Document:

EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT

         This Securities  Purchase  Agreement (this  "Agreement") is dated as of
September  30,  2004,  among  Cubic  Energy,  Inc.,  a  Texas  corporation  (the
"Company"),  and each purchaser  identified on the signature pages hereto (each,
including  its  successors  and assigns,  a  "Purchaser"  and  collectively  the
"Purchasers").

         WHEREAS,  subject  to the  terms  and  conditions  set  forth  in  this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") and Rule 506 promulgated thereunder,  the Company desires
to issue  and sell to each  Purchaser,  and each  Purchaser,  severally  and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.

         NOW,  THEREFORE,  IN CONSIDERATION of the mutual covenants contained in
this Agreement,  and for other good and valuable  consideration  the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

         1.1  Definitions.  In addition to the terms  defined  elsewhere in this
Agreement:  (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein),  and (b) the
following terms have the meanings indicated in this Section 1.1:

                  "Action"  shall  have the  meaning  ascribed  to such  term in
         Section 3.1(j).

                  "Affiliate"  means any Person  that,  directly  or  indirectly
         through one or more intermediaries,  controls or is controlled by or is
         under  common  control  with a  Person,  as such  terms are used in and
         construed  under Rule 144 under the  Securities  Act. With respect to a
         Purchaser,  any investment fund or managed account that is managed on a
         discretionary  basis by the same  investment  manager as such Purchaser
         will be deemed to be an Affiliate of such Purchaser.

                  "Average Price" means,  for any date, the price  determined by
         the first of the  following  clauses  that  applies:  (a) if the Common
         Stock is then listed or quoted on a Trading Market, the average closing
         price of the Common  Stock for the ten Trading  Days prior to such date
         (or the nearest  preceding date) on the primary Trading Market on which
         the Common  Stock is then  listed or quoted as  reported  by  Bloomberg
         Financial L.P.  (based on a Trading Day from 9:30 a.m.  Eastern Time to
         4:02 p.m.  Eastern Time); (b) if the Common Stock is not then listed or
         quoted on a Trading  Market and if prices for the Common Stock are then
         reported  in the "Pink  Sheets"  published  by the  National  Quotation
         Bureau Incorporated (or a similar  organization or agency succeeding to
         its functions of reporting prices),  the closing bid price per share of
         the Common  Stock so reported  for the ten  Trading  Days prior to such
         date;  or (c) in all other  cases,  the fair market value of a share of
         Common  Stock  as  determined  by a  nationally  recognized-independent
         appraiser  selected in good faith by  Purchasers  holding a majority of
         the principal amount of Shares then outstanding.

                              Exhibit 10.1 - Page 1

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                  "Certifying  Officers" means the Chief  Executive  Officer and
         Chief Financial Officer of the Company.

                  "Closing Date" means the date of the Closing.

                  "Closing"  means the closing of the  purchase  and sale of the
         Securities pursuant to Section 2.1.

                  "Commission" means the Securities and Exchange Commission.

                  "Common  Stock"  means the common  stock of the  Company,  par
         value $0.05 per share,  and any securities into which such common stock
         shall hereinafter have been reclassified into.

                  "Common Stock Equivalents" means any securities of the Company
         which would  entitle  the holder  thereof to acquire at any time Common
         Stock, including without limitation, any debt, preferred stock, rights,
         options,  warrants or other  instrument that is at any time convertible
         into or exchangeable  for, or otherwise  entitles the holder thereof to
         receive, Common Stock.

                  "Company  Counsel" means Gardere Wynne Sewell LLP with offices
         at 1601 Elm Street, Suite 3000, Dallas, Texas 75201.

                  "Conversion  Price"  shall have the  meaning  ascribed to such
         term in the Debentures.

                  "Debentures"   means,  the  7.0%  Senior  Secured  Convertible
         Debentures  due,  subject to the terms  therein,  five years from their
         date of issuance, issued by the Company to the Purchasers hereunder, in
         the form of Exhibit A.

                  "Disclosure Schedules" shall have the meaning ascribed to such
         term in Section 3.1 hereof.

                  "Effective Date" means the date that the initial  Registration
         Statement  filed by the  Company  pursuant to the  Registration  Rights
         Agreement is first declared effective by the Commission.

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

                  "Exempt  Issuance"  means the issuance of (a) shares of Common
         Stock or options to  employees,  officers or  directors  of the Company
         pursuant to any stock or option plan duly  adopted by a majority of the
         non-employee  members  of the Board of  Directors  of the  Company or a
         majority  of the  members  of a  committee  of  non-employee  directors
         established  for such purpose,  (b) securities  upon the exercise of or
         conversion of any securities issued hereunder,  convertible securities,

                              Exhibit 10.1 - Page 2

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         options  or  warrants  issued  and  outstanding  on the  date  of  this
         Agreement,  provided that such  securities  have not been amended since
         the date of this  Agreement to increase the number of such  securities,
         and (c) securities issued, with the consent of Holders of a majority of
         the   outstanding   principal   amount  of   Debentures,   pursuant  to
         acquisitions or strategic  transactions  (which shall include any joint
         venture,  merger,  acquisition  of stock or  assets,  consolidation  or
         similar  transaction),  provided any such  issuance  shall only be to a
         Person  which is,  itself or through  its  subsidiaries,  an  operating
         company in a business  synergistic with the business of the Company and
         in which the Company receives benefits in addition to the investment of
         funds,  but shall not  include a  transaction  in which the  Company is
         issuing  securities  primarily for the purpose of raising capital or to
         an entity  whose  primary  business is  investing  in  securities,  and
         provided further, such consent shall not be required in connection with
         any  issuance  of  securities  with a value of less than  $100,000  per
         strategic  transaction,  but not in excess of an  aggregate of $500,000
         per fiscal year of the Company.

                  "GAAP" shall have the meaning ascribed to such term in Section
         3.1(h) hereof.

                  "LB&B" means Lord,  Bissell & Brook LLP with offices at 300 S.
         Grand Avenue, Suite 300, Los Angeles, California 90071.

                  "Liens" means a lien, charge, security interest,  encumbrance,
         right of first refusal, preemptive right or other restriction.

                  "Material  Adverse Effect" shall have the meaning  ascribed to
         such term in Section 3.1(b) hereof.

                  "Material  Permits"  shall have the  meaning  ascribed to such
         term in Section 3.1(m).

                  "Person"  means an  individual  or  corporation,  partnership,
         trust,  incorporated  or  unincorporated  association,  joint  venture,
         limited  liability  company,  joint stock  company,  government  (or an
         agency or subdivision thereof) or other entity of any kind.

                  "Proceeding" means an action,  claim,  suit,  investigation or
         proceeding (including,  without limitation, an investigation or partial
         proceeding, such as a deposition), whether commenced or threatened.

                  "Registration  Rights Agreement" means the Registration Rights
         Agreement,  dated as of the  Closing  Date,  among the  Company and the
         Purchasers, in the form of Exhibit B attached hereto.

                  "Registration   Statement"  means  a  registration   statement
         meeting the requirements set forth in the Registration Rights Agreement
         and covering the resale of the  Underlying  Shares by each Purchaser as
         provided for in the Registration Rights Agreement.

                  "Required  Approvals"  shall have the meaning ascribed to such
         term in Section 3.1(e).

                              Exhibit 10.1 - Page 3
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                  "Required   Minimum"  means,  as  of  any  date,  the  maximum
         aggregate  number of shares of Common Stock then issued or  potentially
         issuable in the future pursuant to the Transaction Documents, including
         any Underlying  Shares  issuable upon exercise or conversion in full of
         all Warrants and Debentures  (including  Underlying  Shares issuable as
         payment  of  interest,  to the extent the  Company  has  elected to pay
         interest through the issuance of Common Stock), ignoring any conversion
         or exercise limits set forth therein.

                  "Rule  144"  means  Rule  144  promulgated  by the  Commission
         pursuant to the  Securities  Act, as such Rule may be amended from time
         to time,  or any similar rule or  regulation  hereafter  adopted by the
         Commission having substantially the same effect as such Rule.

                  "SEC Reports" shall have the meaning  ascribed to such term in
         Section 3.1(h) hereof.

                  "Securities" means the Debentures,  the Warrants,  the Warrant
         Shares and the Underlying Shares.

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

                  "Security  Agreement"  means  the  Deed  of  Trust,   Security
         Agreement,  Assignment of Production and Fixture Filing dated as of the
         Closing  Date,  among the  Company and the  Purchasers,  in the form of
         Exhibit C attached hereto.

                  "Subscription Amount" means, as to each Purchaser, the amounts
         set forth below such Purchaser's signature block on the signature pages
         hereto and next to the heading "Subscription  Amount," in United States
         Dollars and in immediately available funds.

                  "Subsidiary"  means any entity of which the Company owns fifty
         percent or more of the issued and outstanding equity interests.

                  "Trading  Day" means a day on which the Common Stock is traded
         on a Trading Market.

                  "Trading  Market" means the following  markets or exchanges on
         which the Common  Stock is listed or quoted for  trading on the date in
         question:  the Nasdaq SmallCap Market, the American Stock Exchange, the
         New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
         Board.

                  "Transaction Documents" means this Agreement,  the Debentures,
         the Warrants, the Registration Rights Agreement, the Security Agreement
         and any other  documents or agreements  executed in connection with the
         transactions contemplated hereunder.

                  "Underlying  Shares" means the shares of Common Stock issuable
         upon conversion of the Debentures and upon exercise of the Warrants and
         issued and  issuable  in lieu of the cash  payment of  interest  on the
         Debentures.

                              Exhibit 10.1 - Page 4

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                  "Warrants"  means   collectively  the  Common  Stock  purchase
         warrants,  in the form of Exhibit D delivered to the  Purchasers at the
         Closing in accordance with Section 2.2 hereof,  which Warrants shall be
         exercisable immediately and have a term of exercise equal to 5 years.

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

                                   ARTICLE II.
                                PURCHASE AND SALE

         2.1 Closing.  The Company agrees to sell, and each Purchaser  agrees to
purchase in the aggregate, severally and not jointly, up to $3,500,000 principal
amount of the  Debentures.  Upon  satisfaction  of the  conditions  set forth in
Section  2.2,  the Closing  shall  occur at the  offices of LB&B,  or such other
location as the parties  shall  mutually  agree.  The Closing shall occur within
five (5) Trading Days of the date hereof.

         2.2 Deliveries.

         a)       At or prior to the Closing,  unless otherwise indicated below,
                  the Company  shall  deliver or cause to be  delivered  to each
                  Purchaser the following:

                  (i)      this Agreement duly executed by the Company;

                  (ii)     a  Debenture  with a principal  amount  equal to such
                           Purchaser's  Subscription  Amount,  registered in the
                           name of such Purchaser;

                  (iii)    a Warrant registered in the name of such Purchaser to
                           purchase  up to a number of  shares  of Common  Stock
                           equal to the  principal  amount,  in dollars,  of the
                           Debenture issued to such Purchaser,  with an exercise
                           price equal to $1.00, subject to adjustment therein;

                  (iv)     the  Registration  Rights  Agreement duly executed by
                           the Company;

                  (v)      the Security Agreement duly executed by the
                                    Company; and

                  (vi)     a legal  opinion of Company  Counsel,  in the form of
                           Exhibit E attached hereto.

         b)       At or prior to the Closing,  unless otherwise indicated below,
                  each  Purchaser  shall deliver or cause to be delivered to the
                  Company the following:

                  (i)      this Agreement duly executed by such Purchaser;

                  (ii)     such Purchaser's  Subscription  Amount, which must be
                           not less than $10,000,  unless waived by the Company,
                           by wire  transfer  to the  account  as  specified  in
                           writing by the Company;

                              Exhibit 10.1 - Page 5

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                  (iii)    the  Registration  Rights  Agreement duly executed by
                           such Purchaser; and

                  (iv)     the  Security   Agreement   duly   executed  by  such
                           Purchaser.

         2.3 Closing Conditions.

         a)       The  obligations of the Company  hereunder in connection  with
                  each  Closing are subject to the  following  conditions  being
                  met:

                  (i)      the accuracy in all material  respects  when made and
                           on  the  Closing  Date  of  the  representations  and
                           warranties of the Purchasers contained herein;

                  (ii)     all  obligations,  covenants  and  agreements  of the
                           Purchasers  required to be  performed  at or prior to
                           the Closing Date shall have been performed; and

                  (iii)    the delivery by the Purchasers of the items set forth
                           in  Section  2.2(b)  of  this  Agreement,   including
                           aggregate  Subscription  Amounts  of  not  less  than
                           $1,500,000.

         b)       The  respective  obligations  of the  Purchasers  hereunder in
                  connection  with the  Closing  are  subject  to the  following
                  conditions being met:

                  (i)      the accuracy in all material  respects on the Closing
                           Date of the  representations  and  warranties  of the
                           Company contained herein;

                  (ii)     all  obligations,  covenants  and  agreements  of the
                           Company  required to be  performed at or prior to the
                           Closing Date shall have been performed;

                  (iii)    the delivery by the Company of the items set forth in
                           Section 2.2(a) of this Agreement;

                  (iv)     there shall have been no Material Adverse Effect with
                           respect to the Company since the  applicable  Closing
                           Date; and

                  (v)      From the date hereof to such Closing Date, trading in
                           the Common Stock shall not have been suspended by the
                           Commission  (except for any  suspension of trading of
                           limited  duration  agreed  to by the  Company,  which
                           suspension shall be terminated prior to the Closing),
                           and, at any time prior to the Closing  Date,  trading
                           in  securities  generally  as reported  by  Bloomberg
                           Financial  Markets  shall not have been  suspended or
                           limited,  or  minimum  prices  shall  not  have  been
                           established  on securities  whose trades are reported
                           by such service,  or on any Trading Market, nor shall
                           a banking moratorium have been declared either by the
                           United States or New York State authorities nor shall

                              Exhibit 10.1 - Page 6

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                           there  have   occurred  any   material   outbreak  or
                           escalation  of   hostilities  or  other  national  or
                           international  calamity  of  such  magnitude  in  its
                           effect  on, or any  material  adverse  change in, any
                           financial   market  which,   in  each  case,  in  the
                           reasonable  judgment  of  each  Purchaser,  makes  it
                           impracticable   or   inadvisable   to  purchase   the
                           Debentures at the Closing.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1  Representations and Warranties of the Company. To the knowledge of
the Company,  except as set forth in the disclosure  schedules  delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules"),  which Disclosure
Schedules  shall  be  deemed  a  part  hereof,  the  Company  hereby  makes  the
representations and warranties set forth below to each Purchaser. The Purchasers
acknowledge and agree that disclosure in any section of the Disclosure  Schedule
shall be  deemed  to have been made  with  respect  to each  representation  and
warranty of the Company.  For purposes of this Article III, the knowledge of the
Company  shall  be  deemed  to be the  actual  knowledge  of the  directors  and
executive officers of the Company, without independent investigation.

                  (a) Subsidiaries. The Company has no Subsidiaries.

                  (b)   Organization  and   Qualification.   The  Company  is  a
         corporation  duly  incorporated,  validly existing and in good standing
         under the laws of the jurisdiction of its incorporation or organization
         (as applicable),  with the requisite power and authority to own and use
         its  properties  and assets and to carry on its  business as  currently
         conducted.  The  Company is not in  violation  or default of any of the
         provisions of its respective  certificate or articles of incorporation,
         bylaws or other  organizational  or charter  documents.  The Company is
         duly qualified to conduct business and is in good standing as a foreign
         corporation or other entity in each jurisdiction in which the nature of
         the business conducted or property owned by it makes such qualification
         necessary,  except  where the  failure  to be so  qualified  or in good
         standing,  as the case may be, could not have or reasonably be expected
         to result in (i) a material adverse effect on the legality, validity or
         enforceability  of any Transaction  Document,  (ii) a material  adverse
         effect on the results of  operations,  assets,  business,  prospects or
         financial  condition of the Company, or (iii) a material adverse effect
         on the Company's ability to perform in any material respect on a timely
         basis its obligations under any Transaction  Document (any of (i), (ii)
         or (iii),  a "Material  Adverse  Effect")  and no  Proceeding  has been
         instituted in any such jurisdiction revoking, limiting or curtailing or
         seeking  to  revoke,  limit or  curtail  such  power and  authority  or
         qualification.

                  (c) Authorization;  Enforcement. The Company has the requisite
         corporate  power and  authority  to enter  into and to  consummate  the
         transactions  contemplated  by each of the  Transaction  Documents  and
         otherwise to carry out its  obligations  thereunder.  The execution and
         delivery of each of the  Transaction  Documents  by the Company and the
         consummation by it of the transactions  contemplated  thereby have been

                              Exhibit 10.1 - Page 7

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         duly authorized by all necessary  action on the part of the Company and
         no further  action is required by the Company in  connection  therewith
         other than in connection with the Required Approvals.  Each Transaction
         Document has been (or upon  delivery  will have been) duly  executed by
         the Company and, when  delivered in  accordance  with the terms hereof,
         will  constitute  the  valid  and  binding  obligation  of the  Company
         enforceable against the Company in accordance with its terms except (i)
         as limited by general equitable  principles and applicable  bankruptcy,
         insolvency,  reorganization,  moratorium  and  other  laws  of  general
         application affecting enforcement of creditors' rights generally,  (ii)
         as  limited  by  laws   relating  to  the   availability   of  specific
         performance,  injunctive  relief or other equitable  remedies and (iii)
         insofar as indemnification  and contribution  provisions may be limited
         by applicable law.

                  (d) No Conflicts.  The execution,  delivery and performance of
         the  Transaction  Documents by the Company and the  consummation by the
         Company of the other transactions  contemplated thereby do not and will
         not:  (i)  conflict  with or violate  any  provision  of the  Company's
         certificate   or   articles   of   incorporation,   bylaws   or   other
         organizational  or  charter  documents,   or  (ii)  conflict  with,  or
         constitute  a default (or an event that with notice or lapse of time or
         both would become a default) under,  result in the creation of any Lien
         upon any of the properties or assets of the Company (except as provided
         in the  Transaction  Documents),  or  give  to  others  any  rights  of
         termination,  amendment,  acceleration or cancellation (with or without
         notice, lapse of time or both) of, any agreement, credit facility, debt
         or other  instrument  (evidencing a Company debt or otherwise) or other
         understanding  to which the Company is a party or by which any property
         or asset of the Company is bound or affected,  or (iii)  subject to the
         Required Approvals,  conflict with or result in a violation of any law,
         rule,  regulation,   order,  judgment,   injunction,  decree  or  other
         restriction of any court or governmental authority to which the Company
         is  subject   (including   federal  and  state   securities   laws  and
         regulations), or by which any property or asset of the Company is bound
         or affected; except in the case of each of clauses (ii) and (iii), such
         as could not have or  reasonably  be  expected  to result in a Material
         Adverse Effect.

