Document:

Exhibit 10.4

                                     WARRANT
                       TO PURCHASE SHARES OF COMMON STOCK
                                       OF
                               CUBIC ENERGY, INC.

THE  WARRANTS  REPRESENTED  BY THIS  CERTIFICATE  AND THE SHARES OF COMMON STOCK
ISSUABLE  UPON  EXERCISE  OF THIS  WARRANT  HAVE NOT BEEN  REGISTERED  UNDER THE
SECURITIES  ACT OF 1933 (THE  "ACT"),  NOR HAS IT BEEN  APPROVED  BY THE  UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITY
OF ANY STATE. NEITHER THESE WARRANTS NOR ANY INTEREST THEREIN MAY BE OFFERED FOR
SALE, SOLD, MORTGAGED, PLEDGED, TRANSFERRED,  HYPOTHECATED OR OTHERWISE DISPOSED
OF WITHOUT REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL  ACCEPTABLE  TO THE  COMPANY  THAT SUCH  REGISTRATION  IS NOT
REQUIRED.

No. 10                                Warrant to Purchase 1,833,334 Shares
February 6, 2006                      of Common Stock, $0.05 Par Value Per Share

                        WARRANT TO PURCHASE COMMON STOCK
                                       of
                               CUBIC ENERGY, INC.,
                               a Texas corporation
           Void after the date set forth in the first paragraph hereof

         This certifies that, for value received,  Petro Capital V, L.P., or its
registered assigns ("Holder") is entitled, subject to the terms set forth below,
to purchase  from Cubic  Energy,  Inc.,  a Texas  corporation  (the  "Company"),
1,833,334  shares of Common  Stock,  $0.05 par value per share,  of the  Company
(such class of stock being referred to herein as "Common Stock"), as constituted
on  February 6, 2006 (the  "Issue  Date"),  upon  compliance  with the  exercise
provisions  set forth in Section 1 hereof,  at the price of $1.00 per share (the
"Exercise  Price").  This Warrant  must be  exercised,  if at all,  prior to the
earlier  to occur of 5:00 p.m.,  Dallas,  Texas time on  February  6, 2011.  The
shares of Common  Stock  issued or issuable  upon  exercise of this  Warrant are
sometimes  referred to as the  "Warrant  Shares."  The term  "Warrants"  as used
herein shall include this Warrant and any warrants  delivered in substitution or
exchange therefor as provided herein.

<PAGE>

         Section 1. Exercise of Warrant.

         (a) This Warrant may be exercised at any time or from time to time,  on
any business  day, for all or part of the full number of Warrant  Shares  during
the period of time described above, by (i) delivery of a written notice,  in the
form of the  subscription  notice  attached  hereto  or a  reasonable  facsimile
thereof  (the  "Exercise  Notice"),  to the  Company,  of  Holder's  election to
exercise all or a portion of this Warrant, which notice shall specify the number
of Warrant Shares to be purchased,  (ii) (A) payment to the Company of an amount
equal to the Exercise  Price  multiplied  by the number of Warrant  Shares as to
which this Warrant is being exercised (the "Aggregate  Exercise  Price") in cash
or  delivery  of a  certified  check or bank  draft  payable to the order of the
Company or wire transfer of immediately  available funds or (B)  notification to
the Company that this Warrant is being exercised pursuant to a Cashless Exercise
(as defined in Section 1(b) of this  Warrant),  and (iii) the  surrender of this
Warrant to a common  carrier for  overnight  delivery to the Company on the date
the Exercise Notice is delivered to the Company (or evidence of lost Warrant, in
accordance with Section 7). No other form of  consideration  shall be acceptable
for the  exercise  of this  Warrant.  A  Warrant  shall be  deemed  to have been
exercised  immediately prior to the close of business on the date of delivery of
the Exercise  Notice,  this Warrant and Aggregate  Exercise Price referred to in
clause  (ii)(A)  above or  notification  to the  Company of a Cashless  Exercise
referred to in Section 1(b) of this Warrant,  and the person entitled to receive
the shares of Common Stock  issuable upon such exercise shall be treated for all
purposes as the record holder of such shares as of the close of business on such
date. As soon as  practicable  on or after such date, and in any event within 10
days  thereof,  the  Company  shall  issue and  deliver to the person or persons
entitled to receive the same a  certificate  or  certificates  for the number of
shares of Common Stock issuable upon such exercise.  Upon any partial  exercise,
the Company  will issue and deliver to Holder a new Warrant  with respect to the
Warrant Shares not previously  purchased.  No fractional  shares of Common Stock
shall be issued upon exercise of a Warrant.  In lieu of any fractional  share to
which Holder would be entitled upon  exercise,  the Company shall pay cash equal
to the product of such fraction multiplied by the then current fair market value
of one share of Common Stock, as determined in good faith by the Company.

         (b) Notwithstanding  anything contained herein to the contrary,  Holder
may, at its election exercised in its sole discretion,  exercise this Warrant as
to all or a portion  of the  Warrant  Shares  and,  in lieu of  making  the cash
payment  otherwise  contemplated to be made to the Company upon such exercise in
payment of the  Aggregate  Exercise  Price,  elect  instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined  according to the
following formula (a "Cashless Exercise"):

                  Net Number =  (A x B) - (A x C)
                                -----------------
                                        B

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                  For purposes of the foregoing formula:

                  A=       the total number of shares with respect to which this
                           Warrant is then being exercised.

                  B=       the  closing  sale price of the  Common  Stock on the
                           trading  day  immediately  preceding  the date of the
                           Exercise Notice.

                  C=       the Exercise  Price then in effect for the applicable
                           Warrant Shares at the time of such exercise.

         Section 2. Payment of Taxes. All shares of Common Stock issued upon the
exercise of a Warrant shall be duly authorized,  validly issued and outstanding,
fully paid and non-assessable. Holder shall pay all taxes and other governmental
charges that may be imposed in respect of the issue or delivery  thereof and any
tax or other charge  imposed in  connection  with any  transfer  involved in the
issue of any  certificate for shares of Common Stock in any name other than that
of the  registered  Holder of the Warrant  surrendered  in  connection  with the
purchase of such shares,  and in such case the Company  shall not be required to
issue or deliver any stock  certificate  until such tax or other charge has been
paid or it has been  established  to the Company's  satisfaction  that no tax or
other charge is due.

         Section 3. Transfer and Exchange. Subject to the restrictions set forth
in Section 10(a)(iv), this Warrant and all rights hereunder are transferable, in
whole or in part.  This  Warrant  is  transferable  on the books of the  Company
maintained  for such purpose at its  principal  office by Holder in person or by
duly authorized  attorney,  upon surrender of this Warrant properly endorsed and
upon payment of any necessary transfer tax or other governmental  charge imposed
upon such transfer.  Each taker and holder of this Warrant, by taking or holding
the same,  consents and agrees that this Warrant,  when endorsed in blank, shall
be deemed negotiable and that when this Warrant shall have been so endorsed, the
Holder hereof may be treated by the Company and all other  persons  dealing with
this  Warrant as the  absolute  owner  hereof for any  purpose and as the person
entitled to exercise the rights  represented hereby or to the transfer hereof on
the books of the Company, any notice to the contrary notwithstanding;  but until
such transfer on such books, the Company may treat the registered  Holder hereof
as the owner for all purposes.

         Section 4. Certain Adjustments.

         (a) In order to prevent dilution of the rights granted  hereunder,  the
Exercise  Price shall be subject to  adjustment  from time to time in accordance
with this  Section 4. For purposes of this Section 4, the term "Number of Common
Shares Deemed  Outstanding" at any given time shall mean the number of shares of
Common Stock  outstanding at such time on a fully diluted  basis,  including all
options,  warrants and securities convertible into or exchangeable for shares of
Common Stock and, without duplication,  the number of shares of the Common Stock
deemed to be outstanding  under paragraphs  4(b)(1) to (9),  inclusive,  at such

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<PAGE>

time, and excluding (i) any default warrants issued pursuant to the transactions
contemplated by the  Confidential  Private  Placement  Memorandum of the Company
dated as of November 8, 2005,  and (ii) the issuance,  at any time prior to June
2,  2007,  of up to  1,500,000  shares of Common  Stock (as  adjusted  for stock
splits,  reverse  stock  splits and stock  dividends)  issuable as  equity-based
compensation  to certain  of the  Company's  directors,  executive  officers  or
employees under the Company's 2005 Stock Option Plan.

         (b) Except as provided in Section  4(c),  4(d) or 4(e)  hereof,  if and
whenever  after the date  hereof the Company  shall  issue or sell,  or shall in
accordance with paragraphs 4(b)(1) to (9),  inclusive,  be deemed to have issued
or sold any shares of its Common Stock for a  consideration  per share less than
the Current Market Price in effect  immediately  prior to the time of such issue
or sale, then forthwith upon such issue or sale (the "Triggering  Transaction"),
the Exercise Price shall, subject to paragraphs (1) to (9) of this Section 4(b),
be reduced to an adjusted Exercise Price (calculated to the nearest hundredth of
a cent) determined by multiplying the Exercise Price  immediately  preceding the
new share issuance by a fraction:

                  (i) the numerator of which shall be an amount equal to the sum
         of (x) the Number of Common Shares Deemed Outstanding immediately prior
         to  such   Triggering   Transaction   plus  (y)  the  quotient  of  the
         consideration, if any, received by the Company upon consummation of the
         Triggering  Transaction divided by the Current Market Price immediately
         prior to the time of such issue or sale; and

                  (ii) the  denominator  of which  shall be the Number of Common
         Shares  Deemed   Outstanding   immediately  prior  to  such  Triggering
         Transaction  plus (y) the number of shares of Common  Stock  issued (or
         deemed to be issued in accordance  with  paragraphs  4(b)(1) to (9)) in
         connection with the Triggering Transaction.

         "Current Market Price" on any date specified herein,  means the average
daily Market Price during the period of the most recent 20 consecutive  business
days,  ending on the business day  immediately  prior to such date, on which the
national  securities  exchanges were open for trading,  except that if no Common
Stock is then listed or admitted to trading on any national  securities exchange
or quoted in the over-the-counter  market, the Current Market Price shall be the
Market Price on such date.  "Market Price" on any date specified  herein,  means
the amount per share of the  Common  Stock,  equal to (a) the last sale price of
such Common Stock,  regular way, on such date or, if no such sale takes place on
such date, the average of the closing bid and asked prices thereof on such date,
in  each  case as  officially  reported  on the  principal  national  securities
exchange  on which such Common  Stock is then listed or admitted to trading,  or
(b) if such  Common  Stock is not then  listed or  admitted  to  trading  on any
national  securities  exchange but is  designated  as a national  market  system
security by the NASD,  the last trading  price of the Common Stock on such date,
or (c) if there  shall have been no trading on such date or if the Common  Stock

                                      -4-
<PAGE>

is not so  designated,  the average of the  closing bid and asked  prices of the
Common  Stock on such date as shown by the NASD  automated  quotation  system or
over-the-counter  market,  or (d) if such  Common  Stock is not then  listed  or
admitted to trading on any national  exchange or quoted in the  over-the-counter
market,  the  fair  value  thereof  determined  in good  faith  by the  Board of
Directors  of the Company as of a date which is within 20 days of the date as of
which the determination is to be made.

