Exhibit 10.1

                                                                  Execution Copy




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                          SECURITIES PURCHASE AGREEMENT



                                  by and among


                               Cubic Energy, Inc.


                                       and


                               CERTAIN PURCHASERS
                                IDENTIFIED HEREIN






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                          Dated as of December 12, 2005



<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----



ARTICLE I. DEFINITIONS.........................................................1
   Section 1.1   Defined Terms.................................................1
   Section 1.2   Accounting Procedures and Interpretation......................6


ARTICLE II. PURCHASE AND SALE OF SECURITIES....................................7
   Section 2.1   Purchase and Sale of Securities...............................7
   Section 2.2   Consideration for Securities..................................7
   Section 2.3   Escrow Agreement..............................................7


ARTICLE III. CLOSING...........................................................7
   Section 3.1   Closing.......................................................7
   Section 3.2   Condition to Each Party's Obligations.........................7
   Section 3.3   Conditions to the Company's Obligations.......................8
   Section 3.4   Conditions to Each Purchaser's Obligations....................8
   Section 3.5   Deliveries at Closing.........................................8
   Section 3.6   Independent Nature of Purchasers' Obligations and Rights.....10


ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................10
   Section 4.1   Organization of the Company..................................10
   Section 4.2   Capitalization of the Company................................11
   Section 4.3   Authorization of Issuance....................................11
   Section 4.4   Due Authorization............................................11
   Section 4.5   No Conflict..................................................12
   Section 4.6   Consents and Approvals.......................................12
   Section 4.7   Subsidiaries.................................................12
   Section 4.8   SEC Filings; Interim Financial Statements....................13
   Section 4.9   Absence of Undisclosed Liabilities...........................14
   Section 4.10  Absence of Certain Changes...................................14
   Section 4.11  Compliance With Laws.........................................14
   Section 4.12  Litigation...................................................15
   Section 4.13  Employee Benefit Plans and Other Agreements..................15
   Section 4.14  Taxes........................................................15
   Section 4.15  Oil and Gas Properties; Reserve Reports......................16
   Section 4.16  Environmental Matters........................................18
   Section 4.17  Insurance....................................................19
   Section 4.18  Title to Assets..............................................19
   Section 4.19  Condition of Tangible Assets.................................19



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<PAGE>

   Section 4.20  Labor Matters................................................20
   Section 4.21  Intellectual Property........................................20
   Section 4.22  No Brokers...................................................20
   Section 4.23  Affiliated Transactions......................................20
   Section 4.24  Reporting Status; Eligibility to Use Form SB-2...............21
   Section 4.25  Representations Complete.....................................21


ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.......................21
   Section 5.1   Standing of Purchaser........................................21
   Section 5.2   Due Authorization............................................21
   Section 5.3   Purchase for Investment......................................22
   Section 5.4   No Legal, Tax or Investment Advice...........................22
   Section 5.5   No Brokers...................................................23


ARTICLE VI. COVENANTS.........................................................23
   Section 6.1   Continuing Operations........................................23
   Section 6.2   Press Releases...............................................24
   Section 6.3   Financial Statements, Reports, Etc...........................24
   Section 6.4   Use of Proceeds..............................................25
   Section 6.5   Continued Eligibility to Use Form SB-2 or S-3................25
   Section 6.6   Listing......................................................25
   Section 6.7   Legend.......................................................25
   Section 6.8   Confidentiality..............................................26
   Section 6.9   Issuance of Warrants.........................................26
   Section 6.10  Disclosure of Affiliated Transactions........................26
   Section 6.11  Capitalization...............................................27


ARTICLE VII. INDEMNIFICATION..................................................27
   Section 7.1   Survival of Representations, Etc.............................27
   Section 7.2   Indemnification by the Company...............................27
   Section 7.3   Defense of Claims............................................27


ARTICLE VIII. MISCELLANEOUS...................................................28
   Section 8.1   Termination..................................................28
   Section 8.2   In the Event of Termination..................................28
   Section 8.3   Expenses.....................................................28
   Section 8.4   Injunctive Relief............................................29
   Section 8.5   Assignment...................................................29
   Section 8.6   Notices......................................................29
   Section 8.7   Choice of Law; Venue.........................................30
   Section 8.8   Interpretation of Provisions.................................30
   Section 8.9   Entire Agreement; Amendments and Waivers;
                 No Side Agreements...........................................31
   Section 8.10  Acknowledgment...............................................31



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<PAGE>

   Section 8.11  Counterparts.................................................31
   Section 8.12  Invalidity...................................................31
   Section 8.13  Headings.....................................................31

Names, Addresses and Share Amounts of Purchasers.......................Exhibit A
Form of Escrow Agreement...............................................Exhibit B
Form of Registration Rights Agreement..................................Exhibit C
Form of Warrant........................................................Exhibit D
Form of Opinion........................................................Exhibit E
Form of Press Release..................................................Exhibit F




















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<PAGE>

                          SECURITIES PURCHASE AGREEMENT

         This  Securities  Purchase  Agreement (this  "Agreement"),  dated as of
December 12, 2005, is by and among Cubic Energy,  Inc., a Texas corporation (the
"Company"),  and those  individuals  and entities  identified  on the  signature
page(s)  to  this   Agreement   (each  a  "Purchaser"   and   collectively   the
"Purchasers").

                                     RECITAL

         WHEREAS,  subject  to the  terms  and  conditions  set  forth  in  this
Agreement,  the Company  desires to sell to the  Purchasers,  and each Purchaser
desires severally to purchase from the Company, the number of shares ("Purchased
Shares")  of common  stock,  par value  $0.05 per share  ("Common  Stock"),  and
Warrants  to  purchase  the  number of shares of Common  Stock,  in each case as
listed opposite such Purchaser's name on Exhibit A, for the consideration as set
forth in Section 2.2. The aggregate  number of Purchased  Shares being purchased
is 2,500,000  shares and the  aggregate  number of Warrants  being  purchased is
Warrants to purchase 1,000,000 shares of Common Stock.

                                    AGREEMENT

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

                                   ARTICLE I.
                                   DEFINITIONS

         Section 1.1 Defined Terms.  As used herein,  the terms below shall have
the following meanings:

         "Affiliate" shall mean any entity  controlling,  controlled by or under
common control with the Company. For the purposes of this definition,  "control"
shall have the meaning presently specified for that word in Rule 405 promulgated
by the SEC under the Securities Act.

         "Agreement"  shall mean this Securities  Purchase  Agreement,  together
with all schedules and exhibits referenced herein.

         "Applicable  Law" means any statute,  law,  rule or  regulation  or any
judgment,  order, writ, injunction or decree of any Governmental Entity to which
a specified Person or property is subject.

         "Articles of Incorporation"  means the Articles of Incorporation of the
Company, as amended or restated, and as in effect on the date hereof.

         "Awards" means  outstanding  options to purchase,  or restricted  stock
units  convertible  into,  Common Stock of the Company or common stock of any of
its Subsidiaries.




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<PAGE>

         "Board of Directors"  means the Board of Directors of the Company as it
may be constituted from time to time.

         "Business  Day" means a day other than a Saturday  or Sunday or a legal
holiday for commercial banks located in Dallas, Texas.

         "Bylaws"  means  the  Bylaws  of the  Company  as in effect on the date
hereof.

         "Claim" has the meaning set forth in Section 7.3 of this Agreement.

         "Claim  Notice"  has the  meaning  set  forth  in  Section  7.3 of this
Agreement.

         "Closing" has the meaning set forth in Section 3.1 of this Agreement.

         "Closing  Date" means  December  12,  2005,  or such other date two (2)
business days  immediately  following the date on which each Purchaser  notifies
the  Company  that the  conditions  to each of the  Purchaser's  obligations  to
Closing  have  been  satisfied  in the  sole  and  absolute  discretion  of such
Purchaser.

         "Code"  means the Internal  Revenue Code of 1986,  as it may be amended
from time to time.

         "Common  Stock"  has the  meaning  set  forth in the  recitals  of this
Agreement.

         "Confidential  Private Placement  Memorandum" has the meaning set forth
in Section 4.8(d) of this Agreement.

         "Disclosure  Letter"  means a letter  delivered  by the  Company to the
Purchasers  which  provides  exceptions,  qualifications  and other  information
relating to the Company's representations and warranties.

         "Employee  Plans"  means all  Multiemployer  Plans,  Pension  Plans and
Welfare Plans.

         "Encumbrance"  means  any  claim,  lien,  pledge,  easement,   security
interest or encumbrance of third parties,  and, with respect to any  securities,
any agreements,  understandings  or restrictions  affecting the voting rights or
other incidents of record or beneficial ownership pertaining to such securities.

         "Environmental  Conditions" means the Release or threatened  Release of
any Hazardous Material (whether or not upon a Facility or any former facility or
other property and whether or not such Release constituted at the time thereof a
violation  of any  Environmental  Law) as a  result  of  which  the  Company  is
reasonably  expected to be, or to become,  liable to any Person, or by reason of
which any Facility,  any former  facility or any of the assets of the Company is
reasonably expected to be subjected to any Encumbrances.

         "Environmental Laws" means any and all foreign,  federal,  state, local
or municipal laws, rules,  orders,  regulations,  statutes,  ordinances,  codes,
legally  binding  decrees,  or  other  requirement  of any  Governmental  Entity



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<PAGE>

regulating, relating to or imposing liability or standards of conduct concerning
protection  of the  environment  or of human health  relating to exposure of any
kind of Hazardous Materials, as is now in effect.

         "Environmental   Permits"   means  any  and  all   permits,   licenses,
registrations,  notifications,  exemptions and any other authorization  required
under any Environmental Law.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended.

         "ERISA  Affiliate"  means any entity which is (or at any relevant  time
was) a member  of a  "controlled  group of  corporations"  with,  under  "common
control"  with, a member of an  "affiliated  service  group" with,  or otherwise
required to be aggregated with the Company, as set forth in Section 414(b), (c),
(m) or (o) of the Code.

         "Escrow  Agent" has the  meaning  set forth in  Section  2.3(a) of this
Agreement.

         "Escrow  Agreement"  means the escrow agreement by and among the Escrow
Agent and the Purchasers in the form attached hereto as Exhibit B.

         "Exchange  Act" means the  Securities  Exchange Act of 1934, as amended
from time to time, and the rules and regulations of the SEC thereunder.

         "Facilities"  means  the  offices  and  buildings  and all  other  real
property which are owned, leased or operated by the Company or any Subsidiary.

         "Fixtures  and  Equipment"  means  all  of  the  furniture,   fixtures,
furnishings, machinery and equipment owned by the Company or any Subsidiary.

         "GAAP" has the meaning set forth in Section 4.8 of this Agreement.

         "Governmental  Entity" means with respect to a particular  Person,  the
country,  state, county, city and political subdivisions in which such Person or
such Person's Property is located or which exercises valid jurisdiction over any
such  Person or such  Person's  Property,  and any  court,  agency,  department,
commission,  board,  bureau or  instrumentality  of any of them and any monetary
authority  which  exercises  valid  jurisdiction  over any such  Person  or such
Person's Property.  Unless otherwise  specified,  all references to Governmental
Authority  herein  with  respect to the Company or a  Subsidiary  of the Company
means a  Governmental  Authority  having  jurisdiction  over  the  Company,  its
Subsidiaries or any of their respective Properties.

         "Hazardous  Materials"  means  any  hazardous  substance,  gasoline  or
petroleum  (including crude oil or any fraction thereof) or petroleum  products,
polychlorinated   biphenyls,    ureaformaldehyde    insulation,    asbestos   or
asbestos-containing materials, pollutants, contaminants,  radioactivity, and any
other  materials or substances of any kind,  whether  solid,  liquid or gas, and
whether  or  not  any  such   substance  is  defined  as  hazardous   under  any
Environmental  Law, that is regulated  pursuant to any Environmental Law or that
could give rise to liability under any Environmental Law.




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<PAGE>

         "Interim  Period"  has the  meaning  set forth in  Section  6.1 of this
Agreement.

         "IRS"  has the  meaning  set  forth in  Section  4.13(b)(i)(C)  of this
Agreement.

         "Knowledge  of the Company" (or similar  language to that effect) means
to the knowledge, after due inquiry, of any executive officer of the Company.

         "Losses" has the meaning set forth in Section 7.2 of this Agreement.

         "Material  Adverse  Effect" or "Material  Adverse Change" shall mean an
event,  occurrence or condition that has had, or would be reasonably expected to
have, a material adverse change or effect on the business,  condition (financial
or  otherwise),   operating  prospects,   assets,  liabilities,  or  results  of
operations of the Company or its Subsidiaries, taken as a whole, other than as a
result of (i) changes generally  adversely affecting the economy or (ii) changes
in prices for oil and natural gas.

