPPORT AN IRREVOCABLE  POWER AND, EXCEPT
     AS PROVIDED IN PARAGRAPH 10 ABOVE, WILL NOT BE TERMINATED BY ANY ACT OF THE
     STOCKHOLDER BY LACK OF APPROPRIATE  POWER OR AUTHORITY OR BY THE OCCURRENCE
     OF ANY OTHER EVENT OR EVENTS.





     12.  Specific   Performance.   The  parties   acknowledge  and  agree  that
     performance of their respective  obligations hereunder will confer a unique
     benefit  on the other  and that a failure  of  performance  will  result in
     irreparable harm to the other and will not be compensable by money damages.
     The parties therefore agree that this Agreement,  including the Proxy, will
     be specifically  enforceable  and that specific  enforcement and injunctive
     relief  will  be  a  remedy  properly   available  to  Chesapeake  and  the
     Stockholder for any breach of any agreement,  covenant or representation of
     the other hereunder.

     13. Further  Assurance.  The Stockholder  will,  upon request,  execute and
     deliver  any  additional  documents  and take such  further  actions as may
     reasonably  be deemed by  Chesapeake  or its  counsel  to be  necessary  or
     desirable to carry out the provisions hereof.

     14. Severability.  If any term, provision,  covenant or restriction of this
     Agreement,  or the  application  thereof  to any  circumstance,  is, to any
     extent,  held by a court of competent  jurisdiction to be invalid,  void or
     unenforceable,  the  remainder  of the  terms,  provisions,  covenants  and
     restrictions  of this  Agreement  or the  application  thereof to any other
     circumstance,  will remain in full force and effect, will not in any way be
     affected,  impaired  or  invalidated  and will be  enforced  to the fullest
     extent permitted by law.

     15. Counterparts.  This Agreement may be executed in counterparts,  each of
     which  will be  deemed to be an  original  but all of which  together  will
     constitute one and the same document.

     16. Notice. All notices, requests, claims, demands and other communications
     under  this  Agreement  will be in  writing  and  will be  deemed  given if
     delivered  personally  or sent by  overnight  courier  (providing  proof of
     delivery) to the parties at the following  addresses (or such other address
     for a party as will be specified by like notice): (a) if to Chesapeake,  to
     the address set forth in paragraph 8.3 of the Merger Agreement,  and (b) if
     to a Stockholder, to the address set forth on the signature page hereof, or
     such other address as may be specified in writing by such Stockholder.

                  IN WITNESS WHEREOF, Chesapeake and the Stockholder have duly
executed this Agreement or caused this Agreement to be duly executed as of the
date first set forth above.

                                   STOCKHOLDER

                                     [NAME]




                                  Shares Owned:

                                                 shares of Canaan Common Stock









                                    Address:





                                    CHESAPEAKE ENERGY CORPORATION,
                                    an Oklahoma corporation


                                     By
                                       ----------------------------------------
                                       Aubrey K. McClendon, Chief Executive
                                       Officer





                                                                  EXHIBIT 99(c)

                          GOODWILL PROTECTION AGREEMENT

                  THIS GOODWILL PROTECTION AGREEMENT (this "Agreement") is made
effective the _____ day of ____________, 2002, among _______________, an
individual (the "Restricted Party"), CHESAPEAKE ENERGY CORPORATION, an Oklahoma
corporation ("Chesapeake"), and CHK ACQUISITION, INC., an Oklahoma corporation
("CHK").

                                                W I T N E S S E T H:

                  WHEREAS, Chesapeake, CHK and Canaan Energy Corporation, an
Oklahoma corporation ("Canaan"), entered into that certain Agreement and Plan of
Merger dated April 19, 2002 (the "Merger Agreement");

                  WHEREAS, the Restricted Party is an officer and shareholder of
Canaan with special expertise in the oil and gas business and as a result the
obligations of Chesapeake and CHK to close the transactions contemplated under
the Merger Agreement are expressly conditioned upon the execution and delivery
of this Agreement by the Restricted Party; and

                  WHEREAS, to induce Chesapeake and CHK to perform the Merger
Agreement and to protect the goodwill acquired by Chesapeake and CHK under the
Merger Agreement, the Restricted Party has agreed to execute, deliver and
perform this Agreement.

                  NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

     1. Defined Terms.  Except as otherwise defined herein, all terms defined in
     the Merger  Agreement will have the same meanings herein as therein defined
     unless the context  otherwise  requires.  The following terms will have the
     following meanings when used in this Agreement:

     1.1. Chesapeake  Companies.  Chesapeake,  CHK and all of their wholly owned
          subsidiary   companies,   whether  owned  directly  or  indirectly  by
          Chesapeake   or   CHK,   including,    without   implied   limitation,
          corporations, partnerships and limited liability companies.