                  (e)  Filings,  Consents  and  Approvals.  The  Company  is not
         required to obtain any consent, waiver, authorization or order of, give
         any notice to, or make any filing or  registration  with,  any court or
         other federal,  state, local or other  governmental  authority or other
         Person in connection  with the execution,  delivery and  performance by
         the  Company  of the  Transaction  Documents,  other  than (i)  filings
         required  pursuant to Section 4.6, (ii) the filing with the  Commission
         of the Registration Statement,  and (iii) the filing of Form D with the
         Commission and such filings as are required to be made under applicable
         state securities laws (collectively, the "Required Approvals").

                  (f)  Issuance  of the  Securities.  The  Securities  are  duly
         authorized  and,  when  issued  and  paid  for in  accordance  with the
         applicable  Transaction  Documents,  will be duly and  validly  issued,
         fully paid and  nonassessable,  free and clear of all Liens  imposed by
         the Company  other than  restrictions  on transfer  provided for in the
         Transaction   Documents  or  under  applicable   securities  laws.  The
         Underlying  Shares,  when  issued in  accordance  with the terms of the
         Transaction   Documents,   will  be  validly  issued,  fully  paid  and
         nonassessable,  free and clear of all Liens imposed by the Company. The
         Company has reserved from its duly authorized capital stock a number of
         shares of Common  Stock for  issuance of the  Underlying  Shares on the

                              Exhibit 10.1 - Page 8

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         date  hereof.  The Company has not sold,  offered for sale or solicited
         offers to buy or  otherwise  negotiated  in respect of any security (as
         defined in Section 2 of the  Securities  Act) that would be  integrated
         with the offer or sale of the Securities in a manner that would require
         the registration under the Securities Act of the sale of the Securities
         to the  Purchasers,  or that would be integrated with the offer or sale
         of the  Securities  for  purposes of the rules and  regulations  of any
         Trading Market.

                  (g)  Capitalization.  The  capitalization of the Company is as
         described in the Company's most recent  periodic  report filed with the
         Commission.  Except for those securities listed on Schedule 3.1(g), the
         Company has not issued any capital  stock since such filing  other than
         pursuant to the exercise of employee  stock options under the Company's
         stock option plans, the issuance of shares of Common Stock to employees
         pursuant to the Company's  employee stock purchase plan and pursuant to
         the conversion or exercise of outstanding Common Stock Equivalents.  No
         Person  has any  right of first  refusal,  preemptive  right,  right of
         participation,  or any similar right to participate in the transactions
         contemplated  by the Transaction  Documents.  Except as a result of the
         purchase and sale of the Securities,  there are no outstanding options,
         warrants,  script rights to subscribe to, calls or  commitments  of any
         character whatsoever relating to, or securities,  rights or obligations
         convertible into or exchangeable for, or giving any Person any right to
         subscribe  for or acquire,  any shares of Common  Stock,  or contracts,
         commitments,  understandings or arrangements by which the Company is or
         may  become  bound to issue  additional  shares  of  Common  Stock,  or
         securities or rights  convertible or exchangeable into shares of Common
         Stock.  The issuance and sale of the  Securities  will not obligate the
         Company  to issue  shares of Common  Stock or other  securities  to any
         Person  (other than the  Purchasers)  and will not result in a right of
         any holder of Company  securities to adjust the  exercise,  conversion,
         exchange or reset price under such  securities.  All of the outstanding
         shares of capital stock of the Company are validly  issued,  fully paid
         and nonassessable,  have been issued in compliance with all federal and
         state securities  laws, and none of such outstanding  shares was issued
         in violation of any  preemptive  rights or similar  rights to subscribe
         for or purchase securities. No further approval or authorization of any
         stockholder,  the  Board of  Directors  of the  Company  or  others  is
         required  for the  issuance  and  sale  of the  Securities.  Except  as
         disclosed in the SEC  Reports,  there are no  stockholders  agreements,
         voting  agreements  or other  similar  agreements  with  respect to the
         Company's  capital  stock to which the Company is a party or between or
         among any of the Company's stockholders.

                  (h) SEC Reports; Financial Statements.  Except as described on
         Schedule 3.1(h), the Company has filed all reports required to be filed
         by it under the Securities Act and the Exchange Act, including pursuant
         to Section 13(a) or 15(d) thereof, for the two years preceding the date
         hereof (or such  shorter  period as the Company was  required by law to
         file such material) (the  foregoing  materials,  including the exhibits
         thereto, being collectively referred to herein as the "SEC Reports") on
         a timely basis or has received a valid extension of such time of filing
         and has filed any such SEC Reports prior to the  expiration of any such
         extension.  As of their  respective  dates, the SEC Reports complied in
         all material  respects with the  requirements of the Securities Act and
         the  Exchange  Act and the  rules  and  regulations  of the  Commission
         promulgated  thereunder,  and  none of the  SEC  Reports,  when  filed,
         contained any untrue statement of a material fact or omitted to state a
         material  fact  required to be stated  therein or necessary in order to
         make the statements  therein, in light of the circumstances under which
         they were made, not misleading. The financial statements of the Company
         included  in the SEC  Reports  comply  in all  material  respects  with
         applicable accounting requirements and the rules and regulations of the
         Commission  with  respect  thereto  as in effect at the time of filing.
         Such financial  statements have been prepared in accordance with United
         States generally accepted accounting principles applied on a consistent
         basis during the periods involved ("GAAP"),  except as may be otherwise
         specified in such financial  statements or the notes thereto and except
         that ---- unaudited financial  statements may not contain all footnotes
         required  by GAAP,  and fairly  present in all  material  respects  the
         financial  position of the Company as of and for the dates  thereof and
         the results of  operations  and cash flows for the periods  then ended,
         subject, in the case of unaudited  statements,  to normal,  immaterial,
         year-end audit adjustments.

                  (i)  Material  Changes.  Since the date of the latest  audited
         financial  statements  included  within  the  SEC  Reports,  except  as
         specifically  disclosed  in the SEC  Reports  or as listed on  Schedule
         3.1(i), (i) there has been no event, occurrence or development that has
         had or that  could  reasonably  be  expected  to result  in a  Material
         Adverse  Effect,  (ii) the Company  has not  incurred  any  liabilities
         (contingent  or  otherwise)  other than (A) trade  payables and accrued
         expenses  incurred in the ordinary  course of business  consistent with
         past practice and (B)  liabilities  not required to be reflected in the
         Company's  financial  statements  pursuant  to GAAP or  required  to be
         disclosed  in filings made with the  Commission,  (iii) the Company has
         not altered its method of accounting in any material respect,  (iv) the
         Company has not declared or made any dividend or  distribution  of cash
         or other property to its  stockholders  or purchased,  redeemed or made
         any  agreements  to purchase or redeem any shares of its capital  stock
         and (v) the  Company  has  not  issued  any  equity  securities  to any
         officer,  director or Affiliate,  except  pursuant to existing  Company
         stock  option  plans.  The  Company  does not have  pending  before the
         Commission any request for confidential treatment of information.

                  (j) Litigation.  Except as disclosed in the SEC Reports, there
         is no  action,  suit,  inquiry,  notice  of  violation,  proceeding  or
         investigation pending or threatened against or affecting the Company or
         any of its respective  properties  before or by any court,  arbitrator,
         governmental or administrative agency or regulatory authority (federal,
         state, county, local or foreign) (collectively,  an "Action") which (i)
         adversely   affects   or   challenges   the   legality,   validity   or
         enforceability of any of the Transaction Documents or the Securities or
         (ii) could, if there were an unfavorable  decision,  have or reasonably
         be  expected  to result  in a  Material  Adverse  Effect.  Neither  the
         Company,  nor any  director  or  officer  thereof,  is or has  been the
         subject of any Action  involving a claim of  violation  of or liability
         under  federal  or  state  securities  laws or a  claim  of  breach  of
         fiduciary  duty.  There  has not  been,  and  there is not  pending  or
         contemplated, any investigation by the Commission involving the Company
         or any  current  or former  director  or officer  of the  Company.  The
         Commission has not issued any stop order or other order  suspending the
         effectiveness of any registration  statement filed by the Company under
         the Exchange Act or the Securities Act.

                             Exhibit 10.1 - Page 10

<PAGE>

                  (k) Labor  Relations.  No material  labor dispute exists or is
         imminent  with  respect to any of the  employees  of the Company  which
         could reasonably be expected to result in a Material Adverse Effect.

                  (l) Compliance.  The Company is not (i) in default under or in
         violation of (and no event has occurred  that has not been waived that,
         with notice or lapse of time or both,  would result in a default by the
         Company  under) any  indenture,  loan or credit  agreement or any other
         agreement or instrument to which it is a party or by which it or any of
         its  properties is bound  (whether or not such default or violation has
         been waived),  (ii) in violation of any order of any court,  arbitrator
         or  governmental  body,  or (iii) in violation of any statute,  rule or
         regulation of any governmental authority,  including without limitation
         all foreign,  federal,  state and local laws applicable to its business
         except  in the case of each of (i)  through  (iii) as could  not have a
         Material Adverse Effect.

                  (m)   Regulatory   Permits.    The   Company   possesses   all
         certificates,  authorizations  and  permits  issued by the  appropriate
         federal,  state, local or foreign regulatory  authorities  necessary to
         conduct  their  respective  businesses as described in the SEC Reports,
         except  where the  failure to possess  such  permits  could not have or
         reasonably  be  expected  to  result  in  a  Material   Adverse  Effect
         ("Material  Permits"),  and the Company has not  received any notice of
         proceedings  relating to the revocation or modification of any Material
         Permit.

                  (n) Title to Assets. The Company has indefeasible title in fee
         simple  to all  real  property  owned  by it  that is  material  to the
         business  of the  Company,  in each case  free and clear of all  Liens,
         except for Liens as do not materially affect the value of such property
         and do not  materially  interfere  with the use made and proposed to be
         made of such  property  by the  Company,  and Liens for the  payment of
         federal,  state or  other  taxes,  the  payment  of  which  is  neither
         delinquent  nor subject to penalties.  Any real property and facilities
         held under lease by the Company are held by it under valid,  subsisting
         and  enforceable  leases of which the Company is in  compliance  in all
         material respects.

                  (o) Patents and Trademarks. The Company has rights to use, all
         patents,  patent  applications,   trademarks,  trademark  applications,
         service  marks,  trade names,  copyrights,  licenses and other  similar
         rights necessary or material for use in connection with its business as
         described  in the SEC  Reports  and which the  failure to so have could
         have  a  Material  Adverse  Effect  (collectively,   the  "Intellectual
         Property  Rights").  The Company has not received a written notice that
         the  Intellectual  Property  Rights  used by the  Company  violates  or
         infringes upon the rights of any Person. All such Intellectual Property
         Rights are enforceable and there is no existing infringement by another
         Person of any of the Intellectual Property Rights of others.

                  (p)   Insurance.   The  Company  is  insured  by  insurers  of
         recognized financial  responsibility  against such losses and risks and
         in such amounts as are prudent and customary in the businesses in which
         the Company is engaged.  Such  insurance  contracts  and  policies  are
         accurate and complete.  The Company does not have any reason to believe
         that it will not be able to renew its  existing  insurance  coverage as

                             Exhibit 10.1 - Page 11

<PAGE>

         and when such  coverage  expires  or to obtain  similar  coverage  from
         similar insurers as may be necessary to continue its business without a
         significant  increase in cost,  except as a result of factors effecting
         the  insurance  industry  generally,  or  companies  operating  in  the
         industries in which the Company operates.

                  (q) Transactions With Affiliates and Employees.  Except as set
         forth in the SEC Reports and Schedule  3.1(q),  none of the officers or
         directors  of the Company and none of the  employees  of the Company is
         presently a party to any  transaction  with the Company (other than for
         services as employees, officers and directors), including any contract,
         agreement or other arrangement providing for the furnishing of services
         to or by, providing for rental of real or personal property to or from,
         or otherwise  requiring  payments to or from any  officer,  director or
         such  employee  or, any entity in which any officer,  director,  or any
         such  employee has a substantial  interest or is an officer,  director,
         trustee or  partner,  in each case in excess of $60,000  other than (i)
         for payment of salary or consulting  fees for services  rendered,  (ii)
         reimbursement  for expenses incurred on behalf of the Company and (iii)
         for other employee  benefits,  including stock option  agreements under
         any stock option plan of the Company.

                  (r) Sarbanes-Oxley;  Internal Accounting Controls. The Company
         is in material compliance with all provisions of the Sarbanes-Oxley Act
         of 2002 which are  applicable to it as of the Closing Date. The Company
         maintains  a system  of  internal  accounting  controls  sufficient  to
         provide  reasonable  assurance  that (i)  transactions  are executed in
         accordance with management's general or specific  authorizations,  (ii)
         transactions  are  recorded  as  necessary  to  permit  preparation  of
         financial  statements  in  conformity  with GAAP and to maintain  asset
         accountability,  (iii) access to assets is permitted only in accordance
         with  management's  general  or  specific  authorization,  and (iv) the
         recorded accountability for assets is compared with the existing assets
         at reasonable intervals and appropriate action is taken with respect to
         any differences.  The Company has established  disclosure  controls and
         procedures  (as defined in Exchange Act Rules  13a-15(e) and 15d-15(e))
         for the Company and designed such disclosure controls and procedures to
         ensure that material  information relating to the Company is made known
         to the  Chief  Executive  Officer  and  Chief  Financial  Officer  (the
         "Certifying  Officers")  by others  within  the  Company,  particularly
         during the period in which the Company's periodic report required to be
         filed under the Exchange  Act with respect to the period most  recently
         ended, as the case may be, is being prepared.  The Certifying  Officers
         have  evaluated  the  effectiveness  of  the  Company's   controls  and
         procedures  as of an  appropriate  date prior to the filing date of the
         most recently filed periodic  report under the Exchange Act (such date,
         the  "Evaluation  Date").  The Company  presented in its most  recently
         filed  periodic  report under the Exchange Act the  conclusions  of the
         Certifying  Officers about the effectiveness of the disclosure controls
         and procedures  based on their  evaluations as of the Evaluation  Date.
         Since the Evaluation  Date,  there have been no significant  changes in
         the Company's internal controls (as such term is defined in Item 307(b)
         of  Regulation  S-K under the  Exchange  Act) or in other  factors that
         could significantly affect the Company's internal controls.

                  (s) Certain Fees. Except for fees and/or commissions described
         on Schedule 3.1(s), no brokerage or finder's fees or commissions are or
         will be payable  by the  Company to any  broker,  financial  advisor or

                             Exhibit 10.1 - Page 12

<PAGE>

         consultant,  finder,  placement agent, investment banker, bank or other
         Person with respect to the transactions contemplated by this Agreement.
         The  Purchasers  shall have no  obligation  with respect to any fees or
         with  respect to any claims  made by or on behalf of other  Persons for
         fees  of a  type  contemplated  in  this  Section  that  may  be due in
         connection with the transactions contemplated by this Agreement.

                  (t) Private Placement. Assuming the accuracy of the Purchasers
         representations   and   warranties   set  forth  in  Section   3.2,  no
         registration  under the  Securities  Act is required  for the offer and
         sale of the Securities by the Company to the Purchasers as contemplated
         hereby.  The issuance  and sale of the  Securities  hereunder  does not
         contravene the rules and regulations of the Trading Market.

                  (u)  Investment  Company.  The  Company is not,  and is not an
         Affiliate  of,  and  immediately  after  receipt  of  payment  for  the
         Securities,  will not be or be an Affiliate of, an "investment company"
         within the meaning of the  Investment  Company Act of 1940, as amended.
         The Company  shall conduct its business in a manner so that it will not
         become subject to the Investment Company Act.

                  (v) Registration  Rights.  Except for those shares included on
         Schedule 3.1(v), no Person has any right to cause the Company to effect
         the  registration  under the  Securities  Act of any  securities of the
         Company.

                  (w)  Listing  and  Maintenance  Requirements.  The  Company is
         required to report  pursuant to Section  15(d) of the Exchange Act with
         respect  to its  Common  Stock,  and the  Company  has  taken no action
         designed to, or which is likely to have the effect of,  terminating the
         registration  of the Common  Stock under the  Exchange  Act nor has the
         Company received any notification  that the Commission is contemplating
         terminating  such  registration.  The Company has not, in the 12 months
         preceding the date hereof,  received  notice from any Trading Market on
         which the  Common  Stock is or has been  listed or quoted to the effect
         that the Company is not in compliance  with the listing or  maintenance
         requirements of such Trading Market.  The Company is, and has no reason
         to believe that it will not in the  foreseeable  future continue to be,
         in compliance with all such listing and maintenance requirements.

                  (x) Disclosure.  The Company  confirms that neither it nor any
         other Person acting on its behalf has provided any of the Purchasers or
         their agents or counsel with any information  that constitutes or could
         reasonably  constitute  material,  nonpublic  information,  except  for
         information set forth in the Transaction Documents and the transactions
         contemplated  thereby.  The Company  understands  and confirms that the
         Purchasers  will  rely on the  foregoing  representation  in  effecting
         transactions in securities of the Company.  All disclosure  provided to
         the Purchasers regarding the Company, its business and the transactions
         contemplated  hereby,   including  the  Disclosure  Schedules  to  this
         Agreement, furnished by or on behalf of the Company with respect to the
         representations  and  warranties  made herein are true and correct with
         respect to such  representations  and warranties and do not contain any
         untrue  statement of a material fact or omit to state any material fact
         necessary in order to make the statements made therein, in light of the
         circumstances  under which they were made, not misleading.  The Company

                             Exhibit 10.1 - Page 13

<PAGE>

         acknowledges  and  agrees  that no  Purchaser  makes  or has  made  any
         representations   or  warranties  with  respect  to  the   transactions
         contemplated  hereby other than those specifically set forth in Section
         3.2 hereof.