         "Multiemployer  Plan" means with  respect to the Company and any of its
Subsidiaries  any  "multiemployer  plan," as defined in  Section  4001(a)(3)  of
ERISA,  (A) to  which  the  Company  and any of its  Subsidiaries  or any  ERISA
Affiliate  of the Company and any of its  Subsidiaries  maintains,  administers,
contributes  or is required to  contribute  and (B) which covers any employee or
former  employee  of  the  Company  and  any of its  Subsidiaries  or any  ERISA
Affiliate  of the Company  and any of its  Subsidiaries  (with  respect to their
relationship with such entities).

         "PBGC" means the Pension Benefit Guaranty Corporation.

         "Pension  Plan"  means  with  respect  to the  Company  and  any of its
Subsidiaries  any "employee  pension benefit plan" as defined in Section 3(2) of
ERISA  (other  than a  Multiemployer  Plan) (A) which the Company and any of its
Subsidiaries or any ERISA  Affiliate of the Company and any of its  Subsidiaries
maintains,  administers,  contributes to or is required to contribute to and (B)
which covers any current employee or former employee,  director or consultant of
the Company and any of its  Subsidiaries  or any ERISA  Affiliate of the Company
and any of its  Subsidiaries  (with  respect  to their  relationship  with  such
entities).

         "Permits" means with respect to the Company and its  Subsidiaries,  any
licenses, permits, variances, waivers, grants, franchises,  concessions, orders,
consents, approvals, registrations,  authorizations,  qualifications, filings or
approvals  of any  Governmental  Entity  required  for the  ownership,  leasing,
operation,  occupancy and use of its  Properties and the conduct of its business
as currently conducted entity.

         "Permitted Encumbrances" means any (i) mechanic's or materialmen's lien
or similar Encumbrances with respect to amounts not yet due and payable or which
are being contested in good faith,  (ii)  Encumbrances for Taxes not yet due and
payable  or  which  are  being  contested  in  good  faith,   (iii)   easements,
rights-of-way,    servitudes,    exceptions,    encroachments,     reservations,
restrictions, covenants, conditions or limitations which do not in the aggregate



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<PAGE>

materially  interfere  with  or  impair  the  operation,  value  or  use  of the
properties  affected  thereby for the  purposes for which they have been used by
the Company or its Subsidiaries in the ordinary course of its business, and (iv)
zoning and other land use laws.

         "Permitted  Oil and Gas  Encumbrances"  has the  meaning  set  forth in
Section 4.15(b).

         "Person" means any individual, corporation,  association,  partnership,
joint venture,  limited liability  company,  trust,  estate or government or any
agency,  instrumentality or political  subdivision thereof, or any other form of
entity or organization.

         "Private  Placement Legend" has the meaning set forth in Section 6.7(a)
of this Agreement.

         "Proceeding"  means any  action,  suit or  proceeding  by or before any
Governmental Entity,  whether civil,  criminal,  administrative,  arbitrative or
investigative or any appeal in such an action, suit or proceeding.

         "Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

         "Proprietary  Rights" has the  meaning set forth in Section  4.21(a) of
this Agreement.

         "Purchaser  Indemnified  Parties"  has the meaning set forth in Section
7.2 of this Agreement.

         "Purchased  Shares" has the  meaning set forth in the  recitals of this
Agreement.

         "Registration Rights Agreement" means the registration rights agreement
by and among the  Company  and the  Purchasers  in the form  attached  hereto as
Exhibit C.

         "Release" means and includes any spilling,  leaking,  pumping, pouring,
emitting,  emptying,  discharging,  injecting,  escaping,  leaching,  dumping or
disposing into the environment or the workplace of any Hazardous Materials.

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

         "SEC Filings" means all forms, reports, schedules, statements and other
documents required to be filed by the Company under the Securities Act, Exchange
Act and the rules and regulations promulgated thereunder.

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

         "Subsidiary"  means, with respect to any Person, (a) any corporation of
which at least a majority in interest of the outstanding  voting stock is at the
time, directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries  of  such  Person,  or by  such  Person  and  one  or  more  of its
Subsidiaries, or (b) any corporate or non-corporate entity in which such Person,
one or  more  Subsidiaries  of  such  Person,  or  such  Person  and one or more
Subsidiaries   of  such  Person,   directly  or  indirectly,   at  the  date  of



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<PAGE>

determination  thereof,  has an  ownership  interest  and 100% of the revenue of
which  is  included  in  the  consolidated  financial  reports  of  such  Person
consistent with GAAP.

         "Tax" or "Taxes"  means any federal,  state,  local or foreign  income,
gross  receipts,  license,  payroll,   employment,   excise,  severance,  stamp,
occupation,  customs duties,  capital stock,  franchise,  profits,  withholding,
social security (or similar), unemployment,  disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum,  estimated,  or other tax, including any interest,  penalty or addition
thereto,  whether  disputed or not,  imposed by any  Governmental  Authority  or
arising under any Tax law or agreement.

         "Taxpayer" has the meaning set forth in Section 4.14 of this Agreement.

         "Tax  Return"  means any return,  report,  information  return or other
document  (including any related or supporting  information)  relating to Taxes,
including without limitation all information  returns, any claims for refunds of
Taxes and any amendments or supplements to any of the foregoing.

         "Third  Party  Notice" has the meaning set forth in Section 7.3 of this
Agreement.

         "Transaction"  means,  taken together,  the  transactions  contemplated
under this Agreement.

         "Warrants"  means the warrants to purchase  Common Stock of the Company
issued to each  Purchaser at the Closing Date,  the form of which is attached as
Exhibit D.

         "Warrant  Shares" means the shares of Common Stock or other  securities
issuable upon the exercise of the Warrants.

         "Welfare  Plan"  means,  with  respect  to the  Company  and any of its
Subsidiaries,  any "employee welfare benefit plan" as defined in Section 3(1) of
ERISA,  (A) which the Company and any of its Subsidiaries or any ERISA Affiliate
maintains, administers,  contributes to or is required to contribute to, and (B)
which covers any employee or former employee of the Company and its Subsidiaries
(with respect to their relationship with such entities).

         Section 1.2 Accounting Procedures and Interpretation.  Unless otherwise
specified  herein,  all accounting  terms used herein shall be interpreted,  all
determinations  with respect to accounting  matters hereunder shall be made, and
all financial  statements and certificates  and reports as to financial  matters
required to be  furnished to the  Purchasers  hereunder  shall be  prepared,  in
accordance with GAAP applied on a consistent  basis during the periods  involved
(except,  in the case of  unaudited  statements,  as  permitted  by Form  10-QSB
promulgated  by the SEC) and in compliance  as to form in all material  respects
with  applicable  accounting  requirements  and with  the  published  rules  and
regulations of the SEC with respect thereto.




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<PAGE>

                                   ARTICLE II.
                         PURCHASE AND SALE OF SECURITIES

         Section 2.1 Purchase and Sale of Securities. Upon the terms and subject
to the conditions  contained herein, on the Closing Date, the Company will issue
and sell to each Purchaser,  and each Purchaser will severally purchase from the
Company,  that number of the Purchased Shares and a Warrant to purchase a number
of shares of Common Stock as set forth opposite such Purchaser's name on Exhibit
A hereto.  The obligation of each Purchaser  under this Agreement is several and
not joint and is independent of the obligation of each other Purchaser,  and the
failure of, or the Company's  waiver of,  performance  by any Purchaser does not
excuse performance by any other Purchaser or the Company.

         Section 2.2 Consideration for Securities. Upon the terms and subject to
the  conditions  contained  herein,  as  consideration  for the  purchase of the
Purchased Shares and Warrants,  on the Closing Date, each Purchaser shall pay to
the Company by wire transfer of immediately  available  funds, the cash purchase
price set forth opposite such Purchaser's name on Exhibit A hereto.

         Section 2.3 Escrow Agreement.

         (a) Concurrently  with the execution of this Agreement,  each Purchaser
shall make a deposit with Colonial Bank,  N.A. (the "Escrow Agent") equal to the
cash  purchase  price set forth  opposite  such  Purchaser's  name on  Exhibit A
hereto,  to be held by the  Escrow  Agent  pursuant  to the terms of the  Escrow
Agreement.  Upon Closing,  the funds held in escrow shall be  distributed to the
Company at the  direction  of each  Purchaser  as  payment  of such  Purchaser's
purchase price.

         (b)  Concurrently  with the  execution of this  Agreement,  the Company
shall deliver the Purchased  Shares and Warrants to Haynes and Boone,  LLP to be
held  at the  offices  of  Haynes  and  Boone,  LLP,  until  distributed  to the
Purchasers  at  Closing.  In the event this  Agreement  is  terminated  prior to
Closing, the Purchased Shares and Warrants will be returned to the Company.

                                  ARTICLE III.
                                     CLOSING

         Section  3.1  Closing.  The  closing of the  transactions  contemplated
herein (the "Closing")  shall be held at 10:00 a.m.  Central Time on the Closing
Date at the  offices of Haynes and Boone,  LLP,  901 Main  Street,  Suite  3100,
Dallas, Texas 75202-3789, unless the parties hereto otherwise agree.

         Section 3.2 Condition to Each Party's Obligations.  Neither party shall
be obligated to consummate the transactions  contemplated hereby if, on or prior
to the Closing Date, (i) any statute,  rule,  order,  decree or regulation shall
have been enacted or  promulgated,  or any action  shall have been taken,  by or
before any  Governmental  Entity of competent  jurisdiction  which  temporarily,
preliminarily  or  permanently  restrains,   precludes,   enjoins  or  otherwise
prohibits the consummation of the transactions  contemplated hereby or makes the



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<PAGE>

transactions  contemplated  hereby illegal or (ii) there shall be any pending or
threatened  action  or  proceeding  by or  before a court or  governmental  body
brought  by or on behalf of any  Governmental  Entity  seeking  to  restrain  or
invalidate all or any portion of the transactions contemplated hereunder.

         Section 3.3 Conditions to the Company's Obligations. The obligations of
the Company to consummate the  transactions  contemplated  hereby on the Closing
Date with a  Purchaser  shall be  subject to the  satisfaction  or waiver on the
Closing Date, of the condition that (i) each representation and warranty of such
Purchaser  contained in this Agreement shall be true and correct in all material
respects (unless such representation or warranty is qualified as to materiality,
in which  case it shall be true and  correct  in all  respects)  (A) on the date
hereof and (B) at and as of the Closing  Date,  as if such  representations  and
warranties  were made by such  Purchaser  at and as of the Closing Date and (ii)
the Company shall have received adequate  assurance from the Purchasers or Petro
Capital Advisors, LLC that $2,000,000 in good funds,  representing the aggregate
consideration  for the Purchased  Shares and Warrants  subscribed for hereunder,
will be available on the Closing Date.

         Section 3.4 Conditions to Each Purchaser's Obligations.  The obligation
of each  Purchaser to consummate  the  transactions  contemplated  hereby on the
Closing Date is subject to the  satisfaction  or waiver by such Purchaser on the
Closing Date of each of the following conditions:

         (a) Representations,  Warranties and Covenants. Each representation and
warranty of the Company contained in this Agreement shall be true and correct in
all material respects (unless such representation or warranty is qualified as to
materiality,  in which case it shall be true and correct in all respects) (i) on
the  date  hereof  and  (ii)  at  and  as  of  the  Closing  Date,  as  if  such
representations  and  warranties  were made at and as of the Closing  Date.  The
Company  shall have  performed  in all  material  respects  all  agreements  and
covenants required hereby to be performed prior to or at the Closing Date. There
shall be delivered to such Purchaser a certificate  (signed by the President and
Chief Executive Officer of the Company) to the foregoing effect.

         (b)  All  Proceedings  to be  Satisfactory.  All  corporate  and  other
proceedings  to be taken by the  Company  in  connection  with the  transactions
contemplated  hereby and all documents incident thereto shall be satisfactory in
form and substance to each such  Purchaser and its counsel,  and such  Purchaser
and its counsel shall have received all such counterpart  originals or certified
or other copies of such documents as reasonably requested.

         (c) No Adverse  Changes.  Since  June 30,  2005,  there  shall not have
occurred any Material Adverse Change, except as disclosed in the SEC Filings.

         (d) Due  Diligence.(e)  Each of the Purchasers shall have completed its
due  diligence  investigation  to  its  satisfaction,   as  determined  in  such
Purchaser's sole and absolute discretion.

         (f)  Closing  Deliveries.  The  Company  shall  have  made the  Closing
deliveries described in Section 3.5.