     1.2  Confidential  Information.  All information  relating to Canaan and/or
          Canaan's  Oil and Gas  Interests,  including  information  relating to
          title matters,  environmental matters,  financial statements and other
          financial  matters,   estimates  of  reserves,  quality  of  reserves,
          geological  matters,  asset listings,  production and operating costs,
          production capabilities, marketing, tax, forecasts and projections, in
          whatever  form  (whether  documentary,  computer  storage  or  other).
          Notwithstanding   the  foregoing,   information   which  is  generally
          available to the public or becomes  generally  available to the public
          through no action of the Restricted Party Group will not be considered
          Confidential Information.

     1.3  Derivative Information.  Any notes, summaries,  evaluations,  analyses
          and other  material  derived by the  Restricted  Party from any of the
          Confidential Information.




     1.4  Lands.  Any and all lands  lying  within one (1) mile of: (a) any well
          and  drilling  or spacing  unit  within  which such well lies in which
          Canaan had an interest as of the Effective Time of the Merger, and (b)
          the  boundary  of any Oil and Gas  Interest  in  which  Canaan  had an
          interest as of the Effective Time of the Merger.

     1.5  Oil and Gas Business.  Owning,  managing,  operating,  controlling  or
          developing  Oil and Gas  Interests  or engaging in or being  connected
          with,  as a  partner,  limited  liability  company  member,  investor,
          stockholder,  advisor, employee, independent contractor or consultant,
          any of the  foregoing  activities or the oil and gas  exploration  and
          production business.

     1.6  Oil and Gas Interests. All: (a) oil and gas leases, mineral interests,
          oil,  gas and mineral  leasehold  interests,  fee  interests,  royalty
          interests  (including,  without implied limitation,  landowner royalty
          interests,  nonparticipating  royalty interests and overriding royalty
          interests),  production  payments,  net profits interests,  subleases,
          mineral  servitudes,  licenses,  easements,  pooling  orders and other
          interests in oil,  gas and other  hydrocarbons;  (b) contract  rights,
          joint operating agreements,  farm out agreements,  pooling agreements,
          seismic  agreements,  cost sharing  arrangements  and other agreements
          relating to the interests  under the  foregoing  clause (a) or the oil
          and gas exploration  and production  business;  (c) wells,  equipment,
          associated  personal  property,  pipelines,  fixtures and other assets
          related  to the  foregoing;  and  (d)  other  businesses,  operations,
          rights,  titles and interests  relating  directly or indirectly to the
          drilling,  exploration,  development,  operation,  marketing,  sale or
          other disposal of the foregoing assets and interests.

     1.7  Restricted  Party Group.  The Restricted  Party together with: (a) the
          immediate  family members of the Restricted  Party; (b) any successors
          or  assigns  of the  Restricted  Party;  (c) any  Person  in which the
          Restricted  Party owns or has the right to acquire an equity  interest
          in excess of twenty  percent  (20%);  and (d) any  entity in which the
          Restricted Party,  ____________ and _____________  (collectively,  the
          "Related  Parties") own or have the right to acquire a combined equity
          interest in excess of forty percent (40%).






     2. Restriction on Activities.  During the period  commencing on the date of
     this  Agreement and ending on the date two (2) years after the date of this
     Agreement (the  "Protection  Period"),  each member of the Restricted Party
     Group will not,  without  the prior  written  consent of  Chesapeake  or as
     otherwise  specifically  permitted under paragraph 2.2 hereof,  directly or
     indirectly:  (a) own,  acquire or solicit the acquisition of (or assist any
     other Person to own, acquire or solicit the acquisition of) any Oil and Gas
     Interests,  or any  option  or  other  right  to  acquire  any  Oil and Gas
     Interests,  in any case pertaining to or covering, in whole or in part, the
     Lands;  (b) conduct (or assist any third person to conduct) any Oil and Gas
     Business on or with  respect to the Lands;  or (c) acquire any  interest or
     the  right  to  acquire  any  interest  in a Person  that  owns Oil and Gas
     Interests  included  in clause (a) or conducts  activities  included in (b)
     that results in the Restricted  Party Group and the Related  Parties owning
     or  having  the right to  acquire  more than  forty  percent  (40%) of such
     Person. In addition to the foregoing,  during the Protection  Period,  each
     member of the Restricted Party Group will not, without the prior consent of
     Chesapeake,  directly or indirectly  terminate,  own,  acquire,  solicit or
     otherwise  interfere with any of Canaan's Oil and Gas Interests  pertaining
     to or covering in whole in part the Lands or in anyway attempt to do any of
     the foregoing or assist any third person to do any of the foregoing.

