Exhibit 10.1

                               FIRST AMENDMENT TO
                          SECURITIES PURCHASE AGREEMENT


         This  First   Amendment  to   Securities   Purchase   Agreement   (this
"AMENDMENT") is made and entered into as of the 28th day of January, 2005 by and
among Amen  Properties,  Inc. (the  "COMPANY") and the  purchasers  named on the
signature  pages  attached  hereto (the  "PURCHASERS"),  with  reference  to the
following facts:

         A. The Company and the Purchasers  entered into that certain Securities
Purchase  Agreement  dated  as of  January  18,  2005  (the  "ORIGINAL  PURCHASE
AGREEMENT").  Capitalized  terms  used but not  defined  herein  shall  have the
meanings assigned thereto in the Original Purchase Agreement.

         B. Pursuant to the Original Purchase Agreement, the Closing Date is set
at  January  28,  2005 or such  other  time as is  mutually  agreed  upon by the
parties.  The  parties  acknowledge  that  there are delays in  preparation  for
closing, and have determined and agreed that the Closing Date should be extended
as provided herein.

         NOW,  THEREFORE,  FOR  AND IN  CONSIDERATION  of the  mutual  promises,
covenants and agreements set forth in the Original  Purchase  Agreement and this
Amendment, the parties hereto agree as follows:

         1.  AMENDMENT TO ORIGINAL  PURCHASE  AGREEMENT.  The Original  Purchase
Agreement is hereby  amended to change the Closing Date from January 28, 2005 to
the  following:  "February  28,  2005 or such  earlier  time as the  Company has
received all documents  necessary for Closing and all conditions to Closing have
been satisfied or at such other time as the parties mutually agree."

         2. RATIFICATION OF ORIGINAL PURCHASE AGREEMENT,  AS AMENDED.  Except as
expressly   modified  herein,  the  Original  Purchase  Agreement  shall  remain
unchanged and, as amended hereby,  in full force and effect.  The parties hereto
hereby  acknowledge,  ratify and confirm the  Original  Purchase  Agreement,  as
amended hereby, and agree to perform their obligations thereunder.

         3.  COUNTERPARTS.  This  Amendment  may be  executed  in any  number of
counterparts   so  long  as  each  party  hereto  executes  at  least  one  such
counterpart,  and all such counterparts shall be taken together as one document.
Faxed  signatures  shall be considered  and deemed  original  signatures for all
purposes.

                  [Remainder of Page Intentionally Left Blank]



                                       1
<PAGE>




         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered as of the date first above written.

                                    THE COMPANY:

                                    AMEN PROPERTIES, INC.


                                    By:
                                    -------------------------------------
                                    Jon M. Morgan, President

                                    THE PURCHASERS:



                                    ----------------------------------------
                                    Jon M. Morgan


                                    ----------------------------------------
                                    Eric Oliver


                                    MORIAH INVESTMENT PARTNERS

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


                                    McGRAW BROTHER INVESTMENTS


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


                                    ----------------------------------------
                                    Frosty Gilliam


                                    ----------------------------------------
                                    John Norwood


                                    ----------------------------------------
                                    John Bergman

                                       2
<PAGE>

                                    LCM PARTNERSHIP, LP


                                    By:
                                    -------------------------------------
                                    its general partner


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

                                    JMA CHEDDARS, LTD.

                                    By: ,
                                    -------------------------------------
                                    its general partner


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



                                    ----------------------------------------
                                    Bruce Edgington




                                       3
<PAGE>

===============================================================================



                          SECURITIES PURCHASE AGREEMENT


                          DATED AS OF JANUARY 18, 2005


                                  BY AND AMONG


                              AMEN PROPERTIES, INC.

                                       AND


                              THE PURCHASERS NAMED
                          ON THE SIGNATURE PAGES HERETO

===============================================================================
                                       1
<PAGE>




                                TABLE OF CONTENTS

                                                                          PAGE


Article I DEFINITIONS........................................................1
   SECTION 1.1 - DEFINITIONS.................................................1
   -------------------------
   SECTION 1.2 - OTHER DEFINITIONS...........................................3
   -------------------------------
   SECTION 1.3 - CONSTRUCTION................................................3
   --------------------------

Article II ISSUANCE AND PURCHASE OF STOCK....................................3
   SECTION 2.1 - ISSUANCE AND PURCHASE OF STOCK..............................3
   --------------------------------------------
   SECTION 2.2 - THE CLOSING.................................................4
   -------------------------

Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................4
   SECTION 3.1 - ORGANIZATION................................................4
   --------------------------
   SECTION 3.2 - DUE AUTHORIZATION...........................................4
   -------------------------------
   SECTION 3.3 - NON-CONTRAVENTION...........................................5
   -------------------------------
   SECTION 3.4 - CAPITALIZATION..............................................5
   ----------------------------
   SECTION 3.5 - LEGAL PROCEEDINGS...........................................6
   -------------------------------
   SECTION 3.6 - NO VIOLATIONS...............................................6
   ---------------------------
   SECTION 3.7 - PERMITS.....................................................6
   ---------------------
   SECTION 3.8 - FINANCIAL STATEMENTS........................................6
   ----------------------------------
   SECTION 3.9 - NO MATERIAL ADVERSE CHANGE..................................6
   ----------------------------------------
   SECTION 3.10 - DISCLOSURE.................................................6
   -------------------------
   SECTION 3.11 - COMPLIANCE.................................................7
   -------------------------
   SECTION 3.12 - REPORTING STATUS...........................................7
   -------------------------------
   SECTION 3.13 - PROPERTIES AND CONTRACTS...................................7
   ---------------------------------------
   SECTION 3.14 - ENVIRONMENTAL MATTERS......................................7
   ------------------------------------
   SECTION 3.15 - INSURANCE..................................................8
   ------------------------

Article IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................8
   SECTION 4.1 - AUTHORITY...................................................8
   -----------------------
   SECTION 4.2 - CONSENTS AND APPROVAL; NO VIOLATION.........................8
   -------------------------------------------------
   SECTION 4.3 - SECURITIES LAWS.............................................8
   -----------------------------

Article V ADDITIONAL AGREEMENTS.............................................11
   SECTION 5.1 - USE OF PROCEEDS............................................11
   -----------------------------
   SECTION 5.2 - ACCESS TO INFORMATION......................................11
   -----------------------------------
   SECTION 5.3 - RESERVATION OF COMMON STOCK................................12
   -----------------------------------------
   SECTION 5.4 - LISTING OF COMMON STOCK....................................12
   -------------------------------------
   SECTION 5.5 - FUTURE SALES OF COMMON STOCK...............................12
   ------------------------------------------
   SECTION 5.6 - BEST EFFORTS...............................................12
   --------------------------
   SECTION 5.7 - PUBLIC ANNOUNCEMENTS.......................................12
   ----------------------------------
   SECTION 5.8 - APPROVAL OF PREFERRED......................................13
   -----------------------------------
   SECTION 5.9 - RESTRICTIVE LEGENDS........................................13
   ---------------------------------



                                       i
<PAGE>

Article VI PURCHASERS' CONDITIONS...........................................14
   SECTION 6.1 - REPRESENTATIONS AND COVENANTS..............................14
   -------------------------------------------
   SECTION 6.2 - CERTIFICATE OF DESIGNATION.................................14
   ----------------------------------------
   SECTION 6.3 - REQUIRED CONSENTS AND APPROVALS............................14
   ---------------------------------------------

Article VII COMPANY'S CONDITIONS............................................14
   SECTION 7.1 - REPRESENTATIONS AND COVENANTS..............................14
   -------------------------------------------
   SECTION 7.2 - REQUIRED CONSENTS AND APPROVALS............................14
   ---------------------------------------------
   SECTION 7.3 - ADDITIONAL DOCUMENTS.......................................15
   ----------------------------------

Article VIII TERMINATION AND SURVIVAL.......................................15
   SECTION 8.1 - TERMINATION................................................15
   -------------------------
   SECTION 8.2 - SURVIVAL; FAILURE TO CLOSE.................................15
   ----------------------------------------

Article IX MISCELLANEOUS....................................................15
   SECTION 9.1 - ENTIRE AGREEMENT...........................................15
   ------------------------------
   SECTION 9.2 - NOTICES....................................................15
   ---------------------
   SECTION 9.3 - GOVERNING LAW..............................................16
   ---------------------------
   SECTION 9.4 - SEVERABILITY...............................................16
   --------------------------
   SECTION 9.5 - EXPENSES...................................................16
   ----------------------
   SECTION 9.6 - DESCRIPTIVE HEADINGS.......................................16
   ----------------------------------
   SECTION 9.7 - COUNTERPARTS...............................................16
   --------------------------
   SECTION 9.8 - ASSIGNMENT.................................................16
   ------------------------
   SECTION 9.9 - AMENDMENTS; WAIVERS........................................17
   ---------------------------------





                                       ii

<PAGE>



Mid: 010056\000050\438943.3                                19

                          SECURITIES PURCHASE AGREEMENT


         This  Securities  Purchase  Agreement  (the  "AGREEMENT")  is made  and
entered into as of the 18th day of January,  2005, by and among Amen Properties,
Inc., a Delaware  corporation  (the  "COMPANY"),  and the purchasers whose names
appear on the Signature Pages hereto (the "PURCHASERS", and each a "PURCHASER").

                                   ARTICLE I
                                   DEFINITIONS

         SECTION 1.1 -  DEFINITIONS.  As used in this  Agreement,  the following
terms have the meanings indicated:

         "AGREEMENT"  has  the  meaning  ascribed  to  such  term  in the  first
paragraph hereof.

         "CERTIFICATE OF  DESIGNATION"  means the Certificate of Designations of
Series C Convertible  Preferred Stock of Amen Properties,  Inc. in substantially
the form attached hereto as EXHIBIT "A".

         "CLOSING" has the meaning ascribed to such term in Section 2.2.

         "CLOSING DATE" has the meaning ascribed to such term in Section 2.2.

         "COMMON  STOCK" means the common stock,  $0.01 par value per share,  of
the Company.

         "COMPANY" has the meaning  ascribed to such term in the first paragraph
hereof.

         "CONTRACTS"  means  any  indenture,   mortgage,  deed  of  trust,  loan
agreement,  note, lease,  license,  franchise  agreement,  permit,  certificate,
contract or other  agreement  or  instrument  to which the Company or any of its
Subsidiaries  is a party or to which their  respective  material  properties  or
assets are subject.

         "CONVERSION SHARES" means the shares of Common Stock issued or issuable
upon conversion of the Series C Preferred Stock pursuant to the terms thereof.

         "ENVIRONMENTAL  LAWS" means all (i) all federal statutes  regulating or
prescribing  restrictions  regarding  the use of  property  or other  activities
affecting the environment (air, water,  land, animal and plant life),  including
but  not  limited  to the  following:  the  Clean  Air  Act,  Clean  Water  Act,
Comprehensive Environmental Response,  Compensation and Liability Act, Emergency
Planning and Community  Right-to-Know  Act, Hazardous  Materials  Transportation
Act, National  Environmental Policy Act, Occupational Safety and Health Act, Oil
Pollution  Act of 1990,  Resource  Conservation  and Recovery Act, Safe Drinking
Water Act, and Toxic  Substances  Control Act; (ii) all regulations  promulgated
under  such  federal  statutes,  (iii)  all  local  and  state  laws,  rules and
regulations  regulating the use of or relating to or affecting the  environment,
and (iv) all common law rights, duties and obligations relating to the use of or
matters affecting the environment.


                                       1
<PAGE>

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

         "GOVERNMENTAL  AUTHORITY" means the United States, any foreign country,
state,  county, city or other political  subdivision,  agency or instrumentality
thereof.

         "GUARANTY"  or  "GUARANTIES"  means the  guaranty,  letter of credit or
similar  arrangement  by each  Purchaser  in favor of the lender to the  Company
and/or one or more of its  Subsidiaries,  pursuant to which such  Purchaser will
guarantee or secure a portion of the  indebtedness  of the Company and/or one or
more of its  Subsidiaries  to such  lender  for a period of three (3) years in a
form acceptable to the lender. The total amount covered by the Guaranties of all
of the Purchasers  will be $5,000,000.  The portion of such  indebtedness  to be
guaranteed by each Purchaser  shall be set forth on such  Purchaser's  Signature
Page.

         "MATERIAL   ADVERSE  EFFECT"  means  any  event  or  condition   which,
individually  or in the  aggregate,  would  reasonably  be  expected  to  have a
material  adverse  effect on the  business,  financial  condition  or results of
operations of the Company and its Subsidiaries, taken as a whole.

         "PERMITS" means any licenses, permits, certificates,  consents, orders,
approvals and other  authorizations from, and all declarations and filings with,
all   federal,   state,   local  and   other   Governmental   Authorities,   all
self-regulatory  organizations  and all  courts  and other  tribunals  presently
required or  necessary  to own or lease,  as the case may be, and to operate the
properties of the Company and its  Subsidiaries  and to carry on the business of
the Company and the Subsidiaries as now or proposed to be conducted as set forth
in the SEC Filings.

         "PURCHASED SECURITIES" has the meaning ascribed to such term in Section
2.1.

         "PURCHASER"  has the  meanings  ascribed  to such  terms  in the  first
paragraph hereof.

         "SEC" means the Securities and Exchange Commission.

         "SEC FILINGS"  means the Company's  reports and other filings made with
the SEC for a period of two (2) years prior to the date hereof and all  exhibits
thereto.

         "SECURITIES"  means the Series C Preferred Stock and the Warrants being
purchased  pursuant  to this  Agreement  and the  Conversion  Shares and Warrant
Shares issuable in connection therewith.

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

         "SERIES A AND B PREFERRED STOCK" means the Series A Preferred Stock and
Series B Convertible Preferred Stock of the Company.



                                       2
<PAGE>

         "SERIES C PREFERRED  STOCK"  means the Series C  Convertible  Preferred
Stock of the  Company,  par value  $0.001  per  share,  having  the  rights  and
preferences substantially as set forth in EXHIBIT "A" attached hereto.

         "SIGNATURE PAGE" means the counterpart signature page of this Agreement
signed by each Purchaser.

         "SUBSIDIARY"  means,  when  used  with  reference  to  an  entity,  any
corporation,  a majority of the outstanding voting securities of which are owned
directly or indirectly  by such entity.  Such term shall also refer to any other
partnership,  limited  partnership,  limited liability  company,  joint venture,
trust,  or other business  entity in which such entity has a material  interest.
With respect to the Company,  as of the date of this  Agreement,  the  Company's
Subsidiaries are set forth on SCHEDULE 3.1 attached hereto.

         "TRANSACTIONS"  means the issuance and sale of the Purchased Securities
to the Purchasers and the other  transactions  and  obligations  contemplated by
this Agreement.

         "WARRANT" or  "WARRANTS"  means the  Company's  Common  Stock  Purchase
Warrants,  having  terms  substantially  as set forth in  EXHIBIT  "B"  attached
hereto.

         "WARRANT  CERTIFICATE"  means a  certificate  evidencing  a Warrant  in
substantially the form attached hereto as EXHIBIT "B".

         "WARRANT  SHARES"  means  the  shares  of  Common  Stock  purchased  or
purchaseable upon the exercise of the Warrants pursuant to the terms thereof.

         SECTION 1.2 - OTHER DEFINITIONS.  Other terms defined in this Agreement
have the meanings so given them.

         SECTION 1.3 - CONSTRUCTION.  Whenever the context requires,  the gender
of all words  used in this  Agreement  includes  the  masculine,  feminine,  and
neuter.  Except as specified otherwise,  all references to Articles and Sections
refer to articles and sections of this Agreement, and all references to exhibits
and schedules are to Exhibits and Schedules attached to this Agreement,  each of
which is made a part of this  Agreement for all purposes.  The word  "including"
shall  mean  "including,   without  limitation"  unless  the  context  otherwise
requires.

                                   ARTICLE II
                         ISSUANCE AND PURCHASE OF STOCK

         SECTION 2.1 - ISSUANCE AND PURCHASE OF STOCK.  Subject to the terms and
conditions of this  Agreement,  (i) the Company  agrees to issue and sell to the
Purchasers a total of 125,000  shares of Series C Preferred  Stock  (convertible
into a total of 500,000  Conversion  Shares) and  Warrants for the purchase of a
total of 250,000  Warrant Shares (the "PURCHASED  SECURITIES")  for an aggregate
purchase  price  consisting of $2,000,000 in cash and the  Guaranties,  and (ii)
each Purchaser  agrees to subscribe for and purchase from the Company the number
of shares of Series C  Preferred  Stock and a Warrant  for the number of Warrant
Shares  set  forth  on such  Purchaser's  Signature  Page for a  purchase  price
consisting  of the  amount of cash and the amount of such  Purchaser's  Guaranty
also set forth on such Purchaser's Signature Page.

                                       3
<PAGE>

         SECTION 2.2 - THE CLOSING.  Subject to the terms and conditions of this
Agreement,  the  issuance and purchase of the  Purchased  Securities  shall take
place at a closing (the "CLOSING") to be held at the offices of the Company, 303
W. Wall, Suite 1700, Midland, Texas, at 10:00 a.m. (Central time) on January 28,
2005,  or such other place or time as may be agreed by the parties.  The date on
which the Closing  occurs is referred  to herein as the  "CLOSING  DATE." At the
Closing,  the Company will deliver to each Purchaser  certificates  representing
the Purchased Securities set forth on such Purchaser's Signature Page registered
in the name of such Purchaser, or in the name of such nominee or designee as the
Purchaser  may request in writing at least five (5) days prior to Closing,  upon
receipt of (i) the cash purchase price set forth on such  Purchaser's  Signature
Page  therefor by wire  transfer of  immediately  available  funds to an account
designated by the Company,  or by such other method as is mutually  agreed to by
such Purchaser and the Company, and (ii) such Purchaser's duly executed Guaranty
in the amount set forth on such  Purchaser's  Signature Page. Such  certificates
shall bear  appropriate  restrictive  legends deemed necessary by the Company to
comply  with  applicable   securities  and  corporate  laws,  including  without
limitation those set forth in Section 5.9. Effective as of the Closing Date, the
Company shall have filed the  Certificate of  Designation  with the Secretary of
State of the State of Delaware.

                                  ARTICLE III
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company  represents  and warrants to the  Purchasers as of the date
hereof as follows:

         SECTION 3.1 -  ORGANIZATION.  Each of the Company and its  Subsidiaries
(i) is duly organized,  validly  existing and in good standing under the laws of
the jurisdiction of its organization,  (ii) has full power and authority to own,
operate  and occupy its  properties  and to conduct its  business  as  presently
conducted,  and (iii) is  registered  or  qualified  to do business  and in good
standing in each  jurisdiction in which it owns or leases property or tranasacts
business,  except  where the  failure to be so  qualified  would  reasonably  be
expected  to  have a  Material  Adverse  Effect,  and  no  proceeding  has  been
instituted in any such jurisdiction revoking, limiting or curtailing, or seeking
to revoke, limit or curtail, such power and authority or qualification. SCHEDULE
3.1 contains a list of the Company's Subsidiaries, including the jurisdiction of
organization  of, and direct and  indirect  ownership  of the  Company  in, each
Subsidiary (and whether such ownership is subject to a lien,  security  interest
or other encumberance).

         SECTION 3.2 - DUE  AUTHORIZATION.  The Company has all requisite  power
and  authority  to  execute,  deliver and  perform  its  obligations  under this
Agreement,  and this Agreement has been duly authorized (except for the approval
of the  designation,  issuance  and sale of the Series C Preferred  Stock by the
holders  of the  Series  A and B  Preferred  Stock)  and  validly  executed  and
delivered by the Company and constitutes a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with its terms, except
as rights to  indemnity  and  contribution  may be  limited  by state or federal
securities  laws or the  public  policy  underlying  such  laws,  and  except as
enforceability   may  be   limited   by   applicable   bankruptcy,   insolvency,
reorganization,  moratorium or similar laws affecting creditors' and contracting
parties'  rights  generally  and general  principles  of equity  (regardless  of
whether such  enforceability is considered in a proceeding in equity or at law).
Approval of this Agreement and the Transactions by the Board of Directors of the
Company  constitutes  approval by the Board of  Directors  of the Company of the
Purchasers becoming Interested Stockholders of the Company prior to the time the
Purchasers became Interested  Stockholders  within the meaning of Section 203 of
the Delaware General Corporation Law.