         Section 3.5 Deliveries at Closing. At the Closing, subject to the terms
and conditions  hereof, the Company will deliver,  or cause to be delivered,  to
each Purchaser:




                                       8
<PAGE>

         (a) The Purchased  Shares.  The Company shall deliver to each Purchaser
the Purchased  Shares  purchased by such  Purchaser by delivery of  certificates
evidencing  such Purchased  Shares meeting all of the  requirements of Texas law
and the Company's  Articles of Incorporation  and Bylaws,  free and clear of any
Encumbrances  of any other Person and  (subject to the terms of this  Agreement)
such  Purchaser  will make payment to the Company of such  Purchaser's  purchase
price by wire transfer of immediately  available funds to the Company's  account
as specified by the Company to such Purchaser in writing.

         (b)  Opinions  of  Counsel.  The Company  shall have  delivered  to the
Purchasers  the opinions of Gardere  Wynne Sewell LLP,  counsel for the Company,
with respect to the matters set forth in Exhibit E.

         (c) Certificates.  The Purchasers and shall have received the following
certificates:

                  (i)  The  Company  shall  furnish  the  Purchasers  with  such
         certificates  of the Chief  Executive  Officer and the Secretary of the
         Company and others to evidence compliance with the conditions set forth
         in this Section 3.5 as may be reasonably requested by the Purchasers.

                  (ii)  The  Company  shall  furnish  the   Purchasers   with  a
         certificate of the Company's transfer agent certifying as to the number
         of issued and outstanding  shares of capital stock of the Company as of
         the Closing Date.

         (d) Supporting  Documents.  The Purchasers and their counsel shall have
received copies of the following documents:

                  (i)  (A) the  Certificate  of Good  Standing  of the  Company,
         certified as of a recent date by the  Comptroller of Public Accounts of
         the State of Texas,  and (B) a Certificate of Existence of the Company,
         certified as of a recent date by the Secretary of State of the State of
         Texas as to the  existence  of the  Company  in Texas and  listing  all
         documents of the Company on file with said Secretary;

                  (ii) a  certificate  of the Secretary of the Company dated the
         Closing  Date,  addressed to such  Purchaser and  certifying:  (A) that
         attached  thereto  is a true and  complete  copy of the  Bylaws  of the
         Company  as in  effect  on the  date of such  certification;  (B)  that
         attached thereto is a true and complete copy of all resolutions adopted
         by the Board of Directors  of the Company  authorizing  the  execution,
         delivery and performance of this  Agreement,  the  Registration  Rights
         Agreement and the issuance,  sale and delivery of the Purchased  Shares
         and the  Warrants  and the  reservation,  issuance  and delivery of the
         Warrant  Shares,  and that all such  resolutions  are in full force and
         effect  and are all the  resolutions  adopted  in  connection  with the
         transactions contemplated by this Agreement; and (C) the incumbency and
         specimen signature of each officer of the Company executing any of this
         Agreement,  the Registration Rights Agreement and the Warrants, and any
         certificate   or   instrument   furnished   pursuant   hereto,   and  a
         certification  by another  officer of the Company as to the  incumbency
         and signature of the Secretary; and




                                       9
<PAGE>

                  (iii)  such   additional   supporting   documents   and  other
         information  with respect to the  operations and affairs of the Company
         as the Purchasers or their counsel reasonably may request.

         (e) Registration Rights Agreement. The Company shall have duly executed
and  delivered  to such  Purchaser  a  counterpart  of the  Registration  Rights
Agreement.

         (f)  Warrants.  The Company  shall have duly  executed and delivered to
such Purchaser the Warrants being purchased by such Purchaser.

         Section 3.6 Independent  Nature of Purchasers'  Obligations and Rights.
The obligations of each Purchaser under this Agreement,  the Registration Rights
Agreement and the Warrants are several and not joint with the obligations of any
other  Purchaser,  and no  Purchaser  shall  be  responsible  in any way for the
performance of the obligations of any other Purchaser under this Agreement,  the
Registration  Rights Agreement or the Warrants.  Nothing  contained herein or in
any of the Registration Rights Agreement or the Warrant,  and no action taken by
any Purchaser pursuant thereto,  shall be deemed to constitute the Purchasers as
a partnership,  an association,  a joint venture or any other kind of entity, or
create a presumption  that the Purchasers are in any way acting in concert or as
a group with respect to such  obligations or the  transactions  contemplated  by
this  Agreement,  the  Registration  Rights  Agreement  or  the  Warrants.  Each
Purchaser  shall be  entitled to  independently  protect and enforce its rights,
including without limitation, the rights arising out of this agreement or out of
the Registration Rights Agreement or Warrant,  and it shall not be necessary for
any other  Purchaser to be joined as an additional  party in any  proceeding for
such purpose.

                                   ARTICLE IV.
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         In  order  to  induce  each  Purchaser  to  purchase  such  Purchaser's
Purchased  Shares and  Warrants,  the Company  represents  and  warrants to each
Purchaser that, except as set forth in the Disclosure Letter, as follows:

         Section 4.1  Organization of the Company.  The Company is a corporation
legally  incorporated,  duly  organized,  validly  existing and in good standing
under the laws of the State of Texas and has all requisite  corporate  power and
authority to own, lease, and operate its Properties and to carry on its business
as presently being conducted.  No actions or proceedings to dissolve the Company
are pending or, to the Knowledge of the Company,  threatened.  The copies of the
Articles of Incorporation and Bylaws heretofore  delivered by the Company to the
Purchasers  are  accurate  and  complete as of the date of this  Agreement.  The
Company is duly  qualified  or licensed to do business as a foreign  corporation
and is in good  standing  in each  jurisdiction  in which  the  property  owned,
leased,  or  operated  by it or  the  conduct  of  its  business  requires  such
qualification  or  licensing,  except  where the  failure  to do so taken in the
aggregate would not have a Material Adverse Effect.




                                       10
<PAGE>

         Section 4.2 Capitalization of the Company.

         (a) The authorized  capital stock of the Company as of the date hereof,
consists solely of 50,000,000 shares of Common Stock, $0.05 par value per share,
and 10,000,000  shares of preferred stock,  $0.01 par value per share. As of the
Closing Date, (i) 35,200,626 shares of Common Stock were issued and outstanding,
(ii)  3,750,000  shares of Common Stock were reserved for issuance upon exercise
of Awards  (whether  vested or unvested as of the date hereof),  (iii) 2,635,000
shares of Common Stock were reserved for issuance  upon exercise of  outstanding
warrants,  and (iv) 4,246,375  shares of Common Stock were reserved for issuance
upon conversion of outstanding  convertible  notes.  All  outstanding  shares of
Common  Stock have been  validly  issued and are fully paid and  non-assessable,
conform in all material  respects to the  description  thereof  contained in the
Confidential Private Placement Memorandum and were issued in compliance with the
Securities Act and applicable  state  securities  laws, and no shares of capital
stock of the Company are subject to, nor have any been issued in  violation  of,
any preemptive or similar rights.

         (b) Except as set forth in Section  4.2(a),  or as contemplated by this
Agreement,  there are outstanding (i) no shares of capital stock or other voting
securities of the Company; (ii) no securities of the Company convertible into or
exchangeable  for  shares of capital  stock or other  voting  securities  of the
Company;  or (iii) no  subscriptions,  options,  warrants,  calls,  commitments,
preemptive  rights or other rights of any kind to acquire from the Company,  and
no  obligation  of the  Company to issue or sell any shares of capital  stock or
other  voting  securities  of the  Company  or  any  securities  of the  Company
convertible  into or exchangeable  for such capital stock or voting  securities.
There are no outstanding  contractual  obligations of the Company to repurchase,
redeem or otherwise  acquire any shares of Common Stock or any other  securities
of the type described in clauses (i)-(iii) of the preceding sentence.  Except as
provided  in this  Agreement,  there  are no  restrictions  upon the  voting  or
transfer of any share of the capital  stock or other  voting  securities  of the
Company pursuant to the Articles of Incorporation, the Bylaws or other governing
documents or any agreement or other  instrument to which the Company is a party,
other than restricted stock held by certain employees.

         Section 4.3 Authorization of Issuance.  When acquired by a Purchaser as
provided  in  this  Agreement,  the  Purchased  Shares  to be  acquired  by each
Purchaser  from the Company will be duly  authorized and validly  issued,  fully
paid and  non-assessable  and not  subject  to, or issued in  violation  of, any
preemptive or similar rights, and the Warrant Shares will be duly authorized and
reserved  for  issuance,  and,  upon  issuance  thereof upon the exercise of the
Warrants in accordance with their terms will be validly  issued,  fully paid and
non-assessable  and not subject to, or issued in violation of, any preemptive or
similar rights.  Assuming the accuracy of the  representations and warranties of
the  Purchasers,  the issuance of the Purchased  Shares to the Purchasers at the
Closing and the issuance of the Warrant Shares upon the exercise of the Warrants
will be exempt from the registration and prospectus delivery requirements of the
Securities Act and similar requirements of applicable state securities laws.

         Section 4.4 Due  Authorization.  The Company has all required corporate
power and authority to execute and deliver this Agreement,  the Warrants and the
Registration Rights Agreement, perform its obligations thereunder, including the
issuance  of  the  Purchased   Shares  and  Warrants,   and  to  consummate  the



                                       11
<PAGE>

transactions  contemplated hereby and thereby. The execution and delivery by the
Company of this Agreement,  the Warrants and the Registration  Rights Agreement,
and the consummation by it of the transactions  contemplated hereby and thereby,
have been duly authorized by all necessary corporate action of the Company. This
Agreement,  the Warrants and the  Registration  Rights  Agreement have been duly
executed and delivered by the Company and constitute  valid and legally  binding
obligations of the Company,  enforceable  against the Company in accordance with
their terms,  except that such  enforceability  may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws relating to
or affecting  creditors'  rights generally,  (ii) general  equitable  principles
(regardless  of whether such  enforceability  is  considered  in a proceeding in
equity   or  at  law)  and  (iii)   laws  and   judicial   decisions   regarding
indemnification for violations of federal securities laws.

         Section 4.5 No Conflict.  The  execution and delivery by the Company of
this Agreement,  the Warrants and the  Registration  Rights  Agreement,  and the
performance  by  it  of  the  transactions   contemplated   hereby  and  thereby
(including,  without  limitation,  the issuance of the Purchased  Shares and the
Warrant  Shares) do not and will not (i) conflict  with or result in a violation
of any provision of the Articles of Incorporation or the Bylaws, or the charter,
articles  of  incorporation,  bylaws,  or  other  governing  instruments  of any
Subsidiary,  (ii)  conflict  with  or  result  in a  material  violation  of any
provision of, or constitute (with or without the giving of notice or the passage
of time or both) a default or event of default under, give rise (with or without
the giving of notice or the passage of time or both) to any loss of benefit,  or
of any right of termination, cancellation, or acceleration under, or require any
consent  under any contract  that would have a Material  Adverse  Effect,  (iii)
result in the  creation  or  imposition  of any  material  Encumbrance  upon the
Properties  of the Company or any  Subsidiary,  or (iv)  violate in any material
respect any Applicable Law binding upon the Company or any Subsidiary.

         Section  4.6  Consents  and  Approvals.  No consent,  approval,  order,
authorization of, or declaration, filing, or registration with, any Governmental
Entity, or any consent of any other Person is required to be obtained or made by
the Company or any  Subsidiary in connection  with the execution and delivery by
the  Company  of  this  Agreement,  the  Warrants  or  the  Registration  Rights
Agreement,  or the consummation of the Transaction,  other than (i) as would not
have a Material Adverse Effect or (ii) as is necessary for the Company to comply
with the terms of the Registration Rights Agreement.

         Section 4.7 Subsidiaries.

         (a) Set forth on Schedule 4.7 is a complete  and  accurate  list of all
Subsidiaries of the Company. Each Subsidiary of the Company has been duly formed
and is validly  existing under the laws of the jurisdiction of its formation and
has the requisite power and authority to own or lease and operate its Properties
and to conduct  its  business  as it is now being  conducted.  The  Company  has
previously  made  available  to the  Purchasers  copies  of  the  organizational
documents,  each as amended to date,  of each  Subsidiary  of the Company.  Such
copies are true,  correct and complete  and in full force and effect.  Each such
Subsidiary  is  duly  licensed  or  qualified  and  in  good  standing  in  each
jurisdiction  in which its ownership or leasing and operation of its  properties
and assets and the conduct of its business as it is now being conducted requires
such  Subsidiary to be so licensed or qualified,  except where the failure to be



                                       12
<PAGE>

so licensed or qualified would not have a Material Adverse Effect.  Set forth on
Schedule 4.7 is a list of the  jurisdiction  of  incorporation,  organization or
formation of each such  Subsidiary.  None of the Company and the Subsidiaries of
the Company own, or have the right to acquire, any shares of stock or any equity
interest  in any other  corporation,  partnership,  joint  venture  or any other
Person.

