Document:

EXHIBit 10.5

RECORDING REQUESTED BY:

WHEN RECORDED MAIL TO:

LORD BISSELL & BROOK LLP
300 S. Grand Ave., 8th Floor
Los Angeles, CA 90071-3147
Attn: Alfred M. Clark, III, Esq.

(Space Above For Recorder's Use)

                                 DEED OF TRUST,
         SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FIXTURE FILING

                            Dated: September 30, 2004

              CUBIC ENERGY, INC., a Texas corporation, , as Trustor
                                   (Borrower)

                                       to
                            Alex Montano, as Trustee
                                    (Trustee)

                               for the benefit of

                C. K. Cooper & Company, on behalf of Investors of
                    7% Senior Secured Convertible Debentures,
                             as Beneficiary (Lender)

THIS SECURITY INSTRUMENT IS, AMONG OTHER THINGS, A FINANCING STATEMENT UNDER THE
UNIFORM  COMMERCIAL CODE COVERING  MINERALS AND THE LIKE (INCLUDING OIL AND GAS)
ACCOUNTS  RESULTING  FROM THE SALE OF MINERALS AND THE LIKE  (INCLUDING  OIL AND
GAS), INVENTORY,  GOODS,  EQUIPMENT,  GENERAL INTANGIBLES AND GOODS WHICH ARE OR
ARE TO BECOME  FIXTURES ON THE REAL  PROPERTY  HEREIN  DESCRIBED.  THIS SECURITY
INSTRUMENT  IS TO BE RECORDED IN THE REAL ESTATE  RECORDS OF THE COUNTY CLERK OR
RECORDER OF EACH COUNTY IN EACH STATE IN WHICH IS SITUATED ANY OF THE COLLATERAL
COVERED  HEREBY.  THE REAL  PROPERTY  SUBJECT  HERETO IS  DESCRIBED IN EXHIBIT A
ATTACHED  HERETO.  THIS SECURITY  INSTRUMENT  CONTAINS  AFTER-ACQUIRED  PROPERTY
PROVISIONS AND COVERS PROCEEDS OF COLLATERAL.

A POWER OF SALE HAS BEEN GRANTED IN THIS  SECURITY  INSTRUMENT.  A POWER OF SALE
MAY ALLOW THE LENDER OR THE TRUSTEE TO TAKE THE  MORTGAGED  PROPERTY AND SELL IT
WITHOUT  GOING TO COURT IN A FORECLOSURE  ACTION UPON DEFAULT BY BORROWER  UNDER
THIS SECURITY INSTRUMENT.

                              Exhibit 10.5 - Page 1

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                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE 1 - GRANTS OF SECURITY.................................................7
   SECTION 1.1    PROPERTY MORTGAGED...........................................7
   SECTION 1.2    ADDITIONAL PROPERTY MORTGAGED AND CONVEYED...................9
   SECTION 1.3    ASSIGNMENT OF PRODUCTION....................................11
   SECTION 1.3    SECURITY AGREEMENT..........................................13
   SECTION 1.4    SECURITY AGREEMENT..........................................13
   SECTION 1.5    FIXTURE FILING..............................................13
ARTICLE 2 - DEBT AND OBLIGATIONS SECURED......................................15
   SECTION 2.1    DEBT........................................................15
   SECTION 2.2    OTHER OBLIGATIONS...........................................15
   SECTION 2.3    DEBT AND OTHER OBLIGATIONS..................................15
   SECTION 2.4    PAYMENTS....................................................15
ARTICLE 3 - BORROWER COVENANTS................................................16
   SECTION 3.1    PAYMENT OF DEBT.............................................16
   SECTION 3.2    INCORPORATION BY REFERENCE..................................16
   SECTION 3.3    TITLE TO PROPERTY...........................................16
   SECTION 3.5    INSURANCE...................................................20
   SECTION 3.6    CONDEMNATION................................................21
   SECTION 3.6    MAINTENANCE OF PROPERTY.....................................21
   SECTION 3.7    WASTE.......................................................21
   SECTION 3.8    COMPLIANCE WITH LAWS........................................22
   SECTION 3.11   BOOKS AND RECORDS...........................................22
   SECTION 3.9    BOOKS AND RECORDS...........................................22
   SECTION 3.12   PAYMENT FOR LABOR AND MATERIALS.............................23
   SECTION 3.10   PAYMENT FOR LABOR AND MATERIALS.............................23
   SECTION 3.13   PERFORMANCE OF OTHER AGREEMENTS.............................23
   SECTION 3.11   PERFORMANCE OF OTHER AGREEMENTS.............................23
   SECTION 3.14   CHANGE OF NAME, IDENTITY OR STRUCTURE.......................23
   SECTION 3.12   CHANGE OF NAME, IDENTITY OR STRUCTURE.......................23
   SECTION 3.15   EXISTENCE...................................................23
   SECTION 3.13   EXISTENCE...................................................23
ARTICLE 4 - SPECIAL COVENANTS.................................................23
   SECTION 4.1    DEFENSE OF TITLE............................................23
   SECTION 4.2    ERISA.......................................................24
   SECTION 4.3    LEASE PROVISION.............................................24
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES....................................25
   SECTION 5.1    AUTHORITY...................................................25
   SECTION 5.1    AUTHORITY...................................................25
   SECTION 5.2    LEGAL STATUS AND AUTHORITY..................................25
   SECTION 5.2    LEGAL STATUS AND AUTHORITY..................................25
   SECTION 5.3    VALIDITY OF DOCUMENTS.......................................26
   SECTION 5.3    VALIDITY OF DOCUMENTS.......................................26
   SECTION 5.4    LITIGATION..................................................26
   SECTION 5.4    LITIGATION..................................................26
   SECTION 5.5    NO FOREIGN PERSON...........................................26
   SECTION 5.5    NO FOREIGN PERSON...........................................26
   SECTION 5.6    ERISA COMPLIANCE............................................26
   SECTION 5.6    ERISA COMPLIANCE............................................26
   SECTION 5.7    FINANCIAL CONDITION.........................................27

                              Exhibit 10.5 - Page 2

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   SECTION 5.7    FINANCIAL CONDITION.........................................27
   SECTION 5.8    BUSINESS PURPOSES...........................................27
   SECTION 5.8    BUSINESS PURPOSES...........................................27
   SECTION 5.9    TAXES.......................................................27
   SECTION 5.9    TAXES.......................................................27
   SECTION 5.10   MAILING ADDRESS.............................................27
   SECTION 5.10   MAILING ADDRESS.............................................27
   SECTION 5.11   NO CHANGE IN FACTS OR CIRCUMSTANCES.........................27
   SECTION 5.11   NO CHANGE IN FACTS OR CIRCUMSTANCES.........................27
   SECTION 5.12   DISCLOSURE..................................................27
   SECTION 5.12   DISCLOSURE..................................................27
   SECTION 5.13   ILLEGAL ACTIVITY............................................27
   SECTION 5.13   ILLEGAL ACTIVITY............................................27
ARTICLE 6 - DEBTOR/CREDITOR RELATIONSHIP......................................27
   SECTION 6.1    RELATIONSHIP OF BORROWER AND LENDER.........................27
   SECTION 6.2    SERVICING OF THE LOAN.......................................27
ARTICLE 7 - FURTHER ASSURANCES................................................28
   SECTION 7.1    RECORDING OF SECURITY INSTRUMENT, ETC.......................28
   SECTION 7.2    FURTHER ACTS, ETC...........................................28
   SECTION 7.3    CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP LAWS......28
   SECTION 7.4    ESTOPPEL CERTIFICATES.......................................29
   SECTION 7.6    SPLITTING OF SECURITY INSTRUMENT............................29
   SECTION 7.5    SPLITTING OF SECURITY INSTRUMENT............................29
   SECTION 7.7    REPLACEMENT DOCUMENTS.......................................29
   SECTION 7.8    AMENDED FINANCING STATEMENTS................................29
   SECTION 7.7    AMENDED FINANCING STATEMENTS................................29
ARTICLE 8 - DUE ON SALE/ENCUMBRANCE...........................................30
   SECTION 8.1    NO SALE/ENCUMBRANCE.........................................30
   SECTION 8.2    SALE/ENCUMBRANCE DEFINED....................................30
   SECTION 8.3    LENDER'S RIGHTS.............................................30
ARTICLE 9 - PREPAYMENT........................................................31
ARTICLE 10 - DEFAULT..........................................................31
   SECTION 10.1   EVENTS OF DEFAULT...........................................31
ARTICLE 11 - RIGHTS AND REMEDIES..............................................32
   SECTION 11.1   REMEDIES....................................................32
   SECTION 11.2   APPLICATION OF PROCEEDS.....................................35
   SECTION 11.3   RIGHT TO CURE DEFAULTS......................................35
   SECTION 11.4   ACTIONS AND PROCEEDINGS.....................................35
   SECTION 11.5   RECOVERY OF SUMS REQUIRED TO BE PAID........................35
   SECTION 11.6   EXAMINATION OF BOOKS AND RECORDS............................35
   SECTION 11.7   OTHER RIGHTS, ETC...........................................35
   SECTION 11.8   RIGHT TO RELEASE ANY PORTION OF THE PROPERTY................36
   SECTION 11.9   VIOLATION OF LAWS...........................................36
   SECTION 11.10  RIGHT OF ENTRY..............................................36
ARTICLE 12 - ENVIRONMENTAL HAZARDS............................................36
   SECTION 12.1   ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES................37
   SECTION 12.2   ENVIRONMENTAL COVENANTS.....................................38
   SECTION 12.3   LENDER'S RIGHTS.............................................39
ARTICLE 13 - INDEMNIFICATION..................................................39
   SECTION 13.1   GENERAL INDEMNIFICATION.....................................39
ARTICLE 14 - WAIVERS..........................................................39
   SECTION 14.1   WAIVER OF COUNTERCLAIM......................................39
   SECTION 14.2   MARSHALING AND OTHER MATTERS................................39
   SECTION 14.3   WAIVER OF NOTICE............................................40
   SECTION 14.4   WAIVER OF STATUTE OF LIMITATIONS............................40

                              Exhibit 10.5 - Page 3

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   SECTION 14.5   SOLE DISCRETION OF LENDER...................................40
   SECTION 14.6   SURVIVAL....................................................40
   SECTION 14.7   WAIVER OF TRIAL BY JURY.....................................40
ARTICLE 15 - INTENTIONALLY OMITTED............................................40
ARTICLE 16 - NOTICES..........................................................41
   SECTION 16.1   NOTICES.....................................................41
ARTICLE 17 - APPLICABLE LAW...................................................41
   SECTION 17.1   CHOICE OF LAW...............................................41
   SECTION 17.2   USURY LAWS..................................................41
   SECTION 17.3   PROVISIONS SUBJECT TO APPLICABLE LAW........................42
   SECTION 17.4   INAPPLICABLE PROVISION......................................42
ARTICLE 18 - SECONDARY MARKET.................................................42
   SECTION 18.1   DISSEMINATION OF INFORMATION................................42
ARTICLE 19 - COSTS............................................................43
   SECTION 19.1   PERFORMANCE AT BORROWER'S EXPENSE...........................43
   SECTION 19.2   ATTORNEYS' FEES FOR ENFORCEMENT.............................43
ARTICLE 20 - DEFINITIONS......................................................43
   SECTION 20.1   GENERAL DEFINITIONS.........................................43
   SECTION 20.2   HEADINGS, ETC...............................................43
ARTICLE 21 - MISCELLANEOUS PROVISIONS.........................................44
   SECTION 21.1   NO ORAL CHANGE..............................................44
   SECTION 21.1   LIABILITY...................................................44
   SECTION 21.3   DUPLICATE ORIGINALS; COUNTERPARTS...........................44
   SECTION 21.4   NUMBER AND GENDER...........................................44
   SECTION 21.5   SUBROGATION.................................................44
   SECTION 21.6   ENTIRE AGREEMENT............................................44
ARTICLE 22 - TRUSTEE PROVISIONS...............................................45
   SECTION 22.1   THE TRUSTEE.................................................45
ARTICLE 23 - LOCAL LAW PROVISIONS.............................................46

EXHIBITS -

         Exhibit A - Description of Land
         Exhibit B - Local Law Provisions

DEFINITIONS

The terms set forth below are defined in the following Sections of this Security
Instrument:

         Accounts: Subsection 1.1(h)
         ADA:  Subsection 3.10(a);
         Applicable Law:  Subsection 3.10(a);
         Attorneys' Fees/Counsel Fees:  Section 20.1;
         Borrower:  Preamble;
         Business Day:  Section 16.1;
         Casualty Consultant:  Subsection 4.4(b)(iii);
         Casualty Retainage:  Subsection 4.4(b)(iv);
         Collateral:  Section 1.4;
         Debt:  Section 2.1;
         Default Rate:  Section 11.3;
         Demised Premises: Section 4.3(b)
         Environmental Indemnity:  Subsection 10.1(c);

                              Exhibit 10.5 - Page 4

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         Environmental Law:  Section 12.1;
         Environmental Liens:  Section 12.2;
         Environmental Report:  Section 12.1;
         ERISA:  Subsection 4.2(a);
         Event:  Section 19.1;
         Event of Default:  Section 10.1;
         Hazardous Substances:  Section 12.1;
         Hydrocarbons: Subsection 1.1(c);
         Impositions: Section 4.3(b)
         Indemnified Parties:  Section 13.1;
         Indemnitor:  Subsection 10.1(c);
         Insurance Premiums:  Subsection 3.3(b);
         Investor:  Section 18.1;
         Lands:  Subsection 1.1(f);
         Lease: Section 4.3
         Lender:  Preamble;
         Loan Application:  Section 5.15;
         Losses:  Section 13.1;
         Net Proceeds:  Subsection 4.4(b);
         Net Proceeds Deficiency:  Subsection 4.4(b)(vi);
         Notes:  Recitals;
         Obligations:  Section 2.3;
         Other Charges:  Subsection 3.4(a);
         Other Obligations:  Section 2.2;
         Other Minerals: Subsection 1.1(d);
         Other Personal Property: Subsection 1.2(c)
         Other Security Documents:  Section 3.2;
         Participations:  18.1;
         Permitted Exceptions:  Section 5.1;
         Person:  Section 20.1;
         Personal Property:  Subsection 1.1(e);
         Policies/Policy:  Subsection 3.3(b);
         Property:  Section 1.1;
         Purchase Agreement:  Recitals
         Property Records: Subsection 1.2(g);
         Qualified Insurer:  Subsection 3.3(b);
         Rating Agency:  Subsection 3.3(b);
         Release:  Section 12.1;
         Remediation:  Section 12.1;
         Rents:  Subsection 1.1(f);
         Restoration:  Subsection 3.3(d);
         Securities:  Section 18.1;
         Securitization:  Section 18.1;
         Security Instrument:  Preamble;
         Servicer:  Section 6.2;
         Subject Contracts: Subsection 1.1(g);
         Subject Interests: Subsection 1.1(a);
         Subject Interest Personal Property: Subsection 1.1(f);
         Surface Rights: Subsection 1.1(e)

                              Exhibit 10.5 - Page 5

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         Taxes:  Subsection 3.4(a);
         Trustee:  Preamble; and
         Uniform Commercial Code:  Subsection 1.1(e).