     2.1  The  limitations  in this paragraph 2 will not prohibit any investment
          by the Restricted  Party or the  Restricted  Party Group in securities
          which are listed on a public  exchange or the National  Association of
          Securities  Dealers  Automated  Quotation  System issued by a company,
          firm, corporation,  partnership,  trust or other entity involved in or
          conducting an Oil and Gas Business, provided that the Restricted Party
          and the Restricted  Party Group own no more than fifteen percent (15%)
          of the outstanding voting securities of such entity.






     2.2  The parties hereto recognize that, during the Protection  Period,  the
          Restricted  Party  and/or  the  Restricted  Party  Group may desire to
          acquire one or more  packages of Oil and Gas  Interests  which include
          Oil and Gas  Interests  both  inside  and  outside  the Lands  (each a
          "Package").   Nothing  in  this   Agreement  will  prohibit  any  such
          acquisition  of a Package,  and no such  acquisition  or the resulting
          ownership of such Oil and Gas Interests will constitute a violation of
          this  paragraph  2,  as long as the  number  of Oil and Gas  Interests
          included  in such  Package is greater  than  twenty  five (25) and the
          value of the Oil and Gas  Interests  lying  outside the Lands  exceeds
          seventy-five  percent (75%) of the purchase  price of the Package.  In
          the event the Restricted Party Group acquires a Package which contains
          more than twenty five (25) Oil and Gas  Interests but does not satisfy
          the foregoing or which contains less than twenty five (25) Oil and Gas
          Interests,  such  acquisition and the resulting  ownership of such Oil
          and Gas Interests will not  constitute a violation of this  Agreement,
          if within twenty (20) days after any such acquisition,  the Restricted
          Party: (a) notifies Chesapeake of such acquisition, specifying the Oil
          and Gas Interests acquired in the Lands (the "Offered  Interests") and
          specifying  the  portion  of the  acquisition  price for such  Package
          allocated  to the  Offered  Interests;  and (b) grants the  Chesapeake
          Companies the right, for a period of twenty (20) days after receipt of
          such  notice,  to acquire the Offered  Interests  from the  Restricted
          Party or the Restricted Party Group at the same acquisition price paid
          therefor  by the  Restricted  Party  or the  Restricted  Party  Group.
          Notwithstanding  the  foregoing,  in the  event  any  of  the  Offered
          Interests  are subject to an existing  preferential  right to purchase
          ("Third Party Rights"),  the Restricted Party will provide  Chesapeake
          with all  notices of Third  Party  Rights as and when  provided to the
          holders thereof and will take such actions as may be prudent to permit
          the  Chesapeake  Companies  to step into the  shoes of the  Restricted
          Party  during the period such Third Party  Rights are  outstanding  so
          that,  in the event  such Third  Party  Rights  are not  exercised  in
          accordance with the terms thereof,  the Chesapeake Companies will have
          the ability to acquire such Offered Interests without the necessity of
          re-instituting  another  Third Party  Rights  offer.  For  purposes of
          calculating  the number of Oil and Gas  Interests  in a  Package,  the
          following  will be considered an individual Oil and Gas Interest under
          this paragraph: (y) all of the Restricted Group's rights and ownership
          in a governmental spacing or production unit for a producing well; and
          (z)  with  respect  to  non-producing  assets,  all of the  Restricted
          Group's rights and ownership in the area covered by a single prospect.

     2.3  Nothing in this  Agreement  will prevent or prohibit any member of the
          Restricted  Party Group from being employed by any Person which is not
          a member of the  Restricted  Party  Group or, so long as the member of
          the Restricted  Party Group does not use  Confidential  Information or
          Derivative Information,  from assisting any such Person as an advisor,
          consultant  or  independent  contractor,  regardless  of whether  such
          person or entity owns, acquires or solicits the acquisition of any Oil
          and Gas Interests, or any option or other right to acquire any Oil and
          Gas Interests,  pertaining to or covering, in whole or in part, any of
          the Lands,  or conducts any Oil and Gas Business on or with respect to
          the Lands.