                                       4
<PAGE>

         SECTION 3.3 -  NON-CONTRAVENTION.  The  execution  and delivery of this
Agreement,  the issuance and sale of the Securities and the  consummation of the
Transactions  will not (assuming the approval of the  designation,  issuance and
sale of the  Series C  Preferred  Stock  by the  holders  of the  Series A and B
Preferred  Stock) (a) conflict  with or  constitute  a violation  of, or default
(with the passage of time or otherwise) under (i) any material  Contracts,  (ii)
the charter,  by-laws or other organizational documents of the Company or any of
its Subsidiaries, or (iii) to its knowledge, any law, administrative regulation,
ordinance or order of any court or  governmental  agency,  arbitration  panel or
authority  binding  upon  the  Company  or  any  of its  Subsidiaries  or  their
respective  properties,  except as to (i), (ii) and (iii) above those conflicts,
violations or defaults that would not  reasonably be expected to have a Material
Adverse  Effect,  or (b) result in the  creation or  imposition  of any material
lien,  encumbrance,  claim, security interest or restriction whatsoever upon any
of the material  properties or assets of the Company or any of its  Subsidiaries
or  an  acceleration  of  indebtedness  pursuant  to  any  material  obligation,
agreement or condition  contained in any material bond,  debenture,  note or any
other evidence of material  indebtedness  or any material  indenture,  mortgage,
deed of trust or any other material agreement or instrument to which the Company
or any of its  Subsidiaries  is a party or by  which  any of them is bound or to
which  any of the  material  property  or assets  of the  Company  or any of its
Subsidiaries is subject. No consent, approval,  authorization or other order of,
or   registration,   qualification   or  filing  with,  any   regulatory   body,
administrative  agency,  or other  governmental  body in the  United  States  is
required for the execution and delivery of this Agreement and the valid issuance
and sale of the  Purchased  Securities,  other  than  such as have  been made or
obtained, except for any securities filings required to be made under federal or
state securities laws, and except where any failure to make or obtain any of the
foregoing would not reasonably be expected to have a Material Adverse Effect.


                                       5
<PAGE>

         SECTION 3.4 - CAPITALIZATION.  The  capitalization of the Company as of
September  30, 2004 is as set forth in SCHEDULE 3.4  attached  hereto and in the
SEC Filings.  The Company has not issued any capital stock since that date.  The
Purchased Securities have been duly authorized,  and when issued and paid for in
accordance  with the terms of this  Agreement,  will be duly and validly issued,
fully paid and  non-assessable.  The outstanding  shares of capital stock of the
Company have been duly and validly issued and are fully paid and non-assessable,
have been issued in compliance with all federal and state  securities  laws, and
were not issued in  violation  of any  preemptive  rights or  similar  rights to
subscribe  for or purchase  securities.  Except as set forth in SCHEDULE  3.4 or
disclosed in the SEC Filings, there are no outstanding rights (including without
limitation,  preemptive rights),  warrants or options to acquire, or instruments
convertible  into or  exchangeable  for, any unissued shares of capital stock or
other equity interest in the Company, or any contracts, commitments, agreements,
understandings  or  arrangements  of any kind to which  the  Company  is a party
relating  thereto.  Without  limiting  the  foregoing  and  other  than  certain
registration  rights  previously  granted  by the  Company  to  certain  Company
stockholders,  no preemptive rights,  co-sale rights, rights of first refusal or
other  similar  rights  exist  with  respect  to the  issuance  and  sale of the
Purchased  Securities.  The  Company  owns the  equity  interest  in each of its
Subsidiaries  specified  in SCHEDULE  3.1,  free and clear of any pledge,  lien,
security  interest,  encumbrance  or claim,  other than as described in SCHEDULE
3.1.  Except for  certain  agreements  relating  to the Series A and B Preferred
Stock and except as  disclosed  in the SEC  Filings,  there are no  stockholders
agreements,  voting  agreements or other similar  agreements with respect to the
Common Stock to which the Company is a party.

         SECTION  3.5 -  LEGAL  PROCEEDINGS.  There  is  no  material  legal  or
governmental proceedings pending to which the Company or any of its Subsidiaries
is a party or of which the  business  or  property  of the Company or any of its
Subsidiaries is subject.

         SECTION  3.6 - NO  VIOLATIONS.  Neither  the  Company  nor  any  of its
Subsidiaries  is in  violation of its  charter,  bylaws or other  organizational
document,  or  to  its  knowledge,  in  violation  of  any  law,  administrative
regulation,   ordinance  or  order  of  any  court  or  Governmental  Authority,
arbitration  panel  or  authority  applicable  to  the  Company  or  any  of its
Subsidiaries,  which  violation,  individually  or in the  aggregate,  would  be
reasonably likely to have a Material Adverse Effect, or is in default (and there
exists  no  condition  which,  with  the  passage  of time or  otherwise,  would
constitute a default) in the performance of any material Contracts,  which would
be reasonably likely to have a Material Adverse Effect.

         SECTION 3.7 - PERMITS. Each of the Company and its Subsidiaries has all
necessary Permits that are currently necessary for the operation of the business
of the Company and its  Subsidiaries as currently  conducted and as described in
the SEC  Filings,  except  where the failure to  currently  possess such Permits
would not reasonably be expected to have a Material Adverse Effect.

         SECTION 3.8 - FINANCIAL  STATEMENTS.  The  financial  statements of the
Company and the related notes contained in the SEC Filings  present  fairly,  in
accordance  with generally  accepted  accounting  principles,  the  consolidated
financial  position  of  the  Company  and  its  Subsidiaries  as of  the  dates
indicated,  except that such  financial  statements do not reflect the sale by a
Subsidiary of the Company in December  2004 of real estate in Lubbock,  Texas as
disclosed  in a recent SEC Filing.  Such  financial  statements  (including  the
related  notes)  have  been  prepared  in  accordance  with  generally  accepted
accounting  principles  applied on a  consistent  basis  throughout  the periods
therein specified.

         SECTION 3.9 - NO MATERIAL  ADVERSE  CHANGE.  Except as disclosed in the
SEC Filings,  since September 30, 2004, there has not been (i) any change in the
business, financial condition or operation of the Company which would reasonably
be expected to have a Material  Adverse Effect,  (ii) any obligation,  direct or
contingent,  that is material to the Company and its Subsidiaries  considered as
one enterprise, incurred by the Company or its Subsidiaries,  except obligations
incurred in the ordinary course of business,  (iii) any dividend or distribution
of any kind declared,  paid or made on the capital stock of the Company, or (iv)
any loss or damage  (whether  or not  insured) to the  physical  property of the
Company or any of its Subsidiaries  which would reasonably be expected to have a
Material Adverse Effect.

                                       6
<PAGE>

         SECTION 3.10 - DISCLOSURE. The information contained in the SEC Filings
as of the date of such  information  did not  contain an untrue  statement  of a
material fact or 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.

         SECTION 3.11 - COMPLIANCE.  The Common Stock is registered  pursuant to
Section 12(g) of the Exchange Act and is listed on the Nasdaq SmallCap Market of
the Nasdaq Stock Market (the "NASDAQ STOCK  MARKET"),  and the Company has taken
no  action  designed  to,  or  likely to have the  effect  of,  terminating  the
registration of the Common Stock under the Exchange Act or de-listing the Common
Stock  from  the  Nasdaq  Stock  Market,   nor  has  the  Company  received  any
notification  within the 12 months preceding the date of this Agreement that the
SEC  or the  National  Association  of  Securities  Dealers,  Inc.  ("NASD")  is
contemplating terminating such registration or listing.

         SECTION  3.12 -  REPORTING  STATUS.  The  Company has filed in a timely
manner all  documents  that the Company was  required to file under the Exchange
Act during the 12 months  preceding the date of this  Agreement.  Copies of such
documents have been made available to each of the Purchasers.

         SECTION 3.13 - PROPERTIES  AND  CONTRACTS.  Each of the Company and its
Subsidiaries  has good and  defensible  title to all  property  included  in the
financial  information  provided  to  Purchasers  (except for the real estate in
Lubbock,  Texas  sold by a  Subsidiary  of the  Company  in  December  2004  and
disclosed  in a recent  SEC  Filing),  free and  clear  of all  liens,  charges,
encumbrances  or  restrictions,  except  (i)  liens  granted  to a lender by the
Company or a Subsidiary of the Company,  (ii) statutory liens in favor of taxing
authorities or others, and (iii) to the extent the failure to have such title or
the existence of such liens,  charges,  encumbrances or  restrictions  would not
reasonably be expected to have a Material Adverse Effect. All material Contracts
are valid,  binding and enforceable against the Company or its Subsidiaries,  as
applicable,  and,  to the  knowledge  of the  Company,  are valid,  binding  and
enforceable against the other party or parties thereto and are in full force and
effect with only such  exceptions as would not  reasonably be expected to have a
Material  Adverse Effect.  The Company and its  Subsidiaries,  and to their best
knowledge,  the  other  parties  thereto,  are not in  default  under any of the
material  Contracts,  which  default  would  reasonably  be  expected  to have a
Material Adverse Effect.

         SECTION 3.14 - ENVIRONMENTAL MATTERS. Except as would not reasonably be
expected to have a Material  Adverse  Effect and except as  disclosed in the SEC
Filings,  (i) each of the Company and its Subsidiaries is in compliance with and
not subject to liability under applicable  Environmental  Laws, (ii) each of the
Company  and its  Subsidiaries  has made all filings  and  provided  all notices
required  under any  applicable  Environmental  Law,  and has in full  force and
effect and is in  compliance  with all  Permits  required  under any  applicable
Environmental Laws, (iii) there is no civil, criminal or administrative  action,
suit, demand, hearing, notice of violation,  proceeding, notice or demand letter
or  request  for  information  pending  or,  to the  knowledge  of the  Company,
threatened  against the Company or its Subsidiaries under any Environmental Law,
(iv) no lien,  charge,  encumbrance or  restriction  has been recorded under any
Environmental  Law with  respect to any  assets,  facility  or  property  owned,
operated,  leased or  controlled  by the  Company or its  Subsidiaries,  and (v)
neither the Company nor its  Subsidiaries  has received  notice that it has been
identified as a potentially responsible party under any Environmental Law.


                                       7
<PAGE>

         SECTION  3.15 -  INSURANCE.  Each of the Company  and its  Subsidiaries
carries  insurance in such amounts and covering such risks in such amounts as is
customary  for  persons of a similar  size in the  businesses  in which they are
engaged.

                                  ARTICLE IV .
                 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

         Each  Purchaser  hereby  represents  and  warrants  to the  Company  as
follows:

         SECTION 4.1 - AUTHORITY.  The Purchaser has all requisite capacity, and
if an entity requisite corporate,  partnership or other organizational power and
authority,  to  execute  and  deliver  this  Agreement  and  to  consummate  the
Transactions  to be performed by the  Purchaser.  If the Purchaser is an entity,
the  execution  and  delivery  of this  Agreement  and the  consummation  of the
Transactions  to be  performed  by the  Purchaser  have  been  duly and  validly
authorized  by all  necessary  action  on the part of the  board  of  directors,
managers,  general partner or similar body of the Purchaser, as the case may be,
and no other  corporate or similar  proceedings  are  necessary to authorize the
execution and delivery of this  Agreement by the Purchaser or to consummate  the
Transactions to be performed by the Purchaser.  This Agreement has been duly and
validly  executed and delivered by the Purchaser  and,  assuming this  Agreement
constitutes  valid  and  binding  obligations  of the  Company,  this  Agreement
constitutes a valid and binding agreement of the Purchaser,  enforceable against
him in accordance  with its terms,  except that the  enforcement  thereof may be
subject to (i) bankruptcy,  insolvency,  reorganization,  fraudulent conveyance,
moratorium  or other  similar  laws  now or  hereafter  in  effect  relating  to
creditors'  rights  generally,  and (ii)  general  principles  of equity and the
discretion  of the court  before  which any  proceeding  therefor may be brought
(regardless of whether such  enforcement is considered in a proceeding in equity
or at law).

         SECTION  4.2  -  CONSENTS  AND  APPROVAL;  NO  VIOLATION.  Neither  the
execution and delivery of this Agreement by the Purchaser,  the  consummation of
the  Transactions  to be  performed  by the  Purchaser,  nor  compliance  by the
Purchaser,  with any of the  provisions  hereof will (i) if the  Purchaser is an
entity,  conflict  with  or  result  in  any  breach  of any  provisions  of the
Purchaser's   organizational  documents,  (ii)  require  any  material  consent,
approval,  authorization  or permit of, or filing with or  notification  to, any
Governmental Authority, except for consents, approvals, authorizations, permits,
filings or  notifications  which have been  obtained or made,  (iii) result in a
default  (with or  without  due notice or lapse of time or both) or give rise to
any right of termination,  cancellation or acceleration  under any of the terms,
conditions or provisions of any material indentures,  loan or credit agreements,
receivables sale or financing agreements,  lease financing  agreements,  capital
leases,  mortgages,  security agreements,  bonds and notes and guaranties of any
such obligations to which the Purchaser is a party or by which the Purchaser may
be bound,  except for such defaults (or rights of  termination,  cancellation or
acceleration) as to which requisite  waivers or consents have been obtained,  or
(iv) violate any material order,  writ,  injunction,  decree,  statute,  rule or
regulation applicable to the Purchaser.

         SECTION 4.3 -  SECURITIES  LAWS.  The  Purchaser  (on his behalf and on
behalf of any nominee or  designee  of the  Purchaser  who  receives  any of the
Securities)  hereby  represents  and warrants to and covenants  with the Company
that:

                                       8
<PAGE>

         (a) Purchaser has adequate means of providing for his current needs and
possible  contingencies,  and has no need now,  and  anticipates  no need in the
foreseeable  future,  to sell  the  Securities.  Purchaser  is able to bear  the
economic  risks of this  investment,  and  consequently,  without  limiting  the
generality of the  foregoing,  Purchaser is able to hold the  Securities  for an
indefinite  period of time and has sufficient net worth to sustain a loss of the
entire investment in the Securities in the event such loss should occur.

         (b) Purchaser recognizes that its investment in the Securities involves
a high  degree of risk which may  result in the loss of the total  amount of the
investment.  Purchaser  acknowledges  that  he is  aware  of and  has  carefully
considered  all risks  incident  to the  purchase of the  Securities,  including
without limitation those discussed in SCHEDULE 4.3(B).

         (c)  Purchaser  is  acquiring  the  Securities  for his own account (as
principal)  for  investment  and not with a view to the  distribution  or resale
thereof. Purchaser has not offered or sold any portion of the Securities and has
no present  intention of dividing the Securities  with others or of reselling or
otherwise disposing of any portion of the Securities.

         (d)  PURCHASER  IS AWARE  THAT HE MUST  BEAR THE  ECONOMIC  RISK OF ITS
INVESTMENT  IN THE  SECURITIES  FOR AN  INDEFINITE  PERIOD OF TIME  BECAUSE  THE
SECURITIES  HAVE NOT BEEN  REGISTERED  UNDER  THE  SECURITIES  ACT OR UNDER  THE
SECURITIES  LAWS OF ANY STATE,  AND  THEREFORE  CANNOT BE SOLD  UNLESS  THEY ARE
SUBSEQUENTLY  REGISTERED  UNDER  THE  SECURITIES  ACT AND ANY  APPLICABLE  STATE
SECURITIES  LAWS OR UNLESS AN EXEMPTION OR EXCEPTION FROM SUCH  REGISTRATION  IS
AVAILABLE  AND,  FURTHER,  THAT ONLY THE COMPANY CAN TAKE ACTION TO REGISTER THE
SECURITIES,  AND THE COMPANY IS UNDER NO  OBLIGATION  TO DO SO.  PURCHASER  ALSO
RECOGNIZES  THAT NO FEDERAL OR STATE  AGENCY HAS PASSED UPON THE  SECURITIES  OR
MADE ANY FINDING OR  DETERMINATION  AS TO THE FAIRNESS OF AN  INVESTMENT  IN THE
SECURITIES.

         (e) Purchase has reviewed,  understands  and agrees to the terms of the
Series C Preferred Stock as set forth in the Certificate of Designations and the
terms  of  his  Warrant  as set  forth  in the  Warrant  Certificate.  Purchaser
acknowledges  and agrees that the Series C Preferred Stock has equal rights with
either or both of the Series A and B Preferred  Stock with respect to dividends,
voting rights, conversion rights, redemption rights and liquidation preferences.


                                       9
<PAGE>

         (f) Purchaser (i) acknowledges  receipt of sufficient  information from
the Company concerning the business of the Company and its Subsidiaries in order
for Purchaser to make a fully  informed  investment  decision,  (ii) has had the
opportunity  to review and obtain  copies of any  information  which the Company
possesses and is desired by Purchaser relating to the Securities and the Company
and its Subsidiaries  (including  without limitation copies of the SEC Filings),
and (iii) has been given the  opportunity  to meet with officials of the Company
and to have  said  officials  answer  any  questions  regarding  the  terms  and
conditions  of this  particular  investment,  and all such  questions  have been
answered to Purchaser's  full  satisfaction.  While the Company has attempted to
provide information that is as accurate as possible,  Purchaser acknowledges and
agrees  that the  Company  and its  representatives  cannot  and do not make any
assurances,  representations or warranties with respect to any such information,
except for the representations expressly set forth herein concerning information
included in the SEC Filings.  All information  described in this Section 4.3(f),
including  without  limitation the information  included in the SEC Filings,  is
qualified in all respects by the Risk Factors discussed in SCHEDULE 4.3(B).  The
Purchaser  has  sufficient  knowledge  and  experience in financial and business
matters to enable him to evaluate the merits and risks of an  investment  in the
Securities.  In addition,  in reaching the conclusion that he desires to acquire
the Securities,  Purchaser has carefully  evaluated his financial  resources and
investments,  has  consulted  with such legal,  accounting  and other experts as
necessary or appropriate, and acknowledges and represents that Purchaser is able
to bear  the  economic  risks of this  investment.  Purchaser  acknowledges  and
understands  that none of the  information  provided or made  available by or on
behalf of the Company constitutes any legal, tax or investment advice.

         (g)  Purchaser is an  "ACCREDITED  INVESTOR" as such term is defined in
Rule 501 under the  Securities  Act.  Purchaser will provide to the Company such
information  as may be  reasonably  requested  by the  Company  to  enable it to
satisfy  itself as to such status and the knowledge and  experience of Purchaser
and his ability to bear the economic risk of an investment in the Shares. Unless
otherwise  specified on such  Purchaser's  Signature  Page,  such Purchaser is a
current stockholder of the Company.

         (h)  All  representations  and  warranties  made by  Purchaser  in this
Agreement and all other oral or written information provided by Purchaser to the
Company is and are true, correct and complete in all material respects,  and, if
there should be any material change in such information  prior to the acceptance
of this Agreement,  Purchaser will immediately furnish such revised or corrected
information to the Company.

         (i)  The   address   and  social   security   number  or  federal   tax
identification  number set forth on the Purchaser's  Signature Page are his true
and correct  state (or other  jurisdiction)  of  residence  and social  security
number or federal tax identification number.  Purchaser has no present intention
of  becoming a resident  of any other state or  jurisdiction.  Purchaser  is not
subject to backup  withholding  and will provide such forms and documents as may
be  required  by the  Company to  evidence  his  exemption  from backup or other
withholding  taxes and hereby  consents to withholding  of any applicable  taxes
from his distributions from the Company.