                  (y) No  Integrated  Offering.  Assuming  the  accuracy  of the
         Purchasers'  representations  and  warranties set forth in Section 3.2,
         neither the Company,  nor any of its Affiliates,  nor any Person acting
         on its or their behalf has, directly or indirectly,  made any offers or
         sales of any  security  or  solicited  any offers to buy any  security,
         under circumstances that would cause this offering of the Securities to
         be integrated  with prior  offerings by the Company for purposes of the
         Securities  Act  or any  applicable  shareholder  approval  provisions,
         including,  without limitation,  under the rules and regulations of any
         Trading Market.

                  (z) Solvency.  Based on the financial condition of the Company
         as of the Closing Date prior to and after giving  effect to the receipt
         by  the  Company  of the  proceeds  from  the  sale  of the  Securities
         hereunder,  (i) the Company's fair saleable value of its assets exceeds
         the  amount  that will be  required  to be paid on or in respect of the
         Company's  existing  debts  and  other  liabilities   (including  known
         contingent  liabilities) as they mature;  (ii) the Company's  assets do
         not constitute  unreasonably small capital to carry on its business for
         the  current  fiscal  year  as  now  conducted  and as  proposed  to be
         conducted   including   its  capital  needs  taking  into  account  the
         particular  capital  requirements  of  the  business  conducted  by the
         Company,  and projected capital  requirements and capital  availability
         thereof;  and (iii) the current  anticipated  cash flow of the Company,
         together  with the  proceeds  the  Company  would  receive,  were it to
         liquidate all of its assets,  after taking into account all anticipated
         uses of the  cash,  would be  sufficient  to pay all  amounts  on or in
         respect of its debt when such  amounts  are  required  to be paid.  The
         Company  does not intend to incur debts  beyond its ability to pay such
         debts as they  mature  (taking  into  account the timing and amounts of
         cash to be payable on or in respect of its debt).

                  (aa)  Tax  Status.   Except  for   matters   that  would  not,
         individually  or in the  aggregate,  have or  reasonably be expected to
         result  in a  Material  Adverse  Effect,  the  Company  has  filed  all
         necessary  federal,  state and foreign income and franchise tax returns
         and has paid or accrued all taxes shown as due thereon, and the Company
         has no  knowledge  of a tax  deficiency  which  has  been  asserted  or
         threatened against the Company.

                  (bb) No General  Solicitation.  Neither  the  Company  nor any
         person  acting on behalf of the  Company has offered or sold any of the
         Securities by any form of general  solicitation or general advertising.
         The Company has offered the  Securities for sale only to the Purchasers
         and certain other "accredited investors" within the meaning of Rule 501
         under the Securities Act.

                  (cc) Foreign  Corrupt  Practices.  Neither the Company nor any
         agent or other person acting on behalf of the Company, has (i) directly
         or  indirectly,  used any  Company  funds for  unlawful  contributions,
         gifts,  entertainment or other unlawful  expenses related to foreign or

                             Exhibit 10.1 - Page 14

<PAGE>

         domestic political activity,  (ii) made any unlawful payment to foreign
         or domestic  government  officials  or  employees  or to any foreign or
         domestic  political  parties or campaigns from corporate  funds,  (iii)
         failed to disclose fully any contribution  made by the Company (or made
         by any person acting on its behalf of which the Company is aware) which
         is in  violation of law, or (iv)  violated in any material  respect any
         provision of the Foreign Corrupt Practices Act of 1977, as amended

                  (dd) Accountants. The Company's accountants are Philip Vogel &
         Co., P.C. Such accountants,  who the Company expects will express their
         opinion with respect to the financial  statements to be included in the
         Company's  Annual  Report on Form  10-KSB  for the year  ended June 30,
         2004, are independent accountants as required by the Securities Act.

                  (ee) Seniority. As of the Closing Date, no indebtedness of the
         Company will be senior to the  Debentures in right of payment,  whether
         with  respect  to  interest  or upon  liquidation  or  dissolution,  or
         otherwise.

                  (ff) No Disagreements with Accountants and Lawyers.  There are
         no  disagreements  of  any  kind  presently  existing,   or  reasonably
         anticipated  by the  Company  to arise,  between  the  accountants  and
         lawyers formerly or presently employed by the Company,  and the Company
         is  current  with  respect  to any  fees  owed to its  accountants  and
         lawyers.

                  (gg)   Acknowledgment   Regarding   Purchasers'   Purchase  of
         Securities.  The  Company  acknowledges  and  agrees  that  each of the
         Purchasers  is  acting  solely  in  the  capacity  of an  arm's  length
         purchaser   with  respect  to  the   Transaction   Documents   and  the
         transactions contemplated hereby. The Company further acknowledges that
         no  Purchaser  is acting as a  financial  advisor or  fiduciary  of the
         Company (or in any similar capacity) with respect to this Agreement and
         the  transactions  contemplated  hereby  and any  advice  given  by any
         Purchaser  or any of their  respective  representatives  or  agents  in
         connection with this Agreement and the transactions contemplated hereby
         is merely incidental to the Purchasers' purchase of the Securities. The
         Company  further  represents  to  each  Purchaser  that  the  Company's
         decision  to enter into this  Agreement  has been  based  solely on the
         independent  evaluation of the transactions  contemplated hereby by the
         Company and its representatives.

         3.2  Representations  and Warranties of the Purchasers.  Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of each Closing Date to the Company as follows:

                  (a) Organization;  Authority.  Such Purchaser is (i) an entity
         duly organized, validly existing and in good standing under the laws of
         the  jurisdiction  of its  organization  with  full  right,  power  and
         authority to enter into and to consummate the transactions contemplated
         by the Transaction Documents and otherwise to carry out its obligations
         thereunder or (ii) a natural person with the capacity to enter into and
         to  consummate  the   transactions   contemplated  by  the  Transaction
         Documents and otherwise to carry out his  obligations  thereunder.  The
         execution,  delivery  and  performance  by such  Purchaser  (other than
         natural  persons) of the  transactions  contemplated  by this Agreement

                             Exhibit 10.1 - Page 15

<PAGE>

         have been duly authorized by all necessary  corporate or similar action
         on the part of such Purchaser. Each Transaction Document to which it is
         a party has been duly executed by such Purchaser, and when delivered by
         such Purchaser in accordance with the terms hereof, will constitute the
         valid and legally  binding  obligation of such  Purchaser,  enforceable
         against  it in  accordance  with its  terms,  except  (i) as limited by
         general  equitable  principles and applicable  bankruptcy,  insolvency,
         reorganization,  moratorium  and  other  laws  of  general  application
         affecting  enforcement of creditors' rights generally,  (ii) as limited
         by  laws  relating  to  the   availability  of  specific   performance,
         injunctive  relief or other  equitable  remedies  and (iii)  insofar as
         indemnification   and   contribution   provisions  may  be  limited  by
         applicable law.

                  (b) Purchaser Representation.  Such Purchaser understands that
         the Securities are "restricted securities" and have not been registered
         under the Securities Act or any applicable  state securities law and is
         acquiring the  Securities as principal for its own account and not with
         a view to or for  distributing or reselling such Securities or any part
         thereof,   has  no  present  intention  of  distributing  any  of  such
         Securities  and has no  arrangement  or  understanding  with any  other
         persons   regarding  the   distribution   of  such   Securities   (this
         representation and warranty not limiting such Purchaser's right to sell
         the Securities  pursuant to the Registration  Statement or otherwise in
         compliance with applicable  federal and state  securities  laws).  Such
         Purchaser is acquiring the Securities  hereunder in the ordinary course
         of its  business.  Such  Purchaser  does  not  have  any  agreement  or
         understanding,  directly or  indirectly,  with any Person to distribute
         any of the Securities.

                  (c) Purchaser  Status.  At the time such Purchaser was offered
         the Securities,  it was, and at the date hereof it is, and on each date
         on which it exercises  any Warrants or converts any  Debentures it will
         be either:  (i) an "accredited  investor" as defined in Rule 501(a)(1),
         (a)(2),  (a)(3),  (a)(5), (a)(6), (a)(7) or (a)(8) under the Securities
         Act or  (ii) a  "qualified  institutional  buyer"  as  defined  in Rule
         144A(a) under the Securities  Act. Such Purchaser is not required to be
         registered as a broker-dealer under Section 15 of the Exchange Act.

                  (d) Experience of Such Purchaser. Such Purchaser, either alone
         or   together   with   its   representatives,   has   such   knowledge,
         sophistication  and experience in business and financial  matters so as
         to be capable  of  evaluating  the merits and risks of the  prospective
         investment in the Securities, and has so evaluated the merits and risks
         of such investment. Such Purchaser is able to bear the economic risk of
         an  investment in the  Securities  and, at the present time, is able to
         afford a complete loss of such investment.

                  (e) General Solicitation. Such Purchaser is not purchasing the
         Securities as a result of any advertisement,  article,  notice or other
         communication  regarding  the  Securities  published in any  newspaper,
         magazine or similar  media or  broadcast  over  television  or radio or
         presented at any seminar or any other general  solicitation  or general
         advertisement.

                  (f) Short  Sales.  Each  Purchaser  represents  that  prior to
         execution of this  Agreement,  neither it nor any Person over which the

                             Exhibit 10.1 - Page 16

<PAGE>

         Purchaser  has  direct  control,  have made any net short  sales of, or
         granted any option for the  purchase of or entered  into any hedging or
         similar  transaction with the same economic effect as a net short sale,
         in the Common Stock.

                  The Company acknowledges and agrees that each Purchaser does
         not make or has not made any representations or warranties with respect
         to the transactions contemplated hereby other than those specifically
         set forth in this Section 3.2.

                                   ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

         4.1 Transfer Restrictions.

                  (a) The Securities may only be disposed of in compliance  with
         state and federal  securities  laws. In connection with any transfer of
         Securities (other than pursuant to an effective  registration statement
         or Rule 144, to the  Company or to an  Affiliate  of a Purchaser  or in
         connection  with a pledge  as  contemplated  in  Section  4.1(b)),  the
         Company may require the transferor thereof to provide to the Company an
         opinion of counsel selected by the transferor and reasonably acceptable
         to the  Company,  the form and  substance  of  which  opinion  shall be
         reasonably  satisfactory  to the  Company,  to  the  effect  that  such
         transfer does not require  registration of such transferred  Securities
         under  the  Securities  Act.  As a  condition  of  transfer,  any  such
         transferee  shall  agree in  writing  to be bound by the  terms of this
         Agreement and shall have the rights of a Purchaser under this Agreement
         and the Registration Rights Agreement.

                  (b) The  Purchasers  agree  to the  imprinting,  so long as is
         required by this Section  4.1(b),  of a legend on any of the Securities
         in the following form:

         [NEITHER]  THESE  SECURITIES  [NOR  THE  SECURITIES  INTO  WHICH  THESE
         SECURITIES ARE [EXERCISABLE]  [CONVERTIBLE]]  HAVE BEEN REGISTERED WITH
         THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES  COMMISSION OF
         ANY STATE IN RELIANCE  UPON AN EXEMPTION  FROM  REGISTRATION  UNDER THE
         SECURITIES  ACT OF  1933,  AS  AMENDED  (THE  "SECURITIES  ACT"),  AND,
         ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
         REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR  PURSUANT  TO AN
         AVAILABLE  EXEMPTION  FROM,  OR IN A  TRANSACTION  NOT  SUBJECT TO, THE
         REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
         APPLICABLE  STATE  SECURITIES  LAWS AS EVIDENCED BY A LEGAL  OPINION OF
         COUNSEL TO THE TRANSFEROR  REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH
         EFFECT,  THE SUBSTANCE OF WHICH SHALL BE  REASONABLY  ACCEPTABLE TO THE
         COMPANY.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
         THESE  SECURITIES MAY BE PLEDGED IN CONNECTION  WITH A BONA FIDE MARGIN
         ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

                             Exhibit 10.1 - Page 17

<PAGE>

                  The Company  acknowledges and agrees that a Purchaser may from
         time to time pledge  pursuant to a bona fide  margin  agreement  with a
         registered broker-dealer or grant a security interest in some or all of
         the  Securities  to a  financial  institution  that  is an  "accredited
         investor"  as defined in Rule 501(a) under the  Securities  Act and who
         agrees  to be  bound  by the  provisions  of  this  Agreement  and  the
         Registration  Rights Agreement and, if required under the terms of such
         arrangement,  such Purchaser may transfer pledged or secured Securities
         to the pledgees or secured parties. Such a pledge or transfer would not
         be subject to approval  of the  Company  and no legal  opinion of legal
         counsel of the pledgee,  secured  party or pledgor shall be required in
         connection  therewith.  Further,  no notice  shall be  required of such
         pledge.  At the  appropriate  Purchaser's  expense,  the  Company  will
         execute  and  deliver  such  reasonable  documentation  as a pledgee or
         secured party of Securities may reasonably request in connection with a
         pledge or transfer of the Securities,  including, if the Securities are
         subject to registration  pursuant to the Registration Rights Agreement,
         the preparation and filing of any required prospectus  supplement under
         Rule 424(b)(3) under the Securities Act or other  applicable  provision
         of the  Securities  Act to  appropriately  amend  the  list of  Selling
         Stockholders thereunder.

         (c)  Except  as may be  required  under  applicable  law,  certificates
         evidencing  the   Underlying   Shares  shall  not  contain  any  legend
         (including the legend set forth in Section 4.1(b) hereof):  (i) while a
         registration statement (including the Registration  Statement) covering
         the resale of such security is effective  under the Securities  Act, or
         (ii) following any sale of such Underlying Shares pursuant to Rule 144,
         or (iii) if such  Underlying  Shares are  eligible  for sale under Rule
         144(k),  or  (iv) if  such  legend  is not  required  under  applicable
         requirements of the Securities Act (including judicial  interpretations
         and  pronouncements  issued by the staff of the Commission);  provided,
         however, in connection with the issuance of the Underlying Shares, each
         Purchaser,  severally and not jointly with the other Purchasers, hereby
         agrees to adhere to and abide by all prospectus  delivery  requirements
         under the Securities Act and rules and  regulations of the  Commission.
         The Company  shall  cause its  counsel to issue a legal  opinion to the
         Company's  transfer agent promptly after the Effective Date if required
         by the  Company's  transfer  agent to effect the  removal of the legend
         hereunder. If all or any portion of a Debenture or Warrant is converted
         or  exercised  (as  applicable)  at a time when  there is an  effective
         registration statement to cover the resale of the Underlying Shares, or
         if such  Underlying  Shares may be sold  under  Rule  144(k) or if such
         legend is not otherwise  required under applicable  requirements of the
         Securities Act (including judicial  interpretations  thereof) then such
         Underlying  Shares  shall be issued  free of all  legends.  The Company
         agrees that following the Effective Date or at such time as such legend
         is no longer required under this Section 4.1(c), it will, no later than
         ten Trading Days  following  the delivery by a Purchaser to the Company
         or  the  Company's   transfer  agent  of  a  certificate   representing
         Underlying  Shares,  as  applicable,  issued with a restrictive  legend
         (such tenth  Trading  Day,  the "Legend  Removal  Date"),  use its best
         efforts  to  deliver  or  cause to be  delivered  to such  Purchaser  a
         certificate  representing such shares that is free from all restrictive
         and other legends. The Company may not make any notation on its records
         or give  instructions to any transfer agent of the Company that enlarge
         the  restrictions  on  transfer  set forth in this  Section,  except if
         agreed to in writing by Purchaser or required by law.

                             Exhibit 10.1 - Page 18

<PAGE>

                  (d) In addition to such Purchaser's other available  remedies,
         the Company shall pay to a Purchaser,  in cash,  as partial  liquidated
         damages  and not as a penalty,  for each  $1,000 of  Underlying  Shares
         (based on the VWAP of the Common Stock on the date such  Securities are
         submitted to the Company's transfer agent) delivered for removal of the
         restrictive  legend and subject to this Section 4.1(d), $10 per Trading
         Day  (increasing  to $20 per  Trading  Day 5 Trading  Days  after  such
         damages  have begun to accrue)  for each  Trading  Day after the Legend
         Removal  Date until such  certificate  is  delivered  without a legend.
         Nothing  herein  shall limit such  Purchaser's  right to pursue  actual
         damages for the Company's failure to deliver certificates  representing
         any  Securities  as required  by the  Transaction  Documents,  and such
         Purchaser  shall have the right to pursue all remedies  available to it
         at law or in equity including, without limitation, a decree of specific
         performance and/or injunctive relief.

                  (e) Each  Purchaser,  severally and not jointly with the other
         Purchasers,  agrees  that the  removal of the  restrictive  legend from
         certificates  representing  Securities as set forth in this Section 4.1
         is predicated upon the Company's  reliance that the Purchaser will sell
         any Securities pursuant to either the registration  requirements of the
         Securities   Act,   including  any   applicable   prospectus   delivery
         requirements, or an exemption therefrom.

         4.2  Acknowledgment  of  Dilution.  The Company  acknowledges  that the
issuance of the Securities may result in dilution of the  outstanding  shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company  further  acknowledges  that its  obligations  under the Transaction
Documents,  including without  limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not  subject  to any  right  of  set  off,  counterclaim,  delay  or  reduction,
regardless  of the effect of any such dilution or any claim the Company may have
against any Purchaser and  regardless of the dilutive  effect that such issuance
may have on the ownership of the other stockholders of the Company.

         4.3  Furnishing of  Information.  As long as the Company is required to
file reports pursuant to the Exchange Act, the Company covenants to use its best
efforts to timely file (or obtain  extensions in respect thereof and file within
the  applicable  grace  period) all reports  required to be filed by the Company
after the date hereof  pursuant to the  Exchange  Act. As long as any  Purchaser
owns not less than 20% of the Securities initially purchased hereunder (assuming
conversion of the Debentures  and exercise of the  Warrants),  if the Company is
not required to file reports  pursuant to the Exchange  Act, it will prepare and
furnish to the  Purchasers and make publicly  available in accordance  with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144.

         4.4 Integration.  The Company shall not sell, offer for sale or solicit
offers to buy or  otherwise  negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the  Securities  in a manner that would  require the  registration  under the
Securities  Act of the sale of the Securities to the Purchasers or that would be
integrated  with the offer or sale of the  Securities  for purposes of the rules
and regulations of any Trading Market.

                             Exhibit 10.1 - Page 19

<PAGE>

         4.5 Conversion and Exercise Procedures.  The form of Notice of Exercise
included in the  Warrants and the form of Notice of  Conversion  included in the
Debentures set forth the totality of the  procedures  required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures.  The Company shall honor
exercises of the Warrants and  conversions  of the  Debentures and shall deliver
Underlying Shares in accordance with the terms,  conditions and time periods set
forth in the Transaction Documents.