         For  purposes of  determining  the adjusted  Exercise  Price under this
Section  4(b),  the  following  paragraphs  (1)  to  (9),  inclusive,  shall  be
applicable:

                  (1) In case the Company at any time shall in any manner  grant
         (whether directly or by assumption in a merger or otherwise) any rights
         to subscribe  for or to  purchase,  or any options for the purchase of,
         Common  Stock  or any  stock or other  securities  convertible  into or
         exchangeable  for Common Stock other than  options (and the  securities
         issued in exercise  thereof)  with respect to the  3,750,000  shares of
         Common Stock (as adjusted for stock  splits,  reverse  stock splits and
         stock dividends) issuable under the Company's 2005 Stock Option Plan so
         long as the option price on the initial date of grant equals or exceeds
         the then  Current  Market  Price (such  rights or options  being herein
         called  "Options"  and  such  convertible  or  exchangeable   stock  or
         securities being herein called  "Convertible  Securities"),  whether or
         not  such  Options  or the  right  to  convert  or  exchange  any  such
         Convertible  Securities are  immediately  exercisable and the price per
         share for which the Common Stock is issuable upon exercise,  conversion
         or exchange  (determined  by  dividing  (x) the total  amount,  if any,
         received or receivable by the Company as consideration for the granting
         of such  Options,  plus the  minimum  aggregate  amount  of  additional
         consideration  payable to the  Company  upon the  exercise  of all such
         Options,  plus, in the case of such Options which relate to Convertible
         Securities,  the minimum aggregate amount of additional  consideration,
         if any, payable upon the issue or sale of such  Convertible  Securities
         and upon the conversion or exchange  thereof,  by (y) the total maximum
         number of shares of Common  Stock  issuable  upon the  exercise of such
         Options or the conversion or exchange of such  Convertible  Securities)
         shall be less than the Exercise  Price in effect  immediately  prior to
         the time of the granting of such Option,  then the total maximum amount
         of Common  Stock  issuable  upon the exercise of such Options or in the
         case of Options for  Convertible  Securities,  upon the  conversion  or
         exchange  of  such  Convertible  Securities  shall  (as of the  date of
         granting of such Options) be deemed to be outstanding  and to have been
         issued and sold by the Company for such price per share.  No adjustment
         of the  Exercise  Price  shall be made  upon the  actual  issue of such
         shares of Common Stock or such Convertible Securities upon the exercise
         of such Options, except as otherwise provided in paragraph (3) below.

                  (2) In case the Company at any time shall in any manner  issue
         (whether  directly or by  assumption  in a merger or otherwise) or sell
         any  Convertible  Securities,  whether or not the rights to exchange or
         convert thereunder are immediately exercisable, and the price per share

                                      -5-
<PAGE>

         for which Common  Stock is issuable  upon such  conversion  or exchange
         (determined by dividing (x) the total amount  received or receivable by
         the Company as consideration  for the issue or sale of such Convertible
         Securities,   plus  the   minimum   aggregate   amount  of   additional
         consideration,  if any,  payable to the Company upon the  conversion or
         exchange  thereof,  by (y) the total maximum number of shares of Common
         Stock issuable upon the conversion or exchange of all such  Convertible
         Securities) shall be less than the Exercise Price in effect immediately
         prior to the time of such issue or sale,  then the total maximum number
         of shares of Common Stock  issuable upon  conversion or exchange of all
         such Convertible  Securities shall (as of the date of the issue or sale
         of such Convertible Securities) be deemed to be outstanding and to have
         been  issued  and sold by the  Company  for such  price per  share.  No
         adjustment of the Exercise Price shall be made upon the actual issue of
         such  Common  Stock upon  exercise of the rights to exchange or convert
         under such  Convertible  Securities,  except as  otherwise  provided in
         paragraph (3) below.

                  (3) If the purchase price provided for in any Options referred
         to in paragraph (1), the additional consideration, if any, payable upon
         the conversion or exchange of any Convertible Securities referred to in
         paragraphs (1) or (2), or the rate at which any Convertible  Securities
         referred  to  in  paragraphs  (1)  or  (2)  are  convertible   into  or
         exchangeable  for Common  Stock  shall  change at any time  (other than
         under or by reason of provisions  designed to protect against  dilution
         of the type set forth in Section 4(d)), the Exercise Price in effect at
         the time of such change shall  forthwith be  readjusted to the Exercise
         Price which would have been in effect at such time had such  Options or
         Convertible  Securities  still  outstanding  provided  for such changed
         purchase price,  additional  consideration  or conversion  rate, as the
         case may be, at the time initially granted, issued or sold.

                  (4) On the expiration of any Option or the  termination of any
         right to convert or exchange any Convertible  Securities,  the Exercise
         Price then in effect  hereunder  shall  forthwith  be  increased to the
         Exercise  Price  which  would  have  been in effect at the time of such
         expiration or termination had such Option or Convertible Securities, to
         the  extent  outstanding   immediately  prior  to  such  expiration  or
         termination, never been issued.

                  (5) In case any Options shall be issued in connection with the
         issue or sale of other securities of the Company,  together  comprising
         one  integral  transaction  in  which  no  specific   consideration  is
         allocated to such Options by the parties thereto, such Options shall be
         deemed to have been issued without consideration.

                                      -6-
<PAGE>

                  (6) In case any shares of Common Stock, Options or Convertible
         Securities  shall be issued  or sold or  deemed to have been  issued or
         sold for cash, the  consideration  received therefor shall be deemed to
         be the amount received by the Company  therefor.  In case any shares of
         Common Stock, Options or Convertible Securities shall be issued or sold
         for a  consideration  other than cash, the amount of the  consideration
         other than cash received by the Company shall be the fair value of such
         consideration as determined in good faith by the Board of Directors. In
         case any  shares of Common  Stock,  Options or  Convertible  Securities
         shall be issued in  connection  with any merger in which the Company is
         the surviving  corporation,  the amount of consideration therefor shall
         be deemed to be the fair  value of such  portion  of the net assets and
         business of the  non-surviving  corporation as shall be attributable to
         such Common Stock, Options or Convertible  Securities,  as the case may
         be as determined in good faith by the Board of Directors.

                  (7) The number of shares of Common  Stock  outstanding  at any
         given time shall not include shares owned or held by or for the account
         of the  Company,  and the  disposition  of any  shares so owned or held
         shall be considered an issue or sale of Common Stock for the purpose of
         this Section 4(b).

                  (8) In case the Company  shall  declare a dividend or make any
         other  distribution upon the stock of the Company payable in Options or
         Convertible  Securities,  then in such case any Options or  Convertible
         Securities, as the case may be, issuable in payment of such dividend or
         distribution  shall be  deemed  to have  been  issued  or sold  without
         consideration.

                  (9) For  purposes of this  Section  4(b),  in case the Company
         shall take a record of the holders of its Common  Stock for the purpose
         of  entitling  them (x) to  receive a  dividend  or other  distribution
         payable in Common Stock, Options or in Convertible  Securities,  or (y)
         to  subscribe  for or purchase  Common  Stock,  Options or  Convertible
         Securities, then such record date shall be deemed to be the date of the
         issue or sale of the shares of Common  Stock deemed to have been issued
         or sold upon the  declaration  of such  dividend  or the making of such
         other  distribution  or the  date  of the  granting  of such  right  or
         subscription or purchase, as the case may be.

         (c) In the event the Company  shall  declare a dividend upon the Common
Stock (other than a dividend payable in Common Stock) payable otherwise than out
of earnings or earned surplus,  determined in accordance with generally accepted
accounting  principles,  including  the  making of  appropriate  deductions  for
minority interests,  if any, in subsidiaries (herein referred to as "Liquidating
Dividends"),  then, as soon as possible after the exercise of this Warrant,  the
Company shall pay to the person  converting  this Warrant an amount equal to the
aggregate  value at the time of such  exercise of all  Liquidating  Dividends to
which such holder  would have been  entitled if such holder had  converted  this

                                      -7-
<PAGE>

Warrant to Common Stock prior to the declaration of the  Liquidating  Dividends,
at the then applicable  Exercise Price. For the purposes of this Section 4(c), a
dividend  other than in cash shall be  considered  payable  out of  earnings  or
earned  surplus  only to the extent  that such  earnings  or earned  surplus are
charged an amount equal to the fair value of such dividend as determined in good
faith by the Board of Directors.

         (d) In case the Company shall at any time (i) subdivide the outstanding
Common Stock or (ii) issue a dividend on its outstanding Common Stock payable in
shares of Common  Stock,  the  number of shares of Common  Stock  issuable  upon
exercise of the Warrant shall be proportionately  increased by the same ratio as
the subdivision or dividend (with appropriate  adjustments to the Exercise Price
in  effect  immediately  prior to such  subdivision  or  dividend).  In case the
Company shall at any time combine its  outstanding  Common Stock,  the number of
shares  issuable  upon  exercise  of  this  Warrant  immediately  prior  to such
combination  shall  be  proportionately  decreased  by  the  same  ratio  as the
combination  (with  appropriate  adjustments  to the  Exercise  Price in  effect
immediately prior to such combination).

         (e) If any capital  reorganization or  reclassification  of the capital
stock of the  Company,  or  consolidation  or merger of the Company with another
corporation,  or the sale of all or  substantially  all of its assets to another
corporation  shall be effected in such a way that  holders of Common Stock shall
be entitled to receive stock, securities, cash or other property with respect to
or in exchange for Common Stock,  then,  as a condition of such  reorganization,
reclassification,  consolidation,  merger or sale, lawful and adequate provision
shall be made  whereby  the  holders  of this  Warrant  shall  have the right to
acquire  and  receive  upon  exercise  of the  Warrant  such  shares  of  stock,
securities,  cash  or  other  property  issuable  or  payable  (as  part  of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange  for such number of  outstanding  shares of Common Stock as would
have been received upon exercise of the Warrant at the relevant  Exercise  Price
then in effect.  The Company will not effect any such  consolidation,  merger or
sale,  unless prior to or  contemporaneously  with the consummation  thereof the
successor   corporation  (if  other  than  the  Company)   resulting  from  such
consolidation  or merger or the Company  purchasing  such assets shall assume by
written instrument mailed or delivered to the holders of the Warrant at the last
address  of  each  such  holder  appearing  on the  books  of the  Company,  the
obligation  to deliver to each such holder such shares of stock,  securities  or
assets as, in  accordance  with the  foregoing  provisions,  such  holder may be
entitled to purchase.

         (f) In the event that:

                  (1) The  Company  shall  declare  any cash  dividend  upon its
         Common Stock, or

                  (2) The Company  shall  declare any  dividend  upon its Common
         Stock  payable  in  stock  or  make  any  special   dividend  or  other
         distribution to the holders of its Common Stock, or

                                      -8-
<PAGE>

                  (3) The Company shall offer for  subscription  pro rata to the
         holders of its Common Stock any additional shares of stock of any class
         or other rights, or

                  (4)   there   shall   be   any   capital   reorganization   or
         reclassification  of the capital  stock of the Company,  including  any
         subdivision or combination of its  outstanding  shares of Common Stock,
         or  consolidation  or merger  of the  Company  with,  or sale of all or
         substantially all of its assets to, another corporation, or

                  (5) there shall be a  voluntary  or  involuntary  dissolution,
         liquidation or winding up of the Company;

         then,  in  connection  with such event,  the Company  shall give to the
holders of this Warrant:

                  (i) at least 20 days prior written notice of the date on which
         the books of the  Company  shall  close or a record  shall be taken for
         such dividend,  distribution or subscription  rights or for determining
         rights to vote in respect of any such reorganization, reclassification,
         consolidation,  merger, sale,  dissolution,  liquidation or winding up;
         and

                  (ii) in the case of any such reorganization, reclassification,
         consolidation, merger, sale, dissolution, liquidation or winding up, at
         least 20 days prior written notice of the date when the same shall take
         place.