         (b) The  outstanding  shares of capital stock of each Subsidiary of the
Company  have been duly  authorized  and  validly  issued and are fully paid and
non-assessable  and were not issued in  violation  of any  preemptive  rights or
rights of first refusal or first offer. All of the capital stock or other equity
interests  of each  Subsidiary  of the  Company  is  wholly-owned  of record and
beneficially by the Company or another wholly-owned Subsidiary and the ownership
interests  of the  Company  in each such  Subsidiary  are  owned of  record  and
beneficially by the Company (or another wholly-owned Subsidiary of the Company),
free and clear of any Encumbrances other than Permitted Encumbrances.

         Section 4.8 SEC Filings; Interim Financial Statements.

         (a) Since June 30, 2002,  the Company and its  Subsidiaries  have filed
with the SEC all forms,  reports,  schedules,  statements,  and other  documents
required to be filed by it under the  Securities  Act and the Exchange Act. Each
SEC Filing was prepared in accordance  with, and at the time of filing  complied
in all material  respects with,  the  requirements  of the  Securities  Act, the
Exchange  Act or other  applicable  federal  securities  laws and the  rules and
regulations  promulgated  thereunder,  as applicable to such SEC Filing. None of
the SEC Filings,  including,  without  limitation,  any financial  statements or
schedules included therein, at the time filed, contained any untrue statement of
a material  fact or omitted to state any  material  fact  required  to be stated
therein or necessary in order to make the statements contained therein, in light
of  the  circumstances   under  which  they  were  made,  not  misleading.   The
consolidated  financial statements  (including,  in each case, any related notes
thereto)  contained in the SEC Filings (i) have been prepared in conformity with
United States generally  accepted  accounting  principles  ("GAAP") applied on a
consistent basis (except as described therein or the notes thereto), (ii) comply
in all material  respects as to form with applicable  requirements and rules and
regulations  of the SEC with  respect  thereto  and  (iii)  present  fairly  the
consolidated financial position of the Company and its consolidated Subsidiaries
at the respective dates thereof and the  consolidated  results of its operations
and changes in cash flows for the period  indicated  (subject to normal year-end
audit adjustments in the case of any unaudited interim financial statements).

         (b) Philip Vogel & Co. P.C., the Company's  current  public  accounting
firm, is an independent  public  accounting firm with respect to the Company and
has not resigned or been  dismissed as  independent  public  accountants  of the
Company as a result of or in connection with any  disagreement  with the Company
on  a  matter  of  accounting  principles  or  practices,   financial  statement
disclosure or auditing scope or procedure.

         (c)  The  Company  is  in  compliance   with  any  and  all  applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations  promulgated by the SEC
thereunder  that  are  effective  as of  the  date  hereof,  except  where  such
noncompliance  would not have,  individually  or in the  aggregate,  a  Material
Adverse Effect.




                                       13
<PAGE>

         (d) The information  included in or  incorporation  by reference in the
Confidential  Private  Placement  Memorandum  dated as of  November 8, 2005 (the
"Confidential  Private Placement  Memorandum") in connection with the securities
offering  does not contain any untrue  statement  of a material  fact or omit to
state any material fact  required to be stated  therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading. If, at any time prior to the Closing Date, any event with respect to
the Company  shall occur which is required to be described  in the  Confidential
Private  Placement  Memorandum in order for the Confidential  Private  Placement
Memorandum  not to contain any untrue  statement  of a material  fact or omit to
state any material fact  required to be stated  therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading,  such event shall be so described,  and an appropriate  amendment or
supplement shall be prepared by the Company.

         Section 4.9 Absence of Undisclosed Liabilities. Neither the Company nor
any of its  Subsidiaries  has any material  liabilities or obligations  (whether
absolute,  contingent,  liquidated  or  unliquidated,  or due or to become due),
except for (i)  obligations  and  liabilities  that have arisen in the  ordinary
course of business  consistent with past practice and (ii) liabilities  recorded
on the Company's financial statements.

         Section  4.10  Absence  of  Certain  Changes.   Except  to  the  extent
specifically  identified in the SEC Filings,  since June 30, 2005, there has not
occurred (i) any Material Adverse Change, (ii) any declaration, setting aside or
payment  of any  dividend  or other  distribution  (whether  in  cash,  stock or
property)  with respect to any of the Company's  currently  outstanding  capital
stock,  (iii)  any  split,   combination  or  reclassification  of  any  of  its
outstanding  capital stock or any issuance or the  authorization of any issuance
of any other  securities in respect of, in lieu of or in substitution for shares
of the Company's outstanding capital stock, (iv) (x) any granting by the Company
or any of its  Subsidiaries to any director or executive  officer of the Company
or any of its Subsidiaries of any material  increase in compensation or material
acceleration of benefits, (y) granting by the Company or any of its Subsidiaries
to any director,  executive officer of the Company or any of its Subsidiaries of
any material  increase in, or material  acceleration  of benefits in respect of,
severance or termination  pay, or pay in connection  with a change of control of
the Company or (z) any entry by the Company or any of its Subsidiaries  into any
employment,  change of control,  or  termination  or similar  agreement with any
director,  executive officer or other employee or independent contractor, or (v)
any change in accounting methods,  principles or practices by the Company or any
of its  Subsidiaries  materially  affecting  its assets,  liability or business,
except insofar as may have been required or permitted by GAAP.

         Section 4.11  Compliance  With Laws.  Except for matters  that,  in the
aggregate,  would not have a Material  Adverse  Effect,  (i) the Company and its
Subsidiaries  are,  and at all times  during the past three years have been,  in
material  compliance with all Applicable  Laws; (ii) each of the Company and its
Subsidiaries has obtained and holds all Permits necessary for the lawful conduct
of its business or the lawful ownership,  use and operation of its assets; (iii)



                                       14
<PAGE>

neither the Company nor any of its  Subsidiaries has received any written notice
of any material violation of any Applicable Law, which has not been dismissed or
otherwise  disposed of; and (iv) neither the Company nor any of its Subsidiaries
is charged or, to the  Knowledge of the  Company,  threatened  with,  or, to the
Knowledge  of the  Company,  under  investigation  with respect to, any material
violation of any Applicable Law relating to any material  aspect of the business
of the Company or any Subsidiary.

         Section 4.12 Litigation.  Except to the extent  expressly  disclosed in
the SEC Filings  there are no  Proceedings  pending or, to the  Knowledge of the
Company,  threatened  against or involving the Company or any Subsidiary (or any
of their  respective  directors or officers in  connection  with the business or
affairs of the Company or any Subsidiary)  that are reasonably  likely to have a
Material Adverse Effect. As of the date hereof, there are no Proceedings pending
or, to the Knowledge of the Company,  threatened seeking to restrain,  prohibit,
or  obtain  damages  in  connection  with  this  Agreement  or the  transactions
contemplated hereby.

         Section 4.13 Employee Benefit Plans and Other Agreements.

The Company has no (i) Employee  Plans that cover  present or former  employees,
directors or consultants of the Company or any of its Subsidiaries (with respect
to their  relationship  with such  entities),  (ii) Employee Plans that cover or
have  covered  present or former  employees,  directors  or  consultants  of the
Company or any of its Subsidiaries (with respect to their relationship with such
entities)  with respect to which any  unsatisfied  liability  exists,  and (iii)
Pension Plans covered by Title IV of ERISA or Multiemployer Plans which cover or
have  covered  within  the past five (5)  years  present  or  former  employees,
directors or consultants of the Company or any of its Subsidiaries (with respect
to their relationship with such entities).

         Section  4.14  Taxes.  Since  January 1, 2002,  except as  specifically
identified in the SEC Filings:

         (a) The Company  and each of its  Subsidiaries  (hereinafter  sometimes
referred to  collectively  as the  "Taxpayers" or  individually as a "Taxpayer")
have timely filed with the appropriate Tax authorities all Tax Returns  required
to be filed  by each of them,  and such Tax  Returns  are  true,  complete,  and
correct in all material respects.

         (b) The  Taxpayers  have duly paid in full all material  Taxes that are
payable by each such Taxpayer on or prior to the Closing Date,  and have accrued
Taxes for any period  that begins  prior to the Closing  Date and ends after the
Closing Date in the Taxpayers' financial records and in the financial statements
contained  in the SEC Filings to the extent that such Taxes are not  required to
be paid on or prior to the Closing Date.

         (c) There is no audit or other  matter in  controversy  with respect to
any Taxes due and owing by any Taxpayer, and there is no Tax deficiency or claim
assessed or, to the Knowledge of the Company,  proposed or threatened in writing
against any Taxpayer,  other than in respect of any such audits,  controversies,
deficiencies,  assessments,  or proposed assessments that are being contested in
good faith and, if the amount in controversy exceeds $100,000,  are disclosed in
Schedule 4.14.




                                       15
<PAGE>

         (d) The  Taxpayers  each have withheld all material  Taxes  required to
have been withheld and paid by them on their behalf in  connection  with amounts
paid or owing to any employee, independent contractor, creditor, shareholder, or
other third  party,  and such  withheld  Taxes have either been duly paid to the
proper Governmental Authority or set aside in accounts for such purpose.

         (e) None of the  Taxpayers  (i) has  waived  any  statutory  period  of
limitations  for the  assessment of any Taxes or agreed to any extension of time
with respect to a Tax  assessment  or  deficiency  other than in the case of any
such waivers or  extensions in respect of an assessment or deficiency of Tax the
liability of which has been satisfied or settled or has expired,  (ii) has filed
a consent under  Internal  Revenue Code Section  341(f)  concerning  collapsible
corporations,  or (iii) has any  liability  for the Taxes of any other person as
defined  in Section  7701(a)(1)  of the  Internal  Revenue  Code under  Treasury
Regulation ss.  1.1502-6 (or any similar  provision of state,  local, or foreign
law), as a transferee,  successor or by contract  other than with respect to the
other Taxpayers.

         (f) No claim has been made in any taxable year which remains open by an
authority in a jurisdiction where a Taxpayer does not file Tax Returns that such
Taxpayer is or may be subject to taxation by that jurisdiction.

         (g) None of the  Taxpayers  has  agreed to or is  required  to make any
adjustment  pursuant  to Internal  Revenue  Code  Section  481(a) by reason of a
change in accounting method initiated by such Taxpayer,  and to the Knowledge of
the  Company,  the IRS  has not  proposed  any  such  adjustment  or  change  in
accounting method.

         (h) None of the Taxpayers has any  obligation  under any Tax allocation
or sharing  agreement,  and after the Closing Date, no Taxpayer shall be a party
to,  bound  by or have  any  obligation  under  any Tax  allocation  or  sharing
agreement or have any liability thereunder for amounts due in respect of periods
prior to and including the Closing Date.

         (i) None of the Taxpayers (i) has made any payments,  (ii) is obligated
to make any  payments  (whether  as a result  of the  transactions  contemplated
hereby or  otherwise),  and (iii) is a party to any  agreement as of the Closing
Date that could obligate it to make any payments, in each case, that will not be
deductible under Internal Revenue Code Section 280G.

         Section 4.15 Oil and Gas Properties; Reserve Reports.