         4.6 Securities Laws Disclosure;  Publicity.  The Company shall, by 8:30
a.m.  Eastern Time on the Trading Day following  the date hereof,  issue a press
release or file a Current Report on Form 8-K, in each case reasonably acceptable
to C.K. Cooper & Company,  Inc., the placement  agent in the transaction  ("C.K.
Cooper"), disclosing the material terms of the transactions contemplated hereby.
The  Company and each  Purchaser  shall  consult  with each other in issuing any
other press releases with respect to the transactions  contemplated  hereby, and
neither  the  Company nor any  Purchaser  shall issue any such press  release or
otherwise  make any such  public  statement  without  the prior  consent  of the
Company, with respect to any press release or public statement of any Purchaser,
or  without  the prior  consent  of each  Purchaser,  with  respect to any press
release or public statement of the Company, which consent shall not unreasonably
be withheld,  except if, in the reasonable opinion of the disclosing party, such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party or parties with prior notice of such public statement or
communication.  Notwithstanding  the  foregoing,  the Company shall not publicly
disclose the name of any Purchaser,  or include the name of any Purchaser in any
filing with the Commission or any regulatory  agency or Trading Market,  without
the prior written consent of such  Purchaser,  except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading  Market  regulations,  in which case the Company shall provide
the Purchasers  with prior notice of such  disclosure  permitted under subclause
(i) or (ii).  The Purchasers  shall provide to the Company any such  information
about it that is required  pursuant  to  Subclause  (i) or (ii) of the  previous
sentence.

         4.7 Shareholders  Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring  Person" under any shareholders  rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the  provisions of any such plan or  arrangement,  by
virtue of  receiving  Securities  under the  Transaction  Documents or under any
other  agreement  between  the  Company and the  Purchasers.  The Company  shall
conduct  its  business  in a manner so that it will not  become  subject  to the
Investment Company Act.

         4.8  Non-Public  Information.  The  Company  covenants  and agrees that
neither it nor any other Person  acting on its behalf will provide any Purchaser
or its  agents  or  counsel  with  any  information  that the  Company  believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be  relying  on the  foregoing  representations  in  effecting  transactions  in
securities of the Company.

                             Exhibit 10.1 - Page 20

<PAGE>

         4.9 Use of  Proceeds.  Except as set  forth on  Schedule  4.9  attached
hereto,  the Company shall use the net proceeds from the sale of the  Securities
hereunder  for working  capital  purposes  and not for the  satisfaction  of any
portion of the  Company's  debt  (other  than  payment of trade  payables in the
ordinary course of the Company's  business and prior  practices),  to redeem any
Company  equity or equity  equivalent  securities  or to settle any  outstanding
litigation.  Schedule 4.9 also  contains the  currently  expected use of all net
proceeds from the sale of the Securities hereunder.

         4.10  Reimbursement.  If any Purchaser becomes involved in any capacity
in any  Proceeding by or against any Person who is a stockholder  of the Company
(except as a result of sales, pledges,  margin sales and similar transactions by
such Purchaser to or with any current  stockholder),  solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses  (including
the cost of any investigation,  preparation and travel in connection  therewith)
incurred  in  connection   therewith,   as  such  expenses  are  incurred.   The
reimbursement obligations of the Company under this Section shall be in addition
to any  liability  which the Company may otherwise  have,  shall extend upon the
same terms and  conditions to any  Affiliates of the Purchasers who are actually
named in such action,  proceeding or  investigation,  and  partners,  directors,
agents,  employees and controlling  persons (if any), as the case may be, of the
Purchasers  and any such  Affiliate,  and shall be binding upon and inure to the
benefit of any successors,  assigns,  heirs and personal  representatives of the
Company,  the Purchasers and any such Affiliate and any such Person. The Company
also  agrees that  neither the  Purchasers  nor any such  Affiliates,  partners,
directors,  agents, employees or controlling persons shall have any liability to
the  Company  or any  Person  asserting  claims  on behalf of or in right of the
Company solely as a result of acquiring the Securities under this Agreement.

         4.11  Indemnification of Purchasers.  Subject to the provisions of this
Section  4.11,  the Company will  indemnify  and hold the  Purchasers  and their
directors,  officers,  shareholders,  partners,  employees and agents  (each,  a
"Purchaser Party") harmless from any and all losses,  liabilities,  obligations,
claims,  contingencies,  damages,  costs and expenses,  including all judgments,
amounts paid in  settlements,  court costs and  reasonable  attorneys'  fees and
costs of  investigation  that any such Purchaser  Party may suffer or incur as a
result  of or  relating  to (a)  any  breach  of  any  of  the  representations,
warranties,  covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
Party  by any  stockholder  of the  Company  who is  not an  Affiliate  of  such
Purchaser  Party,  with respect to any of the  transactions  contemplated by the
Transaction  Documents  (unless  such  action  is based  upon a  breach  of such
Purchaser's  representation,  warranties  or  covenants  under  the  Transaction
Documents or any agreements or understandings such Purchaser Party may have with
any  such  stockholder  or any  violations  by the  Purchaser  Party of state or
federal securities laws or any conduct by such Purchaser Party which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any action shall
be brought  against any  Purchaser  Party in respect of which  indemnity  may be
sought  pursuant to this  Agreement,  such Purchaser Party shall promptly notify
the  Company  in  writing,  and the  Company  shall have the right to assume the
defense thereof with counsel of its own choosing. Any Purchaser Party shall have
the right to employ  separate  counsel in any such action and participate in the
defense  thereof,  but the fees and  expenses  of such  counsel  shall be at the
expense of such  Purchaser  Party  except to the extent that (i) the  employment
thereof has been  specifically  authorized  by the Company in writing,  (ii) the

                             Exhibit 10.1 - Page 21

<PAGE>

Company has failed after a reasonable  period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate  counsel,  a material  conflict on any material  issue between the
position of the Company and the position of such  Purchaser  Party.  The Company
will not be liable to any  Purchaser  Party  under  this  Agreement  (i) for any
settlement by a Purchaser  Party  effected  without the Company's  prior written
consent,  which shall not be  unreasonably  withheld or delayed;  or (ii) to the
extent,  but only to the  extent  that a loss,  claim,  damage or  liability  is
attributable  to any  Purchaser  Party's  breach of any of the  representations,
warranties,  covenants or agreements made by the Purchasers in this Agreement or
in the other Transaction Documents.

         4.12 Reservation and Listing of Securities.

                  (a) The  Company  shall  maintain  a  reserve  from  its  duly
         authorized  shares  of  Common  Stock  for  issuance  pursuant  to  the
         Transaction  Documents in such amount as may be required to fulfill its
         obligations in full under the Transaction Documents.

                  (b) If, on any date,  the number of  authorized  but  unissued
         (and  otherwise  unreserved)  shares of  Common  Stock is less than the
         Required  Minimum  on such  date,  then the Board of  Directors  of the
         Company  shall  use  commercially   reasonable  efforts  to  amend  the
         Company's  certificate  or articles of  incorporation  to increase  the
         number of  authorized  but unissued  shares of Common Stock to at least
         the Required Minimum at such time, as soon as possible and in any event
         not later than the 75th day after such date.

                  (c) The  Company  shall,  if  applicable:  (i) in the time and
         manner  required  by the  Trading  Market,  prepare  and file with such
         Trading  Market an additional  shares  listing  application  covering a
         number of shares of Common Stock at least equal to the Required Minimum
         on the date of such application, (ii) take all steps necessary to cause
         such shares of Common  Stock to be approved  for listing on the Trading
         Market as soon as possible thereafter,  (iii) provide to the Purchasers
         evidence of such listing,  and (iv) maintain the listing of such Common
         Stock on any date at least equal to the  Required  Minimum on such date
         on such Trading Market or another Trading Market.

         4.13 Equal Treatment of Purchasers.  No consideration  shall be offered
or paid to any  person to amend or consent  to a waiver or  modification  of any
provision of any of the Transaction  Documents unless the same  consideration is
also  offered to all of the parties to the  Transaction  Documents to the extent
such party's  consent or waiver is then required by such  Transaction  Document.
Further,  the Company shall not make any payment of principal or interest on the
Debentures in amounts which are  disproportionate  to the  respective  principal
amounts  outstanding on the Debentures at any applicable time. For clarification
purposes,  this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser,  and is intended for
the Company to treat the  Debenture  holders as a class and shall not in any way
be construed as the  Purchasers  acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.

         4.14 Favored Nations Provision.  If, at any time a Debenture or Warrant
is outstanding or Registrable Securities are not then registered in an effective
Registration  Statement for unrestricted  resale as required by the Registration
Rights Agreement,  the Company shall issue or agree to issue any Common Stock or

                             Exhibit 10.1 - Page 22

<PAGE>

securities  convertible  into or  exercisable  for shares of Common Stock to any
Person, firm or corporation at a price per share or conversion or exercise price
per share which shall be less than the  conversion,  or upon any other term more
favorable to such other investor,  without the consent of a Holder still holding
Securities, then the Holder is granted the right to modify any term or condition
of the  Transaction  Documents  to be the  same as any  term  of the  subsequent
offering that such Holder deems more favorable than the term or condition of the
Transaction Documents. The rights of the Holder set forth in this Section are in
addition  to any  other  rights  the  Holder  has  pursuant  to the  Transaction
Documents.

                                   ARTICLE V.
                                  MISCELLANEOUS

         5.1 Termination.  This Agreement may be terminated by any Purchaser, by
written notice to the other parties,  if the Closing has not been consummated on
or before September 30, 2004;  provided that no such termination will affect the
right of any party to sue for any breach by the other party (or parties).

         5.2 Fees and  Expenses.  At the  Closing,  the  Company  has  agreed to
reimburse C.K. Cooper up to $10,000, for its actual,  reasonable,  out-of-pocket
legal fees and expenses.  The Company  shall  deliver,  prior to the Closing,  a
completed and executed copy of the Closing  Statement,  attached hereto as Annex
A. Except as expressly set forth in the  Transaction  Documents to the contrary,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and  other  experts,  if any,  and all other  expenses  incurred  by such  party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement.  The Company shall pay all transfer agent fees,  stamp taxes and
other taxes and duties levied in connection with the issuance of any Securities.

         5.3 Entire  Agreement.  The  Transaction  Documents,  together with the
exhibits and schedules thereto,  contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

         5.4 Notices.  Any and all notices or other communications or deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication is delivered via facsimile at the facsimile number
set forth on the signature  pages  attached  hereto prior to 5:30 p.m. (New York
City  time)  on a  Trading  Day,  (b) the next  Trading  Day  after  the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the Trading Day following  the date  deposited  with a U.S.  nationally
recognized  overnight courier service with next-day delivery  instructions,  (d)
the third Trading Day  following  the date sent by U.S.  registered or certified
mail, return receipt requested,  or (e) upon actual receipt by the party to whom
such  notice  is  required  to be  given.  The  address  for  such  notices  and
communications shall be as set forth on the signature pages attached hereto.

                             Exhibit 10.1 - Page 23

<PAGE>

         5.5 Amendments;  Waivers.  No provision of this Agreement may be waived
or  amended  except in a written  instrument  signed by the party  against  whom
enforcement  is sought.  No waiver of any default with respect to any provision,
condition or requirement  of this  Agreement  shall be deemed to be a continuing
waiver in the  future or a waiver of any  subsequent  default or a waiver of any
other  provision,  condition  or  requirement  hereof,  nor  shall  any delay or
omission of any party to exercise any right  hereunder in any manner  impair the
exercise of any such right.  Notwithstanding  any  provision of any  Transaction
Document  to the  contrary,  the Company  may issue up to  2,000,000  restricted
shares of Common  Stock to acquire up to a .25  working  interest in the Kraemer
24-1 Well,  Desoto Parish,  Township 14N, Range 16W, Section 24, which shall not
constitute a breach of or result in any adjustment  under any of the Transaction
Documents.

         5.6 Construction.  The headings herein are for convenience only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof. 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.

         5.7  Successors and Assigns.  This Agreement  shall be binding upon and
inure to the benefit of the parties and their successors and permitted  assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written  consent of each  Purchaser.  Any Purchaser may assign
any or all of its  rights  under  this  Agreement  to any  Person  to whom  such
Purchaser  assigns or transfers any Securities,  provided such transferee agrees
in  writing to be bound,  with  respect to the  transferred  Securities,  by the
provisions hereof that apply to the "Purchasers."

         5.8 No  Third-Party  Beneficiaries.  This Agreement is intended for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.

         5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance  with the internal laws of the State of
New York,  without  regard to the  principles of conflicts of law thereof.  Each
party  agrees  that  all  legal  proceedings   concerning  the  interpretations,
enforcement and defense of the  transactions  contemplated by this Agreement and
any other Transaction  Documents  (whether brought against a party hereto or its
respective affiliates,  directors, officers, shareholders,  employees or agents)
shall be commenced  exclusively  in the state and federal  courts sitting in the
City of New  York.  Each  party  hereby  irrevocably  submits  to the  exclusive
jurisdiction  of the state and federal  courts  sitting in the City of New York,
borough  of  Manhattan  for the  adjudication  of any  dispute  hereunder  or in
connection  herewith or with any  transaction  contemplated  hereby or discussed
herein  (including  with respect to the  enforcement  of any of the  Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding.  Each party hereby irrevocably waives
personal  service of process and  consents to process  being  served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or  overnight  delivery  (with  evidence of  delivery) to such party at the

                             Exhibit 10.1 - Page 24

<PAGE>

address in effect for  notices to it under this  Agreement  and agrees that such
service  shall  constitute  good and  sufficient  service of process  and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve  process in any manner  permitted by law. The parties  hereby waive all
rights to a trial by jury.  If any party shall  commence an action or proceeding
to enforce any  provisions of the  Transaction  Documents,  then the  prevailing
party in such action or  proceeding  shall be  reimbursed by the other party for
its   attorneys'   fees  and  other  costs  and  expenses   incurred   with  the
investigation, preparation and prosecution of such action or proceeding.

         5.10 Survival.  The  representations  and warranties  contained  herein
shall survive the Closing and the delivery,  exercise  and/or  conversion of the
Securities,   as  applicable   for  the   applicable   statue  of   limitations.
Notwithstanding  anything  to the  contrary  in any  Transaction  Document,  the
Purchaser's rights thereunder (and the rights of their respective successors and
assigns) shall  terminate  with respect to any Securities  when such Security is
sold in a public offering, or pursuant to Rule 144.

         5.11  Execution.  This  Agreement  may  be  executed  in  two  or  more
counterparts,  all of which when taken  together shall be considered one and the
same agreement and shall become effective when  counterparts have been signed by
each party and  delivered to the other  parties,  it being  understood  that all
parties need not sign the same  counterpart.  In the event that any signature is
delivered by facsimile  transmission,  such  signature  shall create a valid and
binding  obligation of the party executing (or on whose behalf such signature is
executed)  with the same force and effect as if such  facsimile  signature  page
were an original thereof.

         5.12  Severability.  If any  provision of this  Agreement is held to be
invalid or unenforceable in any respect,  the validity and enforceability of the
remaining  terms  and  provisions  of  this  Agreement  shall  not in any way be
affected or impaired  thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor,  and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

         5.13 Rescission and Withdrawal Right.  Notwithstanding  anything to the
contrary  contained in (and  without  limiting  any similar  provisions  of) the
Transaction  Documents,  whenever  any  Purchaser  exercises a right,  election,
demand or option  under a  Transaction  Document and the Company does not timely
perform its related  obligations within the periods therein provided,  then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice,  demand or election in whole
or in part  without  prejudice  to its  future  actions  and  rights;  provided,
however,  in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant,  the  Purchaser  shall be  required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.

         5.14  Replacement  of  Securities.  If any  certificate  or  instrument
evidencing any Securities is mutilated,  lost, stolen or destroyed,  the Company
shall  issue or cause to be issued in  exchange  and  substitution  for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument,  but only upon receipt of evidence reasonably satisfactory to the
Company  of such  loss,  theft  or  destruction  and  customary  and  reasonable
indemnity,  if requested.  The  applicants  for a new  certificate or instrument
under  such  circumstances  shall  also  pay any  reasonable  third-party  costs
associated with the issuance of such replacement Securities.

                             Exhibit 10.1 - Page 25

<PAGE>

         5.15  Remedies.  In addition to being  entitled to exercise  all rights
provided herein or granted by law,  including  recovery of damages,  each of the
Purchasers  and the Company will be entitled to specific  performance  under the
Transaction  Documents.  The  parties  agree that  monetary  damages  may not be
adequate  compensation  for  any  loss  incurred  by  reason  of any  breach  of
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation the defense that a remedy
at law would be adequate.

         5.16 Payment Set Aside.  To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such  enforcement  or exercise or any part thereof are  subsequently
invalidated,  declared to be fraudulent or  preferential,  set aside,  recovered
from, disgorged by or are required to be refunded,  repaid or otherwise restored
to the  Company,  a  trustee,  receiver  or  any  other  person  under  any  law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action),  then to the extent of any such  restoration,
the  obligation  or part thereof  originally  intended to be satisfied  shall be
revived and  continued  in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

         5.17 Usury.  To the extent it may  lawfully  do so, the Company  hereby
agrees not to insist upon or plead or in any manner  whatsoever  claim, and will
resist any and all efforts to be compelled to take the benefit or advantage  of,
usury  laws  wherever  enacted,  now or at  any  time  hereafter  in  force,  in
connection  with any  claim,  action or  proceeding  that may be  brought by any
Purchaser  in  order to  enforce  any  right or  remedy  under  any  Transaction
Document.  Notwithstanding  any  provision  to  the  contrary  contained  in any
Transaction  Document,  it is  expressly  agreed  and  provided  that the  total
liability of the Company  under the  Transaction  Documents  for payments in the
nature of interest  shall not exceed the maximum  lawful rate  authorized  under
applicable law (the "Maximum Rate"), and, without limiting the foregoing,  in no
event  shall any rate of  interest or default  interest,  or both of them,  when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed  that  if the  maximum  contract  rate  of  interest  allowed  by law and
applicable to the Transaction  Documents is increased or decreased by statute or
any official  governmental action subsequent to the date hereof, the new maximum
contract rate of interest  allowed by law will be the Maximum Rate applicable to
the  Transaction  Documents  from  the  effective  date  forward,   unless  such
application  is  precluded  by  applicable  law.  If  under  any   circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness  evidenced by the Transaction  Documents,
such excess shall be applied by such Purchaser to the unpaid  principal  balance
of any such  indebtedness or be refunded to the Company,  the manner of handling
such excess to be at such Purchaser's election.