         Such  notice in  accordance  with the  foregoing  clause (i) shall also
specify, in the case of any such dividend,  distribution or subscription rights,
the date on which the holders of Common  Stock shall be  entitled  thereto,  and
such notice in accordance with the foregoing  clause (ii) shall also specify the
date on which the holders of Common  Stock  shall be entitled to exchange  their
Common  Stock  for   securities  or  other   property   deliverable   upon  such
reorganization,  reclassification,  consolidation,  merger,  sale,  dissolution,
liquidation or winding up, as the case may be. Each such written notice shall be
given by first class mail,  postage  prepaid,  addressed  to the holders of this
Warrant at the address of each such holder as shown on the books of the Company.

         (g) If at any  time or from  time to time  after  the date  hereof  the
Company shall grant, issue or sell any Options, Convertible Securities or rights
to purchase  property (the "Purchase  Rights") pro rata to the record holders of
any class of Common Stock and such  grants,  issuances or sales do not result in
an adjustment of the Exercise Price under Section 4(b) hereof,  then each holder
of a Warrant  shall be  entitled to acquire  (within  thirty (30) days after the
later to occur of the initial  exercise date of such Purchase  Rights or receipt
by such  holder of the notice  concerning  Purchase  Rights to which such holder
shall be entitled under Section 4(g)) upon the terms applicable to such Purchase
Rights either:

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<PAGE>

                  (i) the aggregate Purchase Rights which such holder could have
         acquired if it had held the number of shares of Common Stock acquirable
         upon exercise of the Warrant immediately before the grant,  issuance or
         sale of such Purchase Rights; provided that if any Purchase Rights were
         distributed   to  holders  of  Common  Stock  without  the  payment  of
         additional consideration by such holders, corresponding Purchase Rights
         shall be distributed to the holders of the Warrants as soon as possible
         and it shall not be necessary for the exercising holder of the Warrants
         specifically to request delivery of such rights; or

                  (ii) in the event  that any such  Purchase  Rights  shall have
         expired or shall  expire  prior to the end of said 30 day  period,  the
         number of shares of Common  Stock or the amount of property  which such
         holder could have  acquired  upon such exercise at the time or times at
         which the Company granted, issued or sold such expired Purchase Rights.

         (h) If any event  occurs as to which,  in the  opinion  of the Board of
Directors  of the  Company,  the  provisions  of this Section 6 are not strictly
applicable or if strictly  applicable would not fairly protect the rights of the
holders of the Warrants in accordance  with the essential  intent and principles
of such provisions,  then the Board of Directors shall make an adjustment in the
application of such  provisions,  in accordance  with such essential  intent and
principles, so as to protect such rights as aforesaid, but in no event shall any
adjustment  have the  effect  of  increasing  the  Exercise  Price as  otherwise
determined  pursuant to any of the  provisions  of this  Section 4 except in the
case of a combination  of shares of a type  contemplated  in Section 4(d) hereof
and then in no event to an amount  larger  than the  Exercise  Price as adjusted
pursuant to Section 4(d) hereof.

         Section 5. Reorganization,  Reclassification,  Merger, Consolidation or
Disposition of Assets.  If the Company shall reorganize its capital,  reclassify
its capital  stock,  consolidate  or merge with or into another  corporation  or
entity (where the Company is not the surviving  corporation  or where there is a
change in or  distribution  with  respect to the  shares of Common  Stock of the
Company) or sell,  transfer or otherwise dispose of all or substantially all its
property,  assets or  business  to another  corporation  or other  entity  (such
successor or acquiring  corporation  or entity,  an  "Acquiring  Entity"),  and,
pursuant  to  the  terms  of  such  reorganization,   reclassification,  merger,
consolidation or disposition of assets,  common shares of the Acquiring  Entity,
or any cash,  shares of stock or other  securities  or  property  of any  nature
whatsoever  (including  warrants or other  subscription  or purchase  rights) in
addition  to or in  lieu  of  common  shares  of the  Acquiring  Entity  ("Other
Property"),  are to be received by or distributed to the holders of Common Stock
of the Company,  then the holder of this Warrant shall have the right thereafter
to  receive in lieu of the Common  Stock  described  in Section 1, the number of
shares of common stock of the  Acquiring  Entity or Common Stock of the Company,
if it is the surviving  corporation,  and Other Property receivable upon or as a
result  of  such  reorganization,  reclassification,  merger,  consolidation  or
disposition  of assets by a holder of the number of shares of Common  Stock that

                                      -10-
<PAGE>

the Holder of this  Warrant  would have owned or been  entitled  to receive  had
Common Stock been issued to such Holder under Section 1 on full exercise of this
Warrant  immediately  prior to such event.  In case of any such  reorganization,
reclassification,  merger, consolidation or disposition of assets, the Acquiring
Entity (if other than the Company) shall  expressly  assume all the  obligations
and liabilities of the Company  hereunder,  subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the board of
directors  of the  Company)  in order to provide  for  adjustments  of shares of
Common Stock  issuable  under  Section 1 which shall be as nearly  equivalent as
practicable to the  adjustments  provided for in Section 4. For purposes of this
Section 5, "common shares of the Acquiring Entity" shall include shares or other
ownership interests of such Acquiring Entity of any class which is not preferred
as to  dividends  or  assets  over any other  class of stock or other  ownership
interests of such  Acquiring  Entity and which is not subject to redemption  and
shall also include any  evidences of  indebtedness,  shares or other  securities
which  are  convertible  into or  exchangeable  for any  such  shares  or  other
ownership interests,  either immediately or upon the arrival of a specified date
or the  happening  of a  specified  event and any  warrants  or other  rights to
subscribe  for or  purchase  any such stock or other  ownership  interests.  The
foregoing  provisions  of this  Section 4 shall  similarly  apply to  successive
reorganizations,   reclassifications,  mergers,  consolidations,  spin-offs,  or
dispositions of assets.

         Section 6. Certain Notices,  Etc.  Whenever the Exercise Price shall be
adjusted as provided in Section 4 hereof,  the Company shall  forthwith  file at
each office designated for the exercise of Warrants, a statement,  signed by the
Chairman of the Board,  the  President,  any Vice  President or Treasurer of the
Company,  showing in reasonable  detail the facts  requiring such adjustment and
the Exercise  Price that will be effective  after such  adjustment.  The Company
shall also cause a notice setting forth any such adjustments to be sent by mail,
first class,  postage prepaid,  to each record holder of a Warrant at his or its
address appearing on the stock register. If such notice relates to an adjustment
resulting from an event referred to in Section 4(f) hereof, such notice shall be
included  as part of the notice  required to be mailed and  published  under the
provisions of Section 4(f) hereof.

         Section 7. Loss or Mutilation.  Upon receipt by the Company of evidence
satisfactory  to it (in the exercise of reasonable  discretion) of the ownership
of and the loss,  theft,  destruction  or  mutilation of any Warrant and (in the
case of loss,  theft or  destruction)  of indemnity  satisfactory  to it (in the
exercise  of  reasonable  discretion),  and (in the  case  of  mutilation)  upon
surrender and cancellation thereof, the Company will execute and deliver in lieu
thereof a new Warrant of like tenor.

         Section 8.  Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its  authorized but unissued  shares of Common
Stock,  solely for the purpose of effecting  the  exercise of the Warrant,  such
number of its shares of Common Stock as shall from time to time be sufficient to
effect exercise of the Warrant;  and if at any time the number of authorized but

                                      -11-
<PAGE>

unissued shares of Common Stock shall not be sufficient to effect such exercise,
the  Company  will take such  corporate  action as may,  in the  opinion  of its
counsel,  be necessary to increase its authorized but unissued  shares of Common
Stock to such number of shares as shall be sufficient  for such purpose.  Before
taking any action that would cause an  adjustment  reducing the  Exercise  Price
below the then par value of the shares of Common Stock issuable upon exercise of
the  Warrants,  the  Company  will take any  corporate  action  that may, in the
opinion of its  counsel,  be necessary in order that the Company may validly and
legally issue fully-paid and  nonassessable  shares of such Common Stock at such
adjusted exercise price.

         Section 9.  Notices of Record  Date.  In the event of (i) any taking by
the  Company  of a record  of the  holders  of any class of  securities  for the
purpose of  determining  the  holders  thereof  who are  entitled to receive any
dividend  or other  distribution,  or (ii)  any  capital  reorganization  of the
Company,  any  reclassification  or recapitalization of the capital stock of the
Company,  any  merger or  consolidation  of the  Company  with or into any other
corporation (other than a merger of a wholly owned subsidiary into the Company),
or any transfer of all or substantially  all of the assets of the Company to any
other person or any voluntary or involuntary dissolution, liquidation or winding
up of the Company, the Company shall provide to the Holder, at least twenty (20)
days prior to the record date  specified  therein,  a notice  specifying (1) the
date on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date on
which  any  such  reorganization,   reclassification,  transfer,  consolidation,
merger, dissolution,  liquidation or winding up is expected to become effective,
and (3) the date, if any, that is to be fixed,  as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of  Common  Stock  (or  other  securities)  for  securities  or  other  property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.

         Section 10. Investment Representation and Restriction on Transfer.

         (a) Securities Law Requirements.

                  (i)  By  its   acceptance  of  this  Warrant,   Holder  hereby
         represents  and  warrants  to the  Company  that this  Warrant  and the
         Warrant Shares will be acquired for investment for its own account, not
         as a nominee or agent,  and not with a view to the sale or distribution
         of any part thereof,  and that it has no present  intention of selling,
         granting  participations  in or  otherwise  distributing  the same.  By
         acceptance of this Warrant, Holder further represents and warrants that
         it does not have any contract,  undertaking,  agreement or  arrangement
         with any  person  to sell,  transfer  or  grant  participations  to any
         person, with respect to this Warrant or the Warrant Shares.

                                      -12-
<PAGE>

                  (ii) By its  acceptance  of this Warrant,  Holder  understands
         that  this  Warrant  is  not,  and  the  Warrant  Shares  will  not be,
         registered  under the Securities Act, on the basis that the issuance of
         this Warrant and the Warrant Shares are exempt from registration  under
         the Act  pursuant  to  Section  4(2)  thereof,  and that the  Company's
         reliance on such  exemption is predicated  on Holder's  representations
         and warranties set forth herein.

                  (iii) By its  acceptance of this Warrant,  Holder  understands
         that the Warrant and the Warrant  Shares may not be sold,  transferred,
         or  otherwise  disposed  of without  registration  under the Act, or an
         exemption   therefrom,   and  that  in  the  absence  of  an  effective
         registration  statement  covering the Warrant and the Warrant Shares or
         an available exemption from registration under the Act, the Warrant and
         the Warrant Shares must be held indefinitely.  In particular, Holder is
         aware that the Warrant and the Warrant  Shares may not be sold pursuant
         to Rule 144  promulgated  under the Act unless all of the conditions of
         Rule 144 are  satisfied.  Among the  conditions for use of Rule 144 are
         the  availability  of  current  information  about the  Company  to the
         public,  prescribed  holding  periods  which  will  commence  only upon
         Holder's  payment  for  the  securities  being  sold,  manner  of  sale
         restrictions, volume limitations and certain other restrictions. By its
         acceptance of this Warrant, Holder represents and warrants that, in the
         absence of an effective  registration statement covering the Warrant or
         the Warrant Shares, it will sell,  transfer or otherwise dispose of the
         Warrant and the Warrant  Shares  only in a manner  consistent  with its
         representations  and  warranties  set  forth  herein  and then  only in
         accordance with the provisions of Section 10(a)(iv).