         (a) The Company has  delivered to each  Purchaser a copy of the reserve
report  ("Reserve  Report")  dated as of June 30, 2005,  prepared by Netherland,
Sewell & Associates,  Inc., independent reserve engineers ("Reserve Engineers"),
relating to the oil and gas  reserves of the  Company.  The factual  information
underlying the estimates of the reserves of the Company,  to the extent supplied
by the Company to the Reserve Engineers for the purpose of preparing the Reserve
Report,  including,  without limitation,  production,  volumes, sales prices for
production,  contractual  pricing provisions under oil or gas sales or marketing
contracts under hedging arrangements,  costs of operations and development,  and
working interest and net revenue information relating to the Company's ownership
interests in  properties,  was true and correct in all material  respects on the
date of such Reserve Report;  the estimates of future capital  expenditures  and



                                       16
<PAGE>

other future exploration and development costs supplied to the Reserve Engineers
were  prepared  in good  faith  and with a  reasonable  basis;  the  information
provided to the Reserve  Engineers for purposes of preparing the Reserve Reports
were prepared in  accordance  with  customary  industry  practices;  each of the
Reserve Engineers were, as of the date of any Reserve Report prepared by it, and
are, as of the date hereof,  independent petroleum engineers with respect to the
Company;  other than normal  production of the reserves and  intervening oil and
gas price  fluctuations,  the Company is not as of the date hereof and as of the
date of  Closing  will not be,  aware of any facts or  circumstances  that would
result in a materially  adverse change in the reserves in the aggregate,  or the
aggregate present value of future net cash flows therefrom,  as described in the
Reserve  Report;  estimates of such reserves and the present value of the future
net cash flows  therefrom in the Reserve Report comply in all material  respects
to the applicable  requirements of Regulation S-X and Industry Guide 2 under the
Securities Act

         (b) Each of the Company and its  Subsidiaries  has good and  marketable
title to and is possessed of the oil and gas properties  included in the Reserve
Reports and acquired  since the date of such report and has good title to all of
its  personal  property  including  concessions,  licenses,  production  sharing
contracts,  joint operating agreements,  and gas contracts,  free of any and all
adverse  claims,  rights of others,  liens,  encumbrances,  security  interests,
contracts,  agreements,  preferential  purchase rights or other  restrictions or
limitations  of any nature or kind except those which are  Permitted Oil and Gas
Encumbrances  as defined  below.  All proceeds from the sale of the Company's or
its Subsidiaries'  share of the hydrocarbons being produced from its oil and gas
properties are currently  being paid in full to the Company or its  Subsidiaries
by the purchasers thereof on a timely basis in all material respects and none of
such  proceeds  are  currently  being held in suspense by such  purchaser or any
other party. "Permitted Oil and Gas Encumbrances" means:

                  (i) the matters  reflected  in or  otherwise  disclosed by the
         provisions of this Agreement, or the matters referred to herein;

                  (ii) liens for taxes not yet delinquent;

                  (iii)  mechanics' and  materialmen's  liens (and other similar
         liens), and liens under operating and similar agreements, to the extent
         the same relate to expenses incurred in the ordinary course of business
         and which are not yet due or are being  withheld by law or the validity
         of which is being contested in good faith by appropriate action;

                  (iv) preferential purchase rights and third party consents and
         transfer  restrictions  entered into in the ordinary course of business
         which  affect  the  transferability  of  interests  in the  oil and gas
         properties;

                  (v)   easements,   rights-of-way,    servitudes,   exceptions,
         encroachments,  reservations,  restrictions,  covenants,  conditions or
         limitations which do not in the aggregate  materially interfere with or
         impair  the  operation,  value  or use of the oil  and  gas  properties
         affected  thereby for the purposes for which they have been used by the
         Company or its Subsidiaries in the ordinary course of its business;



                                       17
<PAGE>

                  (vi) rights  reserved to, or vested in, or any  obligations or
         duties  affecting any of the oil and gas  properties,  to any public or
         governmental or regulatory body, agency, department, commission, board,
         bureau  or  other  authority  or  instrumentality  by the  terms of any
         permit;

                  (vii) present or future zoning laws and ordinances;

                  (viii) third party  interests  and  division  orders and sales
         contracts  entered into in the ordinary  course of business  containing
         such terms and  provisions as are typical and customary for the oil and
         gas  industry  covering  oil,  gas  or  associated  liquid  or  gaseous
         hydrocarbons,   reversionary   interests,   similar   burdens  and  all
         contractually  binding arrangements to which the oil and gas properties
         are  subject  which do not in the  aggregate  materially  interfere  or
         impair the operation, value or use of any of the oil and gas properties
         for the  purposes  for which they have been used by the  Company or its
         Subsidiaries in the ordinary course of its business;

                  (ix)  all  other  liens,  charges,  encumbrances,   contracts,
         agreements,   instruments,   obligations,  defects  and  irregularities
         affecting  the  assets  of  the  Company  and  its  Subsidiaries  which
         individually  or  in  the  aggregate  are  not  such  as  to  interfere
         materially with the operation, value or use of any of the assets of the
         Company  and its  Subsidiaries,  do not  prevent  the  Company  and its
         Subsidiaries  from receiving the proceeds of production from any of the
         oil and gas properties;

                  (x)  rights  reserved  to or  vested  in any  municipality  or
         governmental,  statutory or public authority to control or regulate any
         asset  of the  Company  and its  Subsidiaries  in any  manner,  and all
         applicable laws, rules and orders of governmental  authority,  which do
         not in the  aggregate  materially  interfere  or impair the  operation,
         value or use of any of the oil and gas  properties for the purposes for
         which they have been used by the  Company and its  Subsidiaries  in the
         ordinary course of its business; and

                  (xi) typical and customary  agreements among owners of oil and
         gas interests  relating to oil field  operations and pipelines which do
         not in the  aggregate  materially  interfere  or impair the  operation,
         value or use of any of the oil and gas  properties for the purposes for
         which they have been used by the  Company and its  Subsidiaries  in the
         ordinary course of its business.

         Section 4.16 Environmental Matters.

         (a) The Company and its  Subsidiaries:  (i) are in material  compliance
with all applicable Environmental Laws; and (ii) hold all material Environmental
Permits  (each of which is in full force and effect)  required  for any of their
current  operations or for any property owned,  leased or otherwise  operated by
any of them.

         (b) The  Company and its  Subsidiaries  have not  received  any written
notice of alleged,  actual or  potential  responsibility  for, or any inquiry or
investigation regarding, any material Environmental Condition.




                                       18
<PAGE>

         (c) To the Knowledge of the Company,  Hazardous Materials have not been
transported,  disposed  of or  otherwise  released,  to or at any real  property
presently  owned or leased by the  Company  or any of its  Subsidiaries,  or any
other location,  which Hazardous  Materials are reasonably  expected to (i) give
rise to any  material  liability  of the  Company  or any  Subsidiary  under any
applicable Environmental Law, or (ii) interfere in any material respect with the
Company's or any Subsidiary's continued operations.

         (d) Neither the Company nor any of its  Subsidiaries  is charged or, to
the  Knowledge  of the Company,  threatened  with,  or, to the  Knowledge of the
Company,  under  investigation  with respect to, any  material  violation of any
applicable  Environmental Law relating to any material aspect of the business of
the Company or any Subsidiary.

         Section 4.17 Insurance.  The Disclosure Letter sets forth a list of all
insurance  policies  held  by,  or for  the  benefit  of,  the  Company  and its
Subsidiaries  as of the date  hereof,  and  further  sets  forth the name of the
insurer,  type  of  coverage,  policy  limits  and  deductibles  and  additional
insureds,  if any,  and the annual  premium  for each such  policy.  Each of the
Company and its Subsidiaries  carry insurance with reputable insurers (except as
to  self-insurance)  with  respect to each of their  respective  properties  and
business, in such amounts and against such risks as is customarily maintained by
other entities of similar size engaged in similar  businesses (which may include
self-insurance in amounts customarily maintained by companies similarly situated
or has been maintained in the past by the Company and its Subsidiaries). Neither
the Company nor any of its  Subsidiaries has received any notice of cancellation
or non-renewal of any insurance  policies or binders set forth in the Disclosure
Letter.

         Section 4.18 Title to Assets.  Except for Permitted  Encumbrances,  the
Company and its Subsidiaries  have good and indefeasible  title to, or valid and
subsisting  leasehold  interests in, all tangible  personal  assets  material to
their business as currently  conducted,  and valid ownership or licensing rights
to all intangible  assets material to their  businesses as currently  conducted.
Except for Permitted Encumbrances, none of the material assets is subject to any
Encumbrance,  except for Encumbrances  which,  individually or in the aggregate,
are not material in amount and do not  materially  detract from the value of the
property  or assets of the Company and its  Subsidiaries,  taken as a whole,  or
materially interfere with the present use of such property or assets (taken as a
whole). All such material leases are valid, binding and enforceable with respect
to the Company and its Subsidiaries,  to the extent each is a party thereto,  in
accordance with their terms (except that such  enforceability  may be limited by
(i) applicable bankruptcy, insolvency,  reorganization,  moratorium, and similar
laws  relating to or affecting  creditors'  rights  generally,  and (ii) general
equitable  principles) and are in full force and effect; no event of default has
occurred  which  constitutes  a material  default  thereunder on the part of the
Company or any  Subsidiary  and to the  Knowledge of the  Company,  no event has
occurred which constitutes a material default thereunder by any other party.

         Section  4.19  Condition  of Tangible  Assets.  The  Facilities  of the
Company and its Subsidiaries and the Fixtures and Equipment taken as a whole are
in a condition  reasonably  sufficient  for the operation of the business of the
Company and its Subsidiaries as presently conducted.



                                       19
<PAGE>

         Section  4.20  Labor  Matters.  Neither  the  Company  nor  any  of its
Subsidiaries is a party to any collective  bargaining or similar  agreement with
any labor union, collective bargaining unit or similar organization. There is no
material  unfair labor practice  charge or complaint  against the Company or any
Subsidiary  pending  before  the  National  Labor  Relations  Board or any other
governmental  agency  arising out of the activities of the Company or any of its
Subsidiaries.  There is no labor strike or labor disturbance  pending or, to the
Knowledge  of  the  Company,  threatened  against  the  Company  or  any  of its
Subsidiaries.  To the Knowledge of the Company,  there is no material  grievance
currently being asserted against the Company or its Subsidiaries and neither the
Company nor any Subsidiary has experienced since June 30, 2005, the assertion of
a material grievance, a work stoppage or other labor difficulty.

         Section 4.21 Intellectual Property.

         (a) The Company and its Subsidiaries  either own or have valid licenses
or  other  rights  to  use  all  patents,  copyrights,  trademarks,  tradenames,
software,  other  intellectual  property  used in their  businesses as presently
conducted  ("Proprietary  Rights"),  subject to the limitations contained in the
agreements governing the use of the same. There are no limitations  contained in
the  agreements  of the type  described in the  immediately  preceding  sentence
which,  upon  consummation  of the  Transaction,  will  alter or impair any such
rights,  breach  any such  agreement  with any third  party  vendor,  or require
payments of additional sums thereunder.  The Company and its Subsidiaries are in
compliance in all material  respects with the material  licenses and  agreements
with respect to their Proprietary Rights.

         (b)  The  Proprietary  Rights  constitute  all  material   intellectual
property rights necessary to conduct the business as presently conducted. To the
Knowledge of the  Company,  the use by the Company and its  Subsidiaries  of the
Proprietary Rights does not infringe in any material respect on the intellectual
property or other Proprietary Rights of any other Person,  and, to the Knowledge
of the Company, no other Person is infringing,  in any material respects, on the
Proprietary Rights.

         Section 4.22 No Brokers.  Except for any fees payable to Petro  Capital
Advisors, LLC pursuant to Section 8.10 hereof, the Company has not employed, and
is not subject to the valid claim of, any broker,  finder,  consultant  or other
intermediary  in connection  with the Transaction who might be entitled to a fee
or commission from the Company in connection with the Transaction.

         Section 4.23 Affiliated Transactions. Except as specifically identified
in the SEC  Filings  filed,  and  except  for  payments  under  an  individual's
compensation  or  other  benefit  arrangements  with the  Company  or any of its
Subsidiaries and reimbursement of expenses in the ordinary course of employment,
none of the officers, directors or other Affiliates of the Company or any of its
Subsidiaries  or members of their  families is, or at any time in the last three
years has been, a party to any agreement,  indebtedness or transaction  with the
Company or any of its  Subsidiaries  or is directly or indirectly  interested in
any  contract  with,  or  received  payments  from,  the  Company  or any of its
Subsidiaries other than (i) ordinary course employment  arrangements between the
Company and its  Subsidiaries and their  respective  employees,  (ii) payment of
customary  directors  fees to  directors of the Company  (and  reimbursement  of



                                       20
<PAGE>

related  expenses) and (iii)  transactions  between or among the Company and its
Subsidiaries.  Except as specifically identified in the SEC Filings, neither the
Company nor any of its Subsidiaries has guaranteed or assumed any obligations of
their  respective  officers,  directors or other Affiliates or members of any of
their families.

         Section 4.24 Reporting Status; Eligibility to Use Form SB-2. The Common
Stock is  registered  under  Section  12(g) of the  Exchange  Act.  The  Company
currently  meets  the  "registrant  eligibility"  requirements  set forth in the
general  instructions  to Form SB-2 to enable the  registration of the resale of
the Registrable Securities (as defined in the Registration Rights Agreement).

         Section  4.25   Representations   Complete.   The  representations  and
warranties made by the Company in this Agreement, and the statements made in any
certificates  furnished by the Company  pursuant to this  Agreement,  taken as a
whole, do not contain and will not contain,  as of their respective dates and as
of the Closing  Date,  any untrue  statement of a material fact or omit to state
any material fact necessary in order to make such statements,  taken as a whole,
in light of the circumstances under which they were made, not misleading.

                                   ARTICLE V.
                  REPRESENTATIONS AND WARRANTIES OF PURCHASERS

         Each  Purchaser  hereby  represents  and  warrants,  severally  and not
jointly, to the Company as follows:

         Section 5.1 Standing of Purchaser. If such Purchaser is an entity, such
Purchaser is duly formed or incorporated,  validly existing and in good standing
under the laws of its  jurisdiction  of  formation  or  incorporation,  and duly
qualified  and in good  standing  in all  other  jurisdictions  in  which  it is
required to so qualify.

         Section 5.2 Due Authorization.