     3.  Confidentiality.  The Restricted Party hereby acknowledges that, during
     the term of the Restricted Party's relationship with Canaan, the Restricted
     Party  has  developed  and  had  access  to  Confidential  Information  and
     Derivative Information.  The Restricted Party hereby agrees as follows with
     respect to all Confidential Information and Derivative Information:

     3.1  Upon execution of this Agreement,  the Restricted Party will, and will
          cause each member of the Restricted Party Group to, immediately return
          to Canaan all Confidential  Information and Derivative  Information in
          the possession of the Restricted Party or any member of the Restricted
          Party Group.

     3.2  For a period of two (2) years after the date  hereof,  the  Restricted
          Party will, and will cause the members of the  Restricted  Party Group
          to, keep all Confidential  Information and Derivative  Information and
          the  results of any  analyses  of such data and  information  strictly
          confidential  and  will  not,  and  will  cause  the  members  of  the
          Restricted  Party Group not to, use any of such data,  information  or
          results  or  disclose  any such  data,  information  or results to any
          Person unless  otherwise  required by law or regulation  and then only
          after written  notice to Canaan of the  determination  of the need for
          disclosure.

     3.3  In the event that the Restricted Party or any member of the Restricted
          Party Group  becomes  legally  compelled to disclose any  Confidential
          Information and/or Derivative  Information,  the Restricted Party will
          provide Canaan with prompt notice so that Canaan may seek a protective
          order or other appropriate  remedy and/or waive the Restricted Party's
          compliance with the confidentiality  and non-disclosure  provisions of
          this  Agreement.  In the  event  that such  protective  order or other
          remedy is not obtained,  the  Restricted  Party will furnish only that
          portion of the Confidential  Information and/or Derivative Information
          which it is advised by counsel is legally required.








     4. Separate Covenants. This Agreement will be deemed to consist of a series
     of  separate  covenants  independent  from  any  provision  of  the  Merger
     Agreement.  The  Restricted  Party  expressly  agrees  that the  character,
     duration and  geographical  scope of this Agreement are reasonable in light
     of the  circumstances  as existing on the date of this Agreement.  However,
     should  a  determination  nonetheless  be  made  by a  court  of  competent
     jurisdiction  at a later date that the character,  duration or geographical
     scope of this Agreement is  unreasonable in light of the  circumstances  as
     then  existing or existing at the execution of this  Agreement,  then it is
     the intention and the agreement of the Restricted Party, Chesapeake and CHK
     that this  Agreement  be  construed by the court and given effect in such a
     manner as to impose only the  restrictions on the conduct of the Restricted
     Party which are reasonable in light of the  circumstances  as then existing
     and as are necessary to assure  Chesapeake and CHK of the intended  benefit
     of this Agreement and the Merger Agreement. If, in any judicial proceeding,
     a court refuses to enforce all of the separate  covenants  included  herein
     because, taken together such covenants are more extensive than necessary to
     assure Chesapeake and CHK of the intended benefit of this Agreement,  it is
     expressly  understood and agreed  between the parties that those  covenants
     not to be  enforced  in  such  proceeding  will,  for the  purpose  of such
     proceeding, be deemed eliminated from the provisions hereof.

     5.  Periodic  Payments.  As  additional  consideration  for the  Restricted
     Party's  execution,  delivery and  performance of this Goodwill  Protection
     Agreement,  Chesapeake  agrees  to pay to the  Restricted  Party the sum of
     $_____________  payable in three (3) equal payments of $_____________ each.
     The first  payment  will be due on the  execution  of this  Agreement,  the
     second  payment  will be due on the date  which is one (1) year  after  the
     execution of this  Agreement  and the third payment will be due on the date
     which is two (2) years after the execution of this Agreement.

     6. Default.  The Restricted  Party will be responsible for any violation of
     provisions  hereof by any  member of the  Restricted  Party  Group.  If the
     Restricted  Party  fails  to  perform  any  obligation  contained  in  this
     Agreement or fails to cause the Restricted Party Group to perform the terms
     of this  Agreement,  Chesapeake  or CHK may  serve  written  notice  to the
     Restricted  Party  specifying  the  nature of such  default  and  demanding
     performance.  If such  default has not been cured  within five (5) business
     days after receipt of such default  notice,  Chesapeake  and/or CHK will be
     entitled  to  demand  specific  performance,  suspend  performance  of  any
     obligation under this Agreement,  or exercise all remedies available at law
     or in equity.  Given the nature of the assets to be acquired by  Chesapeake
     under the Merger  Agreement,  the  parties  acknowledge  and agree that the
     goodwill  purchased by Chesapeake  cannot be protected if the provisions of
     this  Agreement  are  not  strictly  enforced.   Accordingly,  the  parties
     acknowledge and agree that, if there is a breach by the Restricted Party of
     the provisions of this Agreement,  money damages alone will not be adequate
     and the Chesapeake Companies will be entitled to an injunction  restraining
     the  Restricted  Party or the  Restricted  Party Group from  violating  the
     provisions of this Agreement.  The remedies  provided by this Agreement are
     cumulative  and will not exclude any other remedy to which a party might be
     entitled under this  Agreement.  In the event a party elects to selectively
     and  successively  enforce such party's rights under this  Agreement,  such
     action will not be deemed a waiver or discharge of any other remedy.