                  (iv) By its acceptance of this Warrant,  Holder agrees that in
         no event will it  transfer  or dispose  of any of the  Warrants  or the
         Warrant  Shares  other  than  pursuant  to  an  effective  registration
         statement  under  the Act,  unless  and  until (i)  Holder  shall  have
         notified  the  Company  of the  proposed  disposition  and  shall  have
         furnished the Company with a statement of the circumstances surrounding
         the disposition,  and (ii) if requested by the Company,  at the expense
         of the Holder or transferee,  it shall have furnished to the Company an
         opinion of counsel,  reasonably  satisfactory  to the  Company,  to the
         effect that (A) such  transfer may be made without  registration  under
         the Act and (B)  such  transfer  or  disposition  will  not  cause  the
         termination   or  the   non-applicability   of  any  exemption  to  the
         registration and prospectus delivery  requirements of the Act or to the
         qualification  or  registration  requirements of the securities laws of
         any other  jurisdiction  on which the  Company  relied in  issuing  the
         Warrant or the Warrant Shares.

                  (v) Holder  represents  and warrants that it is an "accredited
         investor" as defined in Rule 501 of Regulation D promulgated  under the
         Securities Act.

         (b) Legends; Stop Transfer.

                                      -13-
<PAGE>

                  (i) All certificates  evidencing the Warrant Shares shall bear
         a legend in substantially the following form:

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE  SECURITIES ACT OF 1933 OR UNDER ANY STATE  SECURITIES  LAWS.
         THESE  SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
         TO  DISTRIBUTION  AND MAY NOT BE  OFFERED  FOR SALE,  SOLD,  PLEDGED OR
         OTHERWISE  TRANSFERRED  IN THE  ABSENCE  OF AN  EFFECTIVE  REGISTRATION
         STATEMENT  FOR SUCH  SECURITIES  UNDER THE  SECURITIES  ACT OF 1933 AND
         APPLICABLE  STATE  SECURITIES LAWS OR AN OPINION OF COUNSEL  REASONABLY
         SATISFACTORY  IN FORM AND CONTENT TO THE ISSUER THAT SUCH  REGISTRATION
         IS NOT REQUIRED UNDER SUCH ACT.

                  (ii) The certificates evidencing the Warrant Shares shall also
         bear any legend required by any applicable state securities law.

                  (iii) In  addition,  the  Company  shall  make,  or cause  its
         transfer agent to make, a notation regarding the transfer  restrictions
         of the  Warrant  and the  Warrant  Shares in its stock  books,  and the
         Warrant and the Warrant Shares shall be transferred on the books of the
         Company  only  if   transferred   or  sold  pursuant  to  an  effective
         registration  statement  under the  Securities Act covering the same or
         pursuant  to and in  compliance  with the  provisions  of Section 4 and
         Section 10(a)(iv).

         Section 11.  Notices.  All notices  and other  communications  from the
Company  to the  Holder of this  Warrant  shall be mailed by hand  delivery,  by
telecopier,  by courier guaranteeing  overnight delivery or by first-class mail,
return  receipt  requested,  and shall be deemed given (i) when made, if made by
hand delivery,  (ii) upon  confirmation,  if made by  telecopier,  (iii) one (1)
Business  Day after being  deposited  with such  courier,  if made by  overnight
courier  or (iv) on the date  indicated  on the  notice of  receipt,  if made by
first-class mail.

         Section 12.  Change;  Waiver.  Neither this Warrant nor any term hereof
may be  changed,  waived,  discharged  or  terminated  orally,  but  only  by an
instrument  in writing  signed by the party  against  which  enforcement  of the
change, waiver, discharge or termination is sought.

         Section 13. Headings.  The headings in this Warrant are for purposes of
convenience  in  reference  only,  and shall not be deemed to  constitute a part
hereof.

         Section 14. Governing Law. This Warrant shall be construed and enforced
in  accordance  with  and  governed  by the  internal  laws,  and not the law of
conflicts, of the State of Texas.

                                      -14-
<PAGE>

                                         CUBIC ENERGY, INC.,
                                         a Texas corporation
                                         By:       /s/ Calvin Wallen, III
                                                   -----------------------------
                                         Name:     Calvin Wallen, III
                                                   -----------------------------
                                         Title:    Chief Executive Officer
                                                   -----------------------------

                                      -15-
<PAGE>

                               SUBSCRIPTION NOTICE
                 (To be executed only upon exercise of Warrant)

         The  undersigned,   registered  owner  of  this  Warrant,   irrevocably
exercises  this Warrant and  purchases  ____________  of the number of shares of
Common Stock,  $0.05 par value per share  ("Warrant  Shares"),  of Cubic Energy,
Inc., a Texas corporation (the "Company"), purchasable with the attached Warrant
(the "Warrant").  Capitalized  terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.

         1. Form of Exercise Price:  Holder intends that payment of the Exercise
Price shall be made as:

         _______  "Cash  Exercise"  with  respect to  ________  Warrant  Shares;
                  and/or

         _______  "Cashless  Exercise"  with respect to ________  Warrant Shares
                  (to the extent permitted by the terms of the Warrant)

         2.  Payment of Exercise  Price:  In the event that Holder has elected a
Cash  Exercise  with  respect to some or all of the Warrant  Shares to be issued
pursuant hereto, Holder shall pay the sum of $________________ to the Company in
accordance with the terms of the Warrant.

DATED:  ______________

                                       _________________________________________
                                       (Signature of Holder)

                                       _________________________________________
                                       (Street Address)

                                       _________________________________________
                                       (City) (State) (Zip)

<PAGE>

                               FORM OF ASSIGNMENT

         FOR VALUE RECEIVED the  undersigned,  registered owner of this Warrant,
hereby  sells,  assigns and transfers  unto the Assignee  named below all of the
rights of the undersigned  under the within Warrant,  with respect to the number
of shares of Common Stock, $0.05 par value per share, set forth below:

Name of Assignee                   Address                         No. of Shares
----------------                   -------                         -------------

         and    does    hereby     irrevocably     constitute     and    appoint
_________________________      _________________________________________________
Attorney  to make such  transfer  on the books of Cubic  Energy,  Inc.,  a Texas
corporation,  maintained for the purpose, with full power of substitution in the
premises.

DATED:  ___________________

                                       _________________________________________
                                                    (Signature)

                                       _________________________________________
                                                    (Witness)Exhibit 10.5

                                                                  Execution Copy

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

                          REGISTRATION RIGHTS AGREEMENT

                                 by and between

                               Cubic Energy, Inc.,

                              Petro Capital V, L.P.

                                       and

                          Petro Capital Securities, LLC

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

                          Dated as of February 6, 2006

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

ARTICLE I. DEFINITIONS.........................................................1

ARTICLE II. REGISTRATION.......................................................2
Section 2.1    Mandatory Registration..........................................2
Section 2.2    Underwritten Offering...........................................2
Section 2.3    Payments by the Company.........................................2
Section 2.4    Piggy-Back Registrations........................................3
Section 2.5    Eligibility for Form S-3, SB-2 or S-1; Conversion to Form S-3...4

ARTICLE III. OBLIGATIONS OF THE COMPANY........................................4
Section 3.1    Registration Procedures.........................................4

ARTICLE IV. OBLIGATIONS OF THE HOLDERS.........................................9
Section 4.1    Holders' Obligations............................................9

ARTICLE V. EXPENSES OF REGISTRATION...........................................10
Section 5.1    Expenses.......................................................10

ARTICLE VI. INDEMNIFICATION...................................................11
Section 6.1    Indemnity......................................................11

ARTICLE VII. CONTRIBUTION.....................................................13
Section 7.1    Contribution...................................................13

ARTICLE VIII. REPORTS UNDER THE 1934 ACT......................................13
Section 8.1    1934 Act Reports...............................................13

ARTICLE IX. ASSIGNMENT OF REGISTRATION RIGHTS.................................14
Section 9.1    Assignment.....................................................14

ARTICLE X. AMENDMENT OF REGISTRATION RIGHTS...................................14
Section 10.1   Amendment, Termination or Waiver...............................14

ARTICLE XI. MISCELLANEOUS.....................................................14
Section 11.1   Holder.........................................................14
Section 11.2   Notices........................................................14
Section 11.3   No Waiver......................................................15
Section 11.4   Governing Law..................................................15
Section 11.5   Severability...................................................16
Section 11.6   Entire Agreement...............................................16
Section 11.7   Assigns. 16
Section 11.8   Headings.......................................................16
Section 11.9   Counterparts...................................................16
Section 11.10  Further Assurances.............................................16

                                       i

<PAGE>

Section 11.11  Holders' Actions...............................................16
Section 11.12  Specific Performances..........................................16
Section 11.13  No Strict Construction.........................................17

                                       ii
<PAGE>

                          REGISTRATION RIGHTS AGREEMENT

         This  REGISTRATION  RIGHTS AGREEMENT (this  "Agreement") is dated as of
February 6, 2006,  and is entered into by and among Cubic Energy,  Inc., a Texas
corporation (the "Company"),  Petro Capital V, L.P., a Texas limited partnership
(the "Lender"), Petro Capital Securities, LLC, a Texas limited liability company
("PCS"), and any assignee or transferee of its rights hereunder.

                                    WHEREAS:

         Pursuant to that certain Credit  Agreement by and among the Company and
the Lender, dated as of February 6, 2006 (the "Credit  Agreement"),  the Company
issued to the Lender a promissory  note (the "Note") in the aggregate  principal
amount of $7,000,000 and warrants (the "Debt Warrants") to purchase an aggregate
of  1,833,334  shares of its common  stock,  $0.05 par value per share  ("Common
Stock"), and reserved the option to issue to the Lender additional warrants (the
"Deferral  Warrants")  (i) to purchase up to 500,100  shares of Common  Stock in
exchange  for any Loans in  excess  of  $5,500,000  and (ii) to  purchase  up to
300,000  shares of Common  Stock in exchange  for the  deferral of the first two
quarterly principal payments due on the Note; and

         Pursuant  to that  certain  fee  letter of even  date  with the  Credit
Agreement,  executed by the Company and the Lender, the Company issued to PCS as
fees  payable  in  connection  with the  financing  provided  under  the  Credit
Agreement,  warrants (the "PCS  Warrants") to purchase  250,000 shares of Common
Stock; and

         To induce the Lender to execute and deliver the Credit Agreement and to
induce PCS to provide  services in connection  therewith,  the Company agreed to
provide  certain  registration  rights  under  the  Securities  Act of 1933,  as
amended,  and the rules and  regulations  thereunder,  or any similar  successor
statute (collectively, the "1933 Act"), and applicable state securities laws.

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the  Company,  the
Lender and PCS hereby agree as follows:

                                   ARTICLE I.
                                   DEFINITIONS

         As used in this Agreement, the following terms shall have the following
meanings:

         "Holders" means the Lender and PCS, and also includes any transferee or
assignee  who agrees to become  bound by the  provisions  of this  Agreement  in
accordance with Section 9 hereof.

         "register,"  "registered," and  "registration"  refer to a registration
effected by  preparing  and filing a  Registration  Statement or  Statements  in
compliance  with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any
successor  rule providing for offering  securities on a continuous  basis ("Rule
415"),  and the declaration or ordering of  effectiveness  of such  Registration
Statement by the United States Securities and Exchange Commission (the "SEC").