         (j)  Purchaser   acknowledges  and  understands  that  certain  of  the
information that he has received  regarding the Company and its Subsidiaries may
be material,  non-public  information,  and that  Purchaser  will not be able to
trade in the Common Stock while in  possession  of such  information  until that
information has been properly  disseminated to the public or becomes  immaterial
to the Company and its Subsidiaries.


                                       10
<PAGE>

         (k)  Purchaser  acknowledges  and agrees that if Purchaser is more than
one person, the obligations of the Purchaser are and shall be joint and several,
and the  representations and warranties herein contained are and shall be deemed
to be made by and be binding  upon each such  person  and his heirs,  executors,
administrators,  successors or assigns;  that if the Purchaser is purchasing the
Purchased Securities in a fiduciary capacity,  the  representations,  warranties
and agreements  contained  herein shall be deemed to have been made on behalf of
the person or persons  for whom the  Purchaser  is so  purchasing;  and that the
representations  and  warranties  of the  Purchaser  as set forth  herein  shall
continue  in effect  following  the sale of the  Purchased  Securities  pursuant
hereto.  In the event that  execution  hereof by  Purchaser  is performed by any
person  as agent  for or other  representative  of the  Purchaser,  such  person
represents  that he is duly  authorized  and  empowered to sign and deliver this
document  on  behalf  of the  Purchaser  in the  capacity  stated  and  that the
Purchaser will be bound by this Agreement.

         (l) Purchaser  acknowledges  that it understands  the meaning and legal
consequences of the representations,  warranties and covenants set forth in this
Section   4.3  and  that  the  Company  has  relied  and  will  rely  upon  such
representations,  warranties, covenants and certifications, and Purchaser hereby
agrees to  indemnify,  DEFEND and hold  harmless  the Company and its  officers,
directors,  controlling persons, agents and employees,  from and against any and
all loss,  damage or  liability,  joint or  several,  and any  action in respect
thereof,  to which any SUCH person may become subject due to or arising out of a
breach of any of purchaser's representations, warrantIES or covenantS.

                                   ARTICLE V
                              ADDITIONAL AGREEMENTS

         SECTION 5.1 - USE OF  PROCEEDS.  The cash  proceeds to the Company from
the  issuance of the  Purchased  Securities  shall be used by the Company on and
after the Closing Date to develop its Subsidiary's  electricity  retail business
and for general corporate purposes.

         SECTION 5.2 - ACCESS TO INFORMATION.

                  (a) Between the date hereof and the Closing Date,  the Company
         will afford to the Purchasers and their authorized representatives full
         access during normal  business  hours to the  facilities and properties
         and to the books and records of the Company and its Subsidiaries,  will
         permit the Purchasers and their authorized representatives to make such
         reasonable  inspections as they may require and will cause its officers
         and those of its  Subsidiaries  to  furnish  the  Purchasers  and their
         authorized  representatives  with such financial and operating data and
         other  information with respect to the business,  assets and properties
         of the Company and its Subsidiaries,  as applicable,  as the Purchasers
         and their authorized representatives may from time to time request.




                                       11
<PAGE>

                  (b)   Purchasers   shall  hold   strictly   confidential   all
         information   they   obtain   with   respect  to  the  Company  or  its
         Subsidiaries;  PROVIDED, THAT Purchasers shall not be obligated to hold
         confidential  information which (i) was or becomes generally  available
         to the public other than as a result of a disclosure  by any  Purchaser
         or its representatives, (ii) was or becomes available to the Purchasers
         on a non-confidential basis from a source other than the Company or its
         representatives,   so  long  as  such   source   is  not   bound  by  a
         confidentiality agreement with the Company or otherwise prohibited from
         transmitting the information to the Purchasers, or (iii) is required to
         be  disclosed  in  order to  comply  with any  applicable  law,  order,
         regulation  or ruling;  provided  further,  that each  Purchaser  shall
         notify  the  Company  prior to any  disclosure  under  (iii)  above and
         provide  the  Company  the  opportunity  to  dispute  or  contest  such
         disclosure before any disclosure is made.

         SECTION 5.3 -  RESERVATION  OF COMMON  STOCK.  The Company has and will
reserve and keep  reserved  for  issuance,  out of the  authorized  and unissued
shares of the Common  Stock,  a number of shares of Common Stock  sufficient  to
provide for issuance  upon the  exercise of the  conversion  of the  outstanding
Series C Preferred Stock and upon exercise of the outstanding Warrants and shall
keep such shares free of any legal or contractual preemptive rights. The Company
will take all steps  necessary  to keep the  Conversion  Shares and the  Warrant
Shares duly authorized for issuance by all requisite corporate and other action,
and to assure that such  Conversion  Shares and Warrant  Shares when issued upon
conversion  of the  shares  of  Series  C  Preferred  Stock or  exercise  of the
Warrants,  as  the  case  may  be,  will  be  validly  issued,  fully  paid  and
non-assessable.

         SECTION  5.4 -  LISTING  OF COMMON  STOCK.  The  Company  shall use its
commercially reasonable efforts to comply with all requirements of the NASD with
respect  to the  potential  future  issuance  of the  Conversion  Shares and the
Warrant Shares and the listing thereon on the Nasdaq Stock Market.

         SECTION 5.5 - FUTURE SALES OF COMMON STOCK.  Each Purchaser agrees that
if the Company  engages in an  underwritten  public offering for the sale by the
Company of shares of Common  Stock  during the  one-year  period  following  the
Closing Date and  thereafter so long as the Purchaser owns more than one percent
(1%) of the  total  number  of shares of  Common  Stock  then  outstanding,  the
Purchaser  will, if so requested by the managing  underwriter for such offering,
execute and deliver to such managing  underwriter  a "lock-up"  letter in a form
acceptable to such managing underwriter.  The obligations of and restrictions on
the Purchaser  under such  "lock-up"  letter shall be in effect for a maximum of
180 days as specified by the managing underwriter.

         SECTION 5.6 - BEST EFFORTS.  Subject to the terms and conditions herein
provided,  the Company  and each  Purchaser  agree to use their best  efforts to
take,  or cause to be taken,  all actions,  and to do, or cause to be done,  all
things  necessary,  proper or advisable under applicable laws and regulations to
consummate and make effective the Transactions.

         SECTION 5.7 - PUBLIC ANNOUNCEMENTS.  The Purchasers shall not issue any
press  release or  otherwise  make any  public  statements  with  respect to the
existence of this  Agreement or the  Transactions,  and the Company  shall issue
such press releases or make such public  statements as may be required by law or
the rules of the Nasdaq Stock Market.

                                       12
<PAGE>

         SECTION 5.8 - APPROVAL OF PREFERRED.  The Company shall submit  (either
by calling a special meeting or by soliciting written consents) the designation,
issuance and sale of the Series C Preferred Stock to the holders of the Series A
and Series B Preferred  Stock for approval in accordance with the terms of those
securities.

         SECTION 5.9 - RESTRICTIVE  LEGENDS.  Each  certificate  evidencing  the
Securities shall bear a legend in substantially the following form:

                  "THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A
                  SECURITIES  PURCHASE  AGREEMENT  DATED AS OF JANUARY 18, 2005,
                  COPIES  OF WHICH  ARE ON FILE AT THE  PRINCIPAL  OFFICE OF THE
                  COMPANY AND WILL BE  FURNISHED TO THE HOLDER ON REQUEST TO THE
                  SECRETARY OF THE COMPANY.  SUCH SECURITIES  PURCHASE AGREEMENT
                  PROVIDES,  AMONG OTHER  THINGS,  FOR CERTAIN  RESTRICTIONS  ON
                  SALE,  TRANSFER,   OR  OTHER  DISPOSITION  OF  THE  SECURITIES
                  EVIDENCED BY THIS CERTIFICATE."

         In  addition,  unless  counsel to the  Company  shall have  advised the
Company that such legend is no longer needed,  each  certificate  evidencing the
Securities shall bear a legend in substantially the following form:

                  "THE SECURITIES  EVIDENCED BY THIS  CERTIFICATE  HAVE NOT BEEN
                  REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED,
                  OR ANY STATE  SECURITIES  LAW, AND SUCH  SECURITIES MAY NOT BE
                  SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE SAME ARE
                  REGISTERED AND QUALIFIED IN ACCORDANCE WITH  APPLICABLE  STATE
                  AND  FEDERAL  SECURITIES  LAWS,  OR IN THE  OPINION OF COUNSEL
                  RESONABLY  SATISFACTORY TO THE COMPANY SUCH  REGISTRATION  AND
                  QUALIFICATION ARE NOT REQUIRED."

         SECTION 5.10 - STOCKHOLDER  APPROVAL.  The parties  hereto  acknowledge
that  pursuant to rules of the Nasdaq Stock Market the  conversion  and exercise
rights of the Purchasers under the Purchased  Securities are subject to a cap on
the number of shares of Common Stock  issuable upon such  conversion or exercise
equal  to  twenty  percent  (20%)  of the  number  of  shares  of  Common  Stock
outstanding  on the Closing Date (the  "COMMON  STOCK CAP") unless and until the
issuance and sale of the Purchased Securities is approved by the stockholders of
the  Company  under such  rules of the Nasdaq  Stock  Market  (the  "STOCKHOLDER
APPROVAL"). The Company agrees to solicit the Stockholder Approval in connection
with its next stockholders meeting, but is under no obligation to hold a special
meeting regarding such approval. The Purchasers acknowledge and agree (i) to the
limitations  imposed  by the  Common  Stock  Cap as more  fully set forth in the
Certificate  of  Designations  and the Warrant  Certificate,  (ii) that  without
Stockholder  Approval  they will not be able to  acquire  all of the  Conversion
Shares and will likely not be able to acquire any of the Warrant  Shares,  which
will adversely effect the value of the Securities they are purchasing hereunder,
and (iii) that the Series C  Preferred  Stock  will not be  entitled  to vote in
connection with the Stockholder Approval.

                                       13
<PAGE>

                                   ARTICLE VI
                             PURCHASERS' CONDITIONS

         The  obligations of the Purchasers to effect the Closing are subject to
the  satisfaction of the following  conditions,  any one or more of which may be
waived by the Purchasers.

         SECTION 6.1 - REPRESENTATIONS  AND COVENANTS.  The  representations and
warranties  contained  in Article  III hereof  shall be true and  correct in all
material  respects on and as of the Closing Date as if made, and shall be deemed
to have been  remade,  on and as of the Closing  Date.  The  Company  shall have
complied with all of its obligations  contained  herein the performance of which
is required on or prior to the Closing Date.

         SECTION  6.2  -  CERTIFICATE  OF   DESIGNATION.   The   Certificate  of
Designation  in the form of  Exhibit  A shall  have  been  duly  adopted  by all
requisite corporate action and filed with the Secretary of State of the State of
Delaware  on or before  the  Closing  Date,  and shall not have been  amended or
modified.

         SECTION 6.3 - REQUIRED  CONSENTS AND  APPROVALS.  (i) The  designation,
issuance  and sale of the Series C Preferred  Stock shall have been  approved by
the  holders of the Series A and Series B  Preferred  Stock,  and (ii) all other
filings,  consents,  approvals and waivers  necessary to the consummation of the
purchase  and  sale of the  Securities  and the  Transactions  shall  have  been
obtained.

                                  ARTICLE VII
                              COMPANY'S CONDITIONS

         The  obligations  of the  Company  to  issue  and  sell  the  Purchased
Securities are subject to the  satisfaction of the following  conditions any one
or more of which may be waived by the Company:

         SECTION 7.1 - REPRESENTATIONS  AND COVENANTS.  The  representations and
warranties contained in Article IV hereof as to each Purchaser shall be true and
correct in all material  respects on and as of the Closing Date as if made,  and
shall be deemed to be remade,  on and as of the  Closing  Date.  Each  Purchaser
shall have complied with all of his obligations  contained herein performance of
which is required on or prior to the Closing Date.

         SECTION 7.2 - REQUIRED  CONSENTS AND  APPROVALS.  (i) The  designation,
issuance  and sale of the Series C Preferred  Stock shall have been  approved by
the holders of the Series A and B Preferred  Stock, and (ii) all other consents,
approvals and waivers  necessary to the consummation of the purchase and sale of
the Securities and the Transactions shall have been obtained.


                                       14
<PAGE>

         SECTION 7.3 - ADDITIONAL  DOCUMENTS.  The Company  shall have  received
such other certificates,  instruments and documents from each Purchaser (and any
of its nominees or  designees  which  acquire  Securities  hereunder)  as it may
reasonably request pursuant to this Agreement.

                                  ARTICLE VIII
                            TERMINATION AND SURVIVAL

         SECTION 8.1 - TERMINATION.  The Transactions contemplated hereby may be
abandoned at any time prior to the Closing, as follows:


                  (a) by the mutual  written  consent of the  Company and all of
         the Purchasers;

                  (b) by either the Company, on one hand, or the Purchasers,  on
         the other hand, in the event the designation,  issuance and sale of the
         Series C Preferred  Stock are not approved by the holders of the Series
         A and B Preferred Stock; or

                  (c) by the Company,  on one hand,  or the  Purchasers,  on the
         other hand collectively as one party, if there shall have been a breach
         by the other party of any of the covenants  contained  herein or if any
         representation  or  warranty  made by any other  party is untrue in any
         material respect, in either case in a manner not capable of being cured
         on or before the Closing Date.

         SECTION  8.2 -  SURVIVAL;  FAILURE  TO  CLOSE.  If  this  Agreement  is
terminated without Closing, all representations,  warranties,  indemnities,  and
covenants  contained  herein  or made in  writing  by any  party  in  connection
herewith  will  automatically  terminate  and be of no further  force or effect,
except the provisions of this Section 8.2 and Sections 4.3, 5.2(b) and 9.5 shall
survive any such termination.

                                   ARTICLE IX
                                  MISCELLANEOUS

         SECTION 9.1 - ENTIRE AGREEMENT.  This Agreement  constitutes the entire
agreement  among the  parties  with  respect to the  subject  matter  hereof and
supersedes  all prior  agreements  and  understandings,  both  written and oral,
between the parties with respect to the subject matter hereof.

         SECTION 9.2 - NOTICES. All notices, requests, claims, demands and other
communications  hereunder  shall be in writing  and shall be deemed to have been
duly given when delivered in person, by facsimile, with confirmation of receipt,
or by registered or certified mail (postage prepaid,  return receipt  requested)
to the  respective  parties as follows (or to such other  address as a party may
designate in a notice to the other party given pursuant to this Section 9.2):



                                       15
<PAGE>

                  IF TO THE COMPANY:

                  Amen Properties, Inc.
                  303 W. Wall, Suite 1700
                  Midland, Texas 79701
                  Telephone:  (432) 684-3821
                  Facsimile:  (432) 685-3143
                  Attn:  Mr. Jon M. Morgan, President

                  IF TO THE PURCHASERS:

                  To each  Purchaser at the address or fax number  specified for
such Purchaser on his Signature Page.

         SECTION 9.3 - GOVERNING  LAW. This  Agreement  shall be governed by and
construed in accordance with the laws in the State of Texas,  without  reference
to conflicts of laws  principles,  except to the extent governed by the Delaware
General Corporation Law as it applies to the Company AND THE SECURITIES.

         SECTION 9.4 - SEVERABILITY.  Whenever possible,  each provision of this
Agreement  will be interpreted in such manner as to be effective and valid under
applicable  law, but if any provision of this Agreement is held to be prohibited
by or invalid under  applicable law, such provision will be ineffective  only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this  Agreement  unless the  consummation  of the  Transactions  contemplated
hereby is materially and adversely affected thereby.

         SECTION 9.5 - EXPENSES. Except as otherwise provided herein, each party
shall bear and pay all costs and expenses incurred by him or it or on his or its
behalf in connection with transactions  contemplated hereby,  including fees and
expenses of his or its representatives.

         SECTION 9.6 - DESCRIPTIVE  HEADINGS.  The descriptive  headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.

         SECTION 9.7 -  COUNTERPARTS.  This  Agreement may be executed in two or
more counterparts,  each of which shall be deemed an original,  but all of which
shall constitute one and the same agreement.  Faxed signatures of this Agreement
shall be deemed and shall constitute binding signatures for all purposes.

         SECTION 9.8 - ASSIGNMENT.  Except as provided in this Section 9.8, none
of the  Purchasers  or the Company  may assign his or its rights or  obligations
hereunder;  PROVIDED,  HOWEVER, a Purchaser may assign his rights to acquire the
Purchased Securities to a nominee or designee, provided such assignment shall be
completed  and notice  thereof given to the Company at least five (5) days prior
to Closing,  such assignment shall not relieve such Purchaser of his obligations
hereunder,  and any such nominee or designee shall be deemed to have made all of
the representations, warranties and covenants of such Purchaser herein.


                                       16
<PAGE>

         SECTION  9.9 -  AMENDMENTS;  WAIVERS.  No  amendment  or  waiver of any
provision of this Agreement,  nor consent to any departure by the Company or any
Purchaser therefrom, shall in any event be effective unless the same shall be in
writing and signed by all  Purchasers and the Company in the case of amendments,
and the affected Purchaser(s) or the Company, as the case may be, in the case of
waivers.

                  [Remainder of Page Intentionally Left Blank]




                                       17
<PAGE>




         IN WITNESS  WHEREOF,  the  parties  have caused  this  agreement  to be
executed and delivered as of the day and year first above written.


                                      AMEN PROPERTIES, INC.


                                      By:
                                      -------------------------------------
                                      Jon M. Morgan, President


                                      SIGNATURE PAGES OF PURCHASERS FOLLOW



                                       18
<PAGE>


                                                        PURCHASER SIGNATURE PAGE

Purchased Securities:

           14,062   Shares of Series C Preferred Stock
         ---------
         A Warrant for   28,124   Warrant Shares
                        --------
Payment of Purchase Price (check and complete applicable spaces):

         $  224,992    Total Cash Purchase Price
         ---------
                  ________ Enclosed Certified or Cashier's Check or Money Order

                  ________ Wire Transfer

         $  562,480    Amount of Purchaser's Guaranty
         ---------
_____  Check here if Purchaser is not a stockholder of the Company on the
       date hereof.


         IN WITNESS WHEREOF, the Purchaser has executed this Securities Purchase
Agreement as of the date first above written.

                                                  SIGNATURE OF PURCHASER:


                                                  -----------------------
                                                        Jon M. Morgan
Purchaser's Social Security
or Tax Identification Number:  ###-##-####
                               -----------

Purchaser's Address:


   303 W. WALL ST., SUITE 2300            MIDLAND      TEXAS       79701
------------------------------          -----------  ---------   ----------
(Number and Street)                        (City)     (State)    (Zip Code)

---------------------
Purchaser's Fax Number



<PAGE>



                                                        PURCHASER SIGNATURE PAGE

Purchased Securities:

           14,063   Shares of Series C Preferred Stock
         ---------
         A Warrant for   28,126   Warrant Shares
                         ------
Payment of Purchase Price (check and complete applicable spaces):

         $  225,008    Total Cash Purchase Price
         ----------
                  ________ Enclosed Certified or Cashier's Check or Money Order

                  ________ Wire Transfer

         $  562,520    Amount of Purchaser's Guaranty
         -----------
_____  Check here if Purchaser is not a stockholder of the Company
       on the date hereof.


         IN WITNESS WHEREOF, the Purchaser has executed this Securities Purchase
Agreement as of the date first above written.

                                                SIGNATURE OF PURCHASER:


                                                --------------------------
                                                      Eric Oliver
Purchaser's Social Security
or Tax Identification Number:  ###-##-####


Purchaser's Address:


   400 PINE STREET, SUITE 1010      ABILENE       TEXAS            79601
--------------------------------- -----------  -----------       ----------
(Number and Street)                 (City)       (State)         (Zip Code)

---------------------
Purchaser's Fax Number





<PAGE>




                                                        PURCHASER SIGNATURE PAGE

Purchased Securities:

           25,000   Shares of Series C Preferred Stock
        ------------
         A Warrant for   50,000   Warrant Shares
                        --------
Payment of Purchase Price (check and complete applicable spaces):

         $  400,000.00    Total Cash Purchase Price

                  ________ Enclosed Certified or Cashier's Check or Money Order

                  ________ Wire Transfer

         $ 1,000,000.00    Amount of Purchaser's Guaranty
         --------------
_____  Check here if Purchaser is not a stockholder of the Company on the
       date hereof.