         5.18  Independent  Nature of Purchasers'  Obligations  and Rights.  The
obligations of each Purchaser under any Transaction Document are several and not
joint with the  obligations of any other  Purchaser,  and no Purchaser  shall be
responsible  in any way for the  performance  of the  obligations  of any  other

                             Exhibit 10.1 - Page 26

<PAGE>

Purchaser under any Transaction  Document.  Nothing  contained  herein or in any
Transaction  Document,  and no action taken by any Purchaser  pursuant  thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint  venture  or any other kind of entity,  or create a  presumption  that the
Purchasers  are in any way acting in concert or as a group with  respect to such
obligations or the transactions  contemplated by the Transaction Documents. Each
Purchaser  shall be  entitled to  independently  protect and enforce its rights,
including without  limitation the rights arising out of this Agreement or out of
the other  Transaction  Documents,  and it shall not be necessary  for any other
Purchaser  to be  joined  as an  additional  party  in any  proceeding  for such
purpose.  Each Purchaser has been  represented by its own separate legal counsel
in their review and  negotiation of the  Transaction  Documents.  For reasons of
administrative  convenience only,  Purchasers and their respective  counsel have
chosen to communicate with the Company through LB&B. LB&B does not represent all
of the Purchasers but only C.K.  Cooper.  The Company has elected to provide all
Purchasers with the same terms and Transaction  Documents for the convenience of
the  Company  and not  because  it was  required  or  requested  to do so by the
Purchasers.

         5.19 Liquidated Damages.  The Company's  obligations to pay any partial
liquidated  damages or other amounts owing under the Transaction  Documents is a
continuing  obligation of the Company and shall not  terminate  until all unpaid
partial liquidated damages and other amounts have been paid  notwithstanding the
fact that the instrument or security  pursuant to which such partial  liquidated
damages or other amounts are due and payable shall have been canceled.

                            (Signature Pages Follow)

                             Exhibit 10.1 - Page 27
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

cUBIC ENERGY, inc.                                      Address for Notice:
                                                        -------------------

By:  /s/ Calvin A. Wallen III                           Calvin A. Wallen III
   ---------------------------------------
     Name:  Calvin A. Wallen III                        Chief Executive Officer
     Title:  Chief Executive Officer                    Cubic Energy, Inc.
                                                        9870 Plano Road
                                                        Dallas, TX  75238
                                                        Facsimile:  972-681-9687
With a copy to (which shall not constitute notice):

Jon S. Ross
3102 Maple Avenue
Suite 450
Dallas, TX  75201
Facsimile:  214-742-1255

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGE FOR PURCHASERS FOLLOWS]

                             Exhibit 10.1 - Page 28

<PAGE>

                          PURCHASER SIGNATURE PAGES TO
                CUBIC ENERGY, INC. SECURITIES PURCHASE AGREEMENT

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.

Name of Investing Entity:  Jonathan J. Mendiola
                          ------------------------------------------------------
Signature of Authorized Signatory of Investing Entity:  /s/ Jonathan J. Mendiola
                                                       -------------------------
Name of Authorized Signatory:   Jonathan J. Mendiola
                              --------------------------------------------------
Title of Authorized Signatory:      N/A
                               -------------------------------------------------
Email Address of Authorized Entity: jmendiola@ckcooper.com
                                   ---------------------------------------------

Address for Notice of Investing Entity:

                           18300 Von Karman Avenue, Suite 440
                           Irvine, CA 92612
                           Facsimile:  (949) 477-9211

Address for Delivery of Securities for Investing Entity (if not same as above):

Subscription Amount:  $5,000.00
Warrant Shares:  5,000
EIN Number:  PROVIDED THIS UNDER SEPARATE COVER

                           [SIGNATURE PAGES CONTINUE]

                             Exhibit 10.1 - Page 29

<PAGE>

                          PURCHASER SIGNATURE PAGES TO
                CUBIC ENERGY, INC. SECURITIES PURCHASE AGREEMENT

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.

Name of Investing Entity:  Chris Cave
                          ------------------------------------------------------
Signature of Authorized Signatory of Investing Entity:   /s/ Chris Cave
                                                       -------------------------
Name of Authorized Signatory:   Chris Cave
                              --------------------------------------------------
Title of Authorized Signatory:      N/A
                               -------------------------------------------------
Email Address of Authorized Entity: ccave@ckcooper.com
                                   ---------------------------------------------

Address for Notice of Investing Entity:

                           420 21st, #1
                           Huntington Beach, CA 92648
                           Facsimile:  (949) 477-9211

Address for Delivery of Securities for Investing Entity (if not same as above):

Subscription Amount:  $5,000.00
Warrant Shares:  5,000
EIN Number:  PROVIDED THIS UNDER SEPARATE COVER

                           [SIGNATURE PAGES CONTINUE]

                             Exhibit 10.1 - Page 30

<PAGE>

                          PURCHASER SIGNATURE PAGES TO
                CUBIC ENERGY, INC. SECURITIES PURCHASE AGREEMENT

         IN WITNESS WHEREOF, the undersigned have caused this Securities
         Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

Name of Investing Entity:  Gary Brennglass
                          ------------------------------------------------------
Signature of Authorized Signatory of Investing Entity:   /s/ Gary Brennglass
                                                       -------------------------
Name of Authorized Signatory:   Gary Brennglass
                              --------------------------------------------------
Title of Authorized Signatory:      N/A
                               -------------------------------------------------
Email Address of Authorized Entity: gbrennglass@socal.rr.com
                                   ---------------------------------------------

Address for Notice of Investing Entity:

                           18125 Andrea Circle North, #5
                           Northridge, CA 91325
                           Facsimile:  (818) 7010-9594

Address for Delivery of Securities for Investing Entity (if not same as above):

Subscription Amount:  $75,000.00
Warrant Shares:  75,000
EIN Number:  PROVIDED THIS UNDER SEPARATE COVER

                           [SIGNATURE PAGES CONTINUE]

                             Exhibit 10.1 - Page 31

<PAGE>

                          PURCHASER SIGNATURE PAGES TO
                CUBIC ENERGY, INC. SECURITIES PURCHASE AGREEMENT

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.

Name of Investing Entity:  Frey Living Trust of 3-20-96
                          ------------------------------------------------------
Signature of Authorized Signatory of Investing Entity:   /s/ Philip Frey, Jr.
                                                       -------------------------
Name of Authorized Signatory:   Philip Frey, Jr.
                              --------------------------------------------------
Title of Authorized Signatory:     Trustee
                               -------------------------------------------------
Email Address of Authorized Entity: pfrey48@cox.net
                                   ---------------------------------------------

Address for Notice of Investing Entity:

                           48 Braeburn Lane
                           Newport Beach, CA 92660
                           Facsimile:  (949) 640-0665

Address for Delivery of Securities for Investing Entity (if not same as above):

Subscription Amount:  $500,000.00
Warrant Shares:  500,000
EIN Number:  PROVIDED THIS UNDER SEPARATE COVER

                           [SIGNATURE PAGES CONTINUE]

                             Exhibit 10.1 - Page 32

<PAGE>

                          PURCHASER SIGNATURE PAGES TO
                CUBIC ENERGY, INC. SECURITIES PURCHASE AGREEMENT

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.

Name of Investing Entity:  Bushido Capital Master Fund, L.P.
                          ------------------------------------------------------
Signature of Authorized Signatory of Investing Entity:   /s/ Christopher Rossman
                                                       -------------------------
Name of Authorized Signatory:   Christopher Rossman
                              --------------------------------------------------
Title of Authorized Signatory: Managing Director, Bushido Capital Partners, Ltd.
                               -------------------------------------------------
Email Address of Authorized Entity: rossman@bushidocapital.com
                                   ---------------------------------------------

Address for Notice of Investing Entity:

                           c/o Bushido Capital Partners, Ltd.
                           275 Seventh Avenue, Suite 2000
                           New York, NY 10001
                           Facsimile:  (646) 486-6885

Address for Delivery of Securities for Investing Entity (if not same as above):

Subscription Amount:  $500,000.00
Warrant Shares:  500,000
EIN Number:  PROVIDED THIS UNDER SEPARATE COVER

                           [SIGNATURE PAGES CONTINUE]

                             Exhibit 10.1 - Page 33

<PAGE>

                          PURCHASER SIGNATURE PAGES TO
                CUBIC ENERGY, INC. SECURITIES PURCHASE AGREEMENT

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.

Name of Investing Entity:  Gamma Opportunity Capital Partners LP
                          ------------------------------------------------------
Signature of Authorized Signatory of Investing Entity:   /s/ Jonathan P. Knight
                                                       -------------------------
Name of Authorized Signatory:   Jonathan P. Knight
                              --------------------------------------------------
Title of Authorized Signatory:      President/Director
                               -------------------------------------------------
Email Address of Authorized Entity: jonathan@siamus.com
                                   ---------------------------------------------

Address for Notice of Investing Entity:

                           Gamma Opportunity Capital Partners LP c/o SIAM
                           605 Crescent Executive Court, Suite 416
                           Lake Mary, FL 32746
                           Facsimile:  (407) 771-4419

Address for Delivery of Securities for Investing Entity (if not same as above):

UMB Bank NA
928 Grand Blvd., 5th Floor
Mail Stop 1010502
Kansas City, MO 64106
Attn:  Cindy Kobush / 816-860-7780
Nominee Name:  Umbtru & Co.

Subscription Amount:  $500,000.00
Warrant Shares:  500,000
EIN Number:  PROVIDED THIS UNDER SEPARATE COVER

                           [SIGNATURE PAGES CONTINUE]

                             Exhibit 10.1 - Page 34

<PAGE>

                          PURCHASER SIGNATURE PAGES TO
                CUBIC ENERGY, INC. SECURITIES PURCHASE AGREEMENT

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.

Name of Investing Entity:  ABS SOS-Plus Partners Ltd
                          ------------------------------------------------------
Signature of Authorized Signatory of Investing Entity:   /s/ Jonathan P. Knight
                                                       -------------------------
Name of Authorized Signatory:   Jonathan P. Knight
                              --------------------------------------------------
Title of Authorized Signatory:      President/Director
                               -------------------------------------------------
Email Address of Authorized Entity: jonathan@siamus.com
                                   ---------------------------------------------

Address for Notice of Investing Entity:

                           ABS SOS-Plus Partners Ltd.
                           605 Crescent Executive Court, Suite 416
                           Lake Mary, FL 32746
                           Facsimile:  (407) 771-4419

Address for Delivery of Securities for Investing Entity (if not same as above):

UMB Bank NA
928 Grand Blvd., 5th Floor
Mail Stop 1010502
Kansas City, MO 64106
Attn:  Cindy Kobush / 816-860-7780
Nominee Name:  Umbtru & Co.

Subscription Amount:  $1,000,000.00
Warrant Shares:  1,000,000
EIN Number:  PROVIDED THIS UNDER SEPARATE COVER

                             Exhibit 10.1 - Page 35EXHIBIT 10.2

NEITHER THESE  SECURITIES  NOR THE  SECURITIES  INTO WHICH THESE  SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE  COMMISSION OR
THE  SECURITIES  COMMISSION  OF ANY STATE IN  RELIANCE  UPON AN  EXEMPTION  FROM
REGISTRATION  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES
ACT"),  AND,  ACCORDINGLY,  MAY NOT BE OFFERED  OR SOLD  EXCEPT  PURSUANT  TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR PURSUANT TO AN
AVAILABLE  EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS  OF THE  SECURITIES  ACT AND IN ACCORDANCE  WITH  APPLICABLE  STATE
SECURITIES  LAWS AS  EVIDENCED BY A LEGAL  OPINION OF COUNSEL TO THE  TRANSFEROR
REASONABLY  ACCEPTABLE  TO THE COMPANY TO SUCH  EFFECT,  THE  SUBSTANCE OF WHICH
SHALL  BE  REASONABLY  ACCEPTABLE  TO THE  COMPANY.  THESE  SECURITIES  AND  THE
SECURITIES  ISSUABLE  UPON  CONVERSION  OF THESE  SECURITIES  MAY BE  PLEDGED IN
CONNECTION  WITH A BONA  FIDE  MARGIN  ACCOUNT  OR OTHER  LOAN  SECURED  BY SUCH
SECURITIES.

Original Issue Date:  September 30, 2004
Original Conversion Price (subject to adjustment herein): $0.50

                                                              $_________________

                    7.0% SENIOR SECURED CONVERTIBLE DEBENTURE
                             DUE SEPTEMBER 30, 2009

         THIS  DEBENTURE is one of a series of duly  authorized  and issued 7.0%
Senior  Secured   Convertible   Debentures  of  Cubic  Energy,   Inc.,  a  Texas
corporation, having a principal place of business at 9870 Plano Road, Dallas, TX
75238  (the  "Company"),  designated  as its  7.0%  Senior  Secured  Convertible
Debenture, due September 30, 2009 (the "Debentures").

         FOR   VALUE    RECEIVED,    the    Company    promises    to   pay   to
________________________ or its registered assigns (the "Holder"), the principal
sum of  $_______________  on  September  30,  2009 or such  earlier  date as the
Debentures  are required or permitted  to be repaid as provided  hereunder  (the
"Maturity Date"), and to pay interest to the Holder on the aggregate unconverted
and then  outstanding  principal amount of this Debenture in accordance with the
provisions  hereof.  This  Debenture  is  subject  to the  following  additional
provisions:

         Section 1.  Definitions.  For the purposes  hereof,  in addition to the
terms defined  elsewhere in this Debenture:  (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase  Agreement,
and (b) the following terms shall have the following meanings:

                  "Alternate  Consideration" shall have the meaning set forth in
         Section 5(d)(iii).

                             Exhibit 10.2 - Page 1

<PAGE>

                  "Average Price" means,  for any date, the price  determined by
         the first of the  following  clauses  that  applies:  (a) if the Common
         Stock is then listed or quoted on a Trading Market, the average closing
         price of the Common  Stock for the ten Trading  Days prior to such date
         (or the nearest  preceding date) on the primary Trading Market on which
         the Common  Stock is then  listed or quoted as  reported  by  Bloomberg
         Financial L.P.  (based on a Trading Day from 9:30 a.m.  Eastern Time to
         4:02 p.m.  Eastern Time); (b) if the Common Stock is not then listed or
         quoted on the  Trading  Market and if prices  for the Common  Stock are
         then reported in the "Pink Sheets" published by the National  Quotation
         Bureau Incorporated (or a similar  organization or agency succeeding to
         its functions of reporting prices),  the closing bid price per share of
         the Common  Stock so reported  for the ten  Trading  Days prior to such
         date;  or (c) in all other  cases,  the fair market value of a share of
         Common  Stock  as  determined  by a  nationally  recognized-independent
         appraiser  selected in good faith by  Purchasers  holding a majority of
         the principal amount of Shares then outstanding.

                  "Business Day" means any day except  Saturday,  Sunday and any
         day which shall be a federal  legal  holiday in the United  States or a
         day on  which  banking  institutions  in the  State  of  New  York  are
         authorized or required by law or other government action to close.

                  "Change of Control Transaction" means the occurrence after the
         date  hereof of any of (i) an  acquisition  by an  individual  or legal
         entity or "group" (as described in Rule 13d-5(b)(1)  promulgated  under
         the  Exchange  Act) of  effective  control  (whether  through  legal or
         beneficial  ownership of capital  stock of the Company,  by contract or
         otherwise) of in excess of 50% of the voting securities of the Company,
         or (ii) a replacement  at one time or within a one-year  period of more
         than one-half of the members of the Company's  board of directors which
         is not approved by a majority of those  individuals  who are members of
         the board of directors on the date hereof (or by those  individuals who
         are  serving  as members  of the board of  directors  on any date whose
         nomination  to the board of directors was approved by a majority of the
         members of the board of directors  who are members on the date hereof),
         or (iii) the  execution  by the  Company of an  agreement  to which the
         Company  is a party or by which it is bound,  providing  for any of the
         events set forth above in (i) or (ii).

                  "Commission" means the Securities and Exchange Commission.

                  "Common  Stock"  means the common  stock,  par value $0.05 per
         share,  of the  Company  and stock of any other  class  into which such
         shares may hereafter have been reclassified or changed.

                  "Conversion  Date" shall have the meaning set forth in Section
         4(a) hereof.

                  "Conversion Price" shall have the meaning set forth in Section
         4(b).

                  "Conversion  Shares" means the shares of Common Stock issuable
         upon  conversion  of Debentures or as payment of interest in accordance
         with the terms hereof.

                             Exhibit 10.2 - Page 2

<PAGE>

                  "Effectiveness  Period"  shall have the meaning  given to such
         term in the Registration Rights Agreement.

                  "Equity Conditions" shall mean, during the period in question,
         (i) the Company shall have duly honored all conversions and redemptions
         scheduled  to occur or  occurring  by virtue of one or more  Conversion
         Notices, if any, (ii) all liquidated damages and other amounts owing in
         respect  of the  Debentures  shall have been  paid;  (iii)  there is an
         effective  Registration  Statement  pursuant  to which  the  Holder  is
         permitted  to utilize the  prospectus  thereunder  to resell all of the
         shares issuable pursuant to the Transaction  Documents (and the Company
         believes,   in  good  faith,  that  such  effectiveness  will  continue
         uninterrupted  for the  foreseeable  future),  (iv) the Common Stock is
         trading on the Trading Market and all of the shares  issuable  pursuant
         to the  Transaction  Documents  are  listed  for  trading  on a Trading
         Market,  if applicable (and the Company  believes,  in good faith, that
         trading  of  the  Common  Stock  on  a  Trading  Market  will  continue
         uninterrupted  for the foreseeable  future),  (v) there is a sufficient
         number of authorized  but unissued and otherwise  unreserved  shares of
         Common Stock for the issuance of all of the shares issuable pursuant to
         the  Transaction  Documents,  (vi) there is then  existing  no Event of
         Default  or event  which,  with the  passage  of time or the  giving of
         notice,  would  constitute  an Event of  Default  and  (vii) all of the
         shares  issued or issuable  pursuant to the  Transaction  Documents  in
         full,  ignoring for such purposes any conversion or exercise limitation
         therein,  would not violate the  limitations set forth in Sections 4(c)
         and (ix) no public  announcement  of a pending or proposed  Fundamental
         Transaction or acquisition  transaction  has occurred that has not been
         consummated.