     7. Miscellaneous. It is further agreed as follows:









     7.1  Notices.  Except as expressly provided herein,  any notice,  demand or
          communication  required or permitted  to be given by any  provision of
          this  Agreement  will be in  writing  and will be  deemed to have been
          given and received when delivered  personally or by  telefacsimile  to
          the party designated to receive such notice,  or on the date following
          the day sent by overnight courier,  or on the third (3rd) business day
          after the same is sent by certified mail, postage and charges prepaid,
          directed to the  following  addresses  or to such other or  additional
          addresses as any party might  designate by written notice to the other
          parties:

          To any of the Chesapeake
          Companies:                         Mr. Henry J. Hood
                                             Chesapeake Energy Corporation
                                             6100 North Western
                                             Oklahoma City, Oklahoma  73118
                                             Telephone: (405) 879-9400
                                             Fax: (405) 405.879.9561

           With a copy to:                   Ray Lees, Esquire
                                             Commercial Law Group, P.C.
                                             2725 Oklahoma Tower
                                             210 Park Avenue
                                             Oklahoma City, Oklahoma  73102
                                             Telephone: (405) 232-3001
                                             Fax: (405) 232-5553

             To the Restricted Party:
                                             ---------------------------------


                                             Telephone: (___) ___-____
                                             Fax: (___) ___-____

     7.2  Severability. If any clause or provision of this Agreement is illegal,
          invalid  or  unenforceable  under  any  present  or  future  law,  the
          remainder of this  Agreement will not be affected  thereby.  It is the
          intention  of the  parties  that if any such  provision  is held to be
          illegal, invalid or unenforceable, there will be added in lieu thereof
          a provision as similar in terms to such  provisions as is possible and
          to be legal, valid and enforceable.

     7.3  Entire Agreement.  This Agreement,  together with the Merger Agreement
          and the other instruments executed in connection therewith, constitute
          the entire  agreement  between the parties with respect to the subject
          matter hereof and there are no agreements, understandings,  warranties
          or  representations  except as set forth herein and  therein.  Neither
          this  Agreement  nor  any of the  provisions  hereof  can be  changed,
          waived, discharged or terminated except by an instrument signed by the
          party against whom  enforcement  of the change,  waiver,  discharge or
          termination is sought.






     7.4  Attorneys'  Fees.  If any party  institutes  an  action or  proceeding
          against any other party relating to the provisions of this  Agreement,
          the party to such action or  proceeding  which does not  prevail  will
          reimburse the prevailing party therein for the reasonable  expenses of
          attorneys' fees and disbursements incurred by the prevailing party.

     7.5  Waiver.  Waiver of  performance of any obligation or term contained in
          this  Agreement  by any party,  or waiver by one party of the  other's
          default  hereunder  will not operate as a waiver of performance of any
          other  obligation or term of this  Agreement or a future waiver of the
          same obligation or a waiver of any future default.

     7.6  Assignment.  No party  hereto may assign all or any  portion of his or
          its rights or obligations  hereunder without the prior written consent
          of the other parties hereto; provided,  however, CHK may assign all or
          any portion of its rights  hereunder to (a) any other entity or person
          which at any time controls or is under common control with CHK, or (b)
          any entity or person which  acquires all of CHK's Oil and Gas Business
          with respect to the Lands.

     7.7  Governing  Law.  This  Agreement  will be  interpreted,  construed and
          enforced in accordance with the laws of the State of Oklahoma.

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

                                       CHESAPEAKE ENERGY CORPORATION,
                                       an Oklahoma corporation

                                       By
                                         -------------------------------------
                                         Aubrey K. McClendon, Chief Executive
                                         Officer
                                                      ("Chesapeake")

                                        CHK ACQUISITION, INC.,
                                        an Oklahoma corporation

                                        By
                                          -------------------------------------
                                          Aubrey K. McClendon, Chief Executive
                                          Officer

                                                        ("CHK")


                                                                , individually
---------------------------------------------------------------
                                              (the "Restricted Party")