                              Exhibit 10.5 - Page 6

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         THIS DEED OF TRUST,  SECURITY  AGREEMENT,  ASSIGNMENT OF PRODUCTION AND
FIXTURE  FILING  (the  "Security  Instrument")  is  made as of the  30th  day of
September,  2004,  by  CUBIC  ENERGY,  INC.,  a Texas  corporation,  having  its
principal place of business at 9870 Plano Road, Dallas,  Texas 75238, as trustor
("Borrower"),  to Alex  Montano,  having an address at 18300 Von Karman  Avenue,
Suite 440, Irvina, California 92612, as trustee ("Trustee"),  for the benefit of
C. K.  Cooper &  Company,  on  behalf  of the  investors  of 7%  Senior  Secured
Convertible Debentures, having an address at 18300 Von Karman Avenue, Suite 440,
Irvine, California 92612, as beneficiary (collectively "Lender").

                                    RECITALS:

         Borrower,  by its Senior  Secured  Convertible  Debentures of even date
herewith issued by Borrower to Lender is indebted to Lender in the principal sum
of $2,585,000 in lawful money of the United States of America.  The  Debentures,
together  with  all   extensions,   renewals,   modifications,   consolidations,
substitutions,  replacements,  restatements and increases  thereof,  all as more
particularly  described in that  certain  Securities  Purchase  Agreement by and
among Borrower,  as issuer, and Lender, as purchaser (the "Purchase  Agreement")
shall collectively be referred to as the "Notes"). Interest accrues on the Notes
from the date  thereof  at the  rates  set  forth in the  Notes,  principal  and
interest to be payable in accordance  with the terms and conditions  provided in
the Notes.  The references to Lender herein are in the singular for  convenience
only,  and the rights and liens created by this  instrument  are for the ratable
benefit  of all  holders of the  Obligations,  or any part  thereof,  all to the
extent contemplated in the Purchase Agreement.

         Borrower  desires  to secure  the  payment  of the Debt (as  defined in
Article 2) and the performance of all of its obligations under the Notes and the
Other Obligations (as defined in Article 2).

                         Article 1 - GRANTS OF SECURITY

         Section 1.1 Property  Mortgaged.  Borrower does hereby  irrevocably (i)
mortgage,  grant, bargain, sell, pledge, assign, warrant, transfer and convey to
Trustee  and to its  successors  and  assigns  in  trust  with  power of sale in
accordance  with the terms and  conditions  hereof,  for the use and  benefit of
Lender,  and (ii) grant a security  interest to Lender and to its successors and
assigns in, the following property,  rights, interests and estates now owned, or
hereafter acquired by Borrower (collectively, the "Property"):

         (a) All those  certain  oil,  gas and  mineral  leases,  rights of use,
easements,  servitudes  and the  estates  created  thereby,  royalty  interests,
mineral interests, mineral properties,  overriding royalty interests, production
payments, net profits interests, fee interests, carried interests,  reversionary
interests  and all other  rights  described or referred to in Exhibit A attached
hereto and made a part hereof (or described in any of the instruments  described
or referred to in Exhibit A), whether such rights, titles, interests and estates
are  correctly  described  therein or not,  or a  description  be  inadvertently
deleted form Exhibit A and further without regard to depth or other  limitations
that may be set forth in Exhibit A (all of which rights,  titles,  interests and
estates described in this Paragraph are hereinafter  collectively referred to as
the "Subject Interests"). The term "oil, gas and mineral leases" as used in this
Security  Instrument  and in Exhibit A includes,  in  addition  to oil,  gas and
mineral leases, oil and gas leases,  oil, gas and sulphur leases,  other mineral
leases,  co-lessor's  agreements and extensions,  amendments,  ratifications and
subleases of all of the foregoing, all as may be appropriate;

         (b) All present and future rights, titles, interests and estates in and
to present and future  drilling,  spacing,  proration or  production  units,  as
created by the terms of any unitization, communitization and pooling agreements,

                              Exhibit 10.5 - Page 7

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and all  properties,  property rights and estates created thereby which include,
belong or appertain to the Subject Interests, including, without limitation, all
such units  formed or  re-formed  voluntarily  or under or  pursuant  to any Law
relating to any of the Subject Interests (all of which rights, titles, interests
and estates described in this subsection (b) are hereinafter included within the
term "Subject Interests");

         (c) All present and future oil,  gas,  coal seam gas,  casinghead  gas,
drip  gasoline,  natural  gasoline,  distillate,  all other  liquid  or  gaseous
hydrocarbons produced or to be produced in conjunction therewith,  all products,
by-products  and  all  other  substances  derived  therefrom  or the  processing
thereof,   and  all  other  similar  minerals  now  or  hereafter  accruing  to,
attributable to or produced from the Subject  Interests or the Subject Contracts
(hereinafter defined) or to which Borrower now or hereafter may be entitled as a
result or by virtue of Borrower's  ownership of the Subject  Interests or rights
or interests under the Subject Contracts (collectively "Hydrocarbons") ;

         (d) All present and future sulphur,  lignite,  coal, uranium,  thorium,
iron,  geothermal steam, water,  carbon dioxide,  helium and all other minerals,
ores or substances of value  (whether  similar to the foregoing or not), and the
products  and  proceeds  therefrom,   including,  without  limitation,  all  gas
resulting  from the  in-situ  combustion  of coal or  lignite  now or  hereafter
accruing  to,  attributable  to or produced  from the Subject  Interests  or the
Subject  Contracts or to which  Borrower  now or hereafter  may be entitled as a
result of or by virtue of  Borrower's  ownership  of the  Subject  Interests  or
rights  or  interests  under  the  Subject   Contracts   (collectively,   "Other
Minerals");

         (e) All present and future  rights,  titles and  interest in and to all
surface fees, fee estates, easements, permits, licenses,  rights-of-way,  rights
of use, surface leases,  servitudes,  plant sites,  compressor  sites,  treating
facility sites, and all property and fixtures located thereon which relate to or
are used or held for use in  connection  with the Subject  Interests,  including
without  limitation  those  described  or referred to on Exhibit A, whether such
surface fees, fee estates, easements, permits, licenses,  rights-of-way,  rights
of use,  surface  leases,  compressor  sites or treating  facility sites are fee
simple  estates,  leasehold  estates or otherwise  (all of such rights,  titles,
interests  and  estates  referred to or  described  in this  subsection  (e) are
hereinafter collectively referred to as the "Surface Rights");

         (f) All present and future oil and/or gas wells, disposal and injection
wells, rigs, improvements,  fixtures,  machinery and other equipment,  inventory
and articles of personal property of any kind or character whatsoever,  wherever
located,  which are appurtenant to, or used or held for use in connection  with,
the production,  gathering or transporting of Hydrocarbons or Other Minerals, or
now or hereafter  located on any of the lands  encumbered  by any of the Subject
Interests  (the "Lands"),  or used on or about the Lands in connection  with the
operations  thereon  with respect to the  production  of  Hydrocarbons  or Other
Minerals,  including, without limitation,  connections and flow lines from wells
to tanks, wells,  pipelines,  gathering lines, trunk lines,  lateral lines, flow
lines,  compressor,  dehydration  and pumping  equipment,  pumping  plants,  gas
plants,  processing  plants,  treating  facilities,  pumps,  dehydration  units,
separators,   heater   treaters,   valves,   gauges,   meters,   derricks,   rig
substructures,  buildings,  tanks, reservoirs,  tubing, rods, liquid extractors,
engines,  boilers, tools,  appliances,  cables, wires, tubular goods, machinery,
supplies,  together  with all present and future  improvements  or products  of,
accessions,  attachments and other additions to, tools, parts and equipment used
in connection with, and substitutes and replacements for, all or any part of the
foregoing (all of the types of items of property and interests described in this
subsection (f) are hereinafter collectively referred to as the "Subject Interest
Personal Property");

                              Exhibit 10.5 - Page 8

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         (g) All  present  and future  rights,  titles,  interests  and  estates
(including,  without  limitation,  all rights to receive  payments)  under or by
virtue  of all  easements,  permits,  licenses,  rights-of-way,  rights  of use,
surface leases,  underground  storage leases agreements,  certificates of public
convenience and necessity,  franchises,  servitudes, division orders, production
sales contracts,  processing  agreements,  gathering agreements,  transportation
agreements,  transfer  orders and other  contracts  and  agreements  relating or
pertaining  to  purchasing,  selling,  exchanging,  exploring  for,  developing,
operating, treating,  processing,  storing, marketing, gathering or transporting
Hydrocarbons  or Other Minerals or any other  contract or agreement  relating in
any  way to all  or  any  part  of  the  Property  otherwise  described  herein,
including, without limitation,  farmout contracts, farm-in contracts,  operating
or joint  operating  agreements,  trade  letter  agreements  and all  agreements
creating  rights-of-way for ingress and egress to and from the Subject Interests
or the  Surface  Rights  (all of such  rights,  titles,  interests  and  estates
referred to or described in this  subsection  (g) are  hereinafter  collectively
referred to as the "Subject Contracts");

         (h) All present and future accounts (including, but not limited to, all
open accounts  receivable and accounts  receivable  arising under or pursuant to
any of the Subject Contracts),  general  intangibles,  contract rights,  chattel
paper,  documents,  instruments,  cash and  noncash  proceeds  and other  rights
relating to,  arising from,  by virtue of, or from the voluntary or  involuntary
sale of other  disposition  of, or  collections  with  respect to, or  insurance
proceeds  payable with respect to, or proceeds  payable by virtue of warranty or
other claims  against  manufacturers  of, or claims  against any other person or
entity  with  respect  to,  all or any part of the  Property  described  in this
subsection (h) or any of the preceding subsections (a) through (g) (all of which
types and items of property and interests  described in this  subsection (h) are
hereinafter collectively referred to as the "Accounts");

         (i) All present  and future  tenements,  hereditaments,  appurtenances,
profits and properties in anywise appertaining, belonging, affixed or incidental
to,  or used or  useful  in  connection  with,  all or any  part of the  Subject
Interests or the Surface Rights, including,  without limitation, all reversions,
remainders,   carried  interests,  tolls,  rents,  revenues,  issues,  proceeds,
deposits,  tax refunds other than income tax refunds (and claims for tax refunds
other than  income  tax  refunds),  easements,  permits,  licenses,  servitudes,
surface leases, rights-of-way and franchises (to the extent any of the foregoing
are assignable or transferable), relating to all or any part of the Property;

         (j) All of the following  collateral,  now owned or hereafter acquired,
in connection with any and all of the Subject  Interests:  oil and gas equipment
(including accessions),  oil, gas, as-extracted collateral,  casinghead gas, and
other  hydrocarbons;  accounts,  documents,  instruments,  contract  rights  and
general  intangibles  relating to the sale  thereof;  together with all proceeds
thereof; and

         (k) All other  interests of every kind and character which Borrower has
or at any time hereafter  acquires in and to the types and items of property and
interests  described in  subsections  (a) through (j) preceding and all property
which is used or useful in connection  with the Subject  Interests,  the Surface
Rights or  otherwise  and the  proceeds  and  products of all of the  foregoing,
whether now owned or hereafter acquired.

         Section 1.2  Additional  Property  Mortgaged and  Conveyed.  To further
secure  the  full and  complete  payment  and  performance  of the  Obligations,
Borrower does hereby  irrevocably (i) mortgage,  grant,  bargain,  sell, pledge,
assign,  warrant,  transfer  and convey to  Trustee  and to its  successors  and
assigns in trust with power of sale in accordance  with the terms and conditions
hereof, for the use and benefit of Lender, and (ii) grant a security interest to
Lender and to its  successors  and assigns in, the following  property,  rights,
interests and estates now owned, or hereafter acquired by Borrower (all of which
are included within the term "Property"):

                              Exhibit 10.5 - Page 9

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         (a)  All  present  and  future  Subject   Interests,   Surface  Rights,
Hydrocarbons and Other minerals;

         (b) All present and future Subject Interest Personal Property,  Subject
Contracts and Accounts;

         (c) To the  extent  not  otherwise  covered  above,  all of  Borrower's
present and future  accounts,  general  intangibles,  chattel paper,  documents,
instruments,  inventory,  equipment and fixtures,  as those terms are defined in
the Uniform  Commercial  Code of the state where the Property is located (all of
the types of property  described in this Paragraph are hereinafter  collectively
referred to as the "Other Personal Property");

         (d) All of the commodity  swap,  futures or hedging  accounts  owned by
Borrower and agreements  relating thereto to which Borrower is a party and which
affect any of the Property,  the net equity margins therein, the credit balances
therein, and all instruments,  uncertificated  securities and money held therein
or pursuant to the  agreements  establishing  or governing such accounts and all
general intangibles  (including,  without limitation,  all futures contracts and
options contracts therein) relating to any of the foregoing;

         (e)  All  present   and  future   increases,   profits,   combinations,
reclassifications,  improvements  and products of,  accessions,  attachments and
other  additions to, tools,  parts and equipment  used in connection  with,  and
substitutes and replacements  for, all or any part of the Property  described in
this or any other subsection hereof or of Section 1.1:

         (f)  All  present  and  future  accounts,   contract  rights,   general
intangibles,  chattel paper, documents,  instruments,  cash and noncash proceeds
and  other  rights  arising  from or by  virtue  of,  or from the  voluntary  or
involuntary  sale or other  disposition  of, or collections  with respect to, or
insurance proceeds payable with respect to, the Property, or proceeds payable by
virtue of warranty or other claims against  manufacturers  of, or claims against
any other person or entity with respect to, all or any part of the Property;

         (g) All  present  and future  logs,  drilling  reports,  lease and well
files,  property  records,  all  financial,  geological,  geophysical  and other
records,  books,  records,  files,  data,  plans,  manuals,  computer  software,
computer tapes, computer disks,  computer programs,  source codes, object codes,
abstracts,  title opinions,  rights to receive  information  from third parties,
memoranda and other written information  pertaining to the Property, or any part
thereof (collectively, the "Property Records");

         (h) All present and future  security and  collateral for the payment to
Borrower of any of the Accounts and goods which gave or will give rise to any of
such Accounts or are evidenced, identified, or represented therein or thereby;

         (i) All condemnation proceeds pertaining to any of the Property; and

         (j) Any and all products and proceeds (including insurance proceeds) of
any of the foregoing.

                             Exhibit 10.5 - Page 10

<PAGE>

         Section 1.3 Assignment of Production.