                  "Event of Default" shall have the meaning set forth in Section
         8.

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

                  "Fundamental  Transaction" shall have the meaning set forth in
         Section 5(d)(iii) hereof.

                  "Interest  Conversion Rate" means 95% of the lesser of (a) the
         Average Price immediately prior to the applicable Interest Payment Date
         and (b) the Average Price  immediately prior to the date the applicable
         interest  payment shares are issued and delivered if after the Interest
         Payment Date.

                  "Late  Fees"  shall have the  meaning  set forth in the second
         paragraph to this Debenture.

                  "Mandatory  Prepayment  Amount" for any Debentures shall equal
         100% of the  principal  amount of  Debentures  to be prepaid,  plus all
         accrued  and unpaid  interest  thereon  and all other  amounts,  costs,
         expenses and liquidated damages due in respect of such Debentures.

                             Exhibit 10.2 - Page 3

<PAGE>

                  "Original  Issue  Date"  shall  mean  the  date  of the  first
         issuance of the Debentures regardless of the number of transfers of any
         Debenture  and  regardless  of the number of  instruments  which may be
         issued to evidence such Debenture.

                  "Permitted Liens" means:

                  (i)  Liens  created  by or  otherwise  existing,  under  or in
         connection  with the Debentures or the other  Transaction  Documents in
         favor of the Holders;

                  (ii) Purchase money liens securing purchase money indebtedness
         (and refinancings  thereof) in an amount not to exceed $20,000 [as well
         as any purchase money liens in excess of $20,000 with the prior written
         consent of Purchasers  holding a majority of the outstanding  principal
         amount  of the  Debentures,  which  consent  may  not  be  unreasonably
         withheld]  provided,  that (a) any such lien  attaches to such property
         concurrently with or within 20 days after the acquisition  thereof, and
         (b) such lien  attaches  solely to the  property  so  acquired  in such
         transaction;

                  (iii)   Liens  for  taxes,   assessments,   charges  or  other
         governmental levies not yet due or as to which the period of grace (not
         to exceed 60 days),  if any,  related  thereto has not expired or which
         are being contested in good faith by appropriate proceedings;  provided
         that adequate reserves with respect thereto are maintained on the books
         of the Company or its  Subsidiaries,  as the case may be, in conformity
         with GAAP (or, in the case of Subsidiaries with significant  operations
         outside of the United States of America,  generally accepted accounting
         principles   in  effect   from   time  to  time  in  their   respective
         jurisdictions of incorporation);

                  (iv)  Carriers',  warehousemen's,  mechanics',  materialmen's,
         repairmen's  or other like  liens  arising  in the  ordinary  course of
         business  which  are not  overdue  for a period of more than 30 days or
         which are being contested in good faith by appropriate proceedings;

                  (v)   Pledges  or  deposits  in   connection   with   workers'
         compensation,   unemployment   insurance  and  other  social   security
         legislation and deposits securing liability to insurance carriers under
         insurance or self-insurance arrangements;

                  (vi)  Deposits  to  secure  the  performance  of  bids,  trade
         contracts   (other  than  for  borrowed   money),   leases,   statutory
         obligations,  surety  and  appeal  bonds,  performance  bonds and other
         obligations  of a like  nature  incurred  in  the  ordinary  course  of
         business;

                  (vii) Easements, rights-of-way, restrictions and other similar
         encumbrances  affecting real property which, in the aggregate,  are not
         substantial in amount,  and which do not in any case materially detract
         from the value of the property subject thereto or materially  interfere
         with the ordinary conduct of the business of the applicable person;

                  (viii) Any extension,  renewal or  replacement  (or successive
         extensions,  renewals or  replacements)  , in whole or in part,  of any
         lien  referred  to  in  the  foregoing  clauses;   provided  that  such

                             Exhibit 10.2 - Page 4

<PAGE>

         extension,  renewal  or  replacement  lien shall be limited to all or a
         part of the property  which  secured the lien so  extended,  renewed or
         replaced (plus improvements on such property);

                  (ix) Liens  existing on the Original  Issue Date and set forth
         on Schedule 2; and

                  (x) Liens arising in connection with capitalized leases.

                  "Person" means a corporation,  an association,  a partnership,
         organization,  a business,  an  individual,  a government  or political
         subdivision thereof or a governmental agency.

                  "Purchase  Agreement" means the Securities Purchase Agreement,
         dated as of September  30, 2004,  to which the Company and the original
         Holder are parties,  as amended,  modified or supplemented from time to
         time in accordance with its terms.

                  "Registration  Rights Agreement" means the Registration Rights
         Agreement,  dated as of the Original  Issue Date,  to which the Company
         and  the  original  Holder  are  parties,   as  amended,   modified  or
         supplemented from time to time in accordance with its terms.

                  "Registration   Statement"  means  a  registration   statement
         meeting  the  requirements   set  forth  in  the  Registration   Rights
         Agreement,  covering  among other  things the resale of the  Conversion
         Shares and naming the Holder as a "selling stockholder" thereunder.

                  "Securities Act" means the Securities Act of 1933, as amended,
         and the rules and regulations promulgated thereunder.

                  "Security Agreement" means the Security Agreement, dated as of
         the Original  Issue Date, to which the Company and the original  Holder
         are parties, as amended,  modified or supplemented from time to time in
         accordance with its terms.

                  "Subsidiary"  shall have the meaning given to such term in the
         Purchase Agreement.

                  "Trading  Day" means a day on which the Common Stock is traded
         on a Trading Market.  "Trading  Market" means the following  markets or
         exchanges  on which the Common Stock is listed or quoted for trading on
         the date in question:  the Nasdaq SmallCap  Market,  the American Stock
         Exchange,  the New York Stock  Exchange,  the Nasdaq National Market or
         the OTC Bulletin Board.

                  "Transaction  Documents"  shall have the  meaning set forth in
         the Purchase Agreement.

                             Exhibit 10.2 - Page 5

<PAGE>

         Section 2. Interest.

                  a) Payment of Interest in Cash or Kind.  The Company shall pay
         interest  to  the  Holder  on  the  aggregate   unconverted   and  then
         outstanding  principal amount of this Debenture at the rate of 7.0% per
         annum,  payable  quarterly  on  March  31,  June 30,  September  30 and
         December 31,  beginning on the first such date after the Original Issue
         Date after  September 30, 2004 and on each  Conversion Date (as to that
         principal amount then being converted) and on the Maturity Date (except
         that,  if any such date is not a Business  Day, then such payment shall
         be due on the  next  succeeding  Business  Day)  (each  such  date,  an
         "Interest  Payment  Date"),  in cash or shares  of Common  Stock at the
         Interest Conversion Rate, or a combination thereof; provided,  however,
         payment  in  shares of Common  Stock  may only  occur if during  the 20
         Trading Days immediately prior to the applicable  Interest Payment Date
         all of the Equity  Conditions  have been met and the Company shall have
         given the Holder notice in accordance with the notice  requirements set
         forth below.

                  b) Company's  Election to Pay Interest in Kind. Subject to the
         terms and  conditions  herein,  the  decision  whether to pay  interest
         hereunder in shares of Common Stock or cash shall be at the  discretion
         of the Company.  Not less than 20 Trading  Days prior to each  Interest
         Payment Date,  the Company shall provide the Holder with written notice
         of its election to pay interest  hereunder  either in cash or shares of
         Common Stock (the Company may indicate in such notice that the election
         contained  in such  notice  shall  continue  for  later  periods  until
         revised).  On the 20th Trading Day prior to the  immediately  following
         Interest Payment Date, the Company's election (whether specific to such
         Interest  Payment Date or continuous)  shall be irrevocable  only as to
         the  immediately  following  Interest  Payment  Date.  Subject  to  the
         aforementioned  conditions,  failure  to timely  provide  such  written
         notice  shall be deemed an election by the Company to pay the  interest
         on such Interest Payment Date in cash.

                  c) Interest Calculations.  Interest shall be calculated on the
         basis of a  360-day  year and  shall  accrue  daily  commencing  on the
         Original  Issue  Date  until  payment  in  full of the  principal  sum,
         together  with all accrued and unpaid  interest and other amounts which
         may become due hereunder,  has been made. Payment of interest in shares
         of Common Stock shall otherwise occur pursuant to Section  4(d)(ii) and
         only for  purposes of the payment of interest in shares,  the  Interest
         Payment Date shall be deemed the Conversion Date.  Interest shall cease
         to accrue with respect to any principal amount converted, provided that
         the Company in fact  delivers  the  Conversion  Shares  within the time
         period required by Section 4(d)(ii). Interest hereunder will be paid to
         the Person in whose name this Debenture is registered on the records of
         the Company  regarding  registration  and transfers of Debentures  (the
         "Debenture  Register").  Except as otherwise provided herein, if at any
         time the Company  pays  interest  partially  in cash and  partially  in
         shares of Common Stock, then such payment shall be distributed  ratably
         among the Holders based upon the principal amount of Debentures held by
         each Holder.

                  d) Late Fee.  All accrued and unpaid  principal  and  interest
         shall bear interest at the rate of 18% per annum (or such lower maximum
         amount of interest permitted to be charged under applicable law) ("Late
         Fee")  which will  accrue  daily,  from the date such  interest  is due

                             Exhibit 10.2 - Page 6

<PAGE>

         hereunder  through and including  the date of payment.  Notwithstanding
         anything to the contrary  contained  herein, if on any Interest Payment
         Date the Company has elected to pay interest in Common Stock and is not
         able to pay  accrued  interest in the form of Common  Stock  because it
         does not then satisfy the  conditions for payment in the form of Common
         Stock set forth above,  then, at the option of the Holder, the Company,
         in lieu of delivering  either  shares of Common Stock  pursuant to this
         Section 2 or paying the  regularly  scheduled  cash  interest  payment,
         shall deliver,  within three Trading Days of each  applicable  Interest
         Payment  Date,  an amount in cash equal to the product of the number of
         shares  of  Common  Stock  otherwise   deliverable  to  the  Holder  in
         connection  with the payment of interest due on such  Interest  Payment
         Date and the Average Price.

                  e) Prepayment. At any time until the second anniversary of the
         Original  Issue Date,  the Company  may redeem this  Debenture,  or any
         portion  thereof,  for 120% of the  Mandatory  Prepayment  Amount,  and
         beginning on the second  anniversary  of the Original  Issue Date,  the
         Company may redeem this  Debenture,  or any  portion  thereof,  for the
         Mandatory  Prepayment Amount, in either case without the consent of the
         Holder;  provided,  however,  that the  Company  must  provide  30 days
         advance  notice of any such  redemption.  Once notice of  redemption is
         given,  this Debenture,  or the portion thereof specified in the notice
         of redemption,  shall become due on the date specified in the notice of
         redemption.  Upon  payment by the Company of the  Mandatory  Prepayment
         Amount and premium thereon, if applicable,  interest on this Debenture,
         or portion thereof  specified in the notice of redemption,  shall cease
         to accrue.

         Section 3. Registration of Transfers and Exchanges.

                  a) Different Denominations. This Debenture is exchangeable for
         an  equal  aggregate   principal  amount  of  Debentures  of  different
         authorized  denominations,  as requested by the Holder surrendering the
         same. No service charge will be made for such  registration of transfer
         or exchange.

                  b) Investment Representations.  This Debenture has been issued
         subject to certain  investment  representations  of the original Holder
         set forth in the Purchase Agreement and may be transferred or exchanged
         only in compliance with the Purchase  Agreement and applicable  federal
         and state securities laws and regulations.

                  c) Reliance on Debenture Register. Prior to due presentment to
         the Company for transfer of this  Debenture,  the Company and any agent
         of the  Company  may treat the Person in whose name this  Debenture  is
         duly  registered on the Debenture  Register as the owner hereof for the
         purpose  of  receiving  payment  as herein  provided  and for all other
         purposes,  whether or not this  Debenture  is overdue,  and neither the
         Company nor any such agent shall be affected by notice to the contrary.

                             Exhibit 10.2 - Page 7

<PAGE>

         Section 4. Conversion.

                  a) Voluntary Conversion.  At any time after the Original Issue
         Date until this  Debenture  is no longer  outstanding,  this  Debenture
         shall be  convertible  into shares of Common Stock at the option of the
         Holder,  in whole or in part at any time and from time to time (subject
         to the limitations on conversion set forth in Section 4(c) hereof). The
         Holder shall effect  conversions  by delivering to the Company the form
         of Notice  of  Conversion  attached  hereto  as Annex A (a  "Notice  of
         Conversion"),  specifying therein the principal amount of Debentures to
         be converted and the date on which such conversion is to be effected (a
         "Conversion  Date").  If no Conversion Date is specified in a Notice of
         Conversion,  the Conversion  Date shall be the date that such Notice of
         Conversion is provided hereunder. To effect conversions hereunder,  the
         Holder shall not be required to physically  surrender Debentures to the
         Company unless the entire  principal  amount of this Debenture plus all
         accrued and unpaid interest thereon has been so converted.  Conversions
         hereunder shall have the effect of lowering the  outstanding  principal
         amount  of  this  Debenture  in  an  amount  equal  to  the  applicable
         conversion.  The Holder and the Company shall maintain  records showing
         the principal amount converted and the date of such conversions. In the
         event of any dispute or discrepancy, the records of the Holder shall be
         controlling and  determinative  in the absence of manifest  error.  The
         Holder and any assignee,  by acceptance of this Debenture,  acknowledge
         and  agree  that,  by  reason  of the  provisions  of  this  paragraph,
         following  conversion  of a portion of this  Debenture,  the unpaid and
         unconverted  principal  amount of this  Debenture  may be less than the
         amount stated on the face hereof.

                  b) Conversion  Price.  The  conversion  price in effect on any
         Conversion Date shall be equal to $0.50 (subject to adjustment  herein)
         (the "Conversion Price").

                  c)  Conversion  Limitations.   Except  in  connection  with  a
         Fundamental Transaction, the Company shall not effect any conversion of
         this Debenture,  and the Holder shall not have the right to convert any
         portion of this  Debenture,  pursuant to Section 4(a) or otherwise,  to
         the extent  that after  giving  effect to such  conversion,  the Holder
         (together with the Holder's affiliates), as set forth on the applicable
         Notice of Conversion,  would beneficially own in excess of 4.99% of the
         number of shares of the  Common  Stock  outstanding  immediately  after
         giving  effect  to  such  conversion.  For  purposes  of the  foregoing
         sentence,  the number of shares of Common Stock  beneficially  owned by
         the Holder and its  affiliates  shall  include  the number of shares of
         Common Stock issuable upon conversion of this Debenture with respect to
         which the  determination  of such  sentence  is being  made,  but shall
         exclude  the number of shares of Common  Stock  which would be issuable
         upon (A)  conversion  of the  remaining,  nonconverted  portion of this
         Debenture beneficially owned by the Holder or any of its affiliates and
         (B) exercise or conversion of the unexercised or  nonconverted  portion
         of any other securities of the Company (including,  without limitation,
         any other  Debentures  or the  Warrants)  subject  to a  limitation  on
         conversion or exercise  analogous to the  limitation  contained  herein
         beneficially  owned by the Holder or any of its  affiliates.  Except as
         set forth in the preceding sentence, for purposes of this Section 4(c),
         beneficial  ownership  shall be calculated  in accordance  with Section
         13(d) of the Exchange Act. To the extent that the limitation  contained

                             Exhibit 10.2 - Page 8

<PAGE>

         in this section applies, the determination of whether this Debenture is
         convertible (in relation to other  securities  owned by the Holder) and
         of which portion of this Debenture is convertible  shall be in the sole
         discretion of such Holder.  To ensure compliance with this restriction,
         the Holder  will be deemed to  represent  to the  Company  each time it
         delivers a Notice of Conversion  that such Notice of Conversion has not
         violated the  restrictions  set forth in this paragraph and the Company
         shall have no  obligation  to verify or confirm  the  accuracy  of such
         determination.  For purposes of this Section 4(c), in  determining  the
         number of  outstanding  shares of Common Stock,  the Holder may rely on
         the number of  outstanding  shares of Common  Stock as reflected in (x)
         the Company's  most recent Form 10-QSB or Form 10-KSB,  as the case may
         be, (y) a more  recent  public  announcement  by the Company or (z) any
         other notice by the Company or the  Company's  Transfer  Agent  setting
         forth  the  number of shares  of  Common  Stock  outstanding.  Upon the
         written or oral  request of the Holder,  the Company  shall  within two
         Trading Days confirm  orally and in writing to the Holder the number of
         shares of Common  Stock then  outstanding.  In any case,  the number of
         outstanding  shares of Common  Stock shall be  determined  after giving
         effect to the  conversion  or exercise of  securities  of the  Company,
         including this  Debenture,  by the Holder or its  affiliates  since the
         date as of which such number of outstanding  shares of Common Stock was
         reported.

                  d) Mechanics of Conversion

                           i.  Conversion  Shares  Issuable  Upon  Conversion of
                  Principal  Amount.  The  number  of  shares  of  Common  Stock
                  issuable  upon a conversion  hereunder  shall be determined by
                  the  quotient   obtained  by  dividing  (x)  the   outstanding
                  principal  amount of this Debenture to be converted by (y) the
                  Conversion Price.

                           ii.  Delivery of  Certificate  Upon  Conversion.  Not
                  later than three Trading Days after any  Conversion  Date, the
                  Company  will  deliver  to the  Holder  (A) a  certificate  or
                  certificates representing the Conversion Shares which shall be
                  free of restrictive  legends and trading  restrictions  (other
                  than those  required by the Purchase  Agreement)  representing
                  the number of shares of Common Stock being  acquired  upon the
                  conversion of Debentures  (including,  if so timely elected by
                  the Company,  shares of Common Stock  representing the payment
                  of  accrued  interest)  and (B) a bank  check in the amount of
                  accrued and unpaid interest (if the Company is required to pay
                  accrued interest in cash).