         (a) If such Purchaser is an entity,  such Purchaser has full corporate,
partnership,  trust, or other  applicable power and authority to enter into this
Agreement and the Registration Rights Agreement,  and to perform its obligations
hereunder and thereunder.  This Agreement and the Registration  Rights Agreement
have been duly executed and delivered by such Purchaser and constitute valid and
legally  binding  obligations  of  such  Purchaser,   enforceable  against  such
Purchaser in accordance with their terms, except that such enforceability may be
limited by (i) applicable bankruptcy,  insolvency,  reorganization,  moratorium,
and similar laws affecting  creditors' rights generally,  (ii) general equitable
principles  (regardless  of  whether  such  enforceability  is  considered  in a
proceeding in equity or at law) and (iii) laws and judicial decisions  regarding
indemnification for violations of federal securities laws.

         (b) If such Purchaser is not an entity,  such Purchaser has full right,
power, authority and capacity to enter into this Agreement and to consummate the
Transaction  and has taken all  necessary  action to  authorize  the  execution,
delivery and performance of this  Agreement.  Upon the execution and delivery of
this Agreement,  this Agreement shall constitute a valid and binding  obligation



                                       21
<PAGE>

of the  Purchaser  enforceable  in accordance  with its terms,  except that such
enforceability  may  be  limited  by  (i)  applicable  bankruptcy,   insolvency,
reorganization,   moratorium,  and  similar  laws  affecting  creditors'  rights
generally,  (ii)  general  equitable  principles  (regardless  of  whether  such
enforceability is considered in a proceeding in equity or at law) and (iii) laws
and judicial  decisions  regarding  indemnification  for  violations  of federal
securities laws.

         Section 5.3 Purchase for Investment.

         (c) Such Purchaser has been furnished with all information  that it has
requested  for  the  purpose  of  evaluating  the  proposed  acquisition  of the
Purchased Shares and the Warrants pursuant hereto, and such Purchaser has had an
opportunity to ask questions of and receive  answers from the Company  regarding
the Company and its business, assets, results of operations, financial condition
and  prospects  and the terms and  conditions  of the issuance of the  Purchased
Shares and the Warrants.

         (d) Such  Purchaser  is  acquiring  the  Purchased  Shares and Warrants
solely by and for its own account,  for investment purposes only and not for the
purpose  of  resale  or  distribution;  and  such  Purchaser  has  no  contract,
undertaking,  agreement  or  arrangement  with any Person to sell,  transfer  or
pledge to such Person or anyone else any Purchased Shares or Warrants;  and such
Purchaser has no present  plans or  intentions to enter into any such  contract,
undertaking, agreement or arrangement.

         (e)  Such  Purchaser   acknowledges   and   understands   that  (i)  no
registration  statement  relating to the Purchased  Shares,  the Warrants or the
Warrant  Shares has been filed with the SEC under the Securities Act or pursuant
to the securities laws of any state; (ii) the Purchased Shares, the Warrants and
the Warrant Shares cannot be sold or  transferred  without  compliance  with the
registration provisions of the Securities Act or compliance with exemptions,  if
any, available  thereunder;  (iii) the certificates  representing the respective
Purchased Shares will include a legend thereon that refers to the foregoing; and
(iv) the Company has no  obligation  or  intention  to  register  the  Purchased
Shares, the Warrants or the Warrant Shares under any federal or state securities
act or law, except as provided in the Registration Rights Agreement.

         (f) Such Purchaser (i) is an  "accredited  investor" as defined in Rule
501 of  Regulation  D  promulgated  under  the  Securities  Act;  (ii)  has such
knowledge and  experience  in financial and business  matters in general that it
has the  capacity  to  evaluate  the  merits and risks of an  investment  in the
Purchased  Shares and the Warrants and to protect its own interest in connection
with an investment in the  Purchased  Shares and the Warrants;  (iii) has such a
financial  condition  that it has no need  for  liquidity  with  respect  to its
investment in the  Purchased  Shares and the Warrants to satisfy any existing or
contemplated undertaking,  obligation or indebtedness;  and (iv) is able to bear
the economic risk of its investment in the Purchased Shares and the Warrants for
an indefinite period of time.

         Section  5.4 No Legal,  Tax or  Investment  Advice.  Without  otherwise
limiting the  representations  and the warranties made in this  Agreement,  such
Purchaser  understands  that nothing in this  Agreement  or any other  materials
presented  to such  Purchaser  in  connection  with the purchase and sale of the



                                       22
<PAGE>

Purchased Shares or the Warrants  constitutes  legal, tax or investment  advice.
Such Purchaser has consulted such legal,  tax and investment  advisors as it, in
its sole discretion,  has deemed necessary or appropriate in connection with its
purchase of the Purchased Shares and the Warrants.

         Section 5.5 No Brokers.  Purchaser has not employed, and is not subject
to the valid claim of, any broker,  finder,  consultant or other intermediary in
connection  with the Transaction who might be entitled to a fee or commission in
connection with the Transaction.

                                   ARTICLE VI.
                                    COVENANTS

         Section 6.1 Continuing  Operations.  From the date of this Agreement to
the earlier of (i) the Closing Date and (ii) the  termination  of this Agreement
in  accordance  with  Section 7.1 (the  "Interim  Period"),  the Company and its
Subsidiaries  shall  conduct  their  businesses in the ordinary and usual course
consistent  with past  practices,  and,  neither the Company nor any  Subsidiary
shall, without the prior consent of Purchasers:

         (a) make any loans or  advances  to any  Person in excess of $10,000 in
the  aggregate,  other than (i)  advances to employees in the ordinary and usual
course of business  and (ii)  transactions  among or between the Company and its
Subsidiaries conducted in the ordinary and usual course of business;

         (b) sell, lease, transfer or otherwise dispose of, all or substantially
all of the assets of the Company or its  Subsidiaries,  taken as a whole  (other
than the sale of inventory in the ordinary course),  or any equity securities of
the Company or its  Subsidiaries  (other  than the  issuance of shares of Common
Stock upon exercise of Awards or warrants currently outstanding);

         (c) approve or implement any employment  severance  arrangements (other
than payments made under the Company's  existing  severance policy in accordance
with past  practice) or hire or discharge any executive  officers;  authorize or
enter into any  employment,  severance,  consulting  services or other agreement
with any directors,  officers and executive management personnel or any of their
Affiliates;  or change the  compensation  or benefits  provided to any director,
officer, or employee as of September 30, 2005;

         (d) enter into any  speculative  or  commodity  swaps,  hedges or other
derivatives  transactions  or purchase any securities  for investment  purposes,
other than in connection  with cash management of the Company or in the ordinary
course of business;

         (e) issue any  shares of capital  stock  (other  than  shares of Common
Stock issuable upon exercise of currently outstanding Awards or warrants);

         (f)  declare or pay  dividends  on, or make any other  distribution  in
respect of, any outstanding shares of the Company's capital stock or repurchase,
redeem or otherwise retire for value any shares of its capital stock, other than
shares of Common Stock  acquired in  connection  with the  cashless  exercise of
Awards; or

         (g) enter into a binding agreement to do any of the foregoing.




                                       23
<PAGE>

         Section 6.2 Press  Releases.  Except for the press release  attached as
Exhibit F, which the Company will issue promptly following the Closing,  neither
Purchasers  nor the Company  shall issue any press  release with respect to this
Agreement or the transactions  contemplated  hereby without the prior consent of
the  other  (which  consent  shall  not  be  unreasonably   withheld  under  the
circumstances).  The Company will file a Form 8-K with the SEC that contains the
aforementioned  press release and a copy of this Agreement as exhibits  thereto,
as well as any other  disclosure  related  to the  Transaction  required  by the
Exchange Act, or the rules and regulations promulgated thereunder.

         Section 6.3  Financial  Statements,  Reports,  Etc.  The Company  shall
furnish to each Purchaser:

         (a) within ninety (90) days  (including any extension  pursuant to Rule
12b-25 of the Exchange Act) after the end of each fiscal year of the Company,  a
consolidated balance sheet of the Company and its Subsidiaries, as of the end of
such  fiscal  year and the  related  consolidated  statements  of income for the
fiscal year then ended, prepared in accordance with GAAP and certified by a firm
of independent  public  accountants of recognized  regional standing selected by
the Board of Directors of the Company,  provided such  accounting firm satisfies
the  SEC's  qualifications  for  public  accountants  set  forth in Rule 2-01 of
Regulation S-X;

         (b) within forty five (45) days  (including  any extension  pursuant to
Rule 12b-25 of the Exchange Act) after the end of each of the first three fiscal
quarters in each fiscal year, a  consolidated  balance  sheet of the Company and
its Subsidiaries,  and the related  consolidated  statements of income unaudited
but  prepared  in  accordance  with GAAP and  certified  by the Chief  Financial
Officer of the Company,  such consolidated  balance sheet to be as of the end of
such fiscal  quarter and such  consolidated  statements of income to be for such
fiscal  quarter and for the period from the  beginning of the fiscal year to the
end of such fiscal quarter;

         (c) promptly  after the  commencement  thereof,  notice of all actions,
suits, claims,  proceedings,  investigations and inquiries of the type described
in Section 4.12 of this Agreement  that could  materially  adversely  affect the
Company or any of its Subsidiaries, if any;

         (d) promptly upon  sending,  making  available or filing the same,  all
press releases, reports and financial statements that the Company sends or makes
available to its stockholders or directors or files with the Commission; and

         (e) promptly,  from time to time, such other information  regarding the
business, prospects, financial condition, operations, property or affairs of the
Company and its Subsidiaries as such Purchaser reasonably may request.

         Notwithstanding this Section 6.3, so long as the Company is required to
make  filings  pursuant to the  Exchange  Act and makes such filings in a timely
manner  (including  any extension  pursuant to Rule 12b-25 of the Exchange Act),
the Company shall be deemed to have  furnished to the  Purchasers  the financial
statements and other reports required by this Section 6.3.



                                       24
<PAGE>

         Section 6.4 Use of Proceeds.

The Company  shall use the proceeds  from the sale of the  Purchased  Shares and
Warrants solely for (i) payment of a drilling deposit to Energy  Drilling,  Inc.
in the  aggregate  amount of $830,000  related to drilling two wells on existing
acreage of the Company and (ii) general working capital.

         Section 6.5 Continued  Eligibility to Use Form SB-2 or S-3.  Throughout
the Registration Period (as defined in the Registration  Rights Agreement),  the
Company will timely file all reports,  schedules,  forms,  statements  and other
documents  required to be filed by it with the  Commission  under the  reporting
requirements  of the Exchange Act, and the Company will not terminate its status
as an  issuer  required  to file  reports  under  the  Exchange  Act even if the
Exchange  Act  or  the  rules  and  regulations  thereunder  would  permit  such
termination.  The Company will take all reasonably  necessary action to continue
to meet the  "registrant  eligibility"  requirements  set  forth in the  general
instructions  to  Form  SB-2  to  enable  the  registration  of the  Registrable
Securities (as defined in the Registration Rights Agreement),  and will file all
reports  required to be filed by the Company with the SEC in a timely  manner so
as to become eligible,  and thereafter to maintain the "registrant  eligibility"
requirements, to use Form S-3.

         Section 6.6 Listing. So long as any Purchased Shares or Warrants remain
outstanding,  the Company  shall use its best  efforts to ensure that the Common
Stock continues to be listed for trading on the OTC Bulletin  Board,  the NASDAQ
Stock Market or the American Stock Exchange.

         Section 6.7 Legend.

         (a)  The  Purchaser   agrees  to  the  placement  on  the  certificates
representing  the Purchased Shares and the Warrant Shares a legend (the "Private
Placement Legend") substantially as set forth below:

         THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE HAVE NOT BEEN
         REGISTERED  UNDER THE U.S.  SECURITIES ACT OF 1933, AS AMENDED
         (THE  "SECURITIES  ACT"), OR ANY STATE SECURITIES LAW, AND MAY
         NOT BE OFFERED,  SOLD,  TRANSFERRED  OR OTHERWISE  DISPOSED OF
         EXCEPT  PURSUANT TO AN  EFFECTIVE  REGISTRATION  STATEMENT  OR
         PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
         TO, THE  REGISTRATION  REQUIREMENTS  OF THE SECURITIES ACT AND
         APPLICABLE STATE SECURITIES LAWS.

         (b) The  Private  Placement  Legend  shall  be  removed  from  any such
certificate  if (i) the securities  represented  thereby are sold pursuant to an
effective  registration  statement  under the Securities Act or pursuant to Rule
144 under the  Securities  Act,  (ii) there is  delivered  to the  Company  such
satisfactory  evidence,  which may include an opinion of counsel,  as reasonably
may be  requested  by the  Company,  to confirm that neither such legend nor the
restrictions on transfer set forth therein are required to ensure that transfers
of such securities  will not violate the  registration  and prospectus  delivery
requirements of the Securities Act, or (iii) the securities  represented thereby
may be resold pursuant to Rule 144(k) promulgated under the Securities Act.