         (a) Borrower hereby  absolutely and  unconditionally  assigns to Lender
all of the following (collectively, the "Proceeds"):

                  (i) All  Hydrocarbons  and Other  Minerals,  and the  proceeds
therefrom,  and the  products  obtained or  processed  therefrom,  and  proceeds
thereof;

                  (ii) All amounts or proceeds hereafter payable to or to become
payable to  Borrower or to which  Borrower  is entitled  pursuant to all Subject
Contracts now or hereafter  relating to any part of the Subject Interests or the
Surface Rights; and

                  (iii) All  amounts,  sums,  monies,  revenues and income which
become  payable to Borrower  from,  or with  respect to, any of the  Property or
pursuant  to  any  Subject  Contract,   present  or  future,  now  or  hereafter
constituting a part of the Property.

         TO HAVE AND TO HOLD said  interests  unto Lender,  its  successors  and
assigns,  forever, subject however, to the terms and provisions of this Security
Instrument.

         (b) Borrower authorizes and empowers Lender to demand, collect, receive
and  receipt  for the  Proceeds,  and to endorse  and cash any checks and drafts
payable  to  Borrower  or to Lender  for the  account of  Borrower  received  in
connection with the Proceeds.  BORROWER IRREVOCABLY APPOINTS LENDER AS THE AGENT
AND  ATTORNEY-IN-FACT  OF BORROWER FOR THE PURPOSE OF EXECUTING  ANY  "RECEIPTS"
(DEFINED  HEREIN TO MEAN ANY TRANSFER  ORDER,  PAYMENT  ORDER,  DIVISION  ORDER,
RECEIPT,  RELEASE OR OTHER  INSTRUMENT) THAT LENDER DEEMS NECESSARY IN ORDER FOR
LENDER TO DEMAND,  COLLECT,  RECEIVE AND RECEIPT FOR THE PROCEEDS.  In addition,
Borrower agrees that upon Lender's request,  Borrower shall promptly execute and
deliver to Lender such  Receipts  as Lender may deem  necessary,  convenient  or
appropriate  in connection  with the payment and delivery  directly to Lender of
all Proceeds.  Borrower authorizes and directs all "Purchasers"  (defined herein
to mean all pipeline companies,  purchasers,  transporters, and any other Person
now or  hereafter  purchasing  Hydrocarbons,  or  any  part  thereof,  or now or
hereafter  having in their  possession  or  control  any  proceeds,  or any part
thereof,  or now or  hereafter  otherwise  owing  monies to  Borrower  under the
Subject Contracts herein assigned),  to pay or deliver such Proceeds directly to
Lender at the address set forth in the Preamble hereof,  or in such other manner
as Lender may direct the  Purchasers in writing,  and this  authorization  shall
continue until this Security Instrument is released.  All Receipts may be relied
upon in all respects by Purchasers  and the same shall be binding upon Borrower.
No Purchaser  shall have any  responsibility  to see to the  application  of the
assignment herein contained and each Purchaser shall be released hereby from any
and all  liability  to Borrower to the full extent and amount of all Proceeds so
paid or delivered. Borrower agrees to indemnify and hold harmless each Purchaser
against any and all liabilities,  actions,  claims,  judgments,  costs, changes,
costs of investigation and attorneys' fees resulting from the paying of any such
Proceeds  to  Lender.  Should  Lender  bring  suit  against  any  Purchaser  for
collection of any amounts or sums included  within this  assignment  (and Lender
shall have the right to bring any such suit),  it may sue either in its own name
or in the name of Borrower.

         (c) For its convenience, Lender has elected not to exercise immediately
its right to receive  payment to it directly of the Proceeds and the  Purchasers
may continue to make such payment or delivery of the Proceeds to Borrower  until
such time as Borrower and the Purchasers  have received  notice that an Event of
Default has occurred and is continuing,  and that the Purchasers are directed to
make  payment or delivery of the  Proceeds  directly to Lender.  Such failure by

                             Exhibit 10.5 - Page 11

<PAGE>

Lender to exercise its rights  immediately  shall not in any way waive the right
of Lender to receive  any of the  Proceeds,  or to make any such  demand,  or to
affect any such assignment as to any Proceeds not theretofore  paid or delivered
to  Borrower.  In this  regard,  if any of the  Proceeds  are paid or  delivered
directly to Lender,  and then, at the request of Lender, the Proceeds are, for a
period of time, paid or delivered to Borrower,  Lender shall  nevertheless  have
the right,  effective upon written  notice,  to require that future  Proceeds be
again paid or delivered  directly to it.  Lender shall never be required to send
any such  notice to all  Purchasers,  and may direct  such  notice only to those
Purchasers as it may, in its discretion, desire. It shall never be necessary for
Lender to institute legal proceedings to enforce the assignment of Hydrocarbons,
Other  Minerals,  Proceeds or other rents,  profits or income  contained in this
Security  Instrument.  It shall not be necessary for Lender to obtain possession
of the Property as a  prerequisite  to Lender's  right to collect or receive any
Hydrocarbons,  Other  Minerals,  Proceeds  or other  rents,  profits  or  income
assigned to Lender under this Security Instrument. Borrower and Lender expressly
agree and it is the express  intention  of Borrower  and Lender that in no event
will any  reduction in the  Obligations  be measured by the fair market value of
the  Hydrocarbons,  Other Minerals,  Proceeds or other rents,  profits or income
assigned to Lender under this Security Instrument.

         (d)  Independently of the foregoing  provisions and authorities  herein
granted,  Borrower  shall  execute and deliver any and all Receipts  that may be
requested by Lender or that may be required by any  Purchaser to effect  payment
or delivery of the  Proceeds  directly  to Lender.  If pursuant to any  existing
Subject  Contract,  any  Proceeds  are  required to be paid or  delivered by any
Purchaser directly to Borrower so that under such existing Subject Contract, the
Proceeds  cannot be paid or  delivered  directly  to Lender  in the  absence  of
foreclosure,  then,  if  Lender  has  requested  that  the  Proceeds  be paid or
delivered  directly to it under the assignment  herein  contained,  the Proceeds
which for any reason must be paid or delivered to Borrower shall,  when received
by Borrower, constitute trust funds in Borrower's hands and shall be immediately
paid  over by  Borrower  to  Lender.  Promptly  upon the  request  of  Lender at
reasonable intervals, Borrower shall furnish Lender with the names and addresses
of each  Purchaser.  Borrower  knows of no  agreement  under which the  Proceeds
cannot be paid to Lender.

         (e) Lender is hereby absolved from all liability for failure to enforce
the  collection  of the Proceeds  assigned  under this Section 1.3, and from all
other  responsibility  in connection  therewith,  except the  responsibility  to
account (by  application  upon the  Obligations or otherwise) for funds actually
received.  If Lender  receives monies in excess of the amount of the Proceeds to
which Borrower may be entitled,  Lender will make a reasonable effort to pay any
such  excess  monies  of which  Lender  is aware to the  other  Persons  legally
entitled  thereto;  provided that Borrower  agrees to indemnify and hold Trustee
and Lender harmless against any and all liabilities, actions, claims, judgments,
costs, charges and attorneys' fees by reason of the assertion that the or either
of them have received, either before or after payment and performance in full of
the  Obligations,  funds from the  Proceeds of  Hydrocarbons  or Other  Minerals
claimed by a third  Person,  or any other  Proceeds in which a person  claims an
adverse interest. Trustee and Lender shall each have the right to defend against
any such claims or actions, employ attorneys of their own selection,  and if not
furnished with  indemnity  satisfactory  to each of them,  they alone shall each
have the right to compromise and adjust any such claims,  actions and judgments,
and in addition to the rights to be indemnified as herein provided,  all amounts
paid by Trustee or by Lender in  compromise,  satisfaction  or  discharge of any
such claim, action or judgment,  and all court costs,  attorneys' fees and other
expenses of every  character  incurred  by Trustee or by Lender  pursuant to the
provisions  of this Section 1.3 shall be demand  obligations  owning by Borrower
and shall bear interest at the Default Rate from the date of  expenditure  until
paid, and any such payments so made by Lender and the interest  thereon shall be
part of the  Obligations  and shall be  secured by the liens  evidenced  by this
Security Instrument.

                             Exhibit 10.5 - Page 12

<PAGE>

         (f) The rights of Lender  pursuant  hereto shall be  cumulative  of all
other  security of any and every  character now or hereafter  existing to secure
the payment and  performance  of the  Obligations.  Proceeds  received by Lender
pursuant to its exercise of its rights after an Event of Default, as provided in
this  Section  1.3 shall be applied  against the  Obligations  in the manner and
order  provided for in this  Security  Instrument  or the other Loan  Documents,
provided  that such  Proceeds  shall not be deemed  applied  to  payment  of the
Obligations unless and until such Proceeds are actually applied thereto.  Lender
may, in its sole  discretion,  permit Proceeds  received by it to be returned to
Borrower  (rather  than  applied  to the  Obligations)  for  use  in  Borrower's
operations, without affecting the priority of the liens hereunder.

         Section 1.4 Security Agreement. This Security Instrument is both a real
property  mortgage and a "security  agreement" within the meaning of the Uniform
Commercial Code of the state that the property is located. The Property includes
both real and  personal  property and all other  rights and  interests,  whether
tangible or intangible in nature, of Borrower in the Property.  By executing and
delivering  this  Security  Instrument,  Borrower  hereby  grants to Lender,  as
security for the  Obligations,  a security  interest in the Property to the full
extent that the  Property may be subject to the Uniform  Commercial  Code of the
state where the property is located  (said portion of the Property so subject to
the Uniform Commercial Code, the "Collateral"). The grant of a security interest
to Lender in the  granting  clauses  of this  Security  Instrument  shall not be
construed  to  derogate  from or impair the lien or rights of Lender  under this
Security Instrument with respect to any property described therein which is real
property, or which the parties have agreed to treat as real property.

         Section 1.5 Fixture  Filing.  This  Security  Instrument is intended to
serve as a fixture  filing filed in the Real Estate  Records of the County Clerk
or  Recorder of the County in which the  Property  is  located,  pursuant to the
terms of the applicable  provisions of the Uniform  Commercial Code of the state
in which the Property is located,  with respect to all fixtures  included within
the term "Property" as used in this Security Instrument, and with respect to any
goods,  Collateral  or other  personal  property that may now be or later become
fixtures.  It is understood  and agreed to that if any fixture owned by Borrower
on the Property, or any part of any fixture, is replaced or added to, or any new
fixture owned by Borrower is installed by Borrower, and in each case the fixture
has a cost or fair market  value in excess of One  Thousand  and No/100  Dollars
($1,000.00), and the fixture is or may be subject to a security interest held by
a seller or any other party, the following will apply:

         (a)  Borrower  or any  owner of all or any part of the  Property  will,
before the replacement,  addition,  or installation of any such fixture,  obtain
the prior  written  approval of Lender,  and give Lender  written  notice that a
security  agreement with respect to the fixture has been or will be consummated,
and the notice will contain the following information:

                  (i) a description of the  fixture(s) to be replace,  added to,
installed or substituted;

                  (ii) a recital of the location at which the fixture(s) will be
replaced, added to, installed or substituted;

                  (iii) a  statement  of the name and  address of the Lender and
amount of the security interest; and

                  (iv) the date of the purchase of the fixture(s).

                             Exhibit 10.5 - Page 13

<PAGE>

Neither this subsection,  nor any consent by Lender pursuant to this subsection,
will  constitute an agreement to subordinate  any right of Lender in fixtures or
other Property covered by this Security Instrument.

         (b)  Lender  may at any time pay the  balance  due under  the  security
agreement and the amount paid will be:

                  (i) secured by this Security  Instrument and will be a lien on
the Property, enjoying the same priorities as this Security Instrument;

                  (ii)  added to the amount of the  Obligations  secured by this
Security Instrument; and

                  (iii) payable on demand with interest at the Default Rate from
the time of the  payment;  and if Borrower is in default for ten (10) days after
demand,  the entire  principal  sum secured with all unpaid  interest  will,  at
Lender's  sole  option,  become  immediately  due,  regardless  of any  contrary
provision  in this  Security  Instrument  or the Note;  or Lender  will have the
privilege of acquiring by  assignment  from the Lender of the security  interest
any  contract  rights,   accounts  receivable,   chattel  paper,  negotiable  or
nonnegotiable instruments,  or other evidence of Borrower's indebtedness for the
fixtures,  and, on acquiring these interests by assignment,  will have the right
to enforce the security interest as an assignee,  in accordance with the Uniform
Commercial  Code of the  state  in which  the  Property  is  located  and  other
applicable law.

         (c)  Whether  or not  Lender  has paid or taken  an  assignment  of the
security  interest,  if at any time  Borrower  is in default for a period of ten
(10) days under the security agreement covering the fixtures,  that default will
be  considered a material  breach of  Borrower's  covenants  under this Security
Instrument,  and will, at Lender's option,  constitute an Event of Default under
this Security Instrument,  and the Obligations secured will, at Lender's option,
become immediately due.

         (d) The provisions of  subsections  (b) and (c) above will not apply if
the goods that may become fixtures are of at least  equivalent value and quality
as any  property  being  replaced  and if the  rights of the party  holding  the
security interest have been expressly subordinated, at no cost to Lender, to the
lien of this Security Instrument in a manner satisfactory to Lender,  including,
without  limitation,  at Lender's  option,  providing  to Lender a  satisfactory
opinion  of  counsel  that  this  Security  Instrument  constitutes  a valid and
subsisting first lien on the fixtures that is not subordinate to the lien of the
security interest under any applicable law, including,  without limitation,  the
provisions of the Uniform  Commercial Code of the state in which the Property is
located.

                               CONDITIONS TO GRANT

         TO HAVE AND TO HOLD the above granted and  described  Property unto the
Trustee  and  its  successors  and  assigns,  in  trust  with  power  of sale in
accordance  with the terms and  conditions  hereof,  for the use and  benefit of
Lender, and the successors and assigns of Lender, forever;

         PROVIDED,  HOWEVER, these presents are upon the express condition that,
if  Borrower  shall well and truly pay to Lender the Debt at the time and in the
manner provided in the Notes and this Security Instrument,  shall well and truly
perform the Other Obligations as set forth in this Security Instrument and shall
well and truly abide by and comply with each and every  covenant  and  condition
set forth herein and in the Note,  these  presents and the estate hereby granted
shall cease, terminate and be void.

                             Exhibit 10.5 - Page 14

<PAGE>

                    Article 2 - DEBT AND OBLIGATIONS SECURED

         Section 2.1 Debt. This Security Instrument and the grants,  assignments
and  transfers  made in  Article 1 are given for the  purpose  of  securing  the
following,  in such  order of  priority  as  Lender  may  determine  in its sole
discretion (the "Debt"):

         (a) the payment of the  indebtedness  evidenced  by the Notes in lawful
money of the United States of America;

         (b) the payment of interest,  default interest,  late charges and other
sums, as provided in the Note,  this Security  Instrument or the Other  Security
Documents;

         (c) the  payment of all other  monies  agreed or provided to be paid by
Borrower in the Note, this Security Instrument or the Other Security Documents;

         (d)  the  payment  of all  sums  advanced  pursuant  to  this  Security
Instrument  to protect and  preserve  the Property and the lien and the security
interest created hereby; and

         (e) the payment of all sums advanced and costs and expenses incurred by
Lender or Trustee in connection with the Debt or any part thereof,  any renewal,
extension,  modification,   consolidation,  change,  substitution,  replacement,
restatement or increase of the Debt or any part thereof,  or the  acquisition or
perfection of the security therefor,  whether made or incurred at the request of
Borrower or Lender.