<PAGE>

         "Registrable  Securities" means (i) the Warrant Shares (as that term is
defined in the Warrants)  issuable  upon  exercise or otherwise  pursuant to the
Warrants,  (ii) the shares of Common  Stock or other  securities  issuable  upon
exercise of the Default  Warrants,  and (iii) any shares of capital stock issued
or issuable as a dividend on or in exchange for or otherwise with respect to any
of the foregoing.

         "Registration  Statement" means a registration statement of the Company
under the 1933 Act.

         "Warrants"  means the Debt  Warrants,  the Deferral  Warrants,  the PCS
Warrants and/or the Default Warrants.

         Capitalized  terms used herein and not otherwise  defined  herein shall
have the  respective  meanings  ascribed to them in the Credit  Agreement or the
Warrants.

                                   ARTICLE II.
                                  REGISTRATION

         Section 2.1 Mandatory Registration.  The Company shall prepare, and, on
or prior to March  9,  2006  (the  "Filing  Date"),  shall  file a  Registration
Statement that shall cover the resale of all of the  Registrable  Securities and
any other  securities  of the Company as the Company  may  determine  to include
therein,  which Registration  Statement,  to the extent allowable under the 1933
Act and the rules and regulations  promulgated  thereunder (including Rule 416),
shall state that such  Registration  Statement  also  covers such  indeterminate
number of additional shares of Common Stock as may become issuable upon exercise
or otherwise  pursuant to the Warrants to prevent dilution  resulting from stock
splits, stock dividends or similar  transactions.  The Company acknowledges that
the number of shares to be included in the Registration  Statement  represents a
good faith  estimate of the maximum  number of shares  issuable upon exercise of
the Warrants.

         Section  2.2  Underwritten  Offering.  If any  offering  pursuant  to a
Registration  Statement  pursuant to Section 2.1 hereof involves an underwritten
offering,  the  Holders  who hold a  majority  in  interest  of the  Registrable
Securities subject to such underwritten  offering shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer  the  offering,  which  investment  banker or  bankers  or manager or
managers shall be reasonably satisfactory to the Company.

         Section 2.3  Payments by the  Company.  The Company  shall use its best
efforts  to  obtain  effectiveness  of the  Registration  Statement  as  soon as
practicable.   If  (i)  the  Registration  Statement  covering  the  Registrable
Securities required to be filed by the Company pursuant to Section 2.1 hereof is
not filed by the  Filing  Date or the  Registration  Statement  is not  declared
effective by the SEC on or prior to one hundred  thirty-five  days from the date
of the Credit  Agreement,  or (ii)  after the  Registration  Statement  has been
declared effective by the SEC, the Registration  Statement ceases for any reason
to remain continuously  effective as to all Registrable  Securities for which it
is required to be  effective,  or the Holders are not  permitted to resell their
Registrable  Securities for more than 15 consecutive  calendar days, but no more
than an aggregate of 30 calendar days during any 12-month period (which need not

                                       2
<PAGE>

be  consecutive  calendar  days,  provided  that such  number of days  shall not
include the 15 calendar  days  following the filing of any Form 8-K, Form 10-QSB
or  Form  10-KSB,   or  other   comparable   form,  for  purposes  of  filing  a
post-effective  amendment to the  Registration  Statement),  or (iii) the Common
Stock is not listed or included  for  quotation  on the Nasdaq  National  Market
("Nasdaq"),  the Nasdaq Capital Market  ("Nasdaq  Capital"),  the New York Stock
Exchange,  the American  Stock Exchange or the  Over-the-Counter  Bulletin Board
(the  "OTCBB")  after being so listed or  included  for  quotation,  or (iv) the
Common  Stock  ceases to be traded  on the OTCBB or any  equivalent  replacement
exchange,  then, in addition to any rights that a Holder may have as a holder of
a Warrant,  the Company  will issue  warrants to  purchase  Common  Stock to the
Holders in such  amounts  and at such times as shall be  determined  pursuant to
this  Section 2.3 as partial  relief for the damages to the Holders by reason of
any  such  delay  in or  reduction  of their  ability  to sell  the  Registrable
Securities (which remedy shall not be exclusive of any other remedies  available
at law or in equity).

         Upon and after any failure by the Company  described in the immediately
preceding sentence (a "Default"),  the Company shall be required to issue to the
Holders of Registrable Securities, its respective pro rata amount of warrants to
purchase a number of shares of Common  Stock  equal to 100,000  shares of Common
Stock for each month or part thereof  (appropriately  prorated),  during which a
default exists (the "Default  Warrants").  The Default  Warrants shall be in the
form of Exhibit B to the Credit Agreement, shall have an exercise price of $1.00
and an expiration  date five years from the date of the issuance.  Such warrants
shall be issued on the last day of each month (or part  thereof)  during which a
Default occurred or was continuing.  Each Holder of Registrable Securities shall
be issued its respective pro rata amount of Default  Warrants on the last day of
each  month  equal  to  100,000  (appropriately  prorated  for  partial  months)
multiplied by a fraction,  the  numerator of which is the number of  Registrable
Securities owned by such Holder and the denominator of which is the total number
of  Registrable  Securities,  which shall be rounded up to the next whole share.
All shares of Common Stock issuable  pursuant to such Default  Warrants shall be
duly authorized, fully paid and non-assessable shares of Common Stock.

         Section 2.4 Piggy-Back  Registrations.  Subject to the last sentence of
this Section  2.4, if at any time prior to the  expiration  of the  Registration
Period (as hereinafter defined) the Company shall determine to file with the SEC
a  Registration  Statement  relating to an  offering  for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents  relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity  securities  issuable in  connection  with stock  option or other bona
fide,  employee  benefit  plans),  the Company  shall send to each Holder who is
entitled to  registration  rights under this  Agreement  written  notice of such
determination  and,  if within  fifteen  days after the  effective  date of such
notice,  such Holder shall so request in writing,  the Company  shall include in
such Registration  Statement all or any part of the Registrable  Securities such
Holder  requests  to be  registered,  except  that if,  in  connection  with any
underwritten  public  offering  for the  account  of the  Company  the  managing
underwriter(s)  thereof  shall  impose a  limitation  on the number of shares of
Common Stock which may be included in the  Registration  Statement  because,  in
such  underwriter(s)'   judgment,   marketing  or  other  factors  dictate  such
limitation  is necessary to  facilitate  public  distribution,  then the Company
shall be obligated to include in such  Registration  Statement only such limited
portion of the  Registrable  Securities  with  respect to which such  Holder has
requested  inclusion hereunder as the underwriter shall permit. Any exclusion of

                                       3
<PAGE>

Registrable  Securities  shall be made pro rata  among the  Holders  seeking  to
include  Registrable  Securities  in  proportion  to the  number of  Registrable
Securities sought to be included by such Holders;  provided,  however,  that the
Company  shall not exclude  any  Registrable  Securities  unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to  inclusion  of such  securities  in such  Registration  Statement  or are not
entitled to pro rata inclusion with the  Registrable  Securities;  and provided,
further,  however,  that,  after  giving  effect  to the  immediately  preceding
proviso,  any exclusion of  Registrable  Securities  shall be made pro rata with
holders of other  securities  having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights.  No right to registration of Registrable  Securities  under this Section
2.4 shall be  construed to limit any  registration  required  under  Section 2.1
hereof.  If an  offering  in  connection  with  which a Holder  is  entitled  to
registration  under this  Section  2.4 is an  underwritten  offering,  then each
Holder whose Registrable  Securities are included in such Registration Statement
shall,  unless otherwise agreed by the Company,  offer and sell such Registrable
Securities  in  an   underwritten   offering  using  the  same   underwriter  or
underwriters and, subject to the provisions of this Agreement, on the same terms
and  conditions  as other shares of Common Stock  included in such  underwritten
offering.  Notwithstanding  anything  to the  contrary  set  forth  herein,  the
registration  rights of the Holders  pursuant to this  Section 2.4 shall only be
available in the event the Company fails to timely file, obtain effectiveness or
maintain  effectiveness  of any  Registration  Statement to be filed pursuant to
Section 2.1 in accordance with the terms of this Agreement.

         Section 2.5 Eligibility  for Form S-3, SB-2 or S-1;  Conversion to Form
S-3. The Company  represents and warrants that it meets the requirements for the
use of Form S-3, SB-2 or S-1 for the  registration of the sale by the Holders of
the Registrable  Securities.  The Company agrees to file all reports required to
be filed by the Company with the SEC in a timely manner so as to remain eligible
or  become  eligible,  as the  case  may be,  and  thereafter  to  maintain  its
eligibility,  for the use of Form S-3. If the Company is not currently  eligible
to use Form S-3, not later than five (5) business  days after the Company  first
meets the registration  eligibility and transaction  requirements for the use of
Form S-3 (or any successor  form) for  registration of the offer and sale by the
Holders of the  Registrable  Securities,  the Company shall file a  Registration
Statement on Form S-3 (or such successor  form) with respect to the  Registrable
Securities  covered  by the  Registration  Statement  on Form  SB-2 or Form S-1,
whichever  is  applicable,  filed  pursuant to Section 2.1 (and  include in such
Registration  Statement on Form S-3 the  information  required by Rule 429 under
the Securities Act) or convert the  Registration  Statement on Form SB-2 or Form
S-1,  whichever  is  applicable,  filed  pursuant  to Section  2.1 to a Form S-3
pursuant  to Rule 429  under the  Securities  Act and  cause  such  Registration
Statement (or such amendment) to be declared effective no later than thirty (30)
days after filing.  In the event of a breach by the Company of the provisions of
this  Section 2.5,  the Company  will be required to make  payments  pursuant to
Section 2.3 hereof.

                                  ARTICLE III.
                           OBLIGATIONS OF THE COMPANY

         Section  3.1   Registration   Procedures.   In   connection   with  the
registration of the Registrable Securities, the Company shall have the following
obligations:

                                       4
<PAGE>

         (a) The Company shall prepare promptly, and file with the SEC not later
than  the  Filing  Date,  a  Registration  Statement  that  covers  all  of  the
Registrable Securities,  as provided in Section 2.1, and thereafter use its best
efforts to cause such Registration  Statement relating to Registrable Securities
to become  effective as soon as possible after such filing but in no event later
than one hundred thirty-five days from the date of this Agreement,  and keep the
Registration  Statement  effective  pursuant to Rule 415 at all times until such
date  as is  the  earlier  of (i)  the  date  on  which  all of the  Registrable
Securities have been sold and (ii) the date on which the Registrable  Securities
(in the opinion of counsel to the Holders) may be immediately sold to the public
without registration or restriction (including, without limitation, as to volume
by each holder thereof) under the 1933 Act (the  "Registration  Period"),  which
Registration  Statement  (including any  amendments or  supplements  thereto and
prospectuses  contained  therein)  shall not contain any untrue  statement  of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.