                                       25
<PAGE>

         (c) Except for any legend  required by Texas law, no legend  other than
the Private  Placement Legend shall be placed on the  certificates  representing
the  Purchased  Shares  and  the  Warrant  Shares  without  the  consent  of the
Purchasers.

         Section 6.8 Confidentiality.

         (a)   Without   limiting   the   Purchasers'   obligations   under  any
Confidentiality  Agreement with the Company,  each of the Purchasers  agrees, on
behalf of itself and each of its Affiliates,  directors, officers, employees and
representatives,  to keep confidential any confidential  non-public  information
supplied  to it by the  Company  or any of its  Subsidiaries  pursuant  to  this
Agreement;  provided  that  nothing  herein shall limit the  disclosure  of such
information  (i) after such  information  shall have  become  public  other than
through a violation of this Section 6.8, (ii) to the extent required pursuant to
a subpoena,  civil investigative  demand (or similar process),  order,  statute,
rule or  other  legal  requirement  promulgated  or  imposed  by a court or by a
judicial, regulatory,  self-regulatory or legislative body, organization, agency
or  otherwise  in  connection  with any  judicial or  administrative  proceeding
(including,  without limitation, in response to oral questions,  interrogatories
or  requests  for  information  or  documents),   (iii)  to  counsel,  auditors,
accountants or other  representative for any of the Purchasers,  so long as such
persons are subject to an obligation of  confidentiality  for the benefit of the
Company, (iv) to a Subsidiary, Affiliate, partner, director, officer or employee
of  such  Purchaser  provided  that  such  parties  have a  need  to  know  such
information and are bound by provisions to maintain the  confidentiality of such
information  as least as  restrictive  as this Section 6.8, or (v) to the extent
such  information  has been  independently  developed by such  Purchasers or its
representative.   Purchasers  shall  bear  the  burden  of   demonstrating   the
applicability  of any of the  exceptions  set forth in clauses  (i) - (v) of the
previous sentence.

         (b) Unless  specifically  prohibited by applicable  law or court order,
each of the  Purchasers  shall,  to the extent  practical,  prior to  disclosure
thereof, notify the Company of any request for disclosure of any such non-public
information by any governmental agency or representative  thereof or pursuant to
legal  process,  and shall consult with the Company on the  advisability  of the
Company (at the Company's  request) taking legally  available steps to resist or
narrow any such request.  Such Purchaser shall be entitled to reimbursement from
the  Company for  expenses  incurred  by it,  including  the fees and expense of
counsel, in connection with any action taken pursuant to this Section 6.8.

         Section 6.9 Issuance of Warrants.  At the  Closing,  the Company  shall
issue to each Purchaser Warrants,  substantially in the form attached as Exhibit
D, to purchase  that number of shares of Common  Stock set forth  opposite  such
Purchaser's  name on Exhibit A. The Company shall also issue to each Person,  if
any, as may be entitled thereto,  additional  warrants as may be required by the
Registration Rights Agreement.

         Section 6.10  Disclosure  of  Affiliated  Transactions.  Except for the
transactions  contemplated by the Confidential  Private Placement Memorandum and
except to the extent  otherwise  disclosed in an SEC Filing,  the Company  shall
document and promptly  disclose to Purchasers any transaction  with an Affiliate
where the consideration,  in cash or other tangible or intangible benefit to the
Company,  exceeds $5,000,  or which otherwise must be disclosed  pursuant to the



                                       26
<PAGE>

Securities  Act,  the  Exchange  Act or the  rules and  regulations  promulgated
thereunder.Section  6.11 Capitalization.  If at any time after the Closing Date,
it is  determined  that the number of issued and  outstanding  shares of capital
stock of the Company on a fully  diluted  basis as of the Closing Date equals an
amount  greater than that amount  represented  by the Company under Section 4.2,
the Company  agrees to promptly  issue each  Purchaser  that number of shares of
Common  Stock  necessary  for such  Purchaser  to maintain  its same  percentage
ownership  interest  in the  Company as  determined  by  dividing  the number of
Purchased  Shares and Warrant Shares set forth opposite such Purchaser's name on
Exhibit A by the sum of (i) the number of shares of capital stock of the Company
on a fully diluted basis set forth in Section 4.2 and (ii) the aggregate  number
of  Purchased  Shares  and  Warrant  Shares  subscribed  for by  the  Purchasers
hereunder.

                                  ARTICLE VII.
                                 INDEMNIFICATION

         Section 7.1  Survival of  Representations,  Etc.  The  representations,
warranties,  covenants and  agreements of the parties  hereto  contained  herein
shall survive the Closing.

         Section 7.2 Indemnification by the Company. The Company shall indemnify
and hold  harmless  each of the  Purchasers  and  their  respective  Affiliates,
directors,  officers, advisors, agents and employees (the "Purchaser Indemnified
Parties")  from and against any and all  demands,  losses,  damages,  penalties,
claims,  liabilities,  obligations,  actions,  causes of  action,  and  expenses
(including without  limitation,  costs of investigating,  preparing or defending
any such claim or action and reasonable legal fees and expenses)  (collectively,
"Losses"),  arising  by  reason  of or  resulting  from  (a) any  breach  of any
warranty, representation, covenant or agreement of the Company contained in this
Agreement, or in any certificate,  instrument or document contemplated hereby or
thereby,  or (b) any cause of  action,  suit or claim  brought  against  or made
against  such  Indemnified  Party  and  arising  out of or  resulting  from  the
execution, delivery,  performance,  breach or enforcement of this Agreement, the
Warrants or the Registration Rights Agreement. The Company's aggregate liability
under this  Section 7.2 shall not exceed  $2,000,000;  provided,  however,  such
limitation of liability  shall not apply to Losses arising under or related to a
breach of Section 4.2.

         Section 7.3 Defense of Claims.  If a claim for Losses (a "Claim") is to
be made by an  Indemnified  Party,  such  Indemnified  Party shall give  written
notice (a "Claim Notice") to the indemnifying party as soon as practicable after
such Indemnified  Party becomes aware of any fact,  condition or event which may
give rise to Losses for which  indemnification  may be sought under this Article
VII. If any lawsuit or enforcement action is filed against any Indemnified Party
hereunder,  notice  thereof  (a  "Third  Party  Notice")  shall  be given to the
indemnifying  party as promptly as practicable  (and in any event within fifteen
(15) calendar days after the service of the citation or summons). The failure of
any indemnified party to give timely notice hereunder shall not affect rights to
indemnification  hereunder,  except to the extent  that the  indemnifying  party
demonstrates  actual  damage  caused by such  failure.  After receipt of a Third
Party Notice,  if the  indemnifying  party shall  acknowledge  in writing to the
indemnified party that the indemnifying party shall be obligated under the terms
of its indemnity  hereunder in connection with such lawsuit or action,  then the
indemnifying  party shall be entitled,  if it so elects,  (i) to take control of



                                       27
<PAGE>

the  defense and  investigation  of such  lawsuit or action,  (ii) to employ and
engage  attorneys  of its own  choice  to handle  and  defend  the same,  at the
indemnifying  party's  cost,  risk and expense  unless the named parties to such
action or proceeding  include both the  indemnifying  party and the  indemnified
party and the  indemnified  party has been  advised in  writing by counsel  that
there may be one or more legal defenses available to such indemnified party that
are different from or additional to those available to the  indemnifying  party,
and (iii) to  compromise  or settle such claim,  which  compromise or settlement
shall be made  only with the  written  consent  of the  Indemnified  Party.  The
Indemnified   Party  shall  cooperate  in  all  reasonable   respects  with  the
indemnifying party and such attorneys in the investigation, trial and defense of
such lawsuit or action and any appeal  arising  therefrom;  and the  Indemnified
Party may, at its own cost, participate in the investigation,  trial and defense
of such lawsuit or action and any appeal  arising  therefrom and appoint its own
counsel  therefore,  at its own cost. The parties shall also cooperate with each
other in any  notifications  to  insurers.  If the  indemnifying  party fails to
assume the defense of such claim within fifteen (15) calendar days after receipt
of the Third Party Notice,  the  Indemnified  Party against which such claim has
been asserted will (upon  delivering  notice to such effect to the  indemnifying
party) have the right to undertake the defense, compromise or settlement of such
claim and the indemnifying party shall have the right to participate  therein at
its own cost.  In the event the  Indemnified  Party  assumes  the defense of the
claim,  the  Indemnified  Party  will  keep the  indemnifying  party  reasonably
informed of the progress of any such defense, compromise or settlement.

                                  ARTICLE VIII.
                                  MISCELLANEOUS

         Section 8.1  Termination.  Prior to the Closing,  this Agreement may be
terminated:

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

         (b) by any  Purchaser  (as to such  Purchaser)  or the  Company  if the
Closing shall not have occurred on or before December 31, 2005;

         (c) by any  Purchasers (as to such  Purchaser),  if there is a material
breach of any  representation or warranty set forth in Article III hereof or any
covenant or agreement to be complied  with or performed by the Company  pursuant
to the terms of this Agreement; or

         (d) by the Company, if there is a material breach of any representation
or warranty set forth in Article IV hereof by a Purchaser  pursuant to the terms
of this Agreement.

         Section 8.2 In the Event of Termination. In the event of termination of
this Agreement,  no party hereto shall have any liability or further  obligation
to any other  party under this  Agreement  (other  than the  obligations  of the
parties  pursuant  to Section  8.3),  provided  that no such  termination  shall
relieve any party from liability relating to breach of this Agreement  occurring
prior to such termination.

         Section  8.3  Expenses.  The  Company  hereby  covenants  and agrees to
reimburse the Purchasers for reasonable and documented  legal expenses of Haynes
and Boone LLP, incurred in connection with the negotiation,  execution, delivery
and performance of this Agreement,  the  Registration  Rights  Agreement and the



                                       28
<PAGE>

Warrants  and the  Transaction.  If any action at law or equity is  necessary to
enforce  or  interpret  the terms of this  Agreement,  the  Registration  Rights
Agreement or the Warrants,  the prevailing party shall be entitled to reasonable
attorney's  fees,  costs and  necessary  disbursements  in addition to any other
relief to which such party may be entitled.

         Section 8.4 Injunctive Relief. The parties hereto acknowledge and agree
that  irreparable  damage may occur in the event any of the  provisions  of this
Agreement  were not performed in accordance  with their  specific  terms or were
otherwise breached.  It is accordingly agreed that the parties shall be entitled
to seek an injunction or  injunctions  to prevent  breaches of the provisions of
this Agreement to enforce specifically the provisions of this Agreement,  in any
court of the State of Texas,  without the need to post a bond or other security,
in addition to any other remedy to which the parties may be entitled  under this
Agreement or at law or in equity.

         Section 8.5 Assignment. Neither this Agreement nor any of the rights or
obligations  hereunder may be assigned by the Company  without the prior written
consent  of the  Purchasers  or by any  Purchaser,  without  the  consent of the
Company except by a Purchaser to an Affiliate of such Purchaser.  Subject to the
foregoing,  this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective  successors and assigns, and no other Person
shall have any right, benefit or obligation hereunder.

         Section 8.6 Notices.  Unless  otherwise  provided  herein,  any notice,
request, instruction or other document to be given hereunder by any party to the
other shall be in writing and delivered by hand-delivery, registered first-class
mail, telex,  telecopier,  or air courier  guaranteeing  overnight delivery,  as
follows:

                  If to the Company:

                  Cubic Energy, Inc.
                  9870 Plano Road
                  Dallas, Texas 75238
                  Attn: Jon S. Ross
                  Facsimile: (972) 681-9687

                  With a copy to:

                  Gardere Wynne Sewell LLP
                  1601 Elm Street, Suite 3000
                  Dallas, Texas 75201
                  Attn: David R. Earhart
                  Facsimile: (214) 999-3645




                                       29
<PAGE>

                  If to any  Purchaser,  to the  address  set forth  immediately
                  below such Purchaser's name on Exhibit A hereto.

                  With a copy to:

                  Haynes and Boone, LLP
                  1221 McKinney St., Suite 2100
                  Houston Texas 77010
                  Attn: Guy Young
                  Facsimile: (713) 236-5699

or to such other place and with such other copies as any party may  designate as
to itself by written notice to the others.

         All such notices,  requests,  instructions  or other documents shall be
deemed to have been duly given;  at the time  delivered by hand,  if  personally
delivered;  four  Business  Days  after  being  deposited  in the mail,  postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged by
addressee, if by telecopier transmission; and on the next business day if timely
delivered to an air courier guaranteeing overnight delivery.