         Section 2.2 Other Obligations. This Security Instrument and the grants,
assignments  and  transfers  made in Article 1 are also given for the purpose of
securing the following (the "Other Obligations"):

         (a) the  performance  of all other  obligations  of Borrower  contained
herein;

         (b) the  performance  of each  obligation of Borrower  contained in the
Notes in addition to the  payment of the Debt and of Borrower  contained  in the
Other Security  Documents;

         (c) the  performance  of each  obligation of Borrower  contained in any
renewal,   extension,   modification,   consolidation,   change,   substitution,
replacement  for,  restatement or increase of all or any part of the Note,  this
Security  Instrument  or the Other  Security  Documents;  and  contained  in the
Purchase Agreement;

         (d) the payment and performance of each obligation of Borrower

         Section 2.3 Debt and Other Obligations.  Borrower's obligations for the
payment  of the Debt  and the  performance  of the  Other  Obligations  shall be
referred to collectively below as the "Obligations."

         Section 2.4 Payments.  Unless  payments are made in the required amount
in  immediately  available  funds at the  place  where  the  Notes  is  payable,
remittances  in payment of all or any part of the Debt shall not,  regardless of
any receipt or credit  issued  therefor,  constitute  payment until the required
amount is actually  received  by Lender in funds  immediately  available  at the
place where the Notes is payable (or any other place as Lender, in Lender's sole

                             Exhibit 10.5 - Page 15

<PAGE>

discretion,  may have  established  by  delivery  of written  notice  thereof to
Borrower) and shall be made and accepted subject to the condition that any check
or draft may be handled for  collection in  accordance  with the practice of the
collecting bank or banks.  Acceptance by Lender of any payment in an amount less
than the amount then due shall be deemed an acceptance on account only,  and the
failure to pay the entire  amount then due shall be and  continue to be an Event
of Default.

                         Article 3 - BORROWER COVENANTS

         Borrower covenants and agrees with Trustee and Lender that:

         Section 3.1 Payment of Debt. Borrower will pay the Debt at the time and
in the manner provided in the Notes and in this Security Instrument.

         Section 3.2 Incorporation by Reference.  All the covenants,  conditions
and  agreements  contained in (a) the Notes and (b) all and any of the documents
other than the Notes or this Security  Instrument  now or hereafter  executed by
Borrower  and by or in favor of  Lender,  which  wholly or  partially  secure or
guaranty  payment of the Notes or the other  Obligations  (the  "Other  Security
Documents"),  are hereby  made a part of this  Security  Instrument  to the same
extent and with the same force as if fully set forth herein.

         Section 3.3 Title to Property.

         (a)  Borrower  has,  and  Borrower  covenants  to  maintain,  good  and
marketable  title to the  Property,  free and clear of all liens,  except to the
extent  described  in writing  to Lender by  Borrower  prior to the  recordation
hereof,  or  approved  by Lender,  in advance in  writing,  after the  execution
hereof.  Borrower  will  warrant and defend  title to the  Property,  subject as
aforesaid,  against the claims and  demands of all persons  claiming or to claim
the same or any part thereof. Borrower's ownership of the Subject Interests does
and will,  (i) with respect to each tract of land  described in Exhibit A hereto
(whether  described  directly in such  Exhibit A or  described  by  reference to
another  instrument) in connection with such Property,  (A) entitle  Borrower to
receive  (subject to the terms and  provisions  of this  Security  Instrument) a
decimal share of the Hydrocarbons and Other Mineral Interests  produced from, or
allocated  to, such tract equal to not less than the decimal  share set forth in
Exhibit A in connection with such tract opposite the words "NRI" or "Net Revenue
Interest" (or words of similar  import),  (B) cause  Borrower to be obligated to
bear a decimal share of the cost of  exploration,  development  and operation of
such tract of land nor greater than the decimal  share set forth in Exhibit A in
connection  with such tract  opposite  the words "WI" or "Working  Interest"  or
words of similar import (unless there is a corresponding  increase in the record
Net  Revenue  Interest),  and (ii) if such  Property is shown on Exhibit A to be
subject to a unit or units, with respect to each such unit, (A) entitle Borrower
to receive  (subject to the terms and provisions of this Security  Instrument) a
decimal share of all substances covered by such unit which are produced from, or
allocated  to, such unit equal to not less than the  decimal  share set forth in
Exhibit A in  connection  with such  Property  opposite  the words "Unit NRI" or
"Unit Net Revenue  Interest" or words of similar import (and if such Property is
subject to more than one unit, words  identifying such interest with such unit),
and (B) obligate  Borrower to bear a decimal  share of the cost of  exploration,
development  and  operation of such unit not greater than the decimal  share set
forth in Exhibit A in connection with such Property opposite the words "Unit WI"
or Unit  Working  Interest"  or  words  of  similar  import  (unless  there is a
corresponding increase in the record Unit Net Revenue Interest). With respect to
each Property,  described in Exhibit A hereto which is subject to a voluntary or
involuntary pooling,  unitization or communitization agreement and/or order, the
term  "tract of land" as used in this  Section  3.3 (a) shall  mean the  pooled,

                             Exhibit 10.5 - Page 16

<PAGE>

unitized or communitized area as an entirety and shall not be deemed to refer to
any individual  tract committed to said pooled,  unitized or communitized  area.
Such shares of  production  which  Borrower is entitled to receive and shares of
expenses  which Borrower is obligated to bear are not subject to change and such
shares of production and the Hydrocarbons  and Other Mineral  interests to which
they  relate  are (and,  unless and until  released  by  Lender,  shall  remain)
encumbered  by this  Security  Instrument.  Borrower  is  receiving  payment for
Borrower's  share of  production  from the Subject  Instrument,  and no material
payments  for  Borrower's  share of such  production  are being  withheld or are
currently in suspense.  Except for liens approved in writing by Lender, there is
not and will not be any unexpired  financing  statement covering any part of the
Property  on file in any public  office  naming any person  other than Lender as
secured party. Upon request by Lender, Borrower will deliver to Lender schedules
of all internal and third person information  identifying the Property (such as,
for  example,  lease names and numbers  assigned by Borrower or the operator for
any Property,  well and/or unit and/or  property  names and numbers  assigned by
Purchasers,  and internal  identification  names and numbers used by Borrower in
accounting for revenues,  costs and joint interest transactions  attributable to
the  Property).  All Accounts  are free from any claim for credit,  deduction or
allowance of any person  obligated in respect thereof and free from any defense,
dispute,  setoff or  counterclaim,  and there is no extension or indulgence with
respect thereto.

         (b) The  Hydrocarbon  and Other  Mineral  leases  forming a part of the
Property,  the Surface Rights and the Subject Contracts,  to the extent the same
cover or otherwise  relate to the Property,  are in full force and effect,  and,
Borrower  agrees  to so  maintain  them in full  force and  effect,  and are not
subject  to any  override  or senior  financial  interest,  except to the extent
disclosed  in writing to Lender by  Borrower.  All  rents,  royalties  and other
payments due and payable under such Hydrocarbon and Other Mineral leases,  under
the Subject Contracts,  or otherwise  attendant to the ownership or operation of
the  Property,  have been,  and will  continue to be properly  and timely  paid.
Borrower is not in default with respect to Borrower's  obligations (and Borrower
is not aware of any  default  by any third  person  with  respect  to such third
person's obligations) under such Hydrocarbon and other Mineral leases, under the
Subject Contracts,  or otherwise  attendant to the ownership or operation of any
part of the Property,  which default could adversely and  materially,  either in
the aggregate or on a property-by-property (i.e.,  lease-by-lease) basis, affect
Borrower's  ownership  or  operation  of any part of the  Property  (where  such
default  could  adversely  and  materially,  either  in  the  aggregate  or on a
property-by-property  (i.e., lease by lease) basis, affect Borrower's  ownership
or operation of the Property,  Borrower will fulfill all such obligations coming
due in the future). Borrower is not currently accounting (and will not hereafter
agree to account) for any royalties,  or overriding  royalties or other payments
out of production,  on a basis (other than delivery in kind) other than proceeds
received by Borrower from sale of production, and there are not situations where
a contingent liability to account on another basis may exist.

         (c) No Property is or will become  subject to any  contractual or other
arrangement  (i)  whereby  payment  for  gathering  or  production  is or can be
deferred  to a  substantial  period  after  the  month in which  such  gathering
services are rendered or such  production  is  delivered  (i.e.,  in the case of
gathering  not in excess of 60 days,  and in case of  production  of oil, not in
excess of 60 days,  and the case of production of gas, not in excess of 90 days)
or (ii) whereby payments are made to Borrower other than by checks, drafts, wire
transfer advises or other similar writings,  instruments or  communications  for
the immediate payment of money.  Borrower is presently receiving a price for all
production from (or attributable to) each Property covered by a production sales
contract as computed in accordance  with the terms of such contract,  and is not
having deliveries of production from such Property curtailed substantially below
such Property's  delivery capacity,  except for normal  maintenance  operations.
Neither Borrower nor any of its  predecessors-in-title  has received prepayments
(including,  but  not  limited  to,  payments  for  gas not  taken  pursuant  to
"take-or-pay" or other similar arrangements) for any Hydrocarbons produced or to

                             Exhibit 10.5 - Page 17

<PAGE>

be  produced  from  the  Property  after  the  effective  date of this  Security
Instrument,  and Borrower shall not enter into any Advance Payment Contract.  No
Property  is or will  become  subject  to any  "take-or-pay"  or  other  similar
arrangement  which can be  satisfied  in whole or in part by the  production  or
transportation  of gas from other properties or, as a result of which production
from the Property  may be required to be delivered to one or more third  persons
without payment (or without full payment) therefor as a result of payments made,
or other actions taken,  with respect to other  properties.  Except as would not
result in a Material Adverse Effect (as defined in the Loan Agreement) or as may
be taken into account in the most recent Engineering Report provided by Borrower
to Lender for the Property,  there is no portion of the Property with respect to
which Borrower,  or its predecessors in title,  has, prior to the effective date
of   the   Security   Instrument,   taken   more   ("overproduced"),   or   less
("underproduced"),  gas from the lands  covered  thereby  (or pooled or unitized
therewith)  than its  ownership  interest in such  Property  would entitle it to
take.  Upon  request,  Borrower  shall  furnish  to Lender a  certificate  which
accurately  reflects,  for each  well or unit  with  respect  to  which  such an
imbalance  is shown on such  certificate  to  exist,  (1)  whether  Borrower  is
overproduced or underproduced, (2) the volume (in Mcf) of such overproduction or
underproduction  and  the  effective  date  of  such  information,  and  (3)  if
production  can be taken from other  wells or units (or other gas  reserves)  to
correct such balance,  and, if production  can be so taken,  such other wells or
units (or  other gas  reserves)  upon  Lender's  request.  Except  for  existing
"overproduced"  positions,  Borrower will undertake any action legally available
to it to avoid becoming materially  overproduced with respect to any well on the
Property  (or on any unit in which the Property  participates),  in an amount in
excess of  Borrower's  share of gas produced from such well during the preceding
four calendar months. Except for existing  arrangements,  no Property is or will
become  subject to a gas  balancing  arrangement  under  which one or more third
persons  may take a portion  of the  production  attributable  to such  Property
without  payment (or without full  payment)  therefor as a result of  production
having  been  taken  from,  or as a result of other  actions or  inactions  with
respect to, other properties.  To the best of Borrower's knowledge,  none of the
proceeds  from the sale of  Hydrocarbons  from the  Property  is  subject at the
present time to any refund  obligation  and no facts exist which might cause the
same to be imposed.

         (d) The  Personal  Property  is and  will  remain  in good  repair  and
condition  (ordinary wear and tear excepted) and is and will be adequate for the
normal operation of the Property in accordance with prudent industry  standards;
all of the Subject Interest  Personal  Property is, and will remain,  located on
the  Lands,  except  for that  portion  thereof  which  is or  shall be  located
elsewhere  (including that usually located on the Lands but temporarily  located
elsewhere) in the course of the normal  operation of the Property.  Upon request
of  Lender,  Borrower  will use all  reasonable  efforts to deliver to Lender an
inventory and/or financing  statements  describing and showing the make,  model,
serial number and location of all material Personal Property.

         (e) The Property is being (and, to the extent the same could materially
adversely  affect the ownership or operation of the Property after the effective
date,  has in the past been),  and hereafter will be,  maintained,  operated and
developed in a good workmanlike  manner and operating  condition,  in accordance
with prudent  industry  standards and in conformity  with all Applicable Laws of
all duly constituted  authorities having jurisdiction and in conformity with all
Hydrocarbons  and Other Mineral  leases  included in the  Property,  the Subject
Contracts,  and the Permitted  Liens,  and Borrower  shall  restore,  repair and
replace,  as  necessary,  any and all fixtures and  equipment  constituting  the
Property;  specifically in this connection, (i) no Property is subject to having
allowable  production  after  the  effective  date of this  Security  Instrument
materially  reduced below the full and regular allowable  (including the maximum
permissible  tolerance) because of any  overproduction  (whether or not the same
was  permissible  at the  time)  prior to the  effective  date of this  Security
Instrument,  and (ii) none of the wells  located on the  Property  is or will be
deviated from the vertical more than the maximum  permitted by Applicable  Laws,
and such wells are, and will remain, bottomed under and producing from, with the
wellbores  wholly  within,  the  Property.  Borrower  has,  and will have in the

                             Exhibit 10.5 - Page 18

<PAGE>

future,  all governmental  licenses and permits  necessary or appropriate to own
and operate the  Property.  Borrower  has not  received  notice of any  material
violations  in respect of such licenses or permits  except those which  Borrower
has previously remedied or in the ordinary course will remedy. (f) Borrower will
not,  without  the prior  written  consent of  Lender,  sell,  exchange,  lease,
transfer or otherwise dispose of any part of, or interest in, the Property other
than (i) sales,  transfers and other  dispositions of the Property  specifically
authorized by Lender in writing, (ii) sales, transfers and other dispositions of
Personal  Property  in  connection  with the  abandonment  of a well that is not
capable of  producing  Hydrocarbons  in  commercial  quantities  (as  determined
without  considering the effect of this Security Instrument or the Obligations),
(iii) sales,  transfers and other dispositions of Personal Property which is (A)
obsolete  for its intended  purpose and  disposed of in the  ordinary  course of
business or (B)  replaced by  articles of at least equal  suitability  and value
owned by Borrower free and clear of all liens except this  Security  Instrument;
and (iv) sales of Hydrocarbons which are made in the ordinary course of business
and in  compliance  with Section  3.3(c)  hereof;  provided  that nothing in the
clause (iv) shall be construed  as limiting  Lender's  Rights  under  Article 11
hereof.  Borrower  shall account fully and faithfully for and, if required under
the provisions of this Security  Instrument or the other Loan  Documents,  shall
promptly pay or turn over to Lender the proceeds in whatever  form received from
disposition  in any manner of any of the Property.  Borrower  shall at all times
keep the Property and its proceeds  separate and distinct from other property of
Borrower and shall keep  accurate  and complete  records of the Property and its
proceeds.