         (b) The Company  shall  prepare  and file with the SEC such  amendments
(including  post-effective  amendments)  and  supplements  to  the  Registration
Statements  and  the  prospectus  used  in  connection  with  the   Registration
Statements as may be necessary to keep the Registration  Statements effective at
all times during the Registration  Period, and, during such period,  comply with
the  provisions  of  the  1933  Act  with  respect  to  the  disposition  of all
Registrable  Securities of the Company  covered by the  Registration  Statements
until such time as all of such  Registrable  Securities have been disposed of in
accordance  with the intended  methods of  disposition  by the seller or sellers
thereof as set forth in the Registration Statements.  In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover all of the  Registrable  Securities,  the Company shall
amend the Registration  Statement,  or file a new Registration Statement (on the
short form available  therefor,  if applicable),  or both, so as to cover all of
the Registrable  Securities,  in each case, as soon as  practicable,  but in any
event within fifteen (15) days after the necessity  therefor arises. The Company
shall use its best  efforts to cause  such  amendment  and/or  new  Registration
Statement  to become  effective  as soon as  practicable  following  the  filing
thereof,  but in any event  within  thirty (30) days after the date on which the
Company  reasonably first determines (or reasonably  should have determined) the
need therefor.

         (c)  The  Company  shall  furnish  to  each  Holder  whose  Registrable
Securities  are included in a  Registration  Statement and its legal counsel (i)
promptly  (but in no event more than two (2)  business  days)  after the same is
prepared  and  publicly  distributed,  filed with the SEC,  or  received  by the
Company, one copy of each Registration Statement and any amendment thereto, each
preliminary  prospectus and prospectus and each amendment or supplement thereto,
and, in the case of the Registration  Statement referred to in Section 2.1, each
letter  written  by or on behalf of the  Company  to the SEC or the staff of the
SEC,  and each item of  correspondence  from the SEC or the staff of the SEC, in
each case relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment),  and (ii) promptly (but in no event more than two (2) business days)
after the Registration  Statement is declared  effective by the SEC, such number
of  copies  of  a  prospectus,  including  a  preliminary  prospectus,  and  all
amendments and  supplements  thereto and such other documents as such Holder may
reasonably  request in order to facilitate the  disposition  of the  Registrable
Securities owned by such Holder. The Company will immediately notify each Holder
by  facsimile  of  the  effectiveness  of  each  Registration  Statement  or any
post-effective  amendment.  The Company will promptly (but in no event more than

                                       5
<PAGE>

ten (10) business  days)  respond to any and all comments  received from the SEC
(which  comments  shall promptly be made available to the Holders upon request),
with a view towards causing each Registration Statement or any amendment thereto
to be declared effective by the SEC as soon as practicable,  shall promptly file
an  acceleration  request as soon as practicable  (but in no event more than two
(2) business days) following the resolution or clearance of all SEC comments or,
if  applicable,  following  notification  by the SEC that any such  Registration
Statement  or any  amendment  thereto  will not be  subject  to review and shall
promptly file with the SEC a final  prospectus as soon as practicable (but in no
event more than two (2) business days) following receipt by the Company from the
SEC of an order declaring the Registration Statement effective.  In the event of
a breach by the Company of the  provisions of this Section  3.1(c),  the Company
will be required to make payments pursuant to Section 2.3 hereof.

         (d) The Company  shall use its best efforts to (i) register and qualify
the Registrable  Securities  covered by the  Registration  Statements under such
other  securities or "blue sky" laws of such  jurisdictions in the United States
as the Holders who hold a  majority-in-interest  of the  Registrable  Securities
being offered reasonably  request,  (ii) prepare and file in those jurisdictions
such amendments  (including  post-effective  amendments) and supplements to such
registrations   and   qualifications   as  may  be  necessary  to  maintain  the
effectiveness  thereof  during the  Registration  Period,  (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times  during  the  Registration  Period,  and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable  Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection  therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3.1(d),  (b) subject itself to general taxation in any such
jurisdiction,  (c) file a general  consent  to  service  of  process in any such
jurisdiction,  (d) provide any undertakings that cause the Company undue expense
or burden,  or (e) make any change in its charter or bylaws,  which in each case
the Board of  Directors  of the  Company  determines  to be contrary to the best
interests of the Company and its shareholders.

         (e)  In the  event  Holders  who  hold  a  majority-in-interest  of the
Registrable Securities being offered in the offering select underwriters for the
offering,  the Company  shall enter into and  perform its  obligations  under an
underwriting  agreement,  in  usual  and  customary  form,  including,   without
limitation,  customary  indemnification and contribution  obligations,  with the
underwriters of such offering.

         (f) As promptly as practicable  after becoming aware of such event, the
Company  shall notify each Holder of the  happening  of any event,  of which the
Company  has  knowledge,  as a result of which the  prospectus  included  in any
Registration  Statement,  as then in effect,  includes an untrue  statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the  statements  therein not  misleading,  and use its best
efforts  promptly  to prepare a  supplement  or  amendment  to any  Registration
Statement to correct such untrue statement or omission,  and deliver such number
of copies of such  supplement  or  amendment  to each  Holder as such Holder may
reasonably  request;  provided that, for not more than fifteen (15)  consecutive
trading days (or a total of not more than thirty (30) trading days in any twelve
(12) month period),  the Company may delay the disclosure of material non-public
information  concerning  the  Company  (as well as  prospectus  or  Registration
Statement  updating)  the  disclosure  of which at the time is not,  in the good

                                       6
<PAGE>

faith opinion of the Company,  in the best interests of the Company (an "Allowed
Delay");  provided,  that such  number of days shall not include the 15 calendar
days following the filing of any Form 8-K, Form 10-QSB or Form 10-KSB,  or other
comparable  form,  for  purposes  of filing a  post-effective  amendment  to the
Registration Statement;  provided,  further, that the Company shall promptly (i)
notify the Holders in writing of the existence of (but in no event,  without the
prior written consent of a Holder, shall the Company disclose to such Holder any
of the facts or circumstances  regarding) material non-public information giving
rise to an Allowed  Delay and (ii)  advise  the  Holders in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed  Delay,  the Company shall again be bound by the first
sentence of this  Section  3.1(f) with  respect to the  information  giving rise
thereto.

         (g) The Company  shall use its best  efforts to prevent the issuance of
any  stop  order  or  other  suspension  of  effectiveness  of any  Registration
Statement,  and, if such an order is issued,  to obtain the  withdrawal  of such
order at the  earliest  possible  moment  and to notify  each  Holder  who holds
Registrable Securities being sold (or, in the event of an underwritten offering,
the  managing  underwriters)  of the  issuance of such order and the  resolution
thereof.

         (h) The Company shall permit a single firm of counsel designated by the
Holders (the "Holder  Counsel") to review such  Registration  Statement  and all
amendments and supplements  thereto (as well as all requests for acceleration or
effectiveness  thereof) a  reasonable  period of time prior to their filing with
the SEC, and not file any document in a form to which Holder Counsel  reasonably
objects and will not request acceleration of such Registration Statement without
prior  notice to Holder  Counsel.  The sections of such  Registration  Statement
covering  information  with  respect to the  Holders,  the  Holder's  beneficial
ownership  of  securities  of the  Company  or the  Holders  intended  method of
disposition of Registrable  Securities shall conform to the information provided
to the Company by each of the Holders.

         (i) The Company shall make generally  available to its security holders
as soon as  practicable,  but not later than  ninety days after the close of the
period  covered  thereby,  an earnings  statement  (in form  complying  with the
provisions  of Rule 158 under  the 1933  Act)  covering  a  twelve-month  period
beginning  not later than the first day of the  Company's  fiscal  quarter  next
following the effective date of the Registration Statement.

         (j) At the request of any Holder,  the Company  shall  furnish,  on the
date that  Registrable  Securities are delivered to an underwriter,  if any, for
sale in connection  with any  Registration  Statement or, if such securities are
not being sold by an underwriter,  on the date of  effectiveness  thereof (i) an
opinion,  dated as of such date,  from  counsel  representing  the  Company  for
purposes of such  Registration  Statement,  in form,  scope and  substance as is
customarily  given  in  an  underwritten  public  offering,   addressed  to  the
underwriters,  if any, and the Holders and (ii) a letter,  dated such date, from
the Company's  independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering,  addressed to the underwriters,  if any, and
the Holders.

         (k) The Company shall make  available for inspection by (i) any Holder,
(ii) any underwriter participating in any disposition pursuant to a Registration
Statement,  (iii) one firm of  attorneys  and one firm of  accountants  or other
agents retained by the Holders,  and (iv) one firm of attorneys  retained by all
such underwriters  (collectively,  the "Inspectors") all pertinent financial and

                                       7
<PAGE>

other records,  and pertinent corporate documents and properties of the Company,
including  without  limitation,  records  of  conversions  by other  holders  of
convertible  securities  issued by the Company and the issuance of stock to such
holders pursuant to the conversions  (collectively,  the "Records"), as shall be
reasonably  deemed  necessary  by each  Inspector  to enable each  Inspector  to
exercise its due diligence  responsibility,  and cause the  Company's  officers,
directors  and  employees  to supply all  information  which any  Inspector  may
reasonably request for purposes of such due diligence;  provided,  however, that
each  Inspector  shall  hold in  confidence  and shall  not make any  disclosure
(except  to a Holder)  of any  Record  or other  information  which the  Company
determines  in good faith to be  confidential,  and of which  determination  the
Inspectors  are so  notified,  unless  (a) the  disclosure  of such  Records  is
necessary  to avoid or correct a  misstatement  or omission in any  Registration
Statement,  (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government  body of competent  jurisdiction,  or (c)
the information in such Records has been made generally  available to the public
other  than by  disclosure  in  violation  of this or any other  agreement.  The
Company shall not be required to disclose any  confidential  information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality  agreements (in form and substance  satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3.1(k).  Each Holder agrees that it shall, upon learning that disclosure of such
Records  is  sought  in  or  by  a  court  or  governmental  body  of  competent
jurisdiction or through other means, give prompt notice to the Company and allow
the  Company,  at its  expense,  to  undertake  appropriate  action  to  prevent
disclosure  of,  or to  obtain  a  protective  order  for,  the  Records  deemed
confidential.  Nothing herein (or in any other confidentiality agreement between
the  Company and any Holder)  shall be deemed to limit the  Holder's  ability to
sell  Registrable  Securities  in a manner  which is otherwise  consistent  with
applicable laws and regulations.

         (l) The Company shall hold in confidence and not make any disclosure of
information concerning a Holder provided to the Company unless (i) disclosure of
such  information is necessary to comply with federal or state  securities laws,
(ii) the  disclosure  of such  information  is  necessary  to avoid or correct a
misstatement  or omission in any  Registration  Statement,  (iii) the release of
such  information is ordered  pursuant to a subpoena or other order from a court
or governmental  body of competent  jurisdiction,  or (iv) such  information has
been  made  generally  available  to the  public  other  than by  disclosure  in
violation of this or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning a Holder is sought in or
by a court or  governmental  body of  competent  jurisdiction  or through  other
means,  give prompt notice to such Holder prior to making such  disclosure,  and
allow the Holder,  at its expense,  to undertake  appropriate  action to prevent
disclosure of, or to obtain a protective order for, such information.

         (m) The Company shall (i) cause all the Registrable  Securities covered
by the Registration  Statement to be listed on each national securities exchange
on which  securities  of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable  Securities is then permitted
under the rules of such  exchange,  or (ii) to the extent the  securities of the
same class or series  are not then  listed on a  national  securities  exchange,
secure the designation and quotation,  of all the Registrable Securities covered

                                       8
<PAGE>

by the  Registration  Statement  on Nasdaq or, if not  eligible  for Nasdaq,  on
Nasdaq  Capital or, if not eligible for Nasdaq or Nasdaq  Capital,  on the OTCBB
and, without  limiting the generality of the foregoing,  to use its commercially
reasonable  efforts to arrange for at least two market  makers to register  with
the National  Association  of  Securities  Dealers,  Inc.  ("NASD") as such with
respect to such Registrable Securities.