         IN WITNESS WHEREOF, the Purchaser has executed this Securities Purchase
Agreement as of the date first above written.

                                        SIGNATURE OF PURCHASER:

                                        Mariah Investment Partners

                                        By:                              ,
                                             -----------------------------
                                                 its general partner

                                        By:______________________________
                                        Name:____________________________
                                        Title:___________________________
Purchaser's Social Security
or Tax Identification Number:  11-3661798


Purchaser's Address:


P. O. BOX 5562                MIDLAND         TEXAS       79704
-------------------           -------        -------    ----------
(Number and Street)            (City)        (State)    (Zip Code)

---------------------
Purchaser's Fax Number


<PAGE>



                                                        PURCHASER SIGNATURE PAGE

Purchased Securities:

           25,000   Shares of Series C Preferred Stock
         ---------
         A Warrant for   50,000   Warrant Shares
                        --------
Payment of Purchase Price (check and complete applicable spaces):

         $  400,000.00    Total Cash Purchase Price
         --------------
                  ________ Enclosed Certified or Cashier's Check or Money Order

                  ________ Wire Transfer

         $ 1,000,000.00    Amount of Purchaser's Guaranty
         --------------
_____  Check here if Purchaser is not a stockholder of the Company on the
       date hereof.


         IN WITNESS WHEREOF, the Purchaser has executed this Securities Purchase
Agreement as of the date first above written.

                                        SIGNATURE OF PURCHASER:

                                        McGRAW BROTHER INVESTMENTS

                                        By:____________________________
                                        Name:__________________________
                                        Title:_________________________
Purchaser's Social Security
or Tax Identification Number:   75-2550016

Purchaser's Address:

P. O. BOX 7515                     MIDLAND          TEXAS     79708
--------------------               -------          -----     -----
(Number and Street)                (City)          (State)  (Zip Code)

---------------------
Purchaser's Fax Number



<PAGE>



                                                        PURCHASER SIGNATURE PAGE

Purchased Securities:

           12,500   Shares of Series C Preferred Stock
         ----------
         A Warrant for   25,000   Warrant Shares
                        --------
Payment of Purchase Price (check and complete applicable spaces):

         $  200,000.00    Total Cash Purchase Price
         --------------
                  ________ Enclosed Certified or Cashier's Check or Money Order

                  ________ Wire Transfer

         $  500,000.00    Amount of Purchaser's Guaranty
         --------------
_____  Check here if Purchaser is not a stockholder of the Company on the
       date hereof.


         IN WITNESS WHEREOF, the Purchaser has executed this Securities Purchase
Agreement as of the date first above written.

                                             SIGNATURE OF PURCHASER:


                                             -----------------------
                                                 Frosty Gilliam
Purchaser's Social Security
or Tax Identification Number:   ###-##-####


Purchaser's Address:


   4840 E. UNIVERSITY, SUITE 200      ODESSA        TEXAS         79762
---------------------------------    ----------  ------------  ----------
(Number and Street)                    (City)     (State)      (Zip Code)

---------------------
Purchaser's Fax Number



<PAGE>



                                                        PURCHASER SIGNATURE PAGE

Purchased Securities:

           12,500   Shares of Series C Preferred Stock
         ----------
         A Warrant for   25,000   Warrant Shares
                        --------
Payment of Purchase Price (check and complete applicable spaces):

         $  200,000.00    Total Cash Purchase Price
         --------------
                  ________ Enclosed Certified or Cashier's Check or Money Order

                  ________ Wire Transfer

         $  500,000.00    Amount of Purchaser's Guaranty
         --------------
_____  Check here if Purchaser is not a stockholder of the Company on the
       date hereof.


         IN WITNESS WHEREOF, the Purchaser has executed this Securities Purchase
Agreement as of the date first above written.

                                            SIGNATURE OF PURCHASER:


                                            -----------------------
                                                John Norwood
Purchaser's Social Security
or Tax Identification Number:   ###-##-####


Purchaser's Address:


   303 W. WALL, SUITE 2300       MIDLAND           TEXAS       79701
---------------------------     ----------        -------     -------
(Number and Street)               (City)          (State)   (Zip Code)

---------------------
Purchaser's Fax Number



<PAGE>



                                                        PURCHASER SIGNATURE PAGE

Purchased Securities:

           6,250   Shares of Series C Preferred Stock
         ---------
         A Warrant for   12,500   Warrant Shares
                       ---------
Payment of Purchase Price (check and complete applicable spaces):

         $  100,000.00    Total Cash Purchase Price
         --------------
                  ________ Enclosed Certified or Cashier's Check or Money Order

                  ________ Wire Transfer

         $  250,000.00    Amount of Purchaser's Guaranty
         --------------
_____  Check here if Purchaser is not a stockholder of the Company on the
       date hereof.


         IN WITNESS WHEREOF, the Purchaser has executed this Securities Purchase
Agreement as of the date first above written.

                                             SIGNATURE OF PURCHASER:


                                             -----------------------
                                                   John Bergman
Purchaser's Social Security
or Tax Identification Number:   ###-##-####


Purchaser's Address:


   303 W. WALL, SUITE 1501      MIDLAND        TEXAS        79701
---------------------------   -----------   ----------    ---------
(Number and Street)              (City)       (State)     (Zip Code)

---------------------
Purchaser's Fax Number



<PAGE>



                                                        PURCHASER SIGNATURE PAGE

Purchased Securities:

           6,250   Shares of Series C Preferred Stock
         ---------
         A Warrant for   12,500   Warrant Shares

Payment of Purchase Price (check and complete applicable spaces):

         $  100,000.00    Total Cash Purchase Price
         --------------
                  ________ Enclosed Certified or Cashier's Check or Money Order

                  ________ Wire Transfer

         $  250,000.00    Amount of Purchaser's Guaranty
         --------------
_____  Check here if Purchaser is not a stockholder of the Company on the
       date hereof.


         IN WITNESS WHEREOF, the Purchaser has executed this Securities Purchase
Agreement as of the date first above written.

                                   SIGNATURE OF PURCHASER:

                                   LCM PARTNERSHIP, LP

                                   By:
                                        ----------------------------
                                            its general partner

                                   By:______________________________
                                   Name:____________________________
                                   Title:___________________________
Purchaser's Social Security
or Tax Identification Number:   90-0142527


Purchaser's Address:

P. O. BOX 58                   ABILENE         TEXAS          79604
------------------            ---------       -------       ----------
(Number and Street)            (City)         (State)       (Zip Code)

---------------------
Purchaser's Fax Number



<PAGE>



                                                        PURCHASER SIGNATURE PAGE

Purchased Securities:

           6,250   Shares of Series C Preferred Stock
         ---------
         A Warrant for   12,500   Warrant Shares

Payment of Purchase Price (check and complete applicable spaces):

         $  100,000.00    Total Cash Purchase Price
         --------------
                  ________ Enclosed Certified or Cashier's Check or Money Order

                  ________ Wire Transfer

         $  250,000.00    Amount of Purchaser's Guaranty
        ---------------
_____  Check here if Purchaser is not a stockholder of the Company on the
       date hereof.


         IN WITNESS WHEREOF, the Purchaser has executed this Securities Purchase
Agreement as of the date first above written.

                                    SIGNATURE OF PURCHASER:

                                    JMA CHEDDARS, LTD.

                                    By:
                                         ------------------------------
                                             its general partner

                                    By:________________________________
                                    Name:______________________________
                                    Title:_____________________________
Purchaser's Social Security
or Tax Identification Number:   47-0941460

Purchaser's Address:

P. O. BOX 58              ABILENE             TEXAS             79604
-------------------       --------           -------          ----------
(Number and Street)        (City)            (State)          (Zip Code)

---------------------
Purchaser's Fax Number



<PAGE>



                                                        PURCHASER SIGNATURE PAGE

Purchased Securities:

           3,125   Shares of Series C Preferred Stock
         ---------
         A Warrant for   6,250   Warrant Shares

Payment of Purchase Price (check and complete applicable spaces):

         $  50,000.00    Total Cash Purchase Price
         --------------
                  ________ Enclosed Certified or Cashier's Check or Money Order

                  ________ Wire Transfer

         $  125,000.00    Amount of Purchaser's Guaranty
       -----------------
_____  Check here if Purchaser is not a stockholder of the Company on the
       date hereof.


         IN WITNESS WHEREOF, the Purchaser has executed this Securities Purchase
Agreement as of the date first above written.

                                             SIGNATURE OF PURCHASER:


                                             -----------------------
                                                  Bruce Edgington
Purchaser's Social Security
or Tax Identification Number:   ###-##-####


Purchaser's Address:


         7857 HERITAGE DRIVE      ANNADALE       VIRGINIA      22003
-----------------------------     ---------     ----------   --------
(Number and Street)                (City)         (State)    (Zip Code)

---------------------
Purchaser's Fax Number




<PAGE>

                                  SCHEDULE 3.1
                                       TO
                          SECURITIES PURCHASE AGREEMENT
                             DATED JANUARY 18, 2005
                                  BY AND AMONG
                              AMEN PROPERTIES, INC.
                        AND THE PURCHASERS NAMED THEREIN


                           SUBSIDIARIES OF THE COMPANY

         NEMA  PROPERTIES,  LLC ("NEMA") is a  wholly-owned  subsidiary  of Amen
Properties, Inc. NEMA is organized under the laws of the State of Nevada.

         AMEN  MINERALS,  L.P. is owned 99% by NEMA as the sole limited  partner
and 1% by Amen Properties,  Inc., as the sole general partner,  and is organized
under the laws of the State of Delaware.

         AMEN  DELAWARE,  L.P. is owned 99% by NEMA as the sole limited  partner
and 1% by Amen Properties,  Inc., as the sole general partner,  and is organized
under the laws of the State of Delaware.

         W POWER AND LIGHT,  LP is owned 99% by NEMA as the sole limited partner
and 1% by Amen Properties,  Inc., as the sole general partner,  and is organized
under the laws of the State of Delaware.

         TCTB PARTNERS,  LTD. in which the Company owns 71.3% of the outstanding
partnership interests.(1)

(1)      A  6.485533%  interest in TCTB  Partners,  Ltd. is pledged to secure an
         obligation   incurred  in  connection  with  the  acquisition  of  such
         interest.




<PAGE>



                                                                    SCHEDULE 3.4

                                  SCHEDULE 3.4
                                       TO
                          SECURITIES PURCHASE AGREEMENT
                             DATED JANUARY 18, 2005
                                  BY AND AMONG
                              AMEN PROPERTIES, INC.
                        AND THE PURCHASERS NAMED THEREIN


I.       Common Stock, $.01 par value

         A.       Authorized and Issued

                  1. 20,000,000 shares authorized

                  2. 2,201,356 shares issued and outstanding

         B.       Stock Options and Warrants

                  1.       498,958  shares   reserved  for  issuance  for  stock
                           options,   including   252,947   shares   subject  to
                           currently outstanding stock options

                  2.       22,014 shares  reserved for issuance upon exercise of
                           currently outstanding warrants

         C.       Reserved for Conversion

                  1.       333,333 shares  reserved for issuance upon conversion
                           of the Series A Preferred Stock

                  2.       233,276 shares  reserved for issuance upon conversion
                           of the Series B Convertible Preferred Stock

II.      Preferred Stock, $.001 par value

         A. Authorized - 5,000,000 shares authorized

         B.       Designated, Issued and Outstanding

                  1.       80,000 shares of Series A Preferred Stock

                  2.       80,000 shares of Series B Convertible Preferred Stock



<PAGE>


                                 SCHEDULE 4.3(B)
                                       TO
                          SECURITIES PURCHASE AGREEMENT
                             DATED JANUARY 18, 2005
                                  BY AND AMONG
                              AMEN PROPERTIES, INC.
                        AND THE PURCHASERS NAMED THEREIN


                              AMEN PROPERTIES, INC.

                                  RISK FACTORS

         Investment in the  Securities  involves a  significant  degree of risk,
including  the  possible  loss  of  the  entire  investment.   No  guarantee  or
representation  is or can be made as to the Company's  performance.  The Company
encourages  each  Purchaser to seek advice from legal,  accounting and financial
professionals  prior to purchasing the Securities.  In considering  investing in
the Securities,  Purchasers  should  carefully  review and consider the terms of
this  Agreement,  the SEC  Filings  and the other  information  provided  by the
Company,  and the  investment  considerations  and  risks  associated  with this
investment  including,  but not limited to, the following  (references  to "we,"
"our" or "us" refer to the Company and its Subsidiaries:

CAP ON CONVERSION AND EXERCISE

         The conversion of the Series C Preferred  Stock and the exercise of the
Warrants is subject to a limitation on the number of shares of Common Stock that
can be issued without  Stockholder  Approval under the rules of the Nasdaq Stock
Market.  If such  Stockholder  Approval  is not  obtained,  the total  number of
Conversion  Shares and  Warrant  Shares  will be limited to no more than  twenty
percent (20%) of the number of outstanding shares of Common Stock on the Closing
Date.  As a result,  without  Stockholder  Approval the  Purchasers  will not be
entitled to acquire all of the Conversion  Shares and will likely not be able to
acquire any of the Warrant Shares,  which will adversely effect the value of the
Securities purchased by the Purchasers.

LACK OF OPERATING HISTORY

         In recent  years,  the Company has  substantially  changed its business
plan. As a result,  the Company's  operating  history under its current business
plan is limited.  In addition,  one of the  Company's  Subsidiaries  is a recent
start-up  electricity  retail business.  Such limited  operating  history of the
Company  and  its  Subsidiaries  may  not  provide  sufficient  information  for
Purchasers to base an evaluation of likely performance.

RISKS RELATED TO PROJECTIONS AND ESTIMATES

         All statements  other than  statements of historical  facts included in
the SEC  Filings  or any other  information  provided  to a  potential  investor
regarding the financial  position,  business  strategy,  plans and objectives of
management  for  future  operations  of the  Company  and its  Subsidiaries  are
projections  and  estimates  based upon  current  information  available  to the
Company.  While we believe that such  projections  and  estimates are based upon
reasonable assumptions, there are significant risks and uncertainties that could
significantly effect expected results. Important factors that could cause actual
results  to  differ  materially  from  those in the  projections  and  estimates
include,  without  limitation,  the Risk Factors discussed  herein,  and many of
those  factors are beyond our  control.  All written  and oral  projections  and
estimates and "forward looking" statements attributable to the Company,  whether
contained  in the SEC Filings or  otherwise,  are  expressly  qualified in their
entirety by such factors.  Purchasers  should expect the assumptions and related
projections and estimates to change as additional information becomes available.
However,  the  Company  does not  intend  to  update  or  otherwise  revise  the
projections and estimates provided to reflect events or circumstances  after the
date of such information or to reflect the occurrence of unanticipated events. A
Purchaser  should  carefully  review and consider the assumptions and estimates,
and obtain the advice of legal and  accounting  experts and other  professionals
regarding these matters.  Actual results may differ materially from any business
descriptions and operating  estimates  contained in the information  provided or
available to a Purchaser.


                                       S-1
<PAGE>


DETERMINATION OF OFFERING PRICE

         The Purchase Price for the Securities was determined arbitrarily by the
Company,  based upon,  among other things,  the short-term  capital needs of the
Company and recent  market prices for the Common  Stock.  However,  the Purchase
Price should not be considered  as any  indication of the future market price or
value of the Common Stock or the other Securities.

DEPENDENCE ON KEY PERSONNEL

         The Company  depends to a large extent on the services of its executive
officers and the officers and managers of its  Subsidiaries.  Particularly,  the
Company's  newest  Subsidiary,   an  electricity  retail  business,  is  heavily
dependent  upon the knowledge and expertise of the president of the  Subsidiary.
The loss of the services of any of those persons  could have a material  adverse
effect on the Company and its Subsidiaries.

COMPETITION

         The Company and its Subsidiaries  encounter substantial  competition in
acquiring  rental property and oil and gas royalties,  leasing rental space, and
securing trained personnel. Most competitors have substantially larger financial
resources, staffs and facilities than the Company and its Subsidiaries,  and the
Company  and  its  Subsidiaries  may be at a  significant  disadvantage  in many
competitive  situations.  See also  "RELIANCE  UPON NEW  BUSINESS  - THE  RETAIL
ELECTRICITY MARKET IS HIGHLY COMPETITIVE."



                                       S-2
<PAGE>

ADVERSE MARKET CONDITIONS

         The economic  performance  and value of the  Company's  properties  are
subject to all of the risks  associated  with owning and operating  real estate,
including

         o        changes in the national, regional and local economic climate
         o        the attractiveness of our properties to tenants
         o        the ability of tenants to pay rent
         o        competition from other available properties
         o        changes in market rental rates
         o        the need to periodically pay for costs to repair, renovate and
                  re-let space
         o        changes in operating  costs,  including costs for maintenance,
                  insurance  and  real  estate  taxes  o  changes  in  laws  and
                  governmental  regulations,  including those  governing  usage,
                  zoning, the environment and taxes

FAILURE BY TENANTS TO MAKE RENTAL PAYMENTS

         The  Company's  performance  will depend on our ability to collect rent
from  tenants.  At any time our  tenants  may  experience  a change in  business
conditions or a downturn in their business that may  significantly  weaken their
financial  condition.  As a  result,  our  tenants  may  delay a number of lease
commencements,  decline to extend or renew a number of leases  upon  expiration,
fail to make rental  payments when due under a number of leases,  close a number
of offices or  declare  bankruptcy.  Any of these  actions  could  result in the
termination of the tenant's leases and the loss of rental income.

ACQUISITIONS OF PROPERTIES MAY NOT YIELD EXPECTED RETURNS

         Newly acquired  properties may fail to perform as expected.  Management
may  underestimate  the  costs  necessary  to bring  acquired  properties  up to
standards  established for their intended market position.  In addition,  we may
not achieve expected cost savings and planned operating  efficiencies.  Acquired
properties  may not  perform as well as we  anticipate  due to various  factors,
including changes in  macro-economic  conditions and the demand for office space
or oil and gas  royalties.  As the Company  grows,  we have to invest further in
overhead  to  assimilate  and  manage  a  portfolio  of  potentially   unrelated
properties.

         We may face  significant  competition  for  acquisitions of properties,
which may increase the costs of  acquisitions.  We may compete for  acquisitions
of, and investments in,  properties with an  indeterminate  number of investors,
including  investors  with access to  significant  capital  such as domestic and
foreign corporations and financial  institutions,  publicly traded and privately
held REITs, private  institutional  investment funds,  investment banking firms,
life insurance companies and pension funds. This competition may increase prices
for the  types of  properties  in which we  invest.  In  addition,  the cost and
availability  of  capital  necessary  to  increase  our asset  base and  revenue
generating  capability  is  difficult  to predict  and in and of itself may be a
barrier to pursuing future acquisitions.

THE COMPANY'S ASSET INVESTMENTS ARE ILLIQUID

         Real estate property  investments  and oil and gas royalties  generally
cannot be disposed of quickly.  The Company's recent start-up electricity retail
business  is also  illiquid.  Therefore,  we may not be able to vary  our mix of
assets or achieve  potentially  required  liquidity  in  response to economic or
other conditions promptly or on favorable terms.