         (g) Except as  previously  disclosed  in  writing to Lender,  as of the
effective date of the Security Instrument,  to the best of Borrower's knowledge,
each of the wells located on the Lands or on lands pooled or unitized  therewith
that are described in the most recent Engineering Report, delivered to Lender by
Borrower,  as  producing  wells  ("Wells")  are  each  capable  of,  and each is
presently,  producing oil or gas in paying  quantities,  except such Wells which
are  currently  utilized as water or gas  injection  wells or as water  disposal
wells.  Borrower will not, without prior written consent of Lender,  permanently
abandon,  or consent to permanent  abandonment  of, any well  producing from the
Property so long as such well is capable of producing Hydrocarbons in commercial
quantities  (as  determined  without  considering  the  effect of this  Security
Instrument or the Obligations). Borrower will not, without prior written consent
of Lender  (which  consent  shall not be  unreasonably  withheld),  elect not to
participate  in a proposed  operation on the  Property  where the effect of such
election would be the forfeiture either  temporarily  (i.e., until a certain sum
of money is  received  out of the  forfeited  interest)  or  permanently  of any
interest in the Property.

         (h)  Borrower  has paid and  discharged,  and will  continue to pay and
discharge,  all ad valorem  taxes  assessed  against  the  Property  or any part
thereof and all  production,  severance  and other taxes  assessed  against,  or
measured by, the  Hydrocarbons or the value, or proceeds,  of the  Hydrocarbons;
provided that Borrower may delay paying or discharging any such taxes so long as
it is in good faith contesting the validity  thereof by appropriate  proceedings
and has set aside on its books adequate reserves therefor.

         (i) There are no suits,  actions,  claims,  investigations,  inquiries,
proceedings or demands pending (or, to Borrower's  knowledge,  threatened) which
affect the  Property  (including,  without  limitation,  any which  challenge or
otherwise  pertain to  Borrower's  title to the  Property)  and no  judicial  or
administrative   actions,  suits  or  proceedings  pending  (or,  to  Borrower's
knowledge, threatened) against Borrower.

         (j) Borrower  will  observe and comply,  or cause such  observance  and
compliance,  with all terms and provisions,  express or implied,  of the Subject
Interests and the Subject Contracts, in order to keep the same in full force and

                             Exhibit 10.5 - Page 19

<PAGE>

effect  and,  without  limiting  the  foregoing,  Borrower  will not  permit the
surrender,  abandonment,  release or  termination  of any  Hydrocarbon  or Other
Mineral lease or any Subject Contract,  and will continue, or cause to continue,
the operation of the Wells,  and will make payment,  or cause to be paid, in the
ordinary  course of  business,  all  amounts  payable,  pursuant  to any Subject
Contract  provided that nothing in this paragraph  shall preclude  Borrower from
contesting in good faith the amount of such payment,  or asserting the breach of
any  Subject  Contract,  so long  as  provision  for  such  payment  and for the
fulfillment  of  Borrower's  obligations  with  respect  to all such  debts  and
liabilities satisfactory to Lender has been made.

         (k)  Borrower  will  develop,  maintain,  and  operate,  or  cause  the
development,  maintenance and operation of, the Subject  Interests in a good and
workmanlike  manner to protect from  diminution the  productive  capacity of the
Subject  Interests  and each Well, in compliance  with all  Applicable  Laws and
Subject Contracts relating thereto.

         (l) Borrower acknowledges and agrees that it is Borrower's intention to
execute and cause to be recorded in the real estate  records of the County Clerk
or  County  Recorder  of each  County in each  State  where  Borrower  holds any
interest in Property,  as that term is defined herein,  whether such interest is
now owned or is hereafter  acquired.  In this regard, as of the Closing Date, as
that term is defined in the Purchase Agreement,  Borrower shall execute a series
of Security  Instruments,  each of which will  identify,  to the fullest  extent
possible, with sufficient particularity, the real property to which the Property
of Borrower is related,  to give constructive notice of a mortgage under the law
of the  state in which  such  Property  is  located.  In this  regard,  Borrower
covenants  and  agrees  that it will,  promptly  upon the  request  of Lender or
Borrower's  discovery of facts  requiring  such action:  (a) correct any defect,
error or omission  which may be discovered in the  descriptions  of the Property
contained  in each  Security  Instrument  executed  by  Borrower  to secure  the
Obligations;  (b)  execute,  acknowledge,  deliver  and record  and/or file such
further  instruments,  including,  without  limitation,  further deeds of trust,
mortgages,  security agreements,  financing statements,  continuation statements
and  assignments  of  production,  accounts,  funds,  contract  rights,  general
intangibles  and  proceeds,  and do  such  further  acts  as  may be  necessary,
desirable or proper to carry out more  effectively the purposes of this Security
Instrument and the other Loan Documents,  and to more fully identify and subject
to the liens  hereof  any  property  intended  to be covered  hereby,  including
specifically,  but without limitation, any renewals,  additions,  substitutions,
replacements or  appurtenances  to the Property;  and (c) execute,  acknowledge,
deliver  and  file  and/or   record  any  document  or   instrument,   including
specifically  any  financing  statement,  desired by Lender to protect the liens
hereunder  against the rights or interests of third persons.  Borrower shall pay
all fees, costs and expenses in connection with any of the following, including,
without limitation, reasonable attorneys' fees of Lender.

         Section 3.4  Insurance.  Borrower will keep, or cause to be kept,  such
part of the Property which is of an insurable nature and of a character  usually
insured as required by the Loan Agreement. If there is any loss or damage to any
of the Property  covered by any such policy of insurance,  Lender shall have the
right to collect the proceeds paid to Borrower,  it being understood that Lender
shall not be,  under any  circumstances,  liable or  responsible  for failure to
collect, or exercise diligence in the collection of, any such proceeds,  and all
amounts  received  pursuant  to the terms of such policy of  insurance  shall be
applied first toward costs, charges and expenses, including, without limitation,
attorneys'  fees and costs of  investigation,  if any incurred in the collection
thereof,  then second to the payment of the  Obligations in such order as Lender
may determine, and then, third to Borrower;  further provided that Borrower may,
if permitted by Lender (which  permission  shall not be unreasonably  withheld),
receive all of said proceeds so collected less the costs of collecting same, for
the sole  purpose of  reimbursing  Borrower for  property  expenditures  made in
repairing or restoring  the damaged  property,  and the payment of said proceeds

                             Exhibit 10.5 - Page 20

<PAGE>

impair any right or lien  hereunder;  and Lender is hereby  authorized to be the
agent and attorney-in-fact of Borrower,  but is not obligated to enforce, in its
name or in the name of Borrower,  payment of any and all of said  policies or to
settle or to  compromise  any claim in respect  thereof  and to collect and make
receipts for the proceeds thereof.

         Section 3.5 Condemnation. Borrower shall promptly give Lender notice of
the actual or threatened  commencement  of any  condemnation  or eminent  domain
proceeding  and shall  deliver to Lender  copies of any and all papers served in
connection with such proceedings. Lender may participate in any such proceedings
to the extent permitted by law. Upon an Event of Default, Borrower shall deliver
to Lender all instruments requested by it to permit such participation. Borrower
shall,  at its expense,  diligently  prosecute any such  proceedings,  and shall
consult with Lender,  its attorneys and experts,  and cooperate with them in the
carrying  on or defense  of any such  proceedings.  Borrower  shall not make any
agreement in lieu of condemnation of the Property or any portion thereof without
the prior written consent of Lender in each instance, which consent shall not be
unreasonably  withheld  or delayed  in the case of a taking of an  insubstantial
portion  of  the  Property.   Notwithstanding   any  taking  by  any  public  or
quasi-public  authority through eminent domain or otherwise (including,  but not
limited to any transfer  made in lieu of or in  anticipation  of the exercise of
such  taking),  Borrower  shall  continue to pay the Debt at the time and in the
manner provided for its payment in the Notes and in this Security Instrument and
the Debt shall not be reduced  until any award or  payment  therefor  shall have
been actually received and applied by Lender, after the deduction of expenses of
collection,  to the  reduction  or  discharge  of the Debt.  Lender shall not be
limited to the interest paid on the award by the condemning  authority but shall
be entitled to receive out of the award  interest at the rate or rates  provided
herein or in the Note.  If the  Property or any portion  thereof is taken by the
power of  eminent  domain,  Borrower  shall  promptly  commence  and  diligently
prosecute  the  Restoration  of the Property in accordance  with,  and otherwise
comply with the provisions of, Section 4.4 of this Security  Instrument.  If the
Property is sold,  through  foreclosure  or  otherwise,  prior to the receipt by
Lender of the award or payment,  Lender  shall have the right,  whether or not a
deficiency judgment on the Notes shall have been sought, recovered or denied, to
receive the award or payment, or a portion thereof sufficient to pay the Debt.

         Section 3.6 Maintenance of Property.  Borrower shall cause the Property
to be maintained in a good and safe condition and repair.  The subject  Personal
Property  shall not be removed,  demolished  or materially  altered  (except for
normal  replacement  of the  Personal  Property)  without the consent of Lender.
Borrower  shall  promptly  repair,  replace or rebuild any part of the  Property
which may be destroyed by any casualty,  or become damaged,  worn or dilapidated
or which may be  affected  by any  proceeding  of the  character  referred to in
Section 3.6 hereof and shall  complete and pay for any  structure at any time in
the process of construction or repair on the Land.  Borrower shall not initiate,
join in,  acquiesce  in, or  consent to any  change in any  private  restrictive
covenant,  zoning  law or other  public  or  private  restriction,  limiting  or
defining  the uses which may be made of the  Property  or any part  thereof.  If
under applicable zoning provisions the use of all or any portion of the Property
is or shall become a  nonconforming  use,  Borrower will not cause or permit the
nonconforming  use or Improvement to be  discontinued  or abandoned  without the
express written consent of Lender.

         Section 3.7 Waste. Borrower shall not commit or suffer any waste of the
Property  or make any  change in the use of the  Property  which will in any way
materially  increase  the  risk of  fire  or  other  hazard  arising  out of the
operation  of the  Property,  or take any action that might  invalidate  or give
cause  for  cancellation  of any  Policy,  or do or  permit  to be done  thereon
anything that may in any way impair the value of the Property or the security of
this Security Instrument.

                             Exhibit 10.5 - Page 21

<PAGE>

         Section 3.8 Compliance With Laws.

         (a)  Borrower  shall  promptly  comply  with all  existing  and  future
federal,  state and  local  laws,  orders,  ordinances,  governmental  rules and
regulations  or  court  orders  affecting  the  Property,  or  the  use  thereof
including,  but not  limited to, the  Americans  with  Disabilities  Act ("ADA")
(collectively, "Applicable Laws").

         (b) Borrower shall from time to time,  upon Lender's  request,  provide
Lender  with  evidence  reasonably  satisfactory  to  Lender  that the  Property
complies with all Applicable  Laws or is exempt from  compliance with Applicable
Laws.

         (c)  Notwithstanding any provisions set forth herein or in any document
regarding  Lender's approval of alterations of the Property,  Borrower shall not
alter the  Property in any manner  which would  materially  increase  Borrower's
responsibilities  for compliance  with Applicable Laws without the prior written
approval of Lender. Lender's approval of the plans,  specifications,  or working
drawings for  alterations  of the Property  shall  create no  responsibility  or
liability on behalf of Lender for their  completeness,  design,  sufficiency  or
their  compliance with Applicable  Laws.  Lender may condition any such approval
upon  receipt  of a  certificate  of  compliance  with  Applicable  Laws from an
independent architect, engineer, or other person acceptable to Lender.

         (d)  Borrower  shall  give  prompt  notice to Lender of the  receipt by
Borrower of any notice related to a violation of any Applicable  Laws and of the
commencement  of any  proceedings or  investigations  which relate to compliance
with Applicable Laws.

         (e) After prior written notice to Lender, Borrower, at its own expense,
may contest by appropriate legal proceeding, promptly initiated and conducted in
good faith and with due diligence,  the Applicable  Laws affecting the Property,
provided that (i) no Event of Default has occurred and is  continuing  under the
Note,  this Security  Instrument or any of the Other  Security  Documents;  (ii)
Borrower is permitted to do so under the provisions of any other mortgage,  deed
of trust or deed to secure debt  affecting the Property;  (iii) such  proceeding
shall be permitted  under and be conducted in accordance  with the provisions of
any other  instrument  to which  Borrower is subject and shall not  constitute a
default  thereunder;  (iv) neither the Property nor any part thereof or interest
therein nor any of the  tenants or  occupants  thereof  shall be affected in any
material adverse way as a result of such proceeding; and (v) Borrower shall have
furnished to Lender all other items reasonably requested by Lender.

         Section 3.9 Books and Records.  Borrower or control and its  affiliates
shall furnish Lender with such operational,  financial or management information
in the possession of Borrower as may, from time to time, be reasonably  required
by Lender in form and substance  satisfactory to Lender.  Borrower shall deliver
to Lender all operating agreements,  pooling or unitization agreements, sales or
processing   contracts,   drilling  and/or  development   agreements,   pipeline
transportation  agreements and all other material  agreements  pertaining to the
Property.  Furthermore,  Borrower  will deliver to Lender copies of all reports,
forms and  other  documents  and data  submitted  by  Borrower  to  governmental
authorities and agencies, including state resource and conservation agencies and
the Federal Energy Regulatory Commission. Further, Borrower shall make available
to Lender and its representatives, during reasonable business hours, at any time
requested, the Property records, and if Lender takes possession of the Property,
or any portion  thereof,  pursuant to the  Security  Instrument,  any other Loan
Documents or applicable  law,  Lender shall be entitled to prompt  possession of
the  Property  Records,  and should  the liens of this  Security  Instrument  be
foreclosed, the purchaser at the resulting foreclosure sale shall be entitled to
all Property Records.

                             Exhibit 10.5 - Page 22

<PAGE>

         Section 3.10 Payment For Labor and  Materials.  Borrower  will promptly
pay  when due all  bills  and  costs  for  labor,  materials,  and  specifically
fabricated  materials  incurred in connection with the Property and never permit
to exist  beyond the due date  thereof in  respect of the  Property  or any part
thereof  any lien or  security  interest  (including,  without  limitation,  any
statutory mineral  contractor's lien), even though inferior to the liens and the
security  interests hereof, and in any event never permit to be created or exist
in respect of the Property or any part thereof any other or  additional  lien or
security interest other than the liens or security interests hereof.

         Section 3.11  Performance of Other  Agreements.  Borrower shall observe
and perform each and every term to be observed or performed by Borrower pursuant
to the terms of any agreement or recorded instrument  affecting or pertaining to
the Property.