         (n) The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable  Securities not later than the effective
date of the Registration Statement.

         (o) The Company shall  cooperate with the Holders who hold  Registrable
Securities being offered and the managing  underwriter or underwriters,  if any,
to facilitate the timely  preparation and delivery of certificates  (not bearing
any  restrictive  legends)  representing  Registrable  Securities  to be offered
pursuant to a Registration  Statement and enable such certificates to be in such
denominations  or amounts,  as the case may be, as the managing  underwriter  or
underwriters,  if any, or the Holders may  reasonably  request and registered in
such names as the managing  underwriter or underwriters,  if any, or the Holders
may request.

         (p) At the  request  of the  holders of a  majority-in-interest  of the
Registrable  Securities,  the Company  shall  prepare and file with the SEC such
amendments   (including   post-effective   amendments)   and  supplements  to  a
Registration   Statement  and  any  prospectus   used  in  connection  with  the
Registration  Statement  as may be  necessary  in  order to  change  the plan of
distribution set forth in such Registration Statement.

         (q) Other  than  those  security  holders  to be  included  as  selling
security holders in the Registration  Statement pursuant to registration  rights
disclosed in the Company's Disclosure Schedule,  if any, from and after the date
of this  Agreement,  the Company  shall not,  and shall not agree to,  allow the
holders of any  securities of the Company to include any of their  securities in
any  Registration  Statement  under  Section  2.1  hereof  or any  amendment  or
supplement  thereto  under  Section  3.1(b)  hereof  without  the consent of the
holders of a majority-in-interest of the Registrable Securities.

         (r) The Company shall take all other  reasonable  actions  necessary to
expedite and facilitate  disposition  by the Holders of  Registrable  Securities
pursuant to a Registration Statement.

                                   ARTICLE IV.
                           OBLIGATIONS OF THE HOLDERS

         Section 4.1 Holders'  Obligations.  In connection with the registration
of the Registrable Securities, the Holders shall have the following obligations:

         (a) It shall be a condition precedent to the obligations of the Company
to complete  the  registration  pursuant to this  Agreement  with respect to the
Registrable  Securities of a particular Holder that such Holder shall furnish to
the Company such information  regarding itself, the Registrable  Securities held
by it and the intended method of disposition of the Registrable  Securities held
by it as shall  be  reasonably  required  to  effect  the  registration  of such
Registrable  Securities and shall execute such documents in connection with such

                                       9
<PAGE>

registration as the Company may reasonably request. At least three business days
prior to the first  anticipated  Filing Date of the Registration  Statement (and
any other  amendments),  the Company shall notify each Holder of the information
the Company requires from each such Holder.

         (b)  Each  Holder,  by  such  Holder's  acceptance  of the  Registrable
Securities,  agrees to cooperate with the Company as reasonably requested by the
Company  in  connection  with the  preparation  and  filing of any  Registration
Statements hereunder,  unless such Holder has notified the Company in writing of
such Holder's  election to exclude all of such Holder's  Registrable  Securities
from such Registration Statements.

         (c)  In  the  event  Holders  holding  a  majority-in-interest  of  the
Registrable  Securities being registered  determine to engage the services of an
underwriter,  each  Holder  agrees  to enter  into  and  perform  such  Holder's
obligations  under an  underwriting  agreement,  in usual  and  customary  form,
including,  without  limitation,   customary  indemnification  and  contribution
obligations,  with the managing underwriter of such offering and take such other
actions as are  reasonably  required  in order to  expedite  or  facilitate  the
disposition of the Registrable  Securities,  unless such Holder has notified the
Company in writing of such  Holder's  election to exclude  all of such  Holder's
Registrable Securities from such Registration Statement.

         (d) Each  Holder  agrees  that,  upon  receipt of any  notice  from the
Company of the happening of any event of the kind described in Section 3.1(f) or
Section  3.1(g),  such  Holder  will  immediately   discontinue  disposition  of
Registrable  Securities  pursuant to the  Registration  Statement  covering such
Registrable  Securities  until  such  Holder's  receipt  of  the  copies  of the
supplemented  or amended  prospectus  contemplated  by Section 3.1(f) or Section
3.1(g)  and, if so directed by the  Company,  such Holder  shall  deliver to the
Company (at the expense of the Company) or destroy (and deliver to the Company a
certificate  of  destruction)  all copies in such  Holder's  possession,  of the
prospectus  covering such Registrable  Securities current at the time of receipt
of such notice.

         (e)  No  Holder  may  participate  in  any  underwritten   registration
hereunder  unless  such  Holder  (i)  agrees to sell such  Holder's  Registrable
Securities on the basis provided in any  underwriting  arrangements in usual and
customary  form  entered into by the Company,  (ii)  completes  and executes all
questionnaires,  powers of attorney,  indemnities,  underwriting  agreements and
other  documents  reasonably  required  under  the  terms  of such  underwriting
arrangements,  and (iii)  agrees to pay its pro rata  share of all  underwriting
discounts  and  commissions  and any expenses in excess of those  payable by the
Company pursuant to Section 5.1 below.

                                   ARTICLE V.
                            EXPENSES OF REGISTRATION

         Section 5.1 Expenses.  All reasonable  expenses  incurred in connection
with registrations,  filings or qualifications  pursuant to Articles II and III,
including, without limitation, all registration, listing and qualification fees,
printers and  accounting  fees,  the fees and  disbursements  of counsel for the
Company,  and the reasonable fees and  disbursements  of one counsel selected by
the Holders  pursuant to Sections  2.2 and 3.1(h)  hereof  shall be borne by the
Company.

                                       10
<PAGE>

                                   ARTICLE VI.
                                 INDEMNIFICATION

         Section 6.1  Indemnity.  In the event any  Registrable  Securities  are
included in a Registration Statement under this Agreement:

         (a) To the extent  permitted by law, the Company will  indemnify,  hold
harmless and defend (i) each Holder who holds such Registrable Securities,  (ii)
the  directors,  officers,  partners,  employees,  agents  and each  person  who
controls  any  Holder  within  the  meaning  of the 1933  Act or the  Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any underwriter
(as defined in the 1933 Act) for the Holders, and (iv) the directors,  officers,
partners, employees and each person who controls any such underwriter within the
meaning of the 1933 Act or the 1934 Act, if any (each, an "Indemnified Person"),
against any joint or several losses,  claims,  damages,  liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or  self-regulatory  organization,  whether commenced or threatened,  in respect
thereof,  "Claims")  to which any of them may  become  subject  insofar  as such
Claims  arise out of or are based  upon:  (i) any  untrue  statement  or alleged
untrue statement of a material fact in a Registration  Statement or the omission
or alleged  omission to state  therein a material  fact required to be stated or
necessary  to make the  statements  therein  not  misleading;  (ii)  any  untrue
statement  or alleged  untrue  statement  of a material  fact  contained  in any
preliminary  prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein,  in light of the circumstances under which the
statements therein were made, not misleading;  or (iii) any violation or alleged
violation  by the  Company  of the  1933  Act,  the 1934  Act,  any  other  law,
including,  without  limitation,  any  state  securities  law,  or any  rule  or
regulation  thereunder  relating  to  the  offer  or  sale  of  the  Registrable
Securities  (the  matters in the  foregoing  clauses  (i) through  (iii)  being,
collectively,  "Violations").  Subject to the  restrictions set forth in Section
6(c) with respect to legal counsel,  the Company shall reimburse the Indemnified
Person,  promptly as such expenses are incurred and are due and payable, for any
reasonable  legal  fees  or  other  reasonable  expenses  incurred  by  them  in
connection  with  investigating  or  defending  any such Claim.  Notwithstanding
anything  to  the  contrary  contained  herein,  the  indemnification  agreement
contained in this Section 6.1(a):  (i) shall not apply to a Claim arising out of
or based upon a Violation  which occurs in reliance upon and in conformity  with
information  furnished  in writing to the Company by any  Indemnified  Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation  of such  Registration  Statement or any such  amendment  thereof or
supplement  thereto, if such prospectus was timely made available by the Company
pursuant  to Section  3.1(c)  hereof;  (ii)  shall not apply to amounts  paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company,  which consent shall not be unreasonably  withheld;  and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified  Person if the untrue  statement or omission of material fact
contained in the  preliminary  prospectus was corrected on a timely basis in the
prospectus,  as then amended or  supplemented,  such  corrected  prospectus  was
timely made available by the Company pursuant to Section 3.1(c) hereof,  and the

                                       11
<PAGE>

Indemnified  Person was  promptly  advised in writing  not to use the  incorrect
prospectus  prior to the use giving  rise to a  Violation  and such  Indemnified
Person,  notwithstanding  such advice,  used it. Such indemnity  shall remain in
full force and effect  regardless of any  investigation  made by or on behalf of
the  Indemnified  Person  and shall  survive  the  transfer  of the  Registrable
Securities by the Holders pursuant to Section 9.1.

         (b) In connection with any Registration  Statement in which a Holder is
participating,  each such Holder agrees  severally and not jointly to indemnify,
hold harmless and defend, to the same extent and in the same manner set forth in
Section  6.1(a),  the Company,  each of its directors,  each of its officers who
signs the Registration Statement,  each person, if any, who controls the Company
within the  meaning  of the 1933 Act or the 1934 Act,  any  underwriter  and any
other shareholder selling securities  pursuant to the Registration  Statement or
any of its directors or officers or any person who controls such  shareholder or
underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an "Indemnified Party"),  against any Claim
to which any of them may  become  subject,  under the 1933 Act,  the 1934 Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation by
such  Holder,  in each case to the  extent  (and only to the  extent)  that such
Violation  occurs in reliance  upon and in conformity  with written  information
furnished to the Company by such Holder  expressly  for use in  connection  with
such  Registration  Statement;  and  subject to Section  6.1(c) such Holder will
reimburse  any legal or other  expenses  (promptly as such expenses are incurred
and  are due and  payable)  reasonably  incurred  by  them  in  connection  with
investigating or defending any such Claim; provided, however, that the indemnity
agreement  contained in this  Section  6.1(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent  of such  Holder,  which  consent  shall not be  unreasonably  withheld;
provided, further, however, that the Holder shall be liable under this Agreement
(including this Section 6.1(b) and Section 7.1) for only that amount as does not
exceed the net  proceeds to such  Holder as a result of the sale of  Registrable
Securities pursuant to such Registration Statement.  Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
such  Indemnified  Party and  shall  survive  the  transfer  of the  Registrable
Securities by the Holders pursuant to Section 9.1.  Notwithstanding  anything to
the contrary contained herein, the  indemnification  agreement contained in this
Section 6.1(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary  prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.