         Section 8.7 Choice of Law;  Venue.  This Agreement  shall be construed,
interpreted  and the rights of the parties  determined  in  accordance  with the
internal  laws of the State of Texas,  without  regard  to the  conflict  of law
principles  thereof,  except  with  respect  to matters  of law  concerning  the
internal  corporate  affairs of any corporate  entity which is a party to or the
subject of this Agreement,  and as to those matters the law of the  jurisdiction
under which the respective entity derives its powers shall govern. For any claim
or cause of action  arising  under this  Agreement,  the parties  consent to the
exclusive jurisdiction of the state and federal courts sitting in Dallas County,
Texas,  and waive any objection based on jurisdiction or venue,  including forum
non  conveniens;  provided,  however,  to the extent any party seeks  injunctive
relief,  it may file such  action  wherever in its sole  discretion  it believes
relief might most effectively be obtained.

         Section 8.8 Interpretation of Provisions.  Article, Section,  Schedule,
and Exhibit references are to this Agreement,  unless otherwise  specified.  All
references to instruments,  documents,  contracts, and agreements are references
to such  instruments,  documents,  contracts,  and agreements as the same may be
amended,  supplemented,  and  otherwise  modified  from  time  to  time,  unless
otherwise  specified.  All references to a party in this Agreement shall include
such party's successors and permitted  assigns.  The word "including" shall mean
"including  but  not  limited  to."  The  terms  "will"  and  "shall"  shall  be
interpreted  to have  the  same  meaning.  Words in the  singular  form  will be
construed  to include  the plural and vice versa,  unless the context  otherwise
requires.  The section  headings  contained in this  Agreement  are inserted for
convenience only and will not affect in any way the meaning or interpretation of
this Agreement. Whenever the Company has an obligation under this Agreement, the
Registration  Rights  Agreement or the Warrants,  the expense of complying  with
that obligation shall be an expense of the Company unless  otherwise  specified.
Whenever  any  determination,  consent,  or approval is to be made or given by a
Purchaser,  such action  shall be in such  Purchaser's  sole  discretion  unless



                                       30
<PAGE>

otherwise specified in this Agreement.  This Agreement,  the Registration Rights
Agreement  and the Warrant have been reviewed and  negotiated  by  sophisticated
parties  with  access to legal  counsel and shall not be  construed  against the
drafter.  All  indemnification  obligations of the Company and the provisions of
Article VIII shall  remain  operative  and in full force and effect  unless such
obligations are expressly terminated in a writing executed by all the parties to
this Agreement referencing that individual Section,  regardless of any purported
general termination of this Agreement.

         Section  8.9  Entire  Agreement;   Amendments  and  Waivers;   No  Side
Agreements.  This  Agreement,  including  all  schedules  attached  hereto,  the
exhibits  attached hereto,  the Registration  Rights Agreement and the Warrants,
constitute  the entire  agreement  among the parties  pertaining  to the subject
matter hereof and supersedes all prior agreements, understandings,  negotiations
and discussions,  whether oral or written, of the parties, including the written
summary of proposed  terms between the Company and the  Purchasers.  Capitalized
terms used in the  Schedules but not defined  therein shall have the  respective
meanings ascribed to such terms in this Agreement. There are no other Agreements
by, among or between the Company or its Affiliates,  on the one hand, and any of
the  Purchasers  or their  Affiliates,  on the other hand,  with  respect to the
transactions   contemplated  hereby  nor  promises  or  inducements  for  future
transactions between or among such parties.

         Section 8.10  Acknowledgment.  Each Purchaser hereby  acknowledges that
Petro Capital Advisors, LLC (a) is going to receive a fee in the amount of seven
and  one-half  percent  (7.5%)  of the  aggregate  purchase  price  paid  by the
Purchasers for the Purchased Shares and Warrants hereunder,  such fee to be paid
by the Company in cash at the Closing,  and (b) has client  relationships  with,
and has acted as  financial  advisor  to, the  Company  and certain of the other
Purchasers in  transactions  other than the  transactions  contemplated  by this
Agreement.  Each Purchaser hereby agrees to clauses (a) and (b) above and waives
any and all  conflict of interest  claims such  Purchaser  may have with respect
thereto.  The Company  acknowledges  the affiliate and client  relationships  of
Petro  Capital  Advisors,  LLC, and hereby  waives any claim that Petro  Capital
Advisors,  LLC has a conflict  of  interest or has failed to protect or consider
the Company's interest in connection with the transactions contemplated herein.

         Section 8.11  Counterparts.  This  Agreement  may be executed in one or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same instrument.

         Section  8.12  Invalidity.  In the  event  that  any one or more of the
provisions  contained in this Agreement or in any other  instrument  referred to
herein,  shall, for any reason, be held to be invalid,  illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.

         Section 8.13 Headings. The headings of the Articles and Sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.

                                    * * * * *



                                       31
<PAGE>

         IN WITNESS  WHEREOF,  the undersigned  have caused this Agreement to be
duly  executed  as of the date  and year  first  above  written  and to be bound
hereby.

                                                 CUBIC ENERGY, INC.



                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________






















                                      S-1
<PAGE>

                                                 PURCHASERS:


                                                 LEVY FAMILY PARTNERS, LLC

                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________



                                                 _______________________________
                                                 PATRICK PARKER


                                                 BARGUS PARTNERSHIP


                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________



                                                 _______________________________
                                                 EDWIN J. HAGERTY



                                                 _______________________________
                                                 ALBERT ADRIANI


                                                 PETRO CAPITAL HOLDINGS, LLC



                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________



                                      S-2
<PAGE>

                                                 X-MEN, LLC


                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________


                                                 BARRY S. COHN IRREVOCABLE TRUST


                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________



                                                 _______________________________
                                                 BRUCE GOLDSTEIN













                                      S-3
<PAGE>

                                    Exhibit A

                NAMES, ADDRESSES AND SHARE AMOUNTS OF PURCHASERS

--------------------------------- ----------------- ------------ ---------------
  Purchaser Name and Address      Purchased Shares    Warrant       Purchase
                                                       Shares        Price
--------------------------------- ----------------- ------------ ---------------
Levy Family Partners, LLC
415 N. LaSalle, Suite 700B
Chicago, Illinois 60610              625,000          250,000       $500,000
Facsimile: (312) 245-2805
--------------------------------- ----------------- ------------ ---------------
Patrick Parker
Scarbrough Building
101 W. 6th Street, Suite 610         250,000          100,000       $200,000
Austin, TX  78701
Facsimile: (512) 233-0925
--------------------------------- ----------------- ------------ ---------------
Bargus Partnership
664 South Evergreen Ave.
Woodbury Heights, NJ  08097          187,500           75,000       $150,000
Facsimile: (856) 845-1335
--------------------------------- ----------------- ------------ ---------------
Edwin J. Hagerty
13355 Noel Road, Suite 1400
Dallas, TX 75240                     125,000           50,000       $100,000
Facsimile: (972) 701-3091
--------------------------------- ----------------- ------------ ---------------
Albert Adriani
505 The Lane
Hinsdale, Illinois 60521             125,000           50,000       $100,000
Facsimile: (630) 230-0174
--------------------------------- ----------------- ------------ ---------------
Petro Capital Holdings, LLC
3838 Oak Lawn, Ste. 1775
Dallas, TX 75219                     125,000           50,000       $100,000
Facsimile: 214-661-7760
--------------------------------- ----------------- ------------ ---------------
X-Men, LLC
520 Lake Cook Road, Suite 105
Deerfield, IL  60015                 812,500          325,000       $650,000
Facsimile: (847) 282-5220
--------------------------------- ----------------- ------------ ---------------
Barry S. Cohn Irrevocable Trust
2505 Astor Court
Glenview, IL  60025                  187,500           75,000       $150,000
Facsimile: (847) 564-2808
--------------------------------- ----------------- ------------ ---------------
1934 Deercrest Lane
Northbrook, IL  60062                62,500            25,000       $50,000
Facsimile: (847) 509-9968
--------------------------------- ----------------- ------------ ---------------
TOTAL                               2,500,000        1,000,000     $2,000,000
--------------------------------- ----------------- ------------ ---------------


<PAGE>

                                    Exhibit B

                                     FORM OF
                                ESCROW AGREEMENT



















<PAGE>

                                    Exhibit C

                                     FORM OF
                          REGISTRATION RIGHTS AGREEMENT
















<PAGE>

                                    Exhibit D

                                     FORM OF
                                     WARRANT


















<PAGE>

                                    Exhibit E

                                     FORM OF
                                  LEGAL OPINION


1. Based solely on a recently dated  certificate of existence from the Secretary
of  State  of the  State  of  Texas  and a good  standing  certificate  from the
Comptroller  of Public  Accounts  of the State of Texas,  the Company is validly
existing as a corporation  and in good  standing  under the laws of the State of
Texas.  The Company has all requisite  corporate power to own, lease and operate
its  material  properties  and assets and conduct its  business in all  material
respects as described in the Confidential Private Placement Memorandum.

2.  The  execution  and  delivery  of the  Securities  Purchase  Agreement,  the
Registration  Rights Agreement and the Warrant  (collectively,  the "Transaction
Documents") and the  consummation  by the Company of its obligations  thereunder
have been duly authorized by all necessary  corporate  action on the part of the
Company.

3. Each of the Transaction Documents has been duly executed and delivered by the
Company  and  constitutes  the  valid and  binding  obligation  of the  Company,
enforceable against the Company in accordance with its terms.

4.  The  execution  and  delivery  by the  Company  of each  of the  Transaction
Documents and the  consummation by the Company of its obligations  thereunder do
not result in (a) any  violation  by the  Company of (i) the  provisions  of its
Articles of Incorporation  or Bylaws,  (ii) any provision of applicable law that
we,  based on our  experience,  recognize  as  applicable  to the  Company  in a
transaction  of this type (other than federal and state  securities and blue sky
laws,  as to which we express no opinion  other than as  expressly  set forth in
paragraph 7 below),  or (iii) to our  knowledge,  any order,  writ,  judgment or
decree of any federal,  Texas or Louisiana state court or governmental authority
or regulatory body having  jurisdiction  over the Company or any of its material
properties,  or (b) a breach or default of any material  agreement,  contract or
instrument  known to us to which the Company is a party or by which it is bound.
For  purposes  of  the  foregoing,  we  have  assumed  that  the  only  material
agreements, contracts or instruments to which the Company is a party or by which
it is bound are those  listed as exhibits to the  Company's  most recent  Annual
Report on Form  10-KSB,  any  quarterly  report on Form 10-QSB  filed since such
annual report and any current report on Form 8-K filed since such annual report.

5. The Purchased  Shares have been duly  authorized  and issued,  and constitute
fully paid and non-assessable  shares of Common Stock of the Company, and to our
knowledge,  are free of pre-emptive rights. The Warrant Shares to be issued upon
exercise of the  Warrants  have been duly  authorized  and reserved for issuance
and,  upon the exercise of the  Warrants  and delivery of the Warrant  Shares in
accordance with the terms of the Warrants,  without regard to the  anti-dilution
provisions of the Warrants, and assuming any additional Warrant Shares which are
issuable  based on such  anti-dilution  provisions  have been duly  reserved for
issuance by the Company,  the Warrant Shares will be validly issued,  fully paid
and non-assessable and, to our knowledge, will be free of preemptive rights.




<PAGE>

6. No consent,  approval,  authorization or other action by any federal or Texas
state  governmental  authority  that we, based on our  experience,  recognize as
applicable  to the  Company in a  transaction  of the type  contemplated  by the
Transaction   Documents  is  required  for  the  due  execution,   delivery  and
consummation  by the Company of the Transaction  Documents,  except (i) as would
not reasonably be expected to have a Material Adverse Effect,  (ii) as would not
adversely affect the rights and remedies of holders of the Purchased  Shares, or
(iii) for the filings and other actions  required  pursuant to federal and state
securities or blue sky laws, as to which we express no opinion other than as set
forth in paragraph 7.

7.  Assuming  (i) the  accuracy of the  representations  and  warranties  of the
Company  and  each  of the  Purchasers  set  forth  in the  Securities  Purchase
Agreement, (ii) the due performance by the Company and each of the Purchasers of
the covenants and agreements set forth in the Securities Purchase Agreement, and
(iii)  compliance  by each of the  Purchasers  with the  offering  and  transfer
procedures described in the Confidential Private Placement Memorandum,  based on
current published  interpretations by the staff of the SEC, the offer, issuance,
sale and  delivery of the  Purchased  Shares and  Warrants by the Company to the
Purchasers  under the  circumstances  contemplated  by the  Securities  Purchase
Agreement are exempt from the registration and prospectus delivery  requirements
of the Securities Act.















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                                    Exhibit F

                                  PRESS RELEASE