                                      S-3
<PAGE>

SOME POTENTIAL LOSSES MAY NOT BE COVERED BY INSURANCE

         The  Company  carries  insurance  on our  properties  that we  consider
appropriate and consistent with industry practices.  Though we plan to assure to
the best of our ability that policy  specifications  and insured limits of these
policies are adequate and  appropriate,  there may be however,  certain types of
losses,  including lease and other contract claims,  acts of war, acts of terror
and acts of God that generally may not be insured. Should an uninsured loss or a
loss in excess of insured  limits  occur,  we could lose all or a portion of the
capital  we have  invested  in a  property,  as well as the  anticipated  future
revenue  from the  property.  If that  happened,  we might  nevertheless  remain
obligated for any mortgage debt or other  financial  obligations  related to the
property.  Though we plan to maintain  insurance  policies  with  carriers  with
sufficient assets and capital to cover all insured perils, there may be however,
failures or receiverships  of carriers  providing  insurance to the Company.  If
this occurs,  the Company could be essentially  without  coverage for perils and
losses.

ABILITY TO SERVICE LONG-TERM DEBT

         Certain of the  Company's  activities  are  subject  to risks  normally
associated  with debt  financing.  The timing and amount of cash flows  could be
insufficient to meet required payments of principal and interest.  We may not be
able  to  refinance  acquired  debt,  which  in  virtually  all  cases  requires
substantial  principal  payments at maturity,  and, even if we can,  refinancing
might not be available on favorable terms. If principal payments due at maturity
cannot  be  refinanced,   extended  or  paid  with  proceeds  of  other  capital
transactions,  including new equity capital,  cash flow may not be sufficient in
all years to repay all maturing debt. Prevailing interest rates or other factors
at the time of refinancing, including the possible reluctance of lenders to make
commercial real estate loans,  may result in higher interest rates and increased
interest expenses.

POTENTIAL ENVIRONMENTAL LIABILITIES

         Under  various  environmental  laws,  a current  or  previous  owner or
operator of real property may be liable for the costs of removal or  remediation
of hazardous or toxic substances,  including  asbestos-containing materials that
are located on or under the property.  Specific  asbestos  remediation has taken
place in certain  of our  rental  buildings.  Environmental  laws  often  impose
liability  whether the owner or operator  knew of, or was  responsible  for, the
presence of those substances.  In connection with our ownership and operation of
properties, we may be liable for these costs, which could be substantial.  Also,
our  ability to arrange for  financing  secured by that real  property  might be
adversely  affected  because of the presence of hazardous or toxic substances or
the failure to properly  remediate  any  contamination.  In addition,  we may be
subject to claims by third  parties  based on damages and costs  resulting  from
environmental contamination at or emanating from our properties.


                                      S-4
<PAGE>

NON-COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT ("ADA")

         Under the ADA, all public  accommodations  are required to meet certain
federal  requirements  related to physical  access and use by disabled  persons.
While we believe  our  properties  comply in all  material  respects  with these
physical  requirements  or would be  eligible  for  applicable  exemptions  from
material  requirements  because of adaptive assistance provided, a determination
that we are not in  compliance  with the ADA could result in the  imposition  of
fines or an award of damages to private  litigants.  If we were required to make
modifications to comply with the ADA, our ability to meet financial  obligations
could be adversely affected.

POTENTIAL ADVERSE EFFECTS ON OUR NET OPERATING LOSS ("NOL")

         There  are  significant  limitations  of  utilization  of the NOL under
applicable  tax law as it relates to a change in  ownership  among  five-percent
(5%) owners exceed fifty percent (50%),  and a business  continuity  test. If we
are unable to meet these  standards,  utilization of the NOL could be limited or
reduced to zero.

VOLATILITY OF OIL AND GAS PRICES

         Anticipated  results  from  our  oil and gas  royalty  investments  are
substantially  dependent  on prices of oil and gas.  Prices  for oil and gas are
subject to large  fluctuations  in  response to  relative  minor  changes in the
supply of, and demand  for,  oil and gas,  market  uncertainty  and a variety of
additional factors beyond our control. These factors include weather conditions,
the economy,  actions of the government  regulation,  political stability in the
Middle  East and  elsewhere,  the  foreign  supply of oil and gas,  the price of
foreign imports and the availability of alternate fuel sources.  Any substantial
extended decline in the price of oil and gas could have an adverse impact on our
revenue generating capability.

UNCERTAINTY OF ESTIMATED OIL AND GAS RESERVES

         Estimates of  economically  recoverable  oil and gas reserves are based
upon a number of variable factors and assumptions, which are speculative and not
under our  control.  Actual  production  and reserve  data used to value  future
acquisitions  will be  estimates  only and  will be  subject  to  uncertainties.
Estimated quantities of oil and natural gas may differ considerably from amounts
actually  recovered and thus future cash flows could be impaired or  accelerated
beyond management's expectations.

AVAILABILITY OF CAPITAL RESOURCES

         Currently,  the Company's  capital resources are expected to be limited
to the net proceeds obtained through the sale of the Purchased  Securities,  net
proceeds from the sale of real estate,  borrowing  covered by the Guaranties and
the net income from operations of the Company and its Subsidiaries. However, the
operations  of the Company's  newest  Subsidiary  are in an initial  development
phase and we do not anticipate significant operating revenues from that business
for  several  months.  As a  result,  the net  proceeds  from  this  sale of the
Purchased  Securities and the guaranteed  borrowings  will be a primary  capital
resource  during this period.  In the event our current  capital  resources  are
insufficient to fund our operations and capital expenditures, the Company may be
forced  to seek  other  sources  of  financing,  including  without  limitation,
incurrence of debt and issuances of additional equity  securities.  There can be
no assurance that such  financing  will be available on terms  acceptable to the
Company or on any terms. If additional financing is not available,  it will have
a material adverse effect on our operations.



                                      S-5
<PAGE>

MARKETABILITY OF THE SECURITIES

         The Series C Preferred and the Warrants will not be readily marketable,
will not be  redeemable  at the option of the holder,  have not been  registered
under  applicable  securities laws and we have no intention to so register those
securities.  Acquisition,  ownership  and transfer of the Series C Preferred and
the  Warrants  will be  restricted  in order  for the  Company  to  maintain  an
exemption from registration  under applicable state and federal securities laws.
There is no public market for the Series C Preferred and the Warrants,  and none
is expected to develop.  An investor  must plan to retain the Series C Preferred
and the Warrants for an indefinite period of time.

         The Common Stock is traded on the Nasdaq  Stock  Market.  However,  the
Conversion  Shares  and the  Warrant  Shares  have  not  been  registered  under
applicable  securities  laws,  and  therefore  cannot be  transferred  unless so
registered  or pursuant to an exemption  from  registration.  The Company is not
obligated to register the Conversion  Shares or the Warrant Shares. In addition,
the market in the Common  Stock is not  actively  traded,  and the low volume of
trading may have a  significant  effect on the trading price of the Common Stock
unrelated to the  performance  of the Company.  Due to the foregoing an investor
may not be able to  liquidate  such  shares when he desires to do so, and may be
required to retain the investment for an indefinite period of time.

DILUTION

         The  conversion  price of the Series C Preferred and the exercise price
of the Warrants  represent a purchase price share per share of Common Stock that
is in  excess of the net  tangible  book  value per share of Common  Stock as of
September 30, 2004. As a result, Purchasers may experience immediate dilution in
the book value of the shares acquired,  in which case the existing  stockholders
of the  Company  will have an  immediate  increase  in the net book value of the
partnership interests owned prior to this transaction.

RELIANCE UPON NEW BUSINESS

         The Company recently formed a new Subsidiary, W Power and Light, LP, to
commence  operations  in the  electricity  retail  business.  In addition to the
general risks discussed above,  this new business is subject to additional risks
including those discussed below.

         THE RETAIL  ELECTRICITY  MARKET IS HIGHLY  COMPETITIVE.  The market for
retail  electricity  customers  is very  competitive.  In certain  markets,  our
principal  competitors  include  the local  regulated  electric  utility  or its
non-regulated  affiliate. In other markets, we face competition from independent
electric  providers,  independent power producers and wholesale power providers.
In most cases, our competitors have the advantage of long-standing relationships
with  customers,  longer  operating  histories  and/or larger and better capital
resources.  As a  result,  it may not be  profitable  for us to enter  into some
markets and our ability to increase market share may be hindered.


                                      S-6
<PAGE>

         In  general,  we  compete  on the basis of price,  our  commercial  and
marketing  skills  relative  to  other  market  participants,  service  and  our
financial position. Other factors affecting our competitive position include our
ability to obtain electricity for resale and related transportation/transmission
services. Since many of our energy customers, suppliers and transporters require
financial  guarantees and other assurances regarding contract  performance,  our
access to letters of credit,  surety bonds and other forms of credit  support is
another factor affecting our ability to compete in the market.

         OUR BUSINESS IS SUBJECT TO MARKET RISKS. Unlike a traditional regulated
electric  utility,  we are  not  guaranteed  a rate  of  return  on our  capital
investments.  Our  results of  operations,  financial  condition  and cash flows
depend,  in large part,  upon  prevailing  market prices for  electricity in our
markets and the impact of regulatory  decisions on prices  charged to our retail
customers.  Market  prices may fluctuate  substantially  over  relatively  short
periods of time, potentially adversely affecting our business. Changes in market
prices for electricity may result from the following factors among others:

         o        weather conditions;
         o        seasonality;
         o        demand for energy commodities;
         o        general economic conditions;
         o        forced or unscheduled interruptions in electricity available;
         o        disruption  of  electricity  transmission  or  transportation,
                  infrastructure or other constraints or inefficiencies;
         o        financial position of market participants;
         o        changes  in  market  liquidity;  o  natural  disasters,  wars,
                  embargoes,  acts of terrorism and other  catastrophic  events;
                  and
         o        governmental regulation and legislation.

         DEPENDENCE  UPON THIRD PARTY  PROVIDERS.  The Company  does not own any
generating  resources  to supply  electricity  for our retail  business  in this
market. As a result, we must purchase all of the generation  capacity  necessary
to supply our retail energy business from third parties. In addition,  we depend
on  power  transmission  and  distribution  facilities  owned  and  operated  by
utilities  and  others  to  deliver  energy   products  to  our  customers.   If
transmission or distribution is inadequate or disrupted, our ability to sell and
deliver our products may be hindered. Any infrastructure failure that interrupts
or impairs delivery of electricity could have an adverse effect on our business.

         We are dependent on the  transmission  and  distribution  utilities for
reading our customers' energy meters. We also rely on the local transmission and
distribution  utility or, in some cases,  the independent  system  operator,  to
provide us with our customers' information regarding energy usage; and we may be
limited in our ability to confirm the accuracy of the information. If we receive
incorrect  or  untimely  information  from  the  transmission  and  distribution
utilities,   we  could  have  difficulty  properly  billing  our  customers  and
collecting amounts owed to us. Failure to receive correct and timely information
could have an adverse effect on our business.


                                      S-7
<PAGE>

         REGULATION OF ELECTRICITY  RETAIL BUSINESS.  The Company's  electricity
retail  business  operates  in  a  regulatory  environment  that  is  undergoing
significant changes as a result of varying restructuring initiatives at both the
state and  federal  levels.  We cannot  predict  the future  direction  of these
initiatives  or the ultimate  effect that this changing  regulatory  environment
will have on our  business.  Moreover,  existing  regulations  may be revised or
reinterpreted  and new laws and regulations may be adopted or become  applicable
to our facilities or our commercial activities.  Such future changes in laws and
regulations  may have an adverse  effect on our business.  Regulators,  regional
transmission organizations and independent system operators have imposed and may
continue to impose price  limitations,  bidding rules and other mechanisms in an
attempt to address price  volatility and other issues in power  markets.  If the
trend  toward  competitive  restructuring  of  the  power  market  is  reversed,
discontinued  or delayed,  our business growth  prospects and financial  results
could be adversely affected.

         ERCOT.  The  Electric   Reliability   Counsel  of  Texas  ("ERCOT")  is
responsible for handling  scheduling and settlement for all  electricity  supply
volumes in the ERCOT  Region.  ERCOT  plays a vital role in the  collection  and
dissemination of metering data from the transmission and distribution  utilities
to the  retail  electric  providers.  We and  other  retail  electric  providers
schedule  volumes based on forecasts,  which are based,  in part, on information
supplied by ERCOT.  To the extent that these amounts are not accurate or timely,
we could have incorrectly estimated our scheduled volumes and supply costs.

         In the event of a default by a retail electric  provider of its payment
obligations to ERCOT,  the portion of the obligation  that is  unrecoverable  by
ERCOT is assumed by the  remaining  market  participants  in  proportion to each
participant's  load ratio  share.  We would pay a portion of the amount  owed to
ERCOT should such a default occur if ERCOT is not successful in recovering  such
amount.  The default of a retail  electric  provider in its obligations to ERCOT
could have an adverse effect on our business.

         OUR STRATEGIC PLANS MAY NOT BE SUCCESSFUL.  The Company's retail energy
business  operates in the  deregulated  segments of the electric power industry.
The  success  of  our  long-term   strategic   plans  are  predicated  upon  the
continuation of the trend toward greater  competitive  markets in this industry.
If the trend towards competitive restructuring of the electric power industry is
reversed, discontinued or delayed, our business could be adversely affected.

         NON-PERFORMANCE  BY  COUNTERPARTIES.  Our operations are exposed to the
risk that  counterparties  who owe us money or commodities and services will not
perform their obligations.  When such parties fail to perform their obligations,
we might be forced to replace the underlying  commitment at then-current  market
prices. In this event, we could incur reduced operating results or losses.

THE FOREGOING SUMMARY OF CERTAIN CONSIDERATIONS AND RISKS DO NOT PURPORT TO BE A
COMPLETE  EXPLANATION  OF THE RISKS  INVOLVED  IN THIS  INVESTMENT.  PROSPECTIVE
INVESTORS SHOULD READ THE ENTIRE SECURITIES PURCHASE AGREEMENT,  THE SEC FILINGS
AND OTHER  INFORMATION  PROVIDED BY THE COMPANY BEFORE  DETERMINING TO INVEST IN
THE SECURITIES.


                                      S-8
<PAGE>


                                   EXHIBIT "A"


                      CERTIFICATE OF DESIGNATION OF SERIES
                   AND DETERMINATION OF RIGHTS AND PREFERENCES
                                       OF

                      SERIES C CONVERTIBLE PREFERRED STOCK

                                       OF

                              AMEN PROPERTIES, INC.

         AMEN PROPERTIES,  INC., a Delaware corporation (the "COMPANY"),  acting
pursuant to Section 151 of the General Corporation Law of Delaware,  does hereby
submit the following  Certificate of Designation of Series and  Determination of
Rights  and  Preferences  of its  Series C  Convertible  Preferred  Stock  (this
"CERTIFICATE").

         FIRST:  The name of the Company is Amen Properties, Inc.

         SECOND: By unanimous consent of the Board of Directors (the "BOARD") of
the Company dated January __, 2005, the following resolutions were duly adopted:

         WHEREAS  the   Certificate  of   Incorporation   of  the  Company  (the
"CERTIFICATE OF INCORPORATION")  authorizes 5,000,000 shares of preferred stock,
par value $.001 per share ("PREFERRED STOCK"), issuable from time to time in one
or more series;

         WHEREAS, the Company has previously  designated two series of Preferred
Stock,  the Series A Preferred  Stock,  par value $.001 per share (the "SERIES A
PREFERRED")  and the Series B  Preferred  Stock,  par value $.001 per share (the
"SERIES B PREFERRED"), each with such rights and preferences as are set forth in
the respective  Certificate of Designation of Series and Determination of Rights
and Preferences, as amended, for each (the "SERIES A AND B DESIGNATIONS");

         WHEREAS the Board of the Company is authorized,  subject to limitations
prescribed by law and by the  provisions of paragraph  four (4) of the Company's
Certificate  of  Incorporation,  to establish and fix the number of shares to be
included  in  any  series  of  Preferred  Stock  and  the  designation,  rights,
preferences,  powers, restrictions and limitations of the shares of such series;
and

         WHEREAS it is the desire of the Board to  establish  and fix the number
of shares to be included in a new series of Preferred Stock and the designation,
rights, preferences and limitations of the shares of such new series.

         NOW,  THEREFORE,  BE IT RESOLVED that pursuant to paragraph four of the
Company's Certificate of Incorporation, there is hereby established a new series
of  Preferred  Stock,  and that the Board  does  hereby  fix and  determine  the
designation, rights, preferences, powers, restrictions and limitations set forth
as follows:


                                      A-1
<PAGE>

SECTION 1.  DESIGNATION; RANK.

         This  series  of  cumulative   convertible  Preferred  Stock  shall  be
designated  and known as the  "SERIES C  PREFERRED  STOCK." The number of shares
constituting the Series C Preferred Stock shall be 125,000 shares.  The Series C
Preferred Stock shall, with respect to rights upon  liquidation,  dissolution or
winding  up,  whether  voluntary  or  involuntary,  rank  equal to the  Series A
Preferred Stock and the Series B Preferred  Stock, and prior to the common stock
of the Company, par value $.01 per share (the "COMMON STOCK").

SECTION 2.  DIVIDENDS.

         The holders of outstanding  shares of Series C Preferred Stock shall be
entitled to receive any  dividend  declared in respect of the Common Stock based
upon the number of shares of Common Stock into which the  outstanding  shares of
Series C Preferred Stock are convertible at the time the dividend is declared as
if such  shares  of  Common  Stock  issuable  upon  conversion  of the  Series C
Preferred Stock were outstanding for purposes of the Common Stock dividend.

SECTION 3.  LIQUIDATION PREFERENCE.

         (a) Upon any  liquidation,  dissolution  or winding up of the  Company,
whether  voluntary or involuntary,  but before any distribution or payment shall
be made to the  holders  of any Common  Stock,  and in equal  preference  to the
holders of the Series A  Preferred  and the Series B  Preferred,  the holders of
Series C  Preferred  Stock  shall be  entitled  to be paid out of the  remaining
assets of the Company legally  available for  distribution  with respect to each
share of Series C Preferred  Stock an amount  equal to the sum of (i) $16.00 per
share, as adjusted for any stock dividends,  combinations or splits with respect
to such shares (the "ORIGINAL  SERIES C ISSUE PRICE") plus (ii) any declared but
unpaid dividends thereon (such sum, the "SERIES C LIQUIDATION  VALUE").  If upon
any such  liquidation,  dissolution  or winding up of the Company the  remaining
assets of the Company  available for distribution to its  stockholders  shall be
insufficient  to pay the  holders  of  shares of  Series A  Preferred,  Series B
Preferred and Series C Preferred Stock the full liquidation amount to which each
is entitled under the Series A and B Designations and this  Certificate,  as the
case may be,  then the  holders  of  shares  of  Series  A  Preferred,  Series B
Preferred and Series C Preferred  Stock shall share ratably in any  distribution
of the remaining  assets of the Company in proportion to the respective  amounts
which  would  otherwise  be payable  in respect of the shares of such  Preferred
Stock  held by them upon such  distribution  if all  amounts  payable on or with
respect to such shares were paid in full.

         (b)  After  payment  in full of the  liquidation  amounts  to which all
outstanding  shares of  Series A  Preferred,  Series B  Preferred  and  Series C
Preferred Stock are entitled,  then the remaining  assets of the Company legally
available  for  distribution,  if any,  shall be  distributed  to the holders of
Common Stock.


                                      A-2
<PAGE>

         (c) The following events shall be considered a liquidation for purposes
of Section  3(a) above and Section 6 (a) below  unless the holders of at least a
majority  of the  voting  power  of all  then  outstanding  shares  of  Series A
Preferred,  Series B Preferred and the Series C Preferred Stock, voting together
as a single class, vote otherwise:

                  (i) any merger, consolidation or other business combination of
         the Company in which the stockholders of the Company  immediately prior
         to such transaction will, immediately after such transaction (by virtue
         of securities issued in the transaction or otherwise), beneficially own
         (as determined pursuant to rule 13d-3 under the Securities Exchange Act
         of 1934, as amended (the  "Exchange  Act")  capital stock  representing
         less than  fifty  percent  (50%) of the voting  power of the  surviving
         entity's voting stock immediately after such transaction; or

                  (ii) a sale of all or  substantially  all of the assets of the
         Company  to  any  other  entity,   where  the  Company's   stockholders
         immediately  prior to such sale will,  immediately  after such sale (by
         virtue of securities  issued as consideration for the Company's sale or
         otherwise),  beneficially  own (as  determined  pursuant  to Rule 13d-3
         under the Exchange  Act)  capital  stock  representing  less than fifty
         percent  (50%) of the voting  power of the  acquiring  entity's  voting
         stock.