         (c) Promptly  after  receipt by an  Indemnified  Person or  Indemnified
Party  under  this  Section  6.1 of notice  of the  commencement  of any  action
(including any  governmental  action),  such  Indemnified  Person or Indemnified
Party  shall,  if a  Claim  in  respect  thereof  is  to  be  made  against  any
indemnifying  party under this Section 6.1, deliver to the indemnifying  party a
written notice of the commencement  thereof,  and the  indemnifying  party shall
have the right to participate in, and, to the extent the  indemnifying  party so
desires,  jointly with any other indemnifying party similarly noticed, to assume
control  of the  defense  thereof  with  counsel  mutually  satisfactory  to the
indemnifying  party and the Indemnified  Person or the Indemnified Party, as the
case may be; provided,  however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel  with the fees and expenses to be
paid by the  indemnifying  party,  if,  in the  reasonable  opinion  of  counsel
retained by the indemnifying  party, the  representation  by such counsel of the
Indemnified  Person or  Indemnified  Party and the  indemnifying  party would be
inappropriate  due to actual  or  potential  differing  interests  between  such

                                       12
<PAGE>

Indemnified  Person or Indemnified Party and any other party represented by such
counsel  in such  proceeding.  The  indemnifying  party  shall  pay for only one
separate legal counsel for the Indemnified  Persons or the Indemnified  Parties,
as  applicable,  and such legal counsel  shall be selected by Holders  holding a
majority-in-interest  of the Registrable Securities included in the Registration
Statement  to  which  the  Claim  relates,   if  the  Holders  are  entitled  to
indemnification  hereunder,  or the  Company,  if the  Company  is  entitled  to
indemnification  hereunder, as applicable. The failure to deliver written notice
to the  indemnifying  party within a reasonable time of the  commencement of any
such action shall not relieve such  indemnifying  party of any  liability to the
Indemnified  Person or Indemnified  Party under this Section 6.1,  except to the
extent  that the  indemnifying  party is actually  prejudiced  in its ability to
defend such action.  The  indemnification  required by this Section 6.1 shall be
made by  periodic  payments  of the  amount  thereof  during  the  course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

                                  ARTICLE VII.
                                  CONTRIBUTION

         Section  7.1  Contribution.  To the  extent any  indemnification  by an
indemnifying  party is  prohibited  or limited by law,  the  indemnifying  party
agrees to make the maximum contribution with respect to any amounts for which it
would  otherwise be liable under Section 6.1 to the fullest extent  permitted by
law;  provided,   however,   that  (i)  no  contribution  shall  be  made  under
circumstances  where the maker  would not have been  liable for  indemnification
under  the  fault  standards  set  forth  in  Section  6.1,  (ii) no  seller  of
Registrable  Securities  guilty  of  fraudulent  misrepresentation  (within  the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any  seller of  Registrable  Securities  who was not  guilty of such  fraudulent
misrepresentation,  and (iii) contribution (together with any indemnification or
other obligations under this Agreement) by any seller of Registrable  Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.

                                  ARTICLE VIII.
                           REPORTS UNDER THE 1934 ACT

         Section 8.1 1934 Act Reports.  Whether, with a view to making available
to the Holders the  benefits of Rule 144  promulgated  under the 1933 Act or any
other  similar  rule or  regulation  of the SEC that may at any time  permit the
Holders to sell  securities  of the Company to the public  without  registration
("Rule 144") or otherwise, the Company agrees to:

         (a) make and keep  public  information  available,  as those  terms are
understood and defined in Rule 144;

         (b)  file  with  the SEC in a  timely  manner  all  reports  and  other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such  requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and

                                       13
<PAGE>

         (c)  furnish to each  Holder so long as such  Holder  owns  Registrable
Securities,  promptly upon request,  (i) a written statement by the Company that
it has complied  with the reporting  requirements  of Rule 144, the 1933 Act and
the 1934 Act, (ii) a copy of the most recent  annual or quarterly  report of the
Company and such other reports and documents so filed by the Company,  and (iii)
such other  information as may be reasonably  requested to permit the Holders to
sell such securities pursuant to Rule 144 without registration.

                                   ARTICLE IX.
                        ASSIGNMENT OF REGISTRATION RIGHTS

         Section  9.1  Assignment.  The  rights  under this  Agreement  shall be
automatically  assignable by the Holders to any transferee of all or any portion
of  Registrable  Securities  if:  (i) the  Holder  agrees  in  writing  with the
transferee  or assignee to assign such rights,  and a copy of such  agreement is
furnished to the Company within a reasonable  time after such  assignment,  (ii)
the Company is,  within a  reasonable  time after such  transfer or  assignment,
furnished with written notice of (a) the name and address of such  transferee or
assignee,  and (b) the securities with respect to which such registration rights
are being transferred or assigned,  (iii) following such transfer or assignment,
the further  disposition  of such  securities  by the  transferee or assignee is
restricted  under the 1933 Act and applicable  state securities laws, (iv) at or
before the time the Company  receives the written notice  contemplated by clause
(ii) of this  sentence,  the  transferee or assignee  agrees in writing with the
Company to be bound by all of the provisions contained herein, (v) such transfer
shall  have been made in  accordance  with the  applicable  requirements  of the
Credit  Agreement,  and (vi) such transferee shall be an "accredited  Holder" as
that term defined in Rule 501 of Regulation D promulgated under the 1933 Act.

                                   ARTICLE X.
                        AMENDMENT OF REGISTRATION RIGHTS

         Section  10.1  Amendment,  Termination  or  Waiver.  Any  term  of this
Agreement may be  terminated  or amended and the  observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the  holders  of a  majority-in-interest  of  the  Registrable  Securities.  Any
termination,  amendment or waiver  effected in  accordance  with this  paragraph
shall be binding  upon each holder of the  Registrable  Securities,  each future
holder of the  Registrable  Securities,  their  successors and assigns,  and the
Company.

                                   ARTICLE XI.
                                  MISCELLANEOUS

         Section  11.1  Holder.  A person  or entity is deemed to be a holder of
Registrable  Securities  whenever  such  person  or entity  owns of record  such
Registrable  Securities.  If  the  Company  receives  conflicting  instructions,
notices or elections  from two or more  persons or entities  with respect to the
same  Registrable   Securities,   the  Company  shall  act  upon  the  basis  of
instructions,  notice or election  received  from the  registered  owner of such
Registrable Securities.

         Section  11.2  Notices.  Any notices  required or permitted to be given
under the terms hereof shall be sent by  certified  or  registered  mail (return
receipt requested) or delivered personally or by courier (including a recognized

                                       14
<PAGE>

overnight  delivery  service) or by facsimile  and shall be effective  five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery  service)  or by  facsimile,  in each case  addressed  to a party.  The
addresses for such communications shall be:

         If to the Company:
         ------------------

         Cubic Energy, Inc.
         9870 Plano Road
         Dallas, Texas 75238
         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

         If to a Holder:
         ---------------

         to the address set forth  immediately  below such  Holder's name on the
signature page hereto,  or to such other place and with such other copies as any
party may designate as to itself by written notice to the others,

         With a copy to:

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

         Section  11.3 No Waiver.  Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.

         Section 11.4 Governing Law. This Agreement shall be enforced,  governed
by and construed in accordance with the laws of the State of Texas applicable to
agreements made and to be performed  entirely within such state,  without regard
to the  principles of conflict of laws.  The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located Dallas, Texas
with respect to any dispute arising under this Agreement, the agreements entered
into in connection herewith or the transactions  contemplated hereby or thereby.
All  parties  irrevocably  waive the  defense  of an  inconvenient  forum to the
maintenance of such suit or proceeding.  The parties  further agree that service

                                       15
<PAGE>

of  process  upon a party  mailed by first  class  mail shall be deemed in every
respect  effective  service  of  process  upon the  party  in any  such  suit or
proceeding.  Nothing  herein shall affect any party's  right to serve process in
any other manner permitted by law. The parties agree that a final non-appealable
judgment in any such suit or proceeding  shall be conclusive and may be enforced
in other  jurisdictions  by suit on such judgment or in any other lawful manner.
The party  which does not prevail in any dispute  arising  under this  Agreement
shall be  responsible  for all fees and  expenses,  including  attorneys'  fees,
incurred by the prevailing party in connection with such dispute.

         Section  11.5  Severability.  In the event that any  provision  of this
Agreement is invalid or  unenforceable  under any applicable  statute or rule of
law, then such provision  shall be deemed  inoperative to the extent that it may
conflict  therewith  and shall be deemed  modified to conform to such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or  enforceability  of any other provision
hereof.

         Section 11.6 Entire  Agreement.  This Agreement  constitutes the entire
agreement  among the parties  hereto with respect to the subject  matter hereof.
There are no  restrictions,  promises,  warranties or  undertakings,  other than
those set forth or referred to herein.  This  Agreement  supersedes the Original
Agreement and all other prior  agreements and  understandings  among the parties
hereto with respect to the subject matter hereof.

         Section  11.7  Assigns.  Subject to the  requirements  of  Section  9.1
hereof,  this  Agreement  shall be binding  upon and inure to the benefit of the
parties and their successors and assigns.

         Section  11.8  Headings.   The  headings  in  this  Agreement  are  for
convenience  of  reference  only and  shall  not form  part of,  or  affect  the
interpretation of, this Agreement.

         Section 11.9  Counterparts.  This  Agreement  may be executed in two or
more  counterparts,  each of which shall be deemed an original  but all of which
shall  constitute  one and the same  agreement and shall become  effective  when
counterparts  have been signed by each party and  delivered  to the other party.
This  Agreement,  once executed by a party,  may be delivered to the other party
hereto  by  facsimile  transmission  of a copy of  this  Agreement  bearing  the
signature of the party so delivering this Agreement.

         Section 11.10 Further  Assurances.  Each party shall do and perform, or
cause to be done and  performed,  all such  further  acts and things,  and shall
execute and deliver all such other  agreements,  certificates,  instruments  and
documents,  as the other party may reasonably  request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

         Section 11.11 Holders'  Actions.  Except as otherwise  provided herein,
all consents and other determinations to be made by the Holders pursuant to this
Agreement  shall  be made  by  Holders  holding  a  majority-in-interest  of the
Registrable  Securities,  determined as if all of the Warrants  outstanding have
been converted into or exercised for Registrable Securities.

         Section 11.12 Specific  Performances.  The Company  acknowledges that a
breach by it of its obligations  hereunder will cause  irreparable  harm to each
Holder by  vitiating  the intent and  purpose of the  transactions  contemplated

                                       16
<PAGE>

hereby. Accordingly,  the Company acknowledges that the remedy at law for breach
of its  obligations  under this Agreement will be inadequate and agrees,  in the
event of a breach or threatened  breach by the Company of any of the  provisions
under this  Agreement,  that each Holder shall be  entitled,  in addition to all
other available  remedies in law or in equity,  and in addition to the penalties
assessable  herein, to an injunction or injunctions  restraining,  preventing or
curing any breach of this  Agreement and to enforce  specifically  the terms and
provisions  hereof,  without the necessity of showing  economic loss and without
any bond or other security being required.

         Section  11.13  No  Strict  Construction.  The  language  used  in this
Agreement  will be deemed to be the  language  chosen by the  parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.

                                       17
<PAGE>

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

                                                  CUBIC ENERGY, INC.,
                                                  a Texas corporation

                                                  By: /s/Calvin Wallen, III
                                                     ---------------------------
                                                     Calvin Wallen, III
                                                     Chief Executive Officer

<PAGE>

                                              PETRO CAPITAL V, L.P.,
                                              a Texas limited partnership

                                              By:   Petro/Cubic Management, LLC,
                                              a Texas limited liability company,
                                                             its General Partner

                                              By: /s/Tracy Scott Turner
                                                 -------------------------------
                                                 Tracy Scott Turner
                                                 Manager

                                              Address for Notice:

                                              3838 Oak Lawn Ave., Suite 1775
                                              Dallas, Texas 75219
                                              Attention: Tracy Turner

                                              PETRO CAPITAL SECURITIES, LLC,
                                              a Texas limited liability company

                                              By: /s/ Tracy Scott Turner
                                                 -------------------------------
                                                 Tracy Scott Turner
                                                 Managing Director

                                              Address for Notice:

                                              3838 Oak Lawn Ave., Suite 1775
                                              Dallas, Texas 75219
                                              Attention: Tracy Turner

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