                           iii. Failure to Deliver Certificates.  If in the case
                  of any Notice of Conversion  such  certificate or certificates
                  are not delivered to or as directed by the  applicable  Holder
                  by the fifth Trading Day after a Conversion  Date,  the Holder
                  shall be entitled by written notice to the Company at any time
                  on or before its receipt of such  certificate or  certificates
                  thereafter,  to rescind  such  conversion,  in which event the
                  Company shall immediately return the certificates representing
                  the principal amount of Debentures tendered for conversion.

                             Exhibit 10.2 - Page 9

<PAGE>

                           iv. Partial Liquidated  Damages. If the Company fails
                  for any reason to deliver to the Holder  such  certificate  or
                  certificates pursuant to Section 4(d)(ii) by the third Trading
                  Day after the  Conversion  Date, the Company shall pay to such
                  Holder,  in cash, as liquidated  damages and not as a penalty,
                  for each $1000 of principal  amount being  converted,  $10 per
                  Trading Day (increasing to $20 per Trading Day after 5 Trading
                  Days after such damages  begin to accrue) for each Trading Day
                  after  such third  Trading  Day until  such  certificates  are
                  delivered.  The Company's obligations to issue and deliver the
                  Conversion   Shares  upon  conversion  of  this  Debenture  in
                  accordance   with  the   terms   hereof   are   absolute   and
                  unconditional,  irrespective  of any action or inaction by the
                  Holder to enforce the same, any waiver or consent with respect
                  to any provision hereof,  the recovery of any judgment against
                  any Person or any action to enforce  the same,  or any setoff,
                  counterclaim,  recoupment,  limitation or termination,  or any
                  breach or alleged  breach by the Holder or any other Person of
                  any  obligation  to the  Company or any  violation  or alleged
                  violation  of law by the  Holder  or  any  other  person,  and
                  irrespective of any other  circumstance  which might otherwise
                  limit  such  obligation  of  the  Company  to  the  Holder  in
                  connection  with  the  issuance  of  such  Conversion  Shares;
                  provided, however, such delivery shall not operate as a waiver
                  by the Company of any such action the Company may have against
                  the  Holder.  In the  event a Holder of this  Debenture  shall
                  elect  to  convert  any or all  of the  outstanding  principal
                  amount hereof,  the Company may not refuse conversion based on
                  any claim that the Holder or anyone  associated  or affiliated
                  with the Holder  has been  engaged  in any  violation  of law,
                  agreement or for any other reason,  unless, an injunction from
                  a court, on notice, restraining and or enjoining conversion of
                  all or part of this  Debenture  shall  have  been  sought  and
                  obtained  and the Company  posts a surety bond for the benefit
                  of the Holder in the amount of 150% of the principal amount of
                  this   Debenture   outstanding,   which  is   subject  to  the
                  injunction,  which  bond  shall  remain  in  effect  until the
                  completion  of  arbitration/litigation  of the dispute and the
                  proceeds  of which  shall be  payable  to such  Holder  to the
                  extent it obtains  judgment.  In the absence of an  injunction
                  precluding the same, the Company shall issue Conversion Shares
                  or, if applicable,  cash, upon a properly noticed  conversion.
                  Nothing  herein shall limit a Holder's  right to pursue actual
                  damages or declare an Event of Default  pursuant  to Section 8
                  herein for the Company's failure to deliver  Conversion Shares
                  within the period  specified herein and such Holder shall have
                  the right to pursue all remedies  available to it at law or in
                  equity  including,  without  limitation,  a decree of specific
                  performance and/or injunctive relief. The exercise of any such
                  rights  shall not  prohibit the Holder from seeking to enforce
                  damages   pursuant  to  any  other  Section  hereof  or  under
                  applicable law.

                           v.  Failure  to  Timely  Deliver   Certificates  Upon
                  Conversion.  In addition to any other rights  available to the
                  Holder,  if the Company fails for any reason to deliver to the
                  Holder such  certificate or  certificates  pursuant to Section
                  4(d)(ii) by the third Trading Day after the  Conversion  Date,
                  and if after such third  Trading Day the Holder is required by
                  its brokerage firm to purchase (in an open market  transaction
                  or  otherwise)  Common Stock to deliver in  satisfaction  of a
                  sale by such Holder of the Conversion  Shares which the Holder

                             Exhibit 10.2 - Page 10

<PAGE>

                  anticipated receiving upon such conversion (a "Buy-In"),  then
                  the Company  shall (A) pay in cash to the Holder (in  addition
                  to any  remedies  available  to or elected by the  Holder) the
                  amount  by  which  (x)  the  Holder's   total  purchase  price
                  (including brokerage commissions, if any) for the Common Stock
                  required to be so purchased exceeds (y) the product of (1) the
                  aggregate  number of shares of Common  Stock that such  Holder
                  anticipated  receiving from the conversion at issue multiplied
                  by (2) the actual sale price per Share of the Common  Stock at
                  the time of the sale (including brokerage commissions, if any)
                  giving rise to such purchase  obligation and (B) at the option
                  of the Holder,  either reissue  Debentures in principal amount
                  equal to the principal  amount of the attempted  conversion or
                  deliver to the  Holder  the  number of shares of Common  Stock
                  that would have been  issued had the Company  timely  complied
                  with its delivery  requirements  under Section  4(d)(ii).  For
                  example,  if the Holder  purchases Common Stock having a total
                  purchase price of $11,000 to cover a Buy-In with respect to an
                  attempted  conversion of Debentures  with respect to which the
                  actual sale price of the Conversion  Shares at the time of the
                  sale (including brokerage commissions,  if any) giving rise to
                  such purchase  obligation  was a total of $10,000 under clause
                  (A) of the immediately  preceding sentence,  the Company shall
                  be required to pay the Holder $1,000. The Holder shall provide
                  the Company  written notice  indicating the amounts payable to
                  the Holder in respect of the Buy-In.  Notwithstanding anything
                  contained  herein to the  contrary,  if a Holder  requires the
                  Company to make payment in respect of a Buy-In for the failure
                  to  timely  deliver  certificates  hereunder  and the  Company
                  timely pays in full such  payment,  the  Company  shall not be
                  required to pay such Holder  liquidated  damages under Section
                  4(d)(iv)  in respect  of the  certificates  resulting  in such
                  Buy-In.

                           vi.  Reservation of Shares Issuable Upon  Conversion.
                  The Company  covenants  that it will at all times  reserve and
                  keep available out of its  authorized  and unissued  shares of
                  Common  Stock   solely  for  the  purpose  of  issuance   upon
                  conversion  of the  Debentures  and payment of interest on the
                  Debenture,  each as  herein  provided,  free  from  preemptive
                  rights  or any  other  actual  contingent  purchase  rights of
                  persons  other than the Holders,  not less than such number of
                  shares of the Common Stock as shall (subject to any additional
                  requirements  of the Company as to  reservation of such shares
                  set forth in the Purchase  Agreement) be issuable (taking into
                  account the  adjustments  and  restrictions of Section 5) upon
                  the  conversion  of the  outstanding  principal  amount of the
                  Debentures  and  payment of  interest  hereunder.  The Company
                  covenants  that all  shares of Common  Stock  that shall be so
                  issuable shall,  upon issue,  be duly and validly  authorized,
                  issued and fully paid,  nonassessable and, if the Registration
                  Statement  is  then  effective   under  the  Securities   Act,
                  registered   for   public   sale  in   accordance   with  such
                  Registration Statement.

                           vii. Fractional Shares.  Upon a conversion  hereunder
                  the Company shall not be required to issue stock  certificates
                  representing  fractions of shares of the Common Stock, but may

                             Exhibit 10.2 - Page 11

<PAGE>

                  if otherwise permitted,  make a cash payment in respect of any
                  final  fraction of a share based on the Average  Price at such
                  time. If the Company elects not, or is unable,  to make such a
                  cash payment, the Holder shall be entitled to receive, in lieu
                  of the final  fraction  of a share,  one whole share of Common
                  Stock.

                           viii.  Transfer  Taxes.  The issuance of certificates
                  for shares of the Common Stock on conversion of the Debentures
                  shall be made  without  charge to the Holders  thereof for any
                  documentary  stamp or  similar  taxes  that may be  payable in
                  respect of the issue or delivery of such certificate, provided
                  that the Company shall not be required to pay any tax that may
                  be payable in respect of any transfer involved in the issuance
                  and delivery of any such certificate upon conversion in a name
                  other than that of the Holder of such  Debentures so converted
                  and the Company shall not be required to issue or deliver such
                  certificates  unless or until the person or persons requesting
                  the issuance thereof shall have paid to the Company the amount
                  of such tax or shall have  established to the  satisfaction of
                  the Company that such tax has been paid.

         Section 5. Certain Adjustments.

                  a) Stock  Dividends and Stock Splits.  If the Company,  at any
         time  while  this  Debenture  is  outstanding:  (A)  shall  pay a stock
         dividend or otherwise make a distribution or distributions on shares of
         its Common  Stock or any other equity or equity  equivalent  securities
         payable in shares of Common Stock (which, for avoidance of doubt, shall
         not include any shares of Common Stock  issued by the Company  pursuant
         to this  Debenture,  including  as  interest  thereon),  (B)  subdivide
         outstanding  shares of Common Stock into a larger number of shares, (C)
         combine (including by way of reverse stock split) outstanding shares of
         Common  Stock  into  a  smaller  number  of  shares,  or (D)  issue  by
         reclassification  of shares of the  Common  Stock any shares of capital
         stock of the Company,  then the Conversion Price shall be multiplied by
         a  fraction  of which the  numerator  shall be the  number of shares of
         Common Stock  (excluding  treasury shares,  if any) outstanding  before
         such event and of which the  denominator  shall be the number of shares
         of Common  Stock  outstanding  after such event.  Any  adjustment  made
         pursuant to this Section shall become effective  immediately  after the
         record date for the  determination of stockholders  entitled to receive
         such dividend or distribution  and shall become  effective  immediately
         after the effective date in the case of a  subdivision,  combination or
         re-classification.

                  b) Pro Rata  Distributions.  If the Company, at any time while
         this  Debenture  is  outstanding,  shall  distribute  to all holders of
         Common  Stock (and not to Holders)  evidences  of its  indebtedness  or
         assets  (other  than as  described  in a  notice  pursuant  to  Section
         5(d)(ii))  or rights or  warrants  to  subscribe  for or  purchase  any
         security,  then in  each  such  case  the  Conversion  Price  shall  be
         determined by multiplying such Conversion  Price in effect  immediately
         prior to the  record  date  fixed  for  determination  of  stockholders
         entitled  to  receive  such  distribution  by a  fraction  of which the
         denominator shall be the Average Price determined as of the record date

                             Exhibit 10.2 - Page 12

<PAGE>

         mentioned above, and of which the numerator shall be such Average Price
         on such record date less the then fair market value at such record date
         of  the  portion  of  such  assets  or  evidence  of   indebtedness  so
         distributed  applicable to one outstanding share of the Common Stock as
         determined by the Board of Directors in good faith.  In either case the
         adjustments  shall be described in a statement  provided to the Holders
         of the portion of assets or evidences of indebtedness so distributed or
         such subscription  rights applicable to one share of Common Stock. Such
         adjustment  shall be made  whenever any such  distribution  is made and
         shall  become  effective  immediately  after the record date  mentioned
         above.

                  c) Calculations.  All calculations  under this Section 5 shall
         be made to the nearest cent or the nearest  1/100th of a share,  as the
         case may be. For  purposes  of this  Section 5, the number of shares of
         Common  Stock  outstanding  as of a given  date shall be the sum of the
         number of shares of Common Stock (excluding  treasury  shares,  if any)
         outstanding.

                  d) Notice to Holders.

                           i.  Adjustment  to  Conversion  Price.  Whenever  the
                  Conversion  Price is adjusted  pursuant to any of this Section
                  5, the  Company  shall  promptly  mail to each Holder a notice
                  setting forth the Conversion  Price after such  adjustment and
                  setting forth a brief  statement of the facts  requiring  such
                  adjustment.

                           ii. Notice to Allow Conversion by Holder.  If (A) the
                  Company shall  declare a dividend (or any other  distribution)
                  on the Common  Stock;  (B) the Company shall declare a special
                  nonrecurring  cash  dividend on or a redemption  of the Common
                  Stock;  (C) the Company  shall  authorize  the granting to all
                  holders of the Common  Stock  rights or warrants to  subscribe
                  for or purchase any shares of capital stock of any class or of
                  any  rights;  (D)  the  approval  of any  stockholders  of the
                  Company   shall   be   required   in   connection   with   any
                  reclassification  of the Common Stock,  any  consolidation  or
                  merger to which the  Company is a party,  any sale or transfer
                  of all or substantially  all of the assets of the Company,  of
                  any  compulsory  share  exchange  whereby the Common  Stock is
                  converted  into other  securities,  cash or property;  (E) the
                  Company  shall   authorize   the   voluntary  or   involuntary
                  dissolution,  liquidation  or winding up of the affairs of the
                  Company or enter into a Change of Control  Transaction;  then,
                  in each  case,  the  Company  shall  cause to be filed at each
                  office or agency  maintained  for the purpose of conversion of
                  the Debentures, and shall cause to be mailed to the Holders at
                  their last  addresses as they shall appear upon the  Debenture
                  Register,  at least 20 calendar  days prior to the  applicable
                  record  or  effective  date  hereinafter  specified,  a notice
                  stating  (x) the date on which a record is to be taken for the
                  purpose of such dividend, distribution,  redemption, rights or
                  warrants,  or if a record is not to be  taken,  the date as of
                  which the holders of the Common Stock of record to be entitled
                  to  such  dividend,   distributions,   redemption,  rights  or
                  warrants  are to be  determined  or (y) the date on which such
                  reclassification,  consolidation,  merger,  sale,  transfer or
                  share exchange is expected to become  effective or close,  and
                  the date as of which it is expected that holders of the Common

                             Exhibit 10.2 - Page 13

<PAGE>

                  Stock of record shall be entitled to exchange  their shares of
                  the  Common  Stock  for  securities,  cash or  other  property
                  deliverable upon such reclassification, consolidation, merger,
                  sale, transfer or share exchange;  provided,  that the failure
                  to mail such  notice or any defect  therein or in the  mailing
                  thereof shall not affect the validity of the corporate  action
                  required to be specified in such notice.  Holders are entitled
                  to convert  Debentures during the 20-day period commencing the
                  date  of  such  notice  to the  effective  date  of the  event
                  triggering such notice.

                           iii. Fundamental  Transaction.  If, at any time while
                  this  Debenture is  outstanding,  (A) the Company  effects any
                  merger or  consolidation  of the Company  with or into another
                  Person,  and as a result,  the  Company  is not the  surviving
                  entity  in  such   transaction  or  (B)  Company  effects  any
                  reclassification  of the Common Stock or any compulsory  share
                  exchange  pursuant  to which the Common  Stock is  effectively
                  converted  into or  exchanged  for other  securities,  cash or
                  property (in any such case, a "Fundamental Transaction"), then
                  upon any subsequent  conversion of this Debenture,  the Holder
                  shall have the right to  receive,  for each  Conversion  Share
                  that would have been issuable upon such conversion absent such
                  Fundamental   Transaction,   the  same  kind  and   amount  of
                  securities, cash or property as it would have been entitled to
                  receive upon the occurrence of such Fundamental Transaction if
                  it  had   been,   immediately   prior   to  such   Fundamental
                  Transaction,  the  holder of one share of  Common  Stock  (the
                  "Alternate   Consideration").   For   purposes   of  any  such
                  conversion, the determination of the Conversion Price shall be
                  appropriately    adjusted   to   apply   to   such   Alternate
                  Consideration  based on the amount of Alternate  Consideration
                  issuable  in  respect  of one  share of  Common  Stock in such
                  Fundamental  Transaction,  and the Company shall apportion the
                  Conversion  Price  among  the  Alternate  Consideration  in  a
                  reasonable   manner  reflecting  the  relative  value  of  any
                  different  components  of  the  Alternate  Consideration.   If
                  holders  of  Common  Stock  are  given  any  choice  as to the
                  securities,  cash or property to be received in a  Fundamental
                  Transaction, then the Holder shall be given the same choice as
                  to the Alternate Consideration it receives upon any conversion
                  of this Debenture following such Fundamental  Transaction.  To
                  the extent  necessary to effectuate the foregoing  provisions,
                  any  successor  to the  Company  or  surviving  entity in such
                  Fundamental  Transaction  shall  issue  to  the  Holder  a new
                  debenture   consistent  with  the  foregoing   provisions  and
                  evidencing  the Holder's  right to convert such debenture into
                  Alternate  Consideration.  The terms of any agreement pursuant
                  to which a Fundamental  Transaction  is effected shall include
                  terms  requiring  any such  successor or  surviving  entity to
                  comply with the  provisions  of this  paragraph  (d)(iii)  and
                  insuring  that  this   Debenture  (or  any  such   replacement
                  security)  will be  similarly  adjusted  upon  any  subsequent
                  transaction analogous to a Fundamental Transaction.

                           iv. Exempt Issuance.  Notwithstanding  the foregoing,
                  no adjustment  will be made under this Section 5 in respect of
                  an Exempt Issuance.

         Section 6. Security. This Debenture is entitled to the benefits granted
in the Security Agreement.

                             Exhibit 10.2 - Page 14

<PAGE>

         Section 7. Negative Covenants. So long as any portion of this Debenture
is outstanding, the Company will not and will not permit any of its Subsidiaries
to directly or indirectly:

                  a) enter into,  create,  incur,  assume or suffer to exist any
         indebtedness  or liens of any kind,  on or with  respect  to any of its
         property  or assets now owned or  hereafter  acquired  or any  interest
         therein or any income or profits  therefrom  that is senior to, or pari
         passu  with,  in any  respect,  the  Company's  obligations  under  the
         Debentures, except for Permitted Liens;

                  b)  amend  its  articles  of  incorporation,  bylaws  or other
         charter documents so as to adversely affect any rights of the Holder;

                  c)  repay,   repurchase  or  offer  to  repay,  repurchase  or
         otherwise acquire more than a de minimis number of shares of its Common
         Stock or other equity securities other than as to the Conversion Shares
         to the extent permitted or required under the Transaction  Documents or
         as otherwise permitted by the Transaction Documents; or

                  d)  enter  into  any  agreement  with  respect  to  any of the
         foregoing.