         Section 3.12 Change of Name,  Identity or Structure.  Borrower will not
change Borrower's name,  identity (including its trade name or names) or, if not
an individual,  Borrower's  corporate,  partnership or other  structure  without
notifying  the Lender of such change in writing at least  thirty (30) days prior
to the effective  date of such change and, in the case of a change in Borrower's
structure, without first obtaining the prior written consent of the Lender.

         Section 3.13  Existence.  Borrower will  continuously  maintain (a) its
existence and shall not dissolve or permit its dissolution, (b) its rights to do
business in the state where the Property is located and (c) its  franchises  and
trade names.

                          Article 4 - SPECIAL COVENANTS

         Borrower covenants and agrees with Trustee and Lender that:

         Section 4.1 Defense of Title.  If the validity of priority of this Deed
of Trust or of any  rights,  titles or liens  created or  evidenced  hereby with
respect to the  Property  or any part  thereof or the title of  Borrower  to the
Property  shall be endangered  or  questioned  or shall be attacked  directly or
indirectly or if any legal  proceedings  are  instituted  against  Borrower with
respect thereto,  Borrower will give prompt written notice thereof to Lender and
at Borrower's own cost and expense will  diligently  endeavor to cure any defect
that may be developed or claimed, and will take all necessary and property steps
for the defense of such legal  proceedings,  including,  but not limited to, the
employment of counsel,  the prosecution or defense of litigation and the release
or  discharge  of all adverse  claims,  and Trustee and Lender or either of them
(whether or not named as parties to legal proceedings with respect thereto), are
hereby  authorized  and  empowered  to take  such  additional  steps as in their
judgment and  discretion  may be necessary or proper for the defense of any such
legal proceedings or the protection of the validity or priority of this Security
Instrument  and the  rights,  titles,  and liens  created or  evidenced  hereby,
including  but  not  limited  to the  employment  of  independent  counsel,  the
prosecution or defense of litigation, the compromise or discharge of any adverse
claims made with respect to the Property,  the purchase of any tax title and the
removal of prior liens, and all expenditures so made of every kind and character
shall be demand obligation (which obligation  Borrower hereby expressly promises
to pay) owing by  Borrower  to Lender or Trustee  (as the case may be) and shall
bear  interest from the date  expended  until paid at the Default Rate,  and the
person  incurring  such expenses shall be subrogated to all rights of the person
receiving  such payment.  Borrower  shall never permit to be placed  against the
Property,  or any part thereof, any lien other than liens approved in advance by
Lender,  even  though  inferior to the liens  hereof,  and if any lien is placed
against the  Property or any part  thereof,  Borrower  will cause the same to be
promptly discharged and released at Borrower's sole cost and expense.

                             Exhibit 10.5 - Page 23

<PAGE>

         Section 4.2 ERISA.

         (a) Borrower shall not engage in any transaction  which would cause any
obligation, or action taken or to be taken, hereunder (or the exercise by Lender
of any of its rights  under the Note,  this  Security  Instrument  and the Other
Security  Documents)  to be a non-exempt  (under a statutory  or  administrative
class exemption)  prohibited  transaction  under the Employee  Retirement Income
Security Act of 1974, as amended ("ERISA").

         (b)  Borrower  further  covenants  and agrees to deliver to Lender such
certifications  or other evidence from time to time  throughout the term of this
Security  Instrument,  as requested by Lender in its sole  discretion,  that (i)
Borrower is not an "employee benefit plan" as defined in Section 3(32) of ERISA,
which is  subject  to Title I of ERISA,  or a  "governmental  plan"  within  the
meaning  of  Section  3(32) of ERISA;  (ii)  Borrower  is not  subject  to state
statutes  regulating  investments  and  fiduciary  obligations  with  respect to
governmental  plans;  and (iii) one or more of the  following  circumstances  is
true:

                  (A)  Equity   interests  in  Borrower  are  publicly   offered
securities, within the meaning of 29 C.F.R. ss. 2510.3-101(b)(2);

                  (B) Less than 25 percent of each  outstanding  class of equity
interests in Borrower are held by "benefit plan investors" within the meaning of
29 C.F.R. ss. 2510.3-101(f)(2); or

         Borrower  qualifies  as  an  "operating  company"  or  a  "real  estate
operating  company" within the meaning of 29 C.F.R. ss.  2510.3-101(c) or (e) or
an investment company registered under The Investment Company Act of 1940.

         Section 4.3 Lease Provision.  Borrower hereby covenants and agrees that
Borrower  will at all  times  fully  perform  and  comply  with all  agreements,
covenants,  terms and conditions required to be performed or complied with by it
under the  Leases.  Borrower  further  covenants  and agrees that any default by
Borrower  under the  Leases  shall be an Event of Default  under  this  Security
Instrument.  Borrower  shall  promptly  pay and  perform  and observe all of the
terms,  covenants  and  conditions  required  to be  performed  and  observed by
Borrower under the Leases within the stated opportunity to cure periods provided
in the Leases,  or such lesser  opportunity  to cure  periods as are provided in
this Security  Instrument,  and shall do all things necessary to preserve and to
keep unimpaired  Borrower's  rights under the Leases.  If Borrower shall fail to
make any payment required to be paid by Borrower under the Leases at the time or
in the manner  provided in the Leases,  or if Borrower  shall fail to perform or
observe  any other term,  covenant or  condition  required  to be  performed  or
observed by Borrower  under the Leases,  without  limiting the generality of any
other provision of this Security  Instrument and without releasing Borrower from
any of its  obligations  under this Security  Instrument,  Lender shall have the
right, but not the obligation, to pay any such payment, and may take such action
as may be  appropriate  to cause such other term,  covenant or  condition  to be
promptly performed or observed on behalf of Borrower, to the end that Borrower's
rights  under the Leases shall be kept  unimpaired  from  default,  and Borrower
shall permit Lender to enter upon the Property with or without  notice and to do
anything which Lender shall deem necessary or prudent for such purpose. Borrower
shall (i) promptly notify Lender in writing of any default by Borrower under the
Leases,  or of the  receipt  by  Borrower  of any  notice  (other  than  notices

                             Exhibit 10.5 - Page 24

<PAGE>

customarily  sent on a regular  periodic  basis)  from the  lessor(s)  under the
Leases,  including,  without  limitation,  any notice  claiming  any  default by
Borrower in the  performance  or  observance  of any of the terms,  covenants or
conditions  to be  performed  or  observed by  Borrower  under the Leases;  (ii)
promptly  notify Lender in writing of the receipt by Borrower of any notice from
the  lessor(s)  under the Leases of  termination  of the Lease  pursuant  to any
provision  of the Leases;  and (iii)  promptly  cause a copy of each such notice
received by Borrower to be delivered to Lender.  Borrower shall not, without the
prior  written  consent  of  Lender,  consent to any  agreement  which  releases
Borrower from any of its  obligations  under the Leases,  exercise any option or
right of first refusal to purchase any Property subject to the Leases,  that may
be contained in the Leases,  consent to or permit any waiver or  modification or
cancellation of any provision of the Leases, nor to the surrender or termination
of the Leases nor to the  subordination  of the Lease to any mortgage of the fee
interest of lessor(s) of any of the Property.  If, at any time, Borrower, or any
party claiming by,  through or under Borrower  and/or any trustee in bankruptcy,
shall have the right to assume or reject the Lease pursuant to Section 365(a) of
the Bankruptcy Reform Act of 1978, or any successor  statute,  then Lender shall
have (and is hereby  granted)  the  exclusive  right to  exercise  such right to
assume  or  reject.  In the  event  that  the  foregoing  grant  is  held  to be
unenforceable  by a court  of  competent  jurisdiction,  then  and in such  case
Borrower  hereby  covenants and agrees that  Borrower,  any person  claiming by,
through and under Borrower, and/or any trustee in bankruptcy, shall not exercise
any rights or assume or reject the Leases  without  having  first  obtained  the
prior written  consent of Lender.  Borrower  shall  execute and deliver,  at the
request of Lender,  such  instruments  as Lender may deem  useful or required to
permit  Lender to cure any default  under the Leases or to permit Lender to take
such other action as Lender considers  desirable to cure or remedy the matter in
default  and  preserve  the  interest of Lender in the  Property  subject to the
Leases. If any of the Leases shall be terminated prior to the natural expiration
of their term due to default of Borrower,  and if Lender shall  acquire from the
lessor(s) under the Leases a new lease or leases,  Borrower shall have no right,
title or interest in or to such new lease(s) or the leasehold  estate(s) created
thereby.  Any  greater or  additional  interest or estate  that  Borrower  shall
acquire in the Demised  Premises,  such as the fee  estate,  shall ipso facto be
encumbered by this Security Instrument with the same force and effect as if part
of the mortgaged estate on the date hereof.

                   Article 5 - REPRESENTATIONS AND WARRANTIES

         The  representations  and  warranties  of  Borrower  set  forth in this
Article  5  are  subject  to  the  Disclosure   Schedules  delivered  to  Lender
concurrently  with the Purchase  Agreement,  as well as to all matters  filed of
record by Borrower with the United States  Securities  and Exchange  Commission.
With  respect to  Property  owned by the  Company  prior to the advance of funds
under  the  Notes  and  the  recordation  of  this  Security  Instrument,   such
representations and warranties are made to the actual knowledge of the directors
and executive officers of Borrower, without independent investigation.

         Section 5.1 Authority.  Borrower (and the undersigned representative of
Borrower,  if any) has full power,  authority  and legal  right to execute  this
Security Instrument,  and to mortgage,  grant,  bargain,  sell, pledge,  assign,
warrant,  transfer and convey the  Property  pursuant to the terms hereof and to
keep and observe all of the terms of this Security Instrument on Borrower's part
to be performed.

         Section 5.2 Legal Status and Authority. Borrower (a) is duly organized,
validly  existing  and  in  good  standing  under  the  laws  of  its  state  of
organization or incorporation; (b) is duly qualified to transact business and is

                             Exhibit 10.5 - Page 25

<PAGE>

in good  standing  in the State where the  Property is located;  and (c) has all
necessary approvals, governmental and otherwise, and full power and authority to
own the Property and carry on its business as now  conducted  and proposed to be
conducted. Borrower now has and shall continue to have the full right, power and
authority  to operate  and lease the  Property,  to  encumber  the  Property  as
provided  herein and to perform all of the other  obligations to be performed by
Borrower  under the  Note,  this  Security  Instrument  and the  Other  Security
Documents.

         Section 5.3  Validity of  Documents.  (a) The  execution,  delivery and
performance  of the  Note,  this  Security  Instrument  and the  Other  Security
Documents and the borrowing  evidenced by the Notes (i) are within the power and
authority of Borrower; (ii) have been authorized by all requisite organizational
action;  (iii) have  received all necessary  approvals and consents,  corporate,
governmental  or otherwise;  (iv) will not violate,  conflict with,  result in a
breach of or constitute  (with notice or lapse of time, or both) a default under
any provision of law (including,  without limitation, any usury laws), any order
or  judgment  of  any  court  or   governmental   authority,   the  articles  of
incorporation,  by-laws,  partnership or operating agreement, or other governing
instrument of Borrower, or any indenture, agreement or other instrument to which
Borrower  is a party or by which it or any of its assets or the  Property  is or
may be bound or affected;  (v) will not result in the creation or  imposition of
any lien,  charge or encumbrance  whatsoever upon any of its assets,  except the
lien and  security  interest  created  hereby;  and (vi)  will not  require  any
authorization  or license from, or any filing with,  any  governmental  or other
body (except for the recordation of this instrument in appropriate  land records
in the State where the  Property  is located  and except for Uniform  Commercial
Code filings  relating to the security  interest  created  hereby),  and (b) the
Note, this Security  Instrument and the Other Security Documents  constitute the
legal, valid and binding obligations of Borrower.

         Section  5.4  Litigation.  There  is no  action,  suit  or  proceeding,
judicial,  administrative  or otherwise  (including any  condemnation or similar
proceeding),  pending or, to the best of  Borrower's  knowledge,  threatened  or
contemplated  against Borrower,  any person guaranteeing the payment of the Debt
or any portion  thereof or performance by Borrower of any terms of this Security
Instrument  (a  "Guarantor"),  if any,  an  Indemnitor  (defined  in  Subsection
10.1(c)),  if any, or against or affecting  the  Property  that (a) has not been
disclosed  to Lender,  and has a  material,  adverse  effect on the  Property or
Borrower's,   any  Guarantor's  or  any  Indemnitor's  ability  to  perform  its
obligations  under the Note,  this  Security  Instrument  or the Other  Security
Documents, or (b) is not adequately covered by insurance,  each as determined by
Lender in its sole and absolute discretion.

         Section  5.5 No Foreign  Person.  Borrower  is not a  "foreign  person"
within the meaning of Section  1445(f)(3) of the Internal  Revenue Code of 1986,
as amended and the related Treasury Department regulations,  including temporary
regulations.

         Section 5.6 ERISA Compliance.

         (a) As of the date  hereof  and  throughout  the term of this  Security
Instrument,  (i) Borrower is not and will not be an "employee  benefit  plan" as
defined in  Section  3(32) of ERISA,  which is subject to Title I of ERISA,  and
(ii) the assets of Borrower do not and will not constitute  "plan assets" of one
or more such plans for purposes of Title I of ERISA; and

         (b) As of the date  hereof  and  throughout  the term of this  Security
Instrument, (i) Borrower is not and will not be a "governmental plan" within the
meaning of Section 3(32) of ERISA, and (ii) transactions by or with Borrower are
not and will not be subject to state statutes  applicable to Borrower regulating
investments of and fiduciary obligations with respect to governmental plans.

                             Exhibit 10.5 - Page 26

<PAGE>

         Section 5.7  Financial  Condition.  (a)  Borrower  is  solvent,  and no
bankruptcy, reorganization,  insolvency or similar proceeding under any state or
federal law with  respect to Borrower  has been  initiated,  (b) it has received
reasonably  equivalent value for the granting of this Security  Instrument,  and
(c) the granting of this Security  Instrument  does not  constitute a fraudulent
conveyance.  Borrower  is not in default in the  payment of any debt owed to any
Person.

         Section  5.8  Business  Purposes.  The loan  evidenced  by the Notes is
solely for the business  purpose of Borrower,  and is not for personal,  family,
household, or agricultural purposes.

         Section 5.9 Taxes.  Borrower,  has filed all  federal,  state,  county,
municipal,  and city income and other tax returns required to have been filed by
them and have paid all taxes and  related  liabilities  which  have  become  due
pursuant  to such  returns or  pursuant  to any  assessments  received  by them.
Borrower does not know of any basis for any additional  assessment in respect of
any such taxes and related liabilities for prior years.

         Section 5.10 Mailing Address.  Borrower's mailing address, as set forth
in the opening  paragraph hereof or as changed in accordance with Article 16, is
true and correct.

         Section 5.11 No Change in Facts or  Circumstances.  All  information in
all financial statements, rent rolls, reports,  certificates and other documents
submitted to Lender relating to the Property are accurate,  complete and correct
in all  respects.  There  has been no  adverse  change in any  condition,  fact,
circumstance  or  event  that  would  make  any  such  information   inaccurate,
incomplete or otherwise misleading.