         (d) In either of the events in Section 3(c) above, if the consideration
received  by the  Company is other than cash,  its value will be deemed its fair
market value as determined in good faith by the Board.  Any securities  shall be
valued as follows:

                  (i)  Securities  not  subject  to  investment  letter or other
         similar restrictions on free marketability covered by (ii) below:

                           (A) If traded on a securities exchange or through the
                  Nasdaq  National  Market,  the value shall be deemed to be the
                  average  of the  closing  prices  of the  securities  on  such
                  quotation  system over the thirty (30) day period ending three
                  (3) days prior to the closing;

                           (B) If actively  traded  over-the-counter,  the value
                  shall be deemed to be the  average of the  closing bid or sale
                  prices  (whichever  is  applicable)  over the thirty  (30) day
                  period ending three (3) days prior to the closing; and

                           (C) If there is no active  public  market,  the value
                  shall be the fair market value thereof, as mutually determined
                  by the Board and the  holders  of at least a  majority  of the
                  voting  power  of all  then  outstanding  shares  of  Series A
                  Preferred, Series B Preferred and Series C Preferred Stock.

                  (ii)  The  method  of  valuation  of  securities   subject  to
         investment letter or other  restrictions on free  marketability  (other
         than restrictions arising solely by virtue of a stockholder's status as
         an  affiliate  or  former  affiliate)  shall be to make an  appropriate
         discount  from the market value  determined as above in (i) (A), (B) or
         (C) to reflect the approximate  fair market value thereof,  as mutually
         determined  by the Board and the  holders of at least a majority of the
         voting  power of all then  outstanding  shares of  Series A  Preferred,
         Series B Preferred and Series C Preferred Stock.


                                      A-3
<PAGE>

SECTION 4.  VOTING RIGHTS.

         (a) Each holder of outstanding shares of Series C Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock  into  which all of the  shares of Series C  Preferred  Stock held by such
holder are  convertible  (subject to the  Conversion  Cap  described  in, and as
adjusted  from time to time  pursuant  to,  Section 6 hereof) at each meeting of
stockholders  of the Company (and  written  actions of  stockholders  in lieu of
meetings) with respect to any and all matters  presented to the  stockholders of
the Company for their action or consideration. Except as provided by law, by the
express provisions hereof, or by the provisions establishing any other series of
Preferred  Stock,  holders of Series C  Preferred  Stock and of any  outstanding
other series of Preferred  Stock shall vote  together with the holders of Common
Stock as a single class.

         (b)  Notwithstanding  the foregoing,  the Series C Preferred Stock will
not be entitled (i) to vote with respect to any approval or  ratification by the
stockholders of the Company of the designation,  issuance and sale of the Series
C  Preferred  Stock by the  Company in  accordance  with the rules of the Nasdaq
Stock  Market,  and (ii) to the number of votes equal to the number of shares of
Common Stock into which the Series C Preferred Stock is convertible  that are in
excess of the Conversion Cap unless and until  Stockholder  Approval is obtained
(as such capitalized terms are defined in Section 6 hereof).

SECTION 5.  COVENANTS.

         In addition to any other rights provided by law, the Corporation  shall
not,  without first  obtaining the  affirmative  vote or written  consent of the
holders of at least fifty percent (50%) of the outstanding  shares of the Series
A Preferred, Series B Preferred and Series C Preferred Stock, voting together as
a single class, (i) authorize or create (by  reclassification  or otherwise) any
new class or series of shares of capital  stock with  rights  senior or equal to
the Series A  Preferred,  Series B Preferred or Series C Preferred  Stock;  (ii)
amend or waive any provision of this Corporation's  Certificate of Incorporation
or Bylaws in any manner that adversely  affects the  preferences,  privileges or
rights of the  Series A  Preferred,  Series B  Preferred  or Series C  Preferred
Stock;  (iii)  redeem or  repurchase  Common  Stock or any other  junior  equity
security,  except for shares  repurchased  upon the  termination of an employee,
officer,  director  or  consultant  pursuant  to  a  restricted  stock  purchase
agreement;  (iv) pay or declare any  dividend  on the Common  Stock or any other
junior equity security other than a dividend  payable in shares of Common Stock;
or (v) liquidate or wind up the Corporation.

SECTION 6.  CONVERSION RIGHTS.

         The  holders  of the Series C  Preferred  Stock  shall have  conversion
rights as follows (the "Conversion Rights"):


                                      A-4
<PAGE>

         (a) RIGHT TO CONVERT.  Each share of Series C Preferred  Stock shall be
convertible,  at the option of the holder thereof,  at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is  determined by dividing the Original  Series C Issue Price by the  Conversion
Price (as  defined  below) in effect at the time of  conversion.  Subject to the
Conversion  Cap  provided  under  Section 6(l) and other  limitations  set forth
herein, the Series C Preferred Stock is convertible into an aggregate of 500,000
shares of Common Stock. The Conversion  Price (the "CONVERSION  PRICE") is $4.00
per share of Common Stock.  The Conversion Price is the price at which shares of
Common Stock shall be deliverable  upon conversion of Series C Preferred  Stock,
without the payment of  additional  consideration  by the holder  thereof.  Such
initial  Conversion  Price and the rate at which  shares  of Series C  Preferred
Stock may be  converted  into  shares  of  Common  Stock,  shall be  subject  to
adjustment as provided below.

         (b) FRACTIONAL  SHARES.  No fractional  shares of Common Stock shall be
issued upon  conversion of the Series C Preferred  Stock.  In lieu of fractional
shares, the Company shall round such fraction to the nearest whole number.

         (c) MECHANICS OF CONVERSION.

                  (i) In order to  convert  shares of Series C  Preferred  Stock
         into shares of Common Stock, the holder shall surrender the certificate
         or  certificates  for such  shares of Series C  Preferred  Stock at the
         office of the transfer agent (or at the principal office of the Company
         if the Company serves as its own transfer agent), together with written
         notice  that such  holder  elects to  convert  all or any number of the
         shares  represented by such  certificate or  certificates.  Such notice
         shall state the number of shares of Series C Preferred  Stock which the
         holder  seeks to  convert.  The  number of shares of Common  Stock into
         which each share of Series C Preferred  Stock is convertible is subject
         to and  limited by the  Conversion  Cap  provided in Section  6(l).  If
         required by the Company,  certificates surrendered for conversion shall
         be endorsed or  accompanied  by a written  instrument or instruments of
         transfer,  in form  satisfactory  to the Company,  duly executed by the
         registered  holder or his or its attorney  duly  authorized in writing.
         The date of receipt  of such  certificates  and notice by the  transfer
         agent or the Company shall be the conversion date ("Conversion  Date").
         As soon as  practicable  after the  Conversion  Date, the Company shall
         promptly  issue and deliver at such office to such holder a certificate
         or certificates  for the number of shares of Common Stock to which such
         holder is entitled.  Such conversion  shall be deemed to have been made
         at the  close  of  business  on  the  date  of  such  surrender  of the
         certificate  representing  the shares of Series C Preferred Stock to be
         converted,  and the person  entitled  to  receive  the shares of Common
         Stock issuable upon such  conversion  shall be treated for all purposes
         as the record holder of such shares of Common Stock on such date.

                  (ii) The Company  shall at all times during which the Series C
         Preferred Stock shall be outstanding, reserve and keep available out of
         its authorized but unissued Common Stock,  for the purpose of effecting
         the conversion of the Series C Preferred Stock, such number of its duly
         authorized  shares  of  Common  Stock  as  shall  from  time to time be
         sufficient  to  effect  the  conversion  of all  outstanding  Series  C
         Preferred  Stock.  Before  taking  any  action  which  would  cause  an
         adjustment  reducing the  Conversion  Price below the then par value of
         the shares of Common Stock  issuable  upon  conversion  of the Series C
         Preferred  Stock, the Company will take any corporate action which may,
         in the opinion of its  counsel,  be necessary in order that the Company
         may validly and legally  issue fully paid and  nonassessable  shares of
         Common Stock at such adjusted Conversion Price.

                                      A-5
<PAGE>

                   (iii) All shares of Series C Preferred Stock which shall have
         been  surrendered  for conversion as herein provided shall no longer be
         deemed to be  outstanding  and all rights with  respect to such shares,
         including  the  rights,  if any, to receive  dividends,  notices and to
         vote,  shall  immediately  cease and terminate on the Conversion  Date,
         except  only the right of the  holders  thereof  to  receive  shares of
         Common  Stock in exchange  therefor,  and if  applicable,  cash for any
         fractional  shares of Common  Stock.  Any shares of Series C  Preferred
         Stock so  converted  shall be retired  and  cancelled  and shall not be
         reissued,  and the Company may from time to time take such  appropriate
         action as may be necessary to reduce the number of shares of authorized
         Series C Preferred Stock accordingly.

         (d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.

                  (i) SPECIAL DEFINITIONS. For purposes of this Subsection 6(d),
the following definitions shall apply:

                           (A) "OPTION"  shall mean rights,  options or warrants
                  to subscribe for,  purchase or otherwise  acquire Common Stock
                  or Convertible Securities, excluding rights or options granted
                  to employees,  vendors, officers, directors and executives of,
                  and consultants or  shareholders  to, the Company in an amount
                  not exceeding the number of Reserved Employee Shares.

                           (B)  "ORIGINAL  ISSUE  DATE"  shall  mean the date on
                  which the first  share of  Series C  Preferred  Stock is first
                  issued.

                           (C) "CONVERTIBLE SECURITIES" shall mean any evidences
                  of  indebtedness,  shares  or  other  securities  directly  or
                  indirectly convertible into or exchangeable for Common Stock.

                           (D)  "ADDITIONAL  SHARES OF COMMON  STOCK" shall mean
                  all shares of Common Stock issued (or,  pursuant to Subsection
                  6(d)(iii) below, deemed to be issued) by the Company after the
                  Original Issue Date,  other than Reserved  Employee Shares and
                  other than shares of Common Stock issued or issuable:

                                    (1) by reason of a  dividend,  stock  split,
                           split-up  or other  distribution  on shares of Common
                           Stock;

                                    (2)  upon the  exercise  of  Options  as set
                           forth in Subsection 6(d)(i)(A);

                                    (3) upon  conversion  of  shares of Series C
                           Preferred Stock;

                                      A-6
<PAGE>

                           (E) "RESERVED  EMPLOYEE  SHARES" shall mean shares of
                  Common  Stock  issued  to  employees,   officers,   directors,
                  shareholders and executives of, and consultants or vendors to,
                  the Company  upon the  exercise of options  granted  under the
                  Company's  employee stock option plans,  which plans have been
                  approved  by the  Company's  stockholders,  or as  payment  of
                  compensation.

                           (F) "RIGHTS TO ACQUIRE  COMMON  STOCK" (or  "RIGHTS")
                  shall mean all rights issued by the Company to acquire  Common
                  Stock  whether by  exercise  of a  warrant,  option or similar
                  call,  or conversion  of any existing  instruments,  in either
                  case for consideration  fixed, in amount or by formula,  as of
                  the date of issuance.

                  (ii) NO ADJUSTMENT OF CONVERSION  PRICE.  No adjustment in the
         number of shares of Common  Stock  into  which the  Series C  Preferred
         Stock is  convertible  shall be made, by  adjustment in the  applicable
         Conversion  Price  thereof,  unless  (A) the  consideration  per  share
         (determined  pursuant to  Subsection  6(d)(v)  below) for an Additional
         Share of Common  Stock  issued or deemed to be issued by the Company is
         less  than  the  Conversion  Price  in  effect  on  the  date  of,  and
         immediately prior to, the issue of such Additional Shares, or (B) prior
         to such issuance,  the Company receives written notice from the holders
         of at least a  majority  of the  voting  power of all then  outstanding
         shares of Series A Preferred, Series B Preferred and Series C Preferred
         Stock,  voting  together  as a  single  class,  agreeing  that  no such
         adjustment  shall be made as the result of the  issuance of  Additional
         Shares of Common Stock.

                  (iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
         COMMON STOCK. If the Company at any time or from time to time after the
         Original Issue Date shall issue any Options or  Convertible  Securities
         or Rights to Acquire Common Stock, then the maximum number of shares of
         Common Stock (as set forth in the instrument  relating  thereto without
         regard to any provision  contained therein for a subsequent  adjustment
         of such number) issuable upon the exercise of such Options,  Rights or,
         in the case of  Convertible  Securities,  the conversion or exchange of
         such Convertible Securities, shall be deemed to be Additional Shares of
         Common  Stock issued as of the time of such issue;  provided,  however,
         that Additional Shares of Common Stock shall not be deemed to have been
         issued  unless the  consideration  per share  (determined  pursuant  to
         Subsection  6(d)(v) hereof) of such  Additional  Shares of Common Stock
         would be less  than the  Conversion  Price in effect on the date of and
         immediately  prior to such issue,  or such record date, as the case may
         be, and provided, further, that in any such case:

                           (A) No further  adjustment  in the  Conversion  Price
                  shall be made  upon the  subsequent  issue of shares of Common
                  Stock upon the exercise of such Options,  Rights or conversion
                  or exchange of such Convertible Securities;

                           (B)  Upon  the   expiration  or  termination  of  any
                  unexercised  Option,  Right  or  Convertible   Security,   the
                  Conversion Price shall be adjusted  immediately to reflect the
                  Conversion  Price  which  would  have been in effect  had such
                  Option,   Right  or   Convertible   Security  (to  the  extent
                  outstanding   immediately   prior   to  such   expiration   or
                  termination) never been issued; and

                                      A-7
<PAGE>

                           (C) In the  event  of any  change  in the  number  of
                  shares of Common Stock issuable upon the exercise,  conversion
                  or  exchange  of any Option,  Right or  Convertible  Security,
                  including,  but not  limited to, a change  resulting  from the
                  anti-dilution provisions thereof, the Conversion Price then in
                  effect shall forthwith be readjusted to such Conversion  Price
                  as  would  have  been  obtained  had  the   Conversion   Price
                  adjustment  that was originally made upon the issuance of such
                  Option, Right or Convertible Security which were not exercised
                  or converted  prior to such change been made upon the basis of
                  such change,  but no further  adjustment shall be made for the
                  actual   issuance  of  Common   Stock  upon  the  exercise  or
                  conversion of any such Option, Right or Convertible Security.

                  (iv)   ADJUSTMENT  OF   CONVERSION   PRICE  UPON  ISSUANCE  OF
         ADDITIONAL  SHARES OF COMMON  STOCK.  If the Company  shall at any time
         after the Original Issue Date issue  Additional  Shares of Common Stock
         (including  Additional  Shares  of  Common  Stock  deemed  to be issued
         pursuant to  Subsection  6(d)(iii),  but  excluding  shares issued as a
         dividend or distribution as provided in Subsection 6(f) or upon a stock
         split  or  combination  as  provided  in  Subsection   6(e)),   without
         consideration,   or  for  a  consideration  per  share  less  than  the
         Conversion Price in effect on the date of and immediately prior to such
         issue,  or without  the  requisite  number of notices  contemplated  by
         Subsection  6(d)(ii)  hereof,  then and in such event,  the  Conversion
         Price shall be reduced by a full ratchet  anti-dilution  adjustment  to
         such lesser price (calculated to the nearest cent), but in no case will
         convert  at a price  below  $2.80  per  share,  concurrently  with such
         issuance  at  a  price  less  than  the  original   Conversion   Price.
         Notwithstanding  the foregoing,  the applicable  Conversion Price shall
         not be reduced if the amount of such reduction  would be an amount less
         than $.20,  but any such amount shall be carried  forward and reduction
         with  respect  thereto  made  at the  time  of and  together  with  any
         subsequent  reduction  which,  together  with such amount and any other
         amount or amounts so carried forward, shall aggregate $.20 or more.

                  (v)  DETERMINATION  OF  CONSIDERATION.  For  purposes  of this
         Subsection  6(d),  the  consideration  received  by the Company for the
         issue of any  Additional  Shares of Common  Stock  shall be computed as
         follows:

                           (A) Cash and Property. Such consideration shall:

                                    (1)  insofar  as it  consists  of  cash,  be
                           computed  at the  aggregate  of cash  received by the
                           Company,   excluding  amounts  paid  or  payable  for
                           accrued interest or accrued dividends;

                                    (2) insofar as it consists of property other
                           than  cash,  be  computed  at the fair  market  value
                           thereof at the time of such issue,  as  determined in
                           good faith by the Board; and

                                      A-8
<PAGE>

                                    (3) in the event Additional Shares of Common
                           Stock  are  issued  together  with  other  shares  or
                           securities   or  other  assets  of  the  Company  for
                           consideration which covers both, be the proportion of
                           such consideration so received,  computed as provided
                           in clauses (1) and (2) above,  as  determined in good
                           faith by the Board.

                           (B) Options, Rights and Convertible  Securities.  The
                  consideration per share received by the Company for Additional
                  Shares of Common Stock deemed to have been issued  pursuant to
                  Subsection   6(d)(iii),   relating  to  Options,   Rights  and
                  Convertible Securities, shall be determined by dividing

                                    (1) the total  amount,  if any,  received or
                           receivable  by the Company as  consideration  for the
                           issue  of  such   Options,   Rights  or   Convertible
                           Securities,  plus the  minimum  aggregate  amount  of
                           additional   consideration   (as  set  forth  in  the
                           instruments  relating thereto,  without regard to any
                           provision   contained   therein   for  a   subsequent
                           adjustment  of  such  consideration)  payable  to the
                           Company upon the exercise of such Options,  Rights or
                           the  conversion  or  exchange  of  such   Convertible
                           Securities, by

                                    (2) the  maximum  number of shares of Common
                           Stock  (as  set  forth  in the  instruments  relating
                           thereto,  without  regard to any provision  contained
                           therein for a subsequent  adjustment  of such number)
                           issuable upon the exercise of such Options, Rights or
                           the  conversion  or  exchange  of  such   Convertible
                           Securities.

         (e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS.  If the Company shall
at any  time or from  time to time  after  the  Original  Issue  Date  effect  a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately  decreased.  If the
Company  shall at any time or from time to time  after the  Original  Issue Date
combine the  outstanding  shares of Common Stock,  the Conversion  Price then in
effect immediately  before the combination shall be  proportionately  increased.
Any  adjustment  under this  paragraph  shall  become  effective at the close of
business on the date the subdivision or combination becomes effective.

         (f) ADJUSTMENT FOR CERTAIN  DIVIDENDS AND  DISTRIBUTIONS.  In the event
the Company at any time or from time to time after the Original Issue Date shall
make or issue a  dividend  or other  distribution  payable  in  shares of Common
Stock, then and in each such event the Conversion Price shall be decreased as of
the time of such issuance,  by multiplying  the Conversion  Price by a fraction,
the  numerator  of which  shall be the total  number  of shares of Common  Stock
issued and outstanding  immediately prior to the time of such issuance,  and the
denominator  of which shall be the total number of shares of Common Stock issued
and outstanding  immediately  prior to the time of such issuance plus the number
of shares of Common Stock issuable in payment of such dividend or distribution.