         Section 8. Events of Default.

                  a) "Event of Default," wherever used herein,  means any one of
         the  following  events  (whatever  the reason  and  whether it shall be
         voluntary or involuntary or effected by operation of law or pursuant to
         any  judgment,  decree or order of any  court,  or any  order,  rule or
         regulation of any administrative or governmental body):

                           i. any  default in the  payment of (A) the  principal
                  amount of any Debenture  when due, or (B) interest  (including
                  Late  Fees) on, or  liquidated  damages  in  respect  of,  any
                  Debenture,  as and when the same shall  become due and payable
                  which default, is not cured, within 3 Trading Days;

                           ii. the Company  shall fail to observe or perform any
                  other covenant or agreement contained in this Debenture or any
                  of the other Transaction Documents (other than a breach by the
                  Company of its  obligations  to deliver shares of Common Stock
                  to the Holder upon  conversion  which  breach is  addressed in
                  clause (xi) below) which failure is not cured,  if possible to
                  cure,  within the earlier to occur of (A) 5 Trading Days after
                  notice  of such  default  sent by the  Holder  or by any other
                  Holder and (B)10  Trading Days after the Company  shall become
                  aware of such failure.

                             Exhibit 10.2 - Page 15

<PAGE>

                           iii. a default or event of  default  (subject  to any
                  grace or cure period provided for in the applicable agreement,
                  document  or  instrument)  shall  occur  under  (A) any of the
                  Transaction  Documents other than the  Debentures,  or (B) any
                  other  material  agreement,  lease,  document or instrument to
                  which the  Company  or any  Subsidiary  is bound (a  "Material
                  Agreement") if Company or such  Subsidiary has received notice
                  of the intent of another party to such  Material  Agreement to
                  exercise  its  rights  and/or  remedies  under  such  Material
                  Agreement in such a fashion that the exercise of such right or
                  remedy  would have a material  adverse  effect on the business
                  operations or properties of Company or such Subsidiary;

                           iv. any  representation  or warranty made herein,  in
                  any  other  Transaction  Document,  in any  written  statement
                  pursuant hereto or thereto, or in any other report,  financial
                  statement  or  certificate  made or delivered to the Holder or
                  any other holder of Debentures shall be untrue or incorrect in
                  any material respect as of the date when made or deemed made;

                           v. (i) the Company or any of its  Subsidiaries  shall
                  commence, a case under any applicable bankruptcy or insolvency
                  laws as now or hereafter in effect or any  successor  thereto,
                  or  the  Company  or  any   Subsidiary   commences  any  other
                  proceeding under any reorganization,  arrangement,  adjustment
                  of  debt,  relief  of  debtors,  dissolution,   insolvency  or
                  liquidation or similar law of any jurisdiction  whether now or
                  hereafter in effect  relating to the Company or any Subsidiary
                  thereof or (ii) there is commenced  against the Company or any
                  Subsidiary  thereof any such  bankruptcy,  insolvency or other
                  proceeding which remains  undismissed for a period of 60 days;
                  or (iii) the Company or any Subsidiary  thereof is adjudicated
                  by a court of competent jurisdiction insolvent or bankrupt; or
                  any order of relief or other order  approving any such case or
                  proceeding is entered;  or (iv) the Company or any  Subsidiary
                  thereof  suffers any  appointment of any custodian or the like
                  for it or any substantial part of its property which continues
                  undischarged  or unstayed for a period of 60 days;  or (v) the
                  Company or any Subsidiary  thereof makes a general  assignment
                  for the benefit of  creditors;  or (vi) the Company shall fail
                  to pay,  or shall  state that it is unable to pay, or shall be
                  unable to pay,  its debts  generally  as they  become  due; or
                  (vii) the  Company  or any  Subsidiary  thereof  shall  call a
                  meeting  of  its   creditors   with  a  view  to  arranging  a
                  composition,  adjustment  or  restructuring  of its debts;  or
                  (viii) the Company or any Subsidiary  thereof shall by any act
                  or failure to act expressly  indicate its consent to, approval
                  of or  acquiescence  in any  of the  foregoing;  or  (ix)  any
                  corporate  or other  action  is taken  by the  Company  or any
                  Subsidiary  thereof  for the purpose of  effecting  any of the
                  foregoing;

                           vi. the Company or any  Subsidiary  shall  default in
                  any of its obligations under any mortgage, credit agreement or
                  other facility,  indenture  agreement,  factoring agreement or
                  other instrument under which there may be issued,  or by which
                  there  may  be  secured  or  evidenced  any  indebtedness  for
                  borrowed  money or money due under  any long term  leasing  or
                  factoring  arrangement  of the Company in an amount  exceeding
                  $50,000,   whether  such  indebtedness  now  exists  or  shall
                  hereafter  be created and such  default  shall  result in such
                  indebtedness  becoming or being declared due and payable prior
                  to the  date  on  which  it  would  otherwise  become  due and
                  payable;

                             Exhibit 10.2 - Page 16

<PAGE>

                           vii.  the  Common  Stock  shall not be  eligible  for
                  quotation  on or quoted for  trading  on a Trading  Market and
                  shall  not again be  eligible  for and  quoted  or listed  for
                  trading thereon within five Trading Days;

                           viii.   except  as  permitted   by  the   Transaction
                  Documents,  the Company shall redeem or  repurchase  more than
                  ten percent (10%) of its outstanding shares of Common Stock or
                  other equity securities of the Company (other than redemptions
                  of Conversion Shares and repurchases of shares of Common Stock
                  or other equity securities of departing officers and directors
                  of the Company;  provided such repurchases exceed $100,000, in
                  the aggregate,  for all officers and directors during the term
                  of this Debenture);

                           ix. if, during the  Effectiveness  Period (as defined
                  in the Registration  Rights  Agreement),  the effectiveness of
                  the Registration Statement lapses for any reason or the Holder
                  shall not be permitted to resell  Registrable  Securities  (as
                  defined  in  the  Registration  Rights  Agreement)  under  the
                  Registration  Statement,  in  either  case,  for more  than 15
                  consecutive calendar days or 25 non-consecutive  calendar days
                  during any 12 month  period;  provided,  however,  that in the
                  event that the Company is negotiating a merger, consolidation,
                  acquisition or sale of all or substantially  all of its assets
                  or a similar transaction and in the written opinion of counsel
                  to the Company, the Registration Statement,  would be required
                  to  be  amended  to  include   information   concerning   such
                  transactions  or the parties  thereto that is not available or
                  may not be publicly  disclosed at the time,  the Company shall
                  be permitted an additional 10 consecutive  Trading Days during
                  any 12 month period relating to such an event;

                           x. an Event (as  defined in the  Registration  Rights
                  Agreement)  shall  not  have  been  cured  to  the  reasonable
                  satisfaction  of the Holder prior to the  expiration of thirty
                  days  from the  Event  Date (as  defined  in the  Registration
                  Rights  Agreement)  relating  thereto  (other  than  an  Event
                  resulting  from a failure of a  Registration  Statement  to be
                  declared  effective  by  the  Commission  on or  prior  to the
                  Effectiveness  Date (as  defined  in the  Registration  Rights
                  Agreement), which shall be covered by Section 8(a)(xiii);

                           xi. the Company  shall fail for any reason to deliver
                  certificates  to a Holder after a Conversion  Date pursuant to
                  and in  accordance  with  Section  4(d) or the  Company  shall
                  provide  notice  to the  Holder,  including  by way of  public
                  announcement, at any time, of its intention not to comply with
                  requests for  conversions of any Debentures in accordance with
                  the terms hereof; or

                           xii. the Company shall fail for any reason to deliver
                  the payment in cash  pursuant to a Buy-In (as defined  herein)
                  within 5  Trading  Days  after  notice  thereof  is  delivered
                  hereunder; or

                             Exhibit 10.2 - Page 17

<PAGE>

                           xiii.  the  Company  shall fail to have  available  a
                  sufficient  number  of  authorized  and  unreserved  shares of
                  Common  Stock  to  issue  to  such  Holder  upon a  conversion
                  hereunder.

                  b)  Remedies  Upon Event of  Default.  If any Event of Default
         occurs,  the full  principal  amount of this  Debenture,  together with
         interest and other  amounts  owing in respect  thereof,  to the date of
         acceleration  shall become, at the Holder's  election,  immediately due
         and payable in cash.  The  aggregate  amount  payable  upon an Event of
         Default shall be equal to the Mandatory Prepayment Amount. Commencing 5
         Trading Days after the  occurrence of any Event of Default that results
         in the eventual  acceleration of this  Debenture,  the interest rate on
         this Debenture shall accrue at the rate of 18% per annum, or such lower
         maximum  amount of interest  permitted to be charged  under  applicable
         law. All  Debentures  for which the full  Mandatory  Prepayment  Amount
         hereunder shall have been paid in accordance herewith shall promptly be
         surrendered  to or as  directed  by the  Company.  The Holder  need not
         provide and the Company hereby waives any presentment,  demand, protest
         or other notice of any kind, and the Holder may immediately and without
         expiration  of any grace  period  enforce any and all of its rights and
         remedies  hereunder  and  all  other  remedies  available  to it  under
         applicable  law.  Such  declaration  may be  rescinded  and annulled by
         Holder at any time prior to payment hereunder and the Holder shall have
         all rights as a Debenture  holder until such time,  if any, as the full
         payment  under this  Section  shall have been  received  by it. No such
         rescission or annulment shall affect any subsequent Event of Default or
         impair any right consequent thereon.

         Section 9. Miscellaneous.

                  a)  Notices.  Any and all notices or other  communications  or
         deliveries to be provided by the Holder hereunder,  including,  without
         limitation, any Notice of Conversion, shall be in writing and delivered
         personally,  by facsimile, or sent by a nationally recognized overnight
         courier  service,  addressed to the  Company,  at the address set forth
         above,  facsimile number  972-681-9687,  Attn:  Calvin A. Wallen III or
         such other  address or facsimile  number as the Company may specify for
         such purposes by notice to the Holder delivered in accordance with this
         Section.  Any and all notices or other  communications or deliveries to
         be provided by the Company  hereunder shall be in writing and delivered
         personally,  by facsimile, or sent by a nationally recognized overnight
         courier  service  addressed  to the Holder at the  facsimile  telephone
         number or address of such Holder  appearing on the Debenture  Register,
         or if no such facsimile  telephone  number or address  appears,  at the
         principal  place  of  business  of the  Holder.  Any  notice  or  other
         communication  or  deliveries  hereunder  shall  be  deemed  given  and
         effective  on the  earliest  of (i) the date of  transmission,  if such
         notice or  communication  is delivered  via  facsimile at the facsimile
         telephone number specified in this Section prior to 5:30 p.m. (New York
         City  time),  (ii) the date  after  the date of  transmission,  if such
         notice or  communication  is delivered  via  facsimile at the facsimile
         telephone  number  specified in this Section  later than 5:30 p.m. (New
         York City time) on any date and earlier than 11:59 p.m.  (New York City
         time) on such  date,  (iii)  the  Business  Day  following  the date of
         deposit,  if sent by nationally  recognized  overnight  courier service
         with next day delivery instructions, or (iv) upon actual receipt by the
         party to whom such notice is required to be given.

                             Exhibit 10.2 - Page 18

<PAGE>

                  b) Absolute  Obligation.  Except as expressly provided herein,
         no provision of this Debenture  shall alter or impair the obligation of
         the Company, which is absolute and unconditional,  to pay the principal
         of, interest and liquidated  damages (if any) on, this Debenture at the
         time, place, and rate, and in the coin or currency,  herein prescribed.
         This  Debenture  is a  direct  debt  obligation  of the  Company.  This
         Debenture ranks pari passu with all other  Debentures  issued under the
         terms set forth in the Securities Purchase Agreement.

                  c) Lost or Mutilated  Debenture.  If this  Debenture  shall be
         mutilated,  lost,  stolen or  destroyed,  the Company shall execute and
         deliver,  in exchange and substitution  for and upon  cancellation of a
         mutilated  Debenture,  or in  lieu  of or in  substitution  for a lost,
         stolen or destroyed Debenture, a new Debenture for the principal amount
         of this Debenture so mutilated, lost, stolen or destroyed but only upon
         receipt  of  evidence  of  such  loss,  theft  or  destruction  of such
         Debenture,  and of the ownership hereof,  and indemnity,  if requested,
         all reasonably satisfactory to the Company.

                  d) Governing Law. All questions  concerning the  construction,
         validity,  enforcement  and  interpretation  of this Debenture shall be
         governed by and construed and enforced in accordance  with the internal
         laws of the State of New York,  without  regard  to the  principles  of
         conflicts of law thereof.  Each party agrees that all legal proceedings
         concerning  the   interpretations,   enforcement  and  defense  of  the
         transactions  contemplated by any of the Transaction Documents (whether
         brought against a party hereto or its respective affiliates, directors,
         officers, shareholders,  employees or agents) shall be commenced in the
         state and federal  courts  sitting in the City of New York,  Borough of
         Manhattan (the "New York Courts"). Each party hereto hereby irrevocably
         submits to the  exclusive  jurisdiction  of the New York Courts for the
         adjudication of any dispute hereunder or in connection herewith or with
         any transaction contemplated hereby or discussed herein (including with
         respect to the  enforcement of any of the Transaction  Documents),  and
         hereby irrevocably waives, and agrees not to assert in any suit, action
         or  proceeding,  any claim  that it is not  personally  subject  to the
         jurisdiction of any such court, or such New York Courts are improper or
         inconvenient  venue for such proceeding.  Each party hereby irrevocably
         waives personal service of process and consents to process being served
         in any such suit,  action or  proceeding  by mailing a copy thereof via
         registered or certified  mail or overnight  delivery  (with evidence of
         delivery)  to such party at the  address  in effect  for  notices to it
         under this Debenture and agrees that such service shall constitute good
         and sufficient service of process and notice thereof. Nothing contained
         herein  shall be deemed to limit in any way any right to serve  process
         in any manner  permitted by law. Each party hereto  hereby  irrevocably
         waives,  to the fullest extent permitted by applicable law, any and all
         right  to  trial  by jury in any  legal  proceeding  arising  out of or
         relating to this Debenture or the transactions  contemplated hereby. If
         either  party  shall  commence an action or  proceeding  to enforce any
         provisions of this Debenture,  then the prevailing party in such action
         or proceeding  shall be reimbursed by the other party for its attorneys
         fees and other  costs and  expenses  incurred  with the  investigation,
         preparation and prosecution of such action or proceeding.

                             Exhibit 10.2 - Page 19

<PAGE>

                  e) Waiver. Any waiver by the Company or the Holder of a breach
         of any provision of this Debenture shall not operate as or be construed
         to be a waiver of any other  breach of such  provision or of any breach
         of any other provision of this Debenture. The failure of the Company or
         the  Holder  to  insist  upon  strict  adherence  to any  term  of this
         Debenture on one or more occasions  shall not be considered a waiver or
         deprive  that  party of the  right  thereafter  to insist  upon  strict
         adherence to that term or any other term of this Debenture.  Any waiver
         must be in writing.

                  f)  Severability.  If  any  provision  of  this  Debenture  is
         invalid, illegal or unenforceable,  the balance of this Debenture shall
         remain in effect, and if any provision is inapplicable to any person or
         circumstance,  it shall  nevertheless  remain  applicable  to all other
         persons and  circumstances.  If it shall be found that any  interest or
         other amount deemed  interest due hereunder  violates  applicable  laws
         governing  usury,  the applicable  rate of interest due hereunder shall
         automatically  be  lowered  to  equal  the  maximum  permitted  rate of
         interest.  The Company covenants (to the extent that it may lawfully do
         so) that it shall not at any time insist upon,  plead, or in any manner
         whatsoever  claim  or take the  benefit  or  advantage  of,  any  stay,
         extension or usury law or other law which would prohibit or forgive the
         Company from paying all or any portion of the  principal of or interest
         on this Debenture as contemplated  herein,  wherever enacted, now or at
         any time  hereafter in force,  or which may affect the covenants or the
         performance  of this  indenture,  and the Company (to the extent it may
         lawfully do so) hereby  expressly  waives all  benefits or advantage of
         any such law,  and  covenants  that it will not,  by resort to any such
         law, hinder,  delay or impede the execution of any power herein granted
         to the Holder,  but will suffer and permit the  execution of every such
         covenant as though no such law has been enacted.

                  g) Next Business Day. Whenever any payment or other obligation
         hereunder shall be due on a day other than a Business Day, such payment
         shall be made on the next succeeding Business Day.

                  h) Headings. The headings contained herein are for convenience
         only,  do not  constitute  a part of this  Debenture  and  shall not be
         deemed to limit or affect any of the provisions hereof.

                              *********************

                             Exhibit 10.2 - Page 20
<PAGE>

         IN WITNESS WHEREOF,  the Company has caused this Convertible  Debenture
to be duly  executed  by a duly  authorized  officer as of the date first  above
indicated.

                                            CUBIC ENERGY, INC.

                                            By:_________________________________
                                               Name: Calvin A. Wallen III
                                               Title:  Chief Executive Officer

                             Exhibit 10.2 - Page 21
<PAGE>

                                     ANNEX A

                              NOTICE OF CONVERSION

         The  undersigned  hereby  elects to  convert  principal  under the 7.0%
Senior Secured Convertible  Debenture of Cubic Energy, Inc., a Texas corporation
(the  "Company"),  due on September 30, 2009,  into shares of common stock,  par
value $0.05 per share (the  "Common  Stock"),  of the Company  according  to the
conditions  hereof,  as of the date written below. If shares are to be issued in
the name of a person other than the  undersigned,  the undersigned  will pay all
transfer  taxes  payable with respect  thereto and is  delivering  herewith such
certificates  and opinions as reasonably  requested by the Company in accordance
therewith.  No fee will be charged to the holder for any conversion,  except for
such transfer taxes, if any.

         By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its  ownership  of the  Company's  Common Stock
does not exceed the amounts  determined in accordance  with Section 13(d) of the
Exchange Act, specified under Section 4 of this Debenture.

         The  undersigned   agrees  to  comply  with  the  prospectus   delivery
requirements  under  the  applicable  securities  laws in  connection  with  any
transfer of the aforesaid shares of Common Stock.

Conversion calculations:

                        Date to Effect Conversion:

                        Principal Amount of Debentures to be Converted:

                        Payment of Interest in Common Stock __ yes __ no

                                    If  yes,  $_____  of  Interest   Accrued  on
                                    Account of Conversion at Issue.

                        Number of shares of Common Stock to be issued:

                        Signature:

                        Name:

                        Address:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00072-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00072-of-00352.parquet"}]]