         Section 5.12 Disclosure.  Borrower has disclosed to Lender all material
facts and has not failed to  disclose  any  material  fact that could  cause any
representation or warranty made herein to be materially misleading.

         Section 5.13 Illegal  Activity.  No portion of the Property has been or
will be purchased,  improved,  fixtured,  equipped or furnished with proceeds of
any criminal or other illegal activity and to the best of Borrower's  knowledge,
there are no illegal activities or activities  relating to controlled  substance
at the Property.

                    Article 6 - DEBTOR/CREDITOR RELATIONSHIP

         Section 6.1  Relationship  of Borrower  and  Lender.  The  relationship
between  Borrower and Lender is solely that of debtor and  creditor,  and Lender
has no fiduciary or other special  relationship  with  Borrower,  and no term or
condition of any of the Note,  this Security  Instrument  and the Other Security
Documents shall be construed so as to deem the relationship between Borrower and
Lender to be other than that of debtor and creditor.

         Section 6.2  Servicing of the Loan.  At the option of Lender,  the loan
secured hereby may be serviced by a servicer/trustee  (the "Servicer")  selected
by Lender and Lender may  delegate  all or any  portion of its  responsibilities
under the Note, this Security  Instrument,  and the Other Security  Documents to
the Servicer.

                             Exhibit 10.5 - Page 27

<PAGE>

                         Article 7 - FURTHER ASSURANCES

         Section 7.1 Recording of Security  Instrument.  Borrower forthwith upon
the execution and delivery of this Security Instrument and thereafter, from time
to time,  will  cause this  Security  Instrument  and any of the Other  Security
Documents  creating a lien or security  interest or  evidencing  the lien hereof
upon  the  Property  and each  instrument  of  further  assurance  to be  filed,
registered  or  recorded in such manner and in such places as may be required by
any present or future law in order to publish notice of and fully to protect and
perfect the lien or security  interest  hereof upon, and the interest of Trustee
and  of  Lender  in,  the  Property.   Borrower  will  pay  all  taxes,  filing,
registration  or recording fees, and all expenses  incident to the  preparation,
execution,   acknowledgment   and/or   recording  of  the  Note,  this  Security
Instrument,  the Other  Security  Documents,  any note or mortgage  supplemental
hereto, any security  instrument with respect to the Property and any instrument
of  further  assurance,  and any  modification  or  amendment  of the  foregoing
documents,  and all federal, state, county and municipal taxes, duties, imposts,
assessments  and charges  arising out of or in connection with the execution and
delivery of this Security  Instrument,  any mortgage  supplemental  hereto,  any
security  instrument  with respect to the Property or any  instrument of further
assurance, and any modification or amendment of the foregoing documents,  except
where prohibited by law so to do.

         Section 7.2 Further Acts.  Borrower will, at the cost of Borrower,  and
without expense to Lender,  do,  execute,  acknowledge and deliver all and every
such  further  acts,  deeds,  conveyances,  mortgages,  assignments,  notices of
assignments,  transfers  and  assurances  as  Lender  shall,  from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Trustee (where  appropriate) and to Lender, the property and
rights hereby mortgaged, granted, bargained, sold, conveyed, confirmed, pledged,
assigned,  warranted and  transferred  or intended now or hereafter so to be, or
which  Borrower  may be or may  hereafter  become  bound to  convey or assign to
Trustee or to Lender,  or for carrying out the  intention  or  facilitating  the
performance of the terms of this Security Instrument or for filing,  registering
or recording  this Security  Instrument,  or for complying  with all  Applicable
Laws. Borrower, on demand, will execute and deliver and hereby authorizes Lender
and  Trustee to execute in the name of  Borrower  or without  the  signature  of
Borrower  to the  extent  Lender or  Trustee  may  lawfully  do so,  one or more
financing  statements,  chattel mortgages or other  instruments,  to evidence or
perfect  more  effectively  the  security  interest  of Trustee or Lender in the
Property. Borrower grants to Lender and Trustee an irrevocable power of attorney
coupled with an interest for the purpose of exercising  and  perfecting  any and
all rights and remedies  available to Trustee or Lender pursuant to this Section
7.2.

         Section 7.3 Changes in Tax, Debt Credit and Documentary Stamp Laws.

         (a) If any law is enacted or adopted or amended  after the date of this
Security  Instrument  which  deducts the Debt from the value of the Property for
the purpose of taxation or which imposes a tax,  either  directly or indirectly,
on the Debt or Lender's  interest in the  Property,  Borrower  will pay the tax,
with  interest and  penalties  thereon,  if any. If Lender is advised by counsel
chosen by it that the payment of tax by Borrower would be unlawful or taxable to
Lender or unenforceable or provide the basis for a defense of usury, then Lender
shall  have the option by written  notice of not less than  ninety  (90) days to
declare the Debt immediately due and payable.

         (b)  Borrower  will not claim or demand or be entitled to any credit or
credits  on  account  of the  Debt for any  part of the  Taxes or Other  Charges
assessed  against the  Property,  or any part  thereof,  and no deduction  shall
otherwise  be made or claimed from the assessed  value of the  Property,  or any
part thereof, for real estate tax purposes by reason of this Security Instrument

                             Exhibit 10.5 - Page 28

<PAGE>

or the Debt. If such claim, credit or deduction shall be required by law, Lender
shall have the option,  by written  notice of not less than ninety (90) days, to
declare the Debt immediately due and payable.

         (c) If at any time the United  States of America,  any State thereof or
any  subdivision  of any such State shall require  revenue or other stamps to be
affixed to the Note,  this  Security  Instrument,  or any of the Other  Security
Documents or impose any other tax or charge on the same,  Borrower  will pay for
the same, with interest and penalties thereon, if any.

         Section 7.4 Estoppel Certificates.

         After request by Lender, Borrower,  within ten (10) days, shall furnish
Lender  or  any  proposed  assignee  with a  statement,  duly  acknowledged  and
certified,  setting forth (i) the amount of the original principal amount of the
Note, (ii) the unpaid  principal  amount of the Note, (iii) the rate of interest
of the Note,  (iv) the terms of payment and maturity  date of the Note,  (v) the
date installments of interest and/or principal were last paid, (vi) that, except
as provided in such  statement,  there are no defaults or events  which with the
passage of time or the giving of notice or both,  would  constitute  an event of
default  under the Notes or the  Security  Instrument,  (vii) that the Notes and
this Security  Instrument are valid, legal and binding  obligations and have not
been modified or if modified,  giving particulars of such  modification,  (viii)
whether any offsets or defenses  exist against the  obligations  secured  hereby
and, if any are alleged to exist, a detailed description thereof,  (ix) that all
Subject Contracts are in full force and effect and have not been modified (or if
modified,  setting forth all modifications),  (x) the date to which the payments
have been made  pursuant to the Subject  Interests and Subject  Contracts,  (xi)
whether or not, to the best  knowledge  of  Borrower,  any of the parties to the
Subject Contracts are in default under the Subject Contracts, and, if any of the
parties to the Subject  Contracts  are in default,  setting  forth the  specific
nature of all such  defaults,  (xii) the  amount of  security  deposits  held by
Borrower under each Lease and that such amounts are consistent  with the amounts
required  under  each  Lease,  and  (xiii)  as to any other  matters  reasonably
requested  by Lender and  reasonably  related to the  Subject  Interests  or the
Subject Contracts, the obligations secured hereby, the Property or this Security
Instrument.

         Section 7.5 Splitting of Security Instrument.  This Security Instrument
and the  Notes  shall,  at any  time  until  the same  shall  be fully  paid and
satisfied,  at the sole election of Lender, be split or divided into two or more
notes and two or more security  instruments,  each of which shall cover all or a
portion of the Property to be more particularly  described therein. To that end,
Borrower, upon written request of Lender, shall execute, acknowledge and deliver
to Lender  and/or  its  designee  or  designees  substitute  notes and  security
instruments in such principal amounts, aggregating not more than the then unpaid
principal  amount secured by this Security  Instrument,  and  containing  terms,
provisions and clauses no less favorable to Borrower than those contained herein
and in the Note, and such other  documents and instruments as may be required by
Lender to effect the splitting of the Notes and this Security Instrument.

         Section 7.6 Replacement  Documents.  Upon receipt of an affidavit of an
officer of Lender as to the loss, theft,  destruction or mutilation of the Notes
or any Other Security  Document which is not of public record,  and, in the case
of any such  mutilation,  upon surrender and cancellation of such Notes or Other
Security Document,  Borrower will issue, in lieu thereof, a replacement Notes or
Other  Security  Document,  dated the date of such lost,  stolen,  destroyed  or
mutilated Notes or Other Security  Document in the same principal amount thereof
and otherwise of like tenor.

         Section 7.7 Amended Financing Statements.  Borrower will deliver to the
Lender,  prior  to or  contemporaneously  with  the  effective  date of any such
change,  any financing  statement or financing  statement change required by the

                             Exhibit 10.5 - Page 29

<PAGE>

Lender to  establish or maintain the  validity,  perfection  and priority of the
security interest granted herein.  At the request of the Lender,  Borrower shall
execute a certificate in form satisfactory to the Lender listing the trade names
under which  Borrower  intends to operate the  Property,  and  representing  and
warranting that Borrower does business under no other trade name with respect to
the Property.

                       Article 8 - DUE ON SALE/ENCUMBRANCE

         Section 8.1 No  Sale/Encumbrance.  Borrower  agrees that Borrower shall
not, without the prior written consent of Lender, sell, convey, mortgage, grant,
bargain,  encumber,  pledge,  assign, or otherwise  transfer the Property or any
part thereof or permit the  Property or any part  thereof to be sold,  conveyed,
mortgaged,  granted,  bargained,  encumbered,  pledged,  assigned,  or otherwise
transferred,  except as set forth in Section  3.3 of this  Security  Instrument.
Borrower  agrees that Borrower  shall not incur any debt,  secured or unsecured,
direct or contingent  (including  guaranteeing any  obligation),  other than the
Debt  and  trade  payables  incurred  in the  ordinary  course  of  business  in
connection with the operation of the Property, provided same are paid when due.

         Section 8.2  Sale/Encumbrance  Defined. A sale,  conveyance,  mortgage,
grant, bargain, encumbrance,  pledge, assignment, or transfer within the meaning
of this  Article 8 shall be  deemed to  include,  but not be  limited  to (a) an
installment  sales agreement wherein Borrower agrees to sell the Property or any
part  thereof  for a price  to be  paid in  installments;  (b) an  agreement  by
Borrower leasing all or a substantial part of the Property for other than actual
occupancy by a space tenant  thereunder or a sale,  assignment or other transfer
of, or the grant of a security interest in, Borrower's right, title and interest
in and to any Leases or any Rents;  (c) if Borrower,  or any general  partner or
managing  member  (or if no  managing  member,  any  member)  of  Borrower  is a
corporation,  the voluntary or involuntary sale, conveyance,  transfer or pledge
of such  corporation's  stock  (or the  stock  of any  corporation  directly  or
indirectly controlling such corporation by operation of law or otherwise) or the
creation or issuance of new stock by which an aggregate of more than 49% of such
corporation's stock shall be vested in a party or parties who are not now owners
of more than 49% of such  corporation's  stock; (d) if Borrower,  or any general
partner or managing member (or if no managing  member,  any member) of Borrower,
is a limited or general  partnership  or joint venture,  the change,  removal or
resignation  of a general  partner or the transfer or pledge of the  partnership
interest  of any general  partner or any  profits or  proceeds  relating to such
partnership  interest or the transfer or pledge of any  partnership  interest of
any limited partner or any profits or proceeds  relating to any such partnership
interest, which, whether singly or in the aggregate,  result in more than 49% of
the  beneficial  interests  in  Borrower,  or the profits or  proceeds  relating
thereto,  having been transferred or pledged;  and (e) if Borrower,  any general
partner or member of  Borrower,  is a limited  liability  company,  the  change,
removal or  resignation  of a managing  member or the  transfer or pledge of the
membership  interest of a managing member or any profits or proceeds relating to
such membership interest or the transfer or pledge of any membership interest of
any other  member or any  profits or proceeds  relating  to any such  membership
interest, which, whether singly or in the aggregate,  result in more than 49% of
the  beneficial  interests  in  Borrower,  or the profits or  proceeds  relating
thereto, having been transferred or pledged.

         Section 8.3 Lender's Rights.  Subject to the conditions provided in the
second sentence of Section 8.1 above, Lender reserves the right to condition the
consent  required  hereunder  upon a  modification  of the terms  hereof  and on
assumption  of the  Note,  this  Security  Instrument  and  the  Other  Security
Documents as so modified by the proposed  transferee,  payment of a transfer fee
and all of Lender's and  Trustee's  expenses  incurred in  connection  with such
transfer,  or such  other  conditions  as  Lender  shall  determine  in its sole

                             Exhibit 10.5 - Page 30

<PAGE>

discretion  to be in the  interest  of Lender.  Lender  shall not be required to
demonstrate  any actual  impairment  of its  security or any  increased  risk of
default  hereunder in order to declare the Debt immediately due and payable upon
Borrower's sale,  conveyance,  mortgage,  grant, bargain,  encumbrance,  pledge,
assignment, or transfer of the Property without Lender's consent. This provision
shall apply to every sale, conveyance,  mortgage,  grant, bargain,  encumbrance,
pledge,  assignment, or transfer of the Property regardless of whether voluntary
or not, or whether or not Lender has consented to any previous sale, conveyance,
mortgage, grant, bargain,  encumbrance,  pledge,  assignment, or transfer of the
Property.

                             Article 9 - PREPAYMENT

         The Debt may be  prepaid  only in strict  accordance  with the  express
terms and conditions of the Notes including, without limitation,  payment of the
Yield Maintenance Payment, Prepayment Premium, and/or Exit Fee, if applicable.