                                      A-9
<PAGE>

         (g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the
Company at any time,  or from time to time after the  Original  Issue Date shall
make or issue,  a dividend or other  distribution  payable in  securities of the
Company other than shares of Common Stock, then and in each such event provision
shall be made so that the  holders  of shares of the  Series C  Preferred  Stock
shall  receive  upon  conversion  thereof in addition to the number of shares of
Common Stock receivable thereupon,  the amount of securities of the Company that
they would have received had their Series C Preferred  Stock been converted into
Common  Stock on the date of such  event and had  thereafter,  during the period
from the date of such event to and including the Conversion Date,  retained such
securities  receivable by them as aforesaid during such period given application
to all  adjustments  called for during such period,  under this  paragraph  with
respect to the rights of the holders of the Series C Preferred Stock.

         (h) ADJUSTMENT FOR RECLASSIFICATION,  EXCHANGE, OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series C Preferred  Stock shall
be changed into the same or a different number of shares of any class or classes
of stock,  whether by capital  reorganization,  reclassification,  or  otherwise
(other than a subdivision or  combination  of shares or stock dividend  provided
for  above),  then and in each such  event the  holder of each share of Series C
Preferred  Stock shall have the right  thereafter to convert such share into the
kind and amount of shares of stock and other securities and property  receivable
upon such reorganization,  reclassification,  or other change, by holders of the
number of shares of Common  Stock into which such  shares of Series C  Preferred
Stock  might  have  been  converted  immediately  prior to such  reorganization,
reclassification,  or change,  all  subject to further  adjustment  as  provided
herein.

         (i)  NO  IMPAIRMENT.   The  Company  will  not,  by  amendment  of  its
Certificate of Incorporation or through any reorganization,  transfer of assets,
consolidation,  merger,  dissolution,  issue or sale of  securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company,  but will at all
times in good faith  assist in the carrying  out of all the  provisions  of this
Section  6 and in the  taking  of  all  such  action  as  may  be  necessary  or
appropriate  in order to protect  the  Conversion  Rights of the  holders of the
Series C Preferred Stock against impairment to the extent required hereunder.

         (j)  CERTIFICATE  AS  TO  ADJUSTMENTS.  Upon  the  occurrence  of  each
adjustment or readjustment of the Conversion  Prices pursuant to this Section 6,
the  Company  at  its  expense  shall  promptly   compute  such   adjustment  or
readjustment  in  accordance  with the terms hereof and shall file a certificate
setting forth such  adjustment or  readjustment  and showing in detail the facts
upon which such adjustment or readjustment is based with its corporate  records.
The Company shall, upon the reasonable written request of any holder of Series C
Preferred  Stock,  furnish  or cause to be  furnished  to such  holder a similar
certificate  setting  forth (i) such  adjustments  and  readjustments,  (ii) the
Conversion  Price(s)  then in  effect,  and (iii) the number of shares of Common
Stock and the  amount,  if any, of other  property  which then would be received
upon the  conversion  of Series C Preferred  Stock.  Despite such  adjustment or
readjustment,  the form of each or all Series C Preferred Stock certificates, if
the same shall reflect the initial or any subsequent  Conversion Price, need not
be  changed  in  order  for the  adjustments  or  readjustments  to be  valid in
accordance with the provisions of this Certificate, which shall control.


                                      A-10
<PAGE>

         (k) NOTICE OF RECORD DATE. In the event

                  (i)  that  the  Company  declares  a  dividend  (or any  other
         distribution)  on its Common  Stock  payable  in Common  Stock or other
         securities of the Company;

                  (ii) that the Company  subdivides or combines its  outstanding
         shares of Common Stock;

                  (iii)  of any  reclassification  of the  Common  Stock  of the
         Company (other than a subdivision  or  combination  of its  outstanding
         shares  of  Common  Stock or a stock  dividend  or  stock  distribution
         thereon); or

                  (iv) of the involuntary or voluntary dissolution,  liquidation
         or winding up of the Company;

         then the Company  shall cause to be filed at its  principal  office and
         shall cause to be mailed to the holders of the Series C Preferred Stock
         at their last addresses as shown on the records of the Company, or such
         transfer  agent, at least 10 days prior to the record date specified in
         (A) below or 20 days before the date  specified in (B) below,  a notice
         stating

                           (A) the record date of such  dividend,  distribution,
                  subdivision  or  combination,  or,  if a  record  is not to be
                  taken,  the date as of which the  holders  of Common  Stock of
                  record  to  be  entitled  to  such   dividend,   distribution,
                  subdivision or combination are to be determined, or

                           (B)  the   date  on  which   such   reclassification,
                  dissolution,  liquidation  or winding up is expected to become
                  effective,  and  the  date as of  which  it is  expected  that
                  holders  of  Common  Stock  of  record  shall be  entitled  to
                  exchange  their shares of Common Stock for securities or other
                  property deliverable upon such  reclassification,  dissolution
                  or winding up.

         (l) LIMITATION ON CONVERSION  RIGHTS.  Notwithstanding  anything stated
herein to the  contrary,  unless and until the issuance and sale of the Series C
Preferred  Stock is approved or ratified by the  stockholders  of the Company in
accordance  with  the  rules  of  the  Nasdaq  Stock  Market  (the  "STOCKHOLDER
APPROVAL"), the Series C Preferred Stock cannot be converted into a total number
of shares of Common Stock equal to or greater than twenty  percent  (20%) of the
number of shares of Common Stock  outstanding  immediately prior to the issuance
of the Series C Preferred Stock (the "CONVERSION  CAP").  The Conversion  Rights
are  expressly  limited by and subject to the  Conversion  Cap for all purposes,
unless and until the Stockholder Approval is obtained.  The Conversion Cap shall
be applied pro rata to the Conversion Rights of each outstanding share of Series
C Preferred Stock, reducing the number of shares of Common Stock into which each
share of Series C Preferred Stock is convertible  equally. In no event shall the
number of shares of Common  Stock  into which the  Series C  Preferred  Stock is
convertible  exceed the Conversion Cap prior to the Stockholder  Approval.  Upon
Stockholder  Approval,  the Conversion Cap shall  terminate for all purposes and
this  Certificate  shall be deemed  amended  to  delete  all  references  to the
Conversion Cap and the conversion limitation set forth in this Section 6(l). The
Company may, but shall not be required to, file an amendment to its  Certificate
of Incorporation to reflect the Stockholder Approval.


                                      A-11
<PAGE>

SECTION 7.  REDEMPTION.

         (a) Upon and at any time  subsequent  to the third  anniversary  of the
Original Issue Date (as defined in Section  6(d)(i)  above),  the Company at its
option may redeem, out of its available cash or cash equivalents,  any amount of
the then outstanding and not previously converted (pursuant to Section 6) Series
C Preferred  Stock issued on the Original Issue Date, at a price per share equal
to the Original Series C Issue Price,  plus any declared,  but unpaid  dividends
thereon upon notice provided in accordance with Section 7(b).  Shares subject to
redemption pursuant to this Section shall be redeemed from each holder of Series
C Preferred Stock on a pro rata basis.

         (b) At least  thirty  (30)  days  prior to the dates  that the  Company
elects to redeem shares of the Series C Preferred Stock pursuant to Section 7(a)
(each a "REDEMPTION DATE," together the "REDEMPTION  DATES"),  the Company shall
send a notice (the "REDEMPTION NOTICE") to all holders of the outstanding Series
C Preferred  Stock of such  redemption to be effected,  specifying the number of
shares to be redeemed from such holder, the Redemption Date, the price per share
to be paid  (the  "REDEMPTION  PRICE")  and the  place at which  payment  may be
obtained.

         (c) On or prior to the  Redemption  Date, the Company shall deposit the
Redemption  Price of all  shares to be  redeemed  as of such date with a bank or
trust company having aggregate capital and surplus in excess of $50,000,000,  as
a trust fund, with  irrevocable  instructions and authority to the bank or trust
company to pay,  upon  receipt of notice from the  Company  that such holder has
surrendered the Series C Preferred  Stock share  certificates in accordance with
Section 7(d), the Redemption  Price of the shares to their  respective  holders.
Any  moneys  deposited  by the  Company  pursuant  to  this  Section  7 for  the
redemption of shares  thereafter  converted into shares of Common Stock pursuant
to Section 6 hereof no later than the fifth (5th) day preceding  the  Redemption
Date shall be  returned  to the  Company  forthwith  upon such  conversion.  The
balance  of any  funds  deposited  by the  Company  pursuant  to this  Section 7
remaining  unclaimed at the expiration of one (1) year following such Redemption
Date shall be returned to the Company promptly upon its written request.

         (d) On such  Redemption  Date,  each  holder  of  shares  of  Series  C
Preferred  Stock to be  redeemed  shall  surrender  such  holder's  certificates
representing  such  shares  to the  Company  in  the  manner  and  at the  place
designated in the Redemption  Notice, and thereupon the Redemption Price of such
shares  shall be payable to the order of the person  whose name  appears on such
certificate  or  certificates   as  the  owner  thereof  and  each   surrendered
certificate shall be canceled. In the event less than all the shares represented
by  such   certificates  are  redeemed,   a  new  certificate  shall  be  issued
representing  the unredeemed  shares.  From and after such Redemption  Date, all
rights of the holder of such  redeemed  shares as a holder of Series C Preferred
Stock (except the right to receive the  Redemption  Price without  interest upon
surrender of their  certificates) shall cease and terminate with respect to such
shares.

                                      A-12
<PAGE>

         (e) In the  event of a call for  redemption  of any  shares of Series C
Preferred Stock, the Conversion Rights (as defined in Section 6) for such Series
C Preferred Stock shall terminate as to the shares  designated for redemption at
the close of business  on the fifth (5th) day  preceding  the  Redemption  Date,
unless default is made in payment of the Redemption Price.

         IN WITNESS  WHEREOF,  the  Company has caused  this  Certificate  to be
executed this ____ day of January, 2005.


                                         AMEN PROPERTIES, INC.


                                         By:
                                         ----------------------------
                                         Jon M. Morgan
                                         President





                                      A-13
<PAGE>



                                   EXHIBIT "B"

                           FORM OF WARRANT CERTIFICATE

         THIS  WARRANT  AND ANY  WARRANT  SHARES  ISSUED  UPON  EXERCISE OF THIS
WARRANT ARE SUBJECT TO A SECURITIES PURCHASE AGREEMENT, DATED AS OF JANUARY ___,
2005, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL
BE  FURNISHED TO THE HOLDER ON REQUEST TO THE  SECRETARY  OF THE  COMPANY.  SUCH
SECURITIES  PURCHASE  AGREEMENT  PROVIDES,   AMONG  OTHER  THINGS,  FOR  CERTAIN
RESTRICTIONS ON DISPOSITION OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE.

         THIS  WARRANT,  THE PURCHASE  RIGHTS  EVIDENCED BY THIS WARRANT AND ANY
WARRANT  SHARES WHICH MAY BE ISSUED UPON  EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED  PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES
ACT"), OR ANY STATE  SECURITIES LAW, AND THIS WARRANT,  SUCH PURCHASE RIGHTS AND
WARRANT SHARES MAY NOT BE SOLD,  TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE
SAME ARE REGISTERED AND QUALIFIED IN ACCORDANCE  WITH THE SECURITIES ACT AND ANY
APPLICABLE  STATE  SECURITIES  LAWS,  OR IN THE  OPINION OF  COUNSEL  REASONABLY
SATISFACTORY  TO  THE  COMPANY  SUCH  REGISTRATION  AND  QUALIFICATION  ARE  NOT
REQUIRED.

No. 3 Warrant to Purchase

                                          _______ shares of Common Stock
Dated:   January ___, 2005
                                                  (subject to adjustment
                                                    as described herein)

                               WARRANT CERTIFICATE

                   Representing Common Stock Purchase Warrant

                              AMEN PROPERTIES, INC.

Purchase Price of Common Stock:     $4.00 per share

                                                         (subject to adjustment)

         THIS WARRANT  CERTIFICATE  (THIS  "WARRANT")  CERTIFIES that, for value
received,  __________________________________,  his  registered  assigns  or the
Holder (as defined below) hereof, is entitled, at any time prior to the close of
business on the Expiration  Date defined below, to purchase the number of shares
stated above (subject to adjustment as herein  provided) of Common Stock of Amen
Properties,  Inc., a Delaware corporation (the "COMPANY"), at the purchase price
per share stated above (subject to adjustment as herein provided) (the "PURCHASE
PRICE") upon  surrender of this Warrant at the  Principal  Office of the Company
and payment of such  Purchase  Price in cash or by bank  cashier's  or certified
check.



                                       1
<PAGE>

         This Warrant is one of the Warrants  originally  issued by the Company,
initially covering an aggregate of 250,000 shares of Common Stock, pursuant to a
Securities  Purchase Agreement dated as of January ___, 2005 between the Company
and  the  purchasers  named  on  the  signature  pages  thereto  (the  "PURCHASE
AGREEMENT").

         SECTION 1. DEFINITIONS. The following terms have the meanings set forth
below. Additional terms are defined elsewhere herein.

         "COMMON STOCK" means the Common Stock, par value $.01 per share, of the
Company.

         "EXERCISE  DATE" with  respect to any Warrant  means each date on which
Warrant Shares are to be issued upon exercise of such Warrant.

         "EXPIRATION DATE" means January ___, 2008

         "HOLDER" means the registered holder or holders of this Warrant and any
related Warrant Shares.

         "HOLDERS" means the registered  holders of all Warrants and any related
Warrant Shares.

         "PRINCIPAL  OFFICE" means the principal office of the Company which, on
the date hereof,  is located at 303 West Wall, Suite 1700,  Midland Texas 79701.
The Company  shall  notify  each  Warrantholder  of any change in its  principal
office.

         "PURCHASE  PRICE"  has  the  meaning  assigned  to  that  term  in  the
introductory paragraph hereof.

         "PURCHASERS"  means all of the  initial  Holders  of the  Warrants  who
purchased the Warrants from the Company.

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

         "SERIES C PREFERRED  STOCK"  means the Series C  Convertible  Preferred
Stock, par value $.001 per share, of the Company.

         "WARRANTS" means the Company's  Common Stock Purchase  Warrants and any
Warrant Certificates representing such Common Stock Purchase Warrants (including
the Warrant  represented  by this Warrant  Certificate)  issued  pursuant to the
Purchase  Agreement,  each  identical  as to the  terms and  conditions  of this
Warrant  Certificate except as to the number of shares of Common Stock for which
they may be  exercised,  evidencing,  in the  aggregate,  the right to  purchase
initially  250,000  shares of Common  Stock,  all  Warrants  issued in exchange,
transfer or replacement thereof.

         "WARRANT  SHARES"  means  the  shares  of  Common  Stock  purchased  or
purchasable by the Holder upon the exercise of this Warrant  pursuant to Section
2 hereof,  and,  where the  context  so  requires,  the  shares of Common  Stock
issuable upon exercise of any other Warrant by the Holder thereof.

         Any  capitalized  term not  otherwise  defined  herein  shall  have the
meaning specified in the Purchase Agreement.

                                       2
<PAGE>

         SECTION 2.  EXERCISE.
                     --------

                  A. GENERAL.  Subject to the limitation set forth in Section 2E
and any other  limitation  set  forth  herein or in the  Purchase  Agreement  or
imposed by applicable law, each Holder shall be entitled to exercise any Warrant
held by it, in whole or in part, at any time or from time to time  commencing on
the date of issuance of the Warrant until 5:00 p.m., Midland, Texas time, on the
Expiration Date.

                  B. MANNER OF  EXERCISE.  In order to  exercise  any Warrant in
whole or in part,  the  Holder  shall  complete  one of the  subscription  forms
attached hereto,  deliver the Warrant to the Company at its Principal Office and
make  payment of the  Purchase  Price  pursuant  to one of the  payment  options
provided in this Section 2.B. Payment of the Purchase Price shall be made at the
option of the Holder by one or more of the following methods: (1) by delivery to
the Company of cash, a certified  check or a bank  cashier's  check in an amount
equal to the then aggregate  Purchase  Price,  (2) by instructing the Company to
withhold  a  number  of  Warrant  Shares  then  issuable  upon  exercise  of the
particular  Warrant with an aggregate Fair Market Value (as defined below) equal
to such Purchase  Price,  or (3) by surrendering to the Company shares of Common
Stock  previously  acquired by the Holder with an  aggregate  Fair Market  Value
equal to such Purchase Price, or any combination of the foregoing.  Upon receipt
thereof by the Company, the Holder shall immediately be deemed to be a holder of
record of the shares of Common Stock  specified in said  subscription  form, and
the  Company  shall,  as  promptly as  practicable,  and in any event  within 10
business  days  thereafter,  execute and deliver or cause to be delivered to the
Holder a certificate or certificates representing the aggregate number of shares
of Common Stock specified in said  subscription  form. Each stock certificate so
delivered  shall be  registered in the name of such Holder or such other name as
shall be designated by such Holder, subject to compliance with federal and state
securities  laws and Section 4 hereof.  If the Warrant shall have been exercised
only in  part,  the  Company  shall,  at the  time  of  delivery  of said  stock
certificate or certificates, deliver to the Holder a Warrant in the form of this
Warrant  representing  the  right to  purchase  the  remaining  number of shares
purchasable  thereunder.  The Company  shall pay all  expenses,  taxes and other
charges  payable in connection with the  preparation,  execution and delivery of
stock  certificates  pursuant to this Section 2, except that, in case such stock
certificates  shall be  registered in a name or names other than the name of the
Holder,  funds sufficient to pay all stock transfer taxes which shall be payable
upon the execution and delivery of such stock certificate or certificates  shall
be paid by the Holder to the  Company at the time of  delivering  the Warrant to
the Company.  As used herein  "FAIR MARKET  VALUE" on any day shall mean (i) the
average  of the daily  closing  sale  prices of the Common  Stock  during the 20
trading days  immediately  preceding  the day as of which "FAIR MARKET VALUE" is
being determined, on the principal securities exchange on which the Common Stock
is then listed, or if there shall have been no sales of the Common Stock on such
exchange  on such day,  the mean of the  closing  bid and  asked  prices on such
exchange at the end of such day,  or (ii) if the Common  Stock is not so listed,
the  average  of the  high  and low bid and  prices  on such  day in a  domestic
over-the-counter market, or (iii) any time the Common Stock is not listed on any
domestic  exchange or quoted in a domestic  over-the-counter  market,  the "FAIR
MARKET VALUE" shall be determined by the Board of Directors of the Company.

                                       3
<PAGE>

                  C. TRANSFER  RESTRICTION  LEGEND.  Each Warrant shall bear the
legends  set forth on the face of this  Warrant.  Each  certificate  for Warrant
Shares issued upon exercise or conversion of this Warrant, unless at the time of
exercise or conversion  such Warrant Shares are registered  under the Securities
Act, shall bear the legends described in Section 5.9 of the Purchase Agreement.

                  D.  CHARACTER  OF WARRANT  SHARES.  All shares of Common Stock
issuable  upon the exercise of the Warrants  shall be duly  authorized,  validly
issued, fully paid and nonassessable.

                  E.  LIMITATION ON EXERCISE.  Notwithstanding  anything  stated
herein to the  contrary,  unless and until the issuance and sale of the Series C
Preferred Stock and the Warrants are approved or ratified by the stockholders of
the  Company  in  accordance  with the rules of the  Nasdaq  Stock  Market  (the
"STOCKHOLDER APPROVAL"), the Series C Preferred Stock and the Warrants cannot be
converted into or exercised for (as the case may be) a total number of shares of
Common  Stock  equal to or greater  than twenty  percent  (20%) of the number of
shares of Common  Stock  outstanding  immediately  prior to the  issuance of the
Series C Preferred Stock and the Warrants (the "COMMON STOCK CAP"). The exercise
of the Warrants is  expressly  limited by and subject to this Section 2E for all
purposes  unless and until the  Stockholder  Approval  is  obtained.  Within the
Common Stock Cap, the exercise  rights of the Warrants are  subordinated  to the
conversion  rights of the Series C Preferred Stock,  such that no Warrant may be
exercised  if the number of shares of Common  Stock  into which the  outstanding
shares of Series C Preferred  Stock are  convertible  is equal to or exceeds the
Common Stock Cap. In the event the Common Stock Cap exceeds the number of shares
of Common Stock  issuable upon  conversion  of the Series C Preferred  Stock but
less  than the  number of shares of  Common  Stock  into  which the  outstanding
Warrants are  exercisable,  the exercise  right of the Warrants shall be reduced
pro rata among the outstanding  Warrants.  In no event shall the total number of
shares of Common  Stock into which the Series C Preferred  Stock is  convertible
and the  Warrants  are  exercisable  exceed  the  Common  Stock Cap prior to the
Stockholder  Approval.  Upon  Stockholder  Approval,  the Common Stock Cap shall
terminate and the Warrants  shall be  exercisable  in accordance  with the terms
hereof excluding this Section 2E.

         SECTION 3.  OWNERSHIP AND EXCHANGE OF THE WARRANTS.
                     --------------------------------------

                  A.  REGISTERED  HOLDER.  The  Company  may deem and  treat the
person in whose name each Warrant is  registered as the Holder and owner thereof
(notwithstanding  any  notations of ownership or writing  thereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary,  until presentation of such Warrant for exchange or transfer as
provided in this Section 3.

                                       4
<PAGE>

                  B. EXCHANGE AND REPLACEMENT.  Any Warrant is exchangeable upon
the surrender thereof by the Holder to the Company at its Principal Office for a
new Warrant or Warrants of like tenor and date representing in the aggregate the
right to purchase the number of shares purchasable thereunder,  each new Warrant
to represent  the right to purchase such number of shares as shall be designated
by the Holder at the time of surrender.  Subject to  compliance  with Section 4,
each Warrant and all rights thereunder are transferable in whole or in part upon
the books of the Company by the Holder  thereof in person or by duly  authorized
attorney,  and a new Warrant shall be made and delivered by the Company,  of the
same  class,  tenor and date as the Warrant  but  registered  in the name of the
transferee,  upon  surrender of the Warrant,  duly  endorsed,  at the  Principal
Office of the Company.  The Company will issue replacement Warrant  certificates
upon the loss,  theft,  destruction  or mutilation  thereof.  Warrants  shall be
promptly  canceled by the Company upon the surrender  thereof in connection with
any exchange, transfer or replacement. The Company shall pay all expenses, taxes
(other than stock transfer  taxes) and other charges  payable in connection with
the preparation, execution and delivery of Warrants pursuant to this Section 3.

         SECTION 4. TRANSFER OF WARRANTS OR WARRANT SHARES. This Warrant and the
related Warrant Shares shall not be  transferable  except in accordance with the
terms and conditions  specified in the Purchase Agreement and in accordance with
applicable law.

         SECTION 5.  ADJUSTMENT  PROVISIONS.  The aggregate  number of shares of
Common Stock issuable upon exercise of the Warrants,  and the Purchase Price per
share,  shall be subject to adjustment in the events and to the extent set forth
in EXHIBIT I.

         SECTION 6.  NOTIFICATIONS BY THE COMPANY.  The Holder shall be entitled
to notices of certain  events  related to the  Company to the same extent and in
the same manner as the holders of the Series C Preferred  Stock  pursuant to the
terms of the Certificate of Designations of the Series C Preferred Stock.

         SECTION 7. NOTICES.  Any notice or other document required or permitted
to be given or delivered to Holders  shall be delivered at, or sent by certified
or  registered  mail to each Holder at, the address set forth for such Holder on
the signature  page hereof or to such other address as shall have been furnished
to the Company in writing by such Holder.  Any notice or other document required
or permitted to be given or delivered to the Company  shall be sent by certified
or  registered  mail  to  the  Company,  at  its  Principal  Office,  attention:
President,  or other such address as shall have been furnished to the Holders by
the Company.

         SECTION 8. NO RIGHTS AS  STOCKHOLDER;  LIMITATION  OF  LIABILITY.  This
Warrant  shall  not  entitle  any  Holder  thereof  to any of  the  rights  of a
stockholder of the Company.  No provision  hereof, in the absence of affirmative
action by the Holder to  purchase  shares of Common  Stock,  and no  enumeration
herein of the rights or privileges  of the Holder of a Warrant,  shall give rise
to any liability of such Holder for the Purchase  Price or as a  stockholder  of
the Company,  whether such  liability is asserted by the Company or by creditors
of the Company.



                                       5
<PAGE>

         SECTION  9.  MISCELLANEOUS.  This  Warrant  shall be  governed  by, and
construed  and enforced in accordance  with,  the laws of the State of Delaware.
This Warrant and any  provision  hereof may be changed,  waived,  discharged  or
terminated  only  by an  instrument  in  writing  signed  by the  party  (or any
predecessor  in  interest  thereof)  against  which  enforcement  of the same is
sought.  The headings in this  Warrant are for  purposes of  reference  only and
shall not affect the meaning or construction of any of the provisions hereof.

         WITNESS the due execution of this Warrant by a duly authorized  officer
of the Company.

                             AMEN PROPERTIES, INC.,
                             a Delaware corporation


                             By:
                                ----------------------------------
                                      Jon M. Morgan, President



ATTEST:



Secretary


ACCEPTED this ____ day of January, 2005:



[Holder] [Holder's address]




                                       6
<PAGE>




                             FULL SUBSCRIPTION FORM


                  ____ To Be Executed by the Registered Holder
                  if He Desires to Exercise the Warrant in Full

         The undersigned  hereby  exercises the right to purchase the __________
shares of Common  Stock  covered  by the  attached  Warrant  at the date of this
subscription and herewith makes payment of the sum of $____________ representing
the  Purchase  Price of  $______________  per  share  in  effect  at this  date.
Certificates for such shares shall be issued in the name of and delivered to the
undersigned,  unless otherwise  specified in written  instructions signed by the
undersigned and accompanying this subscription.


Dated: _________, ____                               [                      ]


                                             Signature ______________________

                                             Address: _______________________

                                                      _______________________


                                       7
<PAGE>




                            PARTIAL SUBSCRIPTION FORM


                   ___ To Be Executed by the Registered Holder
                  if He Desires to Exercise the Warrant in Part


         The  undersigned  hereby  exercises  the right to  purchase  __________
shares of the total  number of shares of Common  Stock  covered by the  attached
Warrant at the date of this  subscription  and herewith makes payment of the sum
of $__________ representing the Purchase Price of __________ per share in effect
at this date.  Certificates  for such shares and a new Warrant of like tenor and
date for the  balance of the shares  not  subscribed  for shall be issued in the
name of and delivered to the undersigned,  unless otherwise specified in written
instructions signed by the undersigned and accompanying this subscription.

         (THE  FOLLOWING  PARAGRAPH NEED BE COMPLETED ONLY IF THE PURCHASE PRICE
AND NUMBER OF SHARES OF COMMON STOCK SPECIFIED IN THE ATTACHED WARRANT HAVE BEEN
ADJUSTED PURSUANT TO EXHIBIT I THEREOF.)

         The shares hereby subscribed for constitute __________ shares of Common
Stock  (rounded  to the  nearest  whole  share)  resulting  from  adjustment  of
______________  shares of the total of  _______________  shares of Common  Stock
covered by the attached Warrant,  as said shares were constituted at the date of
the  Warrant,  leaving  a  balance  of  ________  shares  of  Common  Stock,  as
constituted at the date of the Warrant, to be covered by the new Warrant.


Dated:  _________,____                               [                       ]

                                             Signature _______________________

                                             Address:  _______________________

                                                       _______________________




                                       8
<PAGE>




                                    EXHIBIT I

                            ANTI-DILUTION PROVISIONS


         The number of Warrant  Shares  purchasable  upon the  exercise  of this
Warrant and the Purchase Price shall be subject to adjustment  from time to time
upon the happening of certain events as hereinafter described.

         1. SPECIAL  DEFINITIONS.  For purposes of this EXHIBIT I, the following
definitions shall apply:

                  (A)  "OPTION"  shall  mean  rights,  options  or  warrants  to
         subscribe   for,   purchase  or  otherwise   acquire  Common  Stock  or
         Convertible Securities,  excluding rights, options or shares granted or
         issued to employees,  vendors,  officers,  directors and executives of,
         and  consultants  or  shareholders  to,  the  Company  in an amount not
         exceeding the number of Reserved Employee Shares.

                  (B) "ORIGINAL ISSUE DATE" shall mean the date of this Warrant.

                  (C)  "CONVERTIBLE  SECURITIES"  shall  mean any  evidences  of
         indebtedness,   shares  or  other  securities  directly  or  indirectly
         convertible  into or  exchangeable  for  Common  Stock,  except for the
         Series C Preferred Stock issued on the Original Issue Date.

                  (D) "ADDITIONAL  SHARES OF COMMON STOCK" shall mean all shares
         of Common Stock issued (or,  pursuant to Section 3 below,  deemed to be
         issued)  by the  Company  after the  Original  Issue  Date,  other than
         Reserved  Employee  Shares and other than shares of Common Stock issued
         or issuable:

                           (1) by  reason  of a  stock  dividend,  stock  split,
                  split-up or other distribution on shares of Common Stock;

                           (2) upon the exercise of Options;

                           (3) upon  conversion  of shares of Series C Preferred
Stock;

                  (E)  "RESERVED  EMPLOYEE  SHARES"  shall mean shares of Common
         Stock  issued  to  employees,  officers,  directors,  shareholders  and
         executives  of, and  consultants  or vendors  to,  the  Company  either
         directly as compensation or upon the exercise of options granted by the
         Company.

                  (F) "RIGHTS TO ACQUIRE COMMON STOCK" (or "RIGHTS")  shall mean
         all rights  issued by the Company to acquire  Common  Stock  whether by
         exercise of a warrant,  option or similar  call,  or  conversion of any
         existing instruments, in either case for consideration fixed, in amount
         or by formula, as of the date of issuance.

                                       9
<PAGE>

         2. NO ADJUSTMENT OF CONVERSION  PRICES.  No adjustment in the number of
Warrant Shares shall be made unless (i) the  consideration per share (determined
pursuant to Section 5 below) for an  Additional  Share of Common Stock issued or
deemed to be issued by the Company is less than the Purchase  Price in effect on
the date of, and immediately  prior to, the issue of such  Additional  Shares of
Common  Stock,  or (ii) prior to such  issuance,  the Company  receives  written
consent  from the holders of at least a majority of the voting power of all then
outstanding  Warrants  agreeing  that no such  adjustment  shall  be made as the
result of the issuance of Additional Shares of Common Stock.

         3. ISSUE OF  SECURITIES  DEEMED  ISSUE OF  ADDITIONAL  SHARES OF COMMON
STOCK.  If the Company at any time or from time to time after the Original Issue
Date shall  issue any  Options or  Convertible  Securities  or Rights to Acquire
Common Stock, then the maximum number of shares of Common Stock (as set forth in
the  instrument  relating  thereto  without  regard to any  provision  contained
therein for a subsequent  adjustment of such number)  issuable upon the exercise
of  such  Options,  Rights  or,  in the  case  of  Convertible  Securities,  the
conversion  or exchange of such  Convertible  Securities,  shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue; provided,
however, that Additional Shares of Common Stock shall not be deemed to have been
issued  unless the  consideration  per share  (determined  pursuant to Section 5
hereof)  of such  Additional  Shares  of  Common  Stock  would be less  than the
Purchase Price in effect on the date of and immediately  prior to such issue, or
such record date,  as the case may be, and provided,  further,  that in any such
case:

                  (A) No further  adjustment in the Purchase Price shall be made
         upon the  subsequent  issue of shares of Common Stock upon the exercise
         of such Options,  Rights or conversion or exchange of such  Convertible
         Securities;

                  (B) Upon the  expiration  or  termination  of any  unexercised
         Option,  Right or  Convertible  Security,  the Purchase  Price shall be
         adjusted  immediately  to reflect the  Purchase  Price which would have
         been in effect had such Option,  Right or Convertible  Security (to the
         extent outstanding immediately prior to such expiration or termination)
         never been issued; and

                  (C) In the  event of any  change  in the  number  of shares of
         Common Stock issuable upon the exercise,  conversion or exchange of any
         Option, Right or Convertible Security, including, but not limited to, a
         change  resulting  from  the  anti-dilution   provisions  thereof,  the
         Purchase  Price then in effect shall  forthwith be  readjusted  to such
         Purchase  Price as would  have been  obtained  had the  Purchase  Price
         adjustment  that was originally  made upon the issuance of such Option,
         Right or  Convertible  Security  which were not  exercised or converted
         prior to such  change been made upon the basis of such  change,  but no
         further  adjustment  shall be made for the  actual  issuance  of Common
         Stock upon the  exercise or  conversion  of any such  Option,  Right or
         Convertible Security.

         4. ADJUSTMENT OF CONVERSION  PRICES UPON ISSUANCE OF ADDITIONAL  SHARES
OF COMMON STOCK.  If the Company shall at any time after the Original Issue Date
issue Additional  Shares of Common Stock (including  Additional Shares of Common
Stock deemed to be issued pursuant to Section 3, but excluding  shares issued as
a dividend  or  distribution  as  provided in Section 7 or upon a stock split or
combination  as  provided  in  Section  6,  without  consideration,   or  for  a
consideration  per share less than the  Purchase  Price in effect on the date of
and  immediately   prior  to  such  issue,  or  without  the  requisite  consent
contemplated  by Section 2 hereof,  then and in such event,  the Purchase  Price
shall be reduced by a full ratchet anti-dilution adjustment to such lesser price
(calculated  to the nearest  cent),  but in no case will the  Purchase  Price be
reduced below $2.80 per share,  concurrently  with such issuance at a price less
than the original Purchase Price.  Notwithstanding the foregoing, the applicable
Purchase Price shall not be reduced if the amount of such reduction  would be an
amount  less  than  $.20,  but any such  amount  shall be  carried  forward  and
reduction  with  respect  thereto  made at the  time of and  together  with  any
subsequent  reduction  which,  together with such amount and any other amount or
amounts so carried forward, shall aggregate $.20 or more.

                                       10
<PAGE>

         5. DETERMINATION OF CONSIDERATION.  For purposes of this Exhibit I, the
consideration  received by the Company for the issue of any Additional Shares of
Common Stock shall be computed as follows:

                  (A) CASH AND PROPERTY. Such consideration shall:

                           (1) insofar as it  consists  of cash,  be computed at
                  the  aggregate  of cash  received  by the  Company,  excluding
                  amounts  paid or  payable  for  accrued  interest  or  accrued
                  dividends;

                  (2) insofar as it consists  of  property  other than cash,  be
                  computed at the fair market value  thereof at the time of such
                  issue, as determined in good faith by the Board; and

                  (3) in the event Additional  Shares of Common Stock are issued
         together with other shares or securities or other assets of the Company
         for  consideration  which  covers  both,  be  the  proportion  of  such
         consideration so received,  computed as provided in clauses (1) and (2)
         above, as determined in good faith by the Board.

                  (B)   OPTIONS,   RIGHTS  AND   CONVERTIBLE   SECURITIES.   The
         consideration  per share received by the Company for Additional  Shares
         of Common  Stock  deemed to have been  issued  pursuant  to  Section 3,
         relating  to  Options,  Rights  and  Convertible  Securities,  shall be
         determined by dividing

                           (1) the total amount,  if any, received or receivable
                  by the Company as consideration for the issue of such Options,
                  Rights or Convertible  Securities,  plus the minimum aggregate
                  amount  of  additional  consideration  (as  set  forth  in the
                  instruments relating thereto,  without regard to any provision
                  contained   therein  for  a  subsequent   adjustment  of  such
                  consideration)  payable to the  Company  upon the  exercise of
                  such  Options,  Rights or the  conversion  or exchange of such
                  Convertible Securities, by

                           (2) the maximum  number of shares of Common Stock (as
                  set forth in the instruments relating thereto,  without regard
                  to any provision contained therein for a subsequent adjustment
                  of such number)  issuable  upon the exercise of such  Options,
                  Rights  or the  conversion  or  exchange  of such  Convertible
                  Securities.

                                       11
<PAGE>

         6. ADJUSTMENT FOR STOCK SPLITS AND  COMBINATIONS.  If the Company shall
at any  time or from  time to time  after  the  Original  Issue  Date  effect  a
subdivision of the outstanding  Common Stock,  the Purchase Price then in effect
immediately before that subdivision shall be proportionately  decreased.  If the
Company  shall at any time or from time to time  after the  Original  Issue Date
combine the  outstanding  shares of Common  Stock,  the  Purchase  Price then in
effect immediately  before the combination shall be  proportionately  increased.
Any  adjustment  under this  paragraph  shall  become  effective at the close of
business on the date the subdivision or combination becomes effective.

         7. ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event the
Company  at any time or from time to time  after the  Original  Issue Date shall
make or issue a  dividend  or other  distribution  payable  in  shares of Common
Stock,  then and in each such event the Purchase  Price shall be decreased as of
the time of such issuance, by multiplying the Purchase Price by a fraction,  the
numerator  of which shall be the total  number of shares of Common  Stock issued
and  outstanding  immediately  prior  to the  time  of  such  issuance,  and the
denominator  of which shall be the total number of shares of Common Stock issued
and outstanding  immediately  prior to the time of such issuance plus the number
of shares of Common Stock issuable in payment of such dividend or distribution.

         8. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS.  In the event the
Company at any time,  or from time to time after the  Original  Issue Date shall
make or issue,  a dividend or other  distribution  payable in  securities of the
Company other than shares of Common Stock, then and in each such event provision
shall be made so that the Holders  shall receive upon exercise of the Warrant in
addition  to the  number of shares of Common  Stock  receivable  thereupon,  the
amount of  securities  of the  Company  that they  would have  received  had the
Warrants been  exercised  into Warrant  Shares on the date of such event and had
thereafter retained such securities  receivable by them as aforesaid during such
period given application to all adjustments called for during such period, under
this paragraph with respect to the rights of the Holders.

         9. ADJUSTMENT FOR RECLASSIFICATION,  EXCHANGE, OR SUBSTITUTION.  If the
Warrant Shares shall be changed into the same or a different number of shares of
any  class  or   classes   of  stock,   whether   by   capital   reorganization,
reclassification,  or otherwise  (other than a  subdivision  or  combination  of
shares or stock  dividend  provided for above),  then and in each such event the
Holder shall have the right  thereafter  to convert such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization,  reclassification,  or other change, by holders of the number of
shares  of Common  Stock  into  which  the  Warrant  might  have been  exercised
immediately  prior to such  reorganization,  reclassification,  or  change,  all
subject to further adjustment as provided herein.

         10.  NO  IMPAIRMENT.   The  Company  will  not,  by  amendment  of  its
Certificate of Incorporation or through any reorganization,  transfer of assets,
consolidation,  merger,  dissolution,  issue or sale of  securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company,  but will at all
times in good faith  assist in the carrying  out of all the  provisions  of this
EXHIBIT  I and in the  taking  of  all  such  action  as  may  be  necessary  or
appropriate  in order to protect  the  exercise  rights of the  Holders  against
impairment to the extent required hereunder.

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<PAGE>

         11.  CERTIFICATE  AS  TO  ADJUSTMENTS.  Upon  the  occurrence  of  each
adjustment or readjustment of the Purchase Price pursuant to this EXHIBIT I, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and shall file a certificate setting forth such
adjustment  or  readjustment  and  showing  in detail  the facts upon which such
adjustment  or  readjustment  is based with its corporate  records.  The Company
shall, upon the reasonable  written request of any Holder furnish or cause to be
furnished  to  such  Holder  a  similar   certificate  setting  forth  (i)  such
adjustments and readjustments, (ii) the Purchase Price then in effect, and (iii)
the number of shares of Common Stock and the amount,  if any, of other  property
which then would be received  upon the  exercise of this  Warrant.  Despite such
adjustment or readjustment,  the form of each or all Warrants, if the same shall
reflect the initial or any  subsequent  Purchase  Price,  need not be changed in
order for the  adjustments or  readjustments  to be valid in accordance with the
provisions of this Warrant, which shall control.



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