                              Article 10 - DEFAULT

         Section 10.1 Events of Default.  The  occurrence  of any one or more of
the following events shall constitute an "Event of Default":

         (a) if any Event of Default  (as defined in the Note,  for  purposes of
this Section 10.1(a) only) occurs under the Note;

         (b)  if  any  representation  or  warranty  of  Borrower,   any  person
indemnifying  Lender against  liabilities  relating to Hazardous  Substances (an
"Indemnitor")   pursuant   to  an   environmental   indemnity   agreement   (the
"Environmental  Indemnity"),  if any,  any  Guarantor,  or any  member,  general
partner,  principal or beneficial owner of any of the foregoing,  made herein or
in any  Environmental  Indemnity  or in  any  guaranty,  or in any  certificate,
report,  financial statement or other instrument or document furnished to Lender
shall have been false or misleading in any material respect when made;

         (c) if any default  occurs  under the  Purchase  Agreement  executed in
connection   herewith  and  such  default  continues  after  the  expiration  of
applicable grace periods, if any;

         (d) except for the specific  defaults  set forth in this Section  10.1,
any other  default  hereunder  or under any of the Other  Security  Documents by
Borrower, which default is not cured (i) in the case of any default which can be
cured by the  payment  of a sum of money,  within  five (5) days  after  written
notice from Lender to Borrower, or (ii) in the case of any other default, within
thirty (30) days after written notice from Lender to Borrower;  provided that if
such default  cannot  reasonably be cured within such thirty (30) day period and
Borrower  shall have  commenced to cure such default within such thirty (30) day
period and thereafter  diligently and  expeditiously  proceeds to cure the same,
such thirty (30) day period  shall be extended  for so long as it shall  require
Borrower in the exercise of due diligence to cure such default,  it being agreed
that no such extension shall be for a period in excess of sixty (60) days;

         (e) if Borrower  shall make an assignment  for the benefit of creditors
or if Borrower shall generally not be paying its debts as they become due; or

         (f) if (i) Borrower shall commence any case, proceeding or other action
(A) under any existing or future law of any  jurisdiction,  domestic or foreign,
relating to bankruptcy, insolvency, reorganization, conservatorship or relief of
debtors,  seeking to have an order for  relief  entered  with  respect to it, or

                             Exhibit 10.5 - Page 31

<PAGE>

seeking to  adjudicate it a bankrupt or  insolvent,  or seeking  reorganization,
arrangement,  adjustment, winding-up, liquidation,  dissolution,  composition or
other relief with respect to it or its debts,  or (B) seeking  appointment  of a
receiver,  trustee,  custodian,  conservator or other similar official for it or
for all or any  substantial  part of its assets,  or the  Borrower  shall make a
general  assignment  for the  benefit of its  creditors;  or (ii) there shall be
commenced against Borrower or Indemnitor any case, proceeding or other action of
a nature  referred  to in clause (i) above  which (A) results in the entry of an
order  for  relief  or any  such  adjudication  or  appointment  or (B)  remains
undismissed, undischarged or unbonded for a period of ninety (90) days; or (iii)
there shall be  commenced  against the Borrower  any case,  proceeding  or other
action  seeking  issuance of a warrant of  attachment,  execution,  distraint or
similar process against all or any substantial  part of its assets which results
in the entry of any order for any such relief which shall not have been vacated,
discharged,  or stayed or bonded pending appeal within ninety (90) days from the
entry thereof;  or (iv) the Borrower shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence  in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) the Borrower  Indemnitor shall
generally  not, or shall be unable to, or shall  admit in writing its  inability
to, pay its debts as they become due.

                        Article 11 - RIGHTS AND REMEDIES

         Section 11.1 Remedies.

         (a) Upon the occurrence of any Event of Default,  Borrower  agrees that
Lender,  and when requested to do so by Lender,  Trustee,  may take such action,
without  notice or demand,  as it deems  advisable  to protect  and  enforce the
rights  of Lender  and  Trustee  against  Borrower  and in and to the  Property,
including,  but not  limited  to the  following  actions,  each of which  may be
pursued concurrently or otherwise,  at such time and in such order as Lender may
determine, in its sole discretion,  without impairing or otherwise affecting the
other rights and remedies of Lender or Trustee:

                  (i) declare the entire unpaid Debt to be  immediately  due and
payable;

                  (ii)  institute  proceedings,  judicial or otherwise,  for the
complete  foreclosure of this Security Instrument under any applicable provision
of law in which case the Property or any  interest  therein may be sold for cash
or upon credit in one or more parcels or in several interests or portions and in
any order or manner;

                  (iii)  with or without  entry,  to the  extent  permitted  and
pursuant to the procedures provided by applicable law, institute proceedings for
the partial  foreclosure of this Security Instrument for the portion of the Debt
then due and payable,  subject to the continuing  lien and security  interest of
this Security  Instrument  for the balance of the Debt not then due,  unimpaired
and without loss of priority;

                  (iv) sell for cash or upon  credit  the  Property  or any part
thereof and all estate,  claim,  demand,  right,  title and interest of Borrower
therein  and  rights  of  redemption  thereof,  pursuant  to  power  of  sale or
otherwise,  at one or more sales,  as an entity or in parcels,  at such time and
place,  upon such terms and after such  notice  thereof  as may be  required  or
permitted by law;

                  (v) institute an action,  suit or proceeding in equity for the
specific  performance of any covenant,  condition or agreement contained herein,
in the Notes or in the Other Security Documents;

                             Exhibit 10.5 - Page 32

<PAGE>

                  (vi) proceed by suit or suits, at law or in equity, to enforce
payment and  performance of the Obligations in accordance with the terms hereof,
and recover judgment on the Notes either before, during, after or in lieu of any
proceedings  for  the  enforcement  of this  Security  Instrument  or the  Other
Security Documents;

                  (vii)  apply  for  the  appointment  of a  receiver,  trustee,
liquidator or conservator of the Property, without notice and without regard for
the adequacy of the security for the Debt and without regard for the solvency of
Borrower, any Guarantor,  Indemnitor or of any person, liable for the payment of
the Debt;

                  (viii) subject to any Applicable  Law, the license  granted to
Borrower under Section 1.2 shall  automatically  be revoked and Lender may enter
into or upon the  Property,  either  personally  or by its  agents,  nominees or
attorneys and dispossess Borrower and its agents and servants therefrom, without
liability for trespass, damages or otherwise and exclude Borrower and its agents
or servants  wholly  therefrom,  and take  possession of all books,  records and
accounts  relating  thereto and Borrower  agrees to surrender  possession of the
Property  and of such books,  records and  accounts to Lender upon  demand,  and
thereupon  Lender  may (A) use,  operate,  manage,  control,  insure,  maintain,
repair,  restore and otherwise  deal with all and every part of the Property and
conduct the business  thereat;  (B) complete any construction on the Property in
such manner and form as Lender deems advisable; (C) make alterations, additions,
renewals,  replacements and improvements to or on the Property; (D) exercise all
rights and powers of Borrower with respect to the Property,  whether in the name
of Borrower or  otherwise,  including,  without  limitation,  the right to make,
cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for,
collect  and  receive  all Rents of the  Property  and every part  thereof;  (E)
require Borrower to pay monthly in advance to Lender, or any receiver  appointed
to  collect  the Rents,  the fair and  reasonable  rental  value for the use and
occupation  of such part of the  Property as may be occupied  by  Borrower;  (F)
require Borrower to vacate and surrender possession of the Property to Lender or
to such  receiver  and, in default  thereof,  Borrower may be evicted by summary
proceedings  or  otherwise;  and (G) apply the receipts from the Property to the
payment of the Debt,  in such order,  priority and  proportions  as Lender shall
deem appropriate in its sole discretion  after deducting  therefrom all expenses
(including reasonable attorneys' fees) incurred in connection with the aforesaid
operations and all amounts necessary to pay the Taxes, Other Charges,  insurance
and  other  expenses  in  connection  with  the  Property,  as well as just  and
reasonable  compensation  for the services of Lender,  its  counsel,  agents and
employees;

                  (ix)  exercise  any and all rights and  remedies  granted to a
secured party upon default under the Uniform Commercial Code, including, without
limiting the  generality of the foregoing:  (A) the right to take  possession of
the  Collateral or any part thereof,  and to take such other measures as Trustee
or Lender may deem necessary for the care,  protection and  preservation  of the
Collateral,  and (B) request  Borrower at its expense to assemble the Collateral
and make it available to Trustee or Lender at a convenient  place  acceptable to
Lender.  Any notice of sale,  disposition or other intended action by Trustee or
Lender with respect to the  Collateral  sent to Borrower in accordance  with the
provisions hereof at least five (5) days prior to such action,  shall constitute
commercially reasonable notice to Borrower;

                  (x) apply any sums  held in escrow or  otherwise  by Lender in
accordance  with the terms of this  Security  Instrument  or any Other  Security
Document  to the  payment  of the  following  items in any order in its sole and
absolute discretion:

                           (A) Taxes and Other Charges;

                             Exhibit 10.5 - Page 33

<PAGE>

                           (B) Insurance Premiums;

                           (C) Interest on the unpaid  principal  balance of the
Note;

                           (D) amortization of the unpaid  principal  balance of
the Note;  and all other  sums  payable  pursuant  to the  Note,  this  Security
Instrument  and the Other Security  Documents,  including,  without  limitation,
advances made by Lender pursuant to the terms of this Security Instrument;

                  (xi) surrender the Policies  maintained  pursuant to Article 3
hereof,  collect the unearned Insurance Premiums and apply such sums as a credit
on the Debt in such priority and  proportion as Lender in its  discretion  shall
deem proper,  and in connection  therewith,  Borrower  hereby appoints Lender as
agent and  attorney-in-fact  (which is coupled with an interest and is therefore
irrevocable) for Borrower to collect such Insurance Premiums;

                  (xii) apply the undisbursed balance of any Net Proceeds or any
Net Proceeds Deficiency deposit,  together with interest thereon, to the payment
of the Debt in such order,  priority and  proportions as Lender shall deem to be
appropriate in its discretion;

                  (xiii)  prohibit  Borrower and anyone claiming on behalf of or
through  Borrower from making use of or withdrawing any sums from any lockbox or
similar account, if any;

                  (xiv) pursue such other remedies as Lender or Trustee may have
under Applicable Law.

         (b) In  the  event  of a  sale,  by  foreclosure,  power  of  sale,  or
otherwise,  of less than all of the  Property,  this Security  Instrument  shall
continue  as a lien  and  security  interest  on the  remaining  portion  of the
Property unimpaired and without loss of priority. Notwithstanding the provisions
of this  Section 11.1 to the  contrary,  if any Event of Default as described in
Subsection  10.1  (h)(i) or (ii) shall  occur,  the entire  unpaid Debt shall be
automatically  due and  payable,  without  any further  notice,  demand or other
action by Lender.

         (c)  Lender  may  adjourn  from  time to time any sale by it to be made
under or by virtue of this Security  Instrument by  announcement at the time and
place  appointed for such sale or for such adjourned sale or sales;  and, except
as  otherwise  provided by any  applicable  provision  of law,  Lender,  without
further notice or publication, may make such sale at the time and place to which
the same shall be so adjourned.

         (d) Upon any sale made under or by virtue of this Section 11.1, whether
made under a power of sale or under or by virtue of judicial proceedings or of a
judgment or decree of foreclosure  and sale,  Lender may bid for and acquire the
Property  or any part  thereof  and in lieu of  paying  cash  therefor  may make
settlement for the purchase price by crediting upon the Debt the net sales price
after  deducting  therefrom the expenses of the sale and costs of the action and
any  other  sums  which  Lender is  authorized  to deduct  under  this  Security
Instrument.

         (e) This Security Instrument shall be effective as a mortgage or a deed
of trust and upon the  occurrence of an Event of Default may be foreclosed as to
any of the  Property in any manner  permitted  by the laws of the state in which

                             Exhibit 10.5 - Page 34

<PAGE>

any part of the Property is located,  and any foreclosure suit may be brought by
the Trustee or Lender;  to the extent,  if any, required under applicable law to
cause this Security  Instrument to be effective as a mortgage,  Borrower  hereby
mortgages the Property to Lender.

         Section 11.2 Application of Proceeds.  The purchase money, proceeds and
avails of any  disposition  of the Property,  or any part thereof,  or any other
sums collected by Lender pursuant to the Note,  this Security  Instrument or the
Other Security Documents, may be applied by Lender to the payment of the Debt in
such priority and proportions as Lender in its discretion shall deem proper.

         Section 11.3 Right to Cure  Defaults.  Upon the occurrence of any Event
of Default,  Lender may, but without any  obligation to do so and without notice
to or demand on Borrower  and without  releasing  Borrower  from any  obligation
hereunder,  cure the same in such  manner and to such  extent as Lender may deem
necessary to protect the security hereof. Lender is authorized to enter upon the
Property  for such  purposes,  or appear  in,  defend,  or bring  any  action or
proceeding to protect its interest in the Property or to foreclose this Security
Instrument  or collect  the Debt,  and the cost and expense  thereof  (including
reasonable  attorneys'  fees to the extent  permitted by law),  with interest as
provided in this Section 11.3,  shall constitute a portion of the Debt and shall
be due and payable to Lender upon demand.  All such costs and expenses  incurred
by Lender in remedying such Event of Default or in appearing in,  defending,  or
bringing any such action or  proceeding  shall bear interest at the Default Rate
(as defined in the Note), for the period after notice from Lender that such cost
or expense  was  incurred  to the date of payment to Lender.  All such costs and
expenses  incurred by Lender  together with interest  thereon  calculated at the
Default Rate shall be deemed to  constitute a portion of the Debt and be secured
by this  Security  Instrument  and the  Other  Security  Documents  and shall be
immediately due and payable upon demand by Lender therefor.

         Section 11.4 Actions and  Proceedings.  After the occurrence and during
the  continuance  of an Event of Default,  Lender has the right to appear in and
defend any action or  proceeding  brought  with  respect to the  Property and to
bring any action or  proceeding,  in the name and on behalf of  Borrower,  which
Lender, in its discretion,  decides should be brought to protect its interest in
the Property.

         Section 11.5  Recovery of Sums  Required To Be Paid.  Lender shall have
the right  from time to time to take  action to  recover  any sum or sums  which
constitute a part of the Debt as the same become due,  without regard to whether
or not the balance of the Debt shall be due, and without  prejudice to the right
of Lender thereafter to bring an action of foreclosure, or any other action, for
a default or defaults by Borrower  existing at the time such earlier  action was
commenced.

         Section  11.6  Examination  of Books and Records.  Lender,  its agents,
accountants  and  attorneys  shall have the right upon prior  written  notice to
examine the  records,  books,  management  and other  papers of Borrower and its
affiliates or of any Guarantor or Indemnitor  which reflect upon their financial
condition,  at the Property or at any office  regularly  maintained by Borrower,
its  affiliates or any  Guarantor or Indemnitor  where the books and records are
located.  Lender and its agents  shall have the right upon notice to make copies
and extracts from the foregoing records and other papers.  In addition,  Lender,
its agents,  accountants and attorneys shall have the right to examine and audit
the books and records of Borrower  and its  affiliates  or of any  Guarantor  or
Indemnitor  pertaining  to the income,  expenses  and  operation of the Property
during  reasonable  business hours at any office of Borrower,  its affiliates or
any Guarantor or Indemnitor where the books and records are located.

         Section 11.7 Other Rights, Etc.

                             Exhibit 10.5 - Page 35

<PAGE>

         (a) The failure of Lender to insist upon strict performance of any term
hereof  shall  not be  deemed  to be a  waiver  of any  term  of  this  Security
Instrument.  Borrower shall not be relieved of Borrower's  obligations hereunder
by reason of (i) the  failure of Lender or Trustee to comply with any request of
Borrower,  any Guarantor or any  Indemnitor to take any action to foreclose this
Security  Instrument or otherwise enforce any of the provisions hereof or of the
Notes  or  the  Other  Security  Documents,  (ii)  the  release,  regardless  of
consideration, of the whole or any part of the Property, or of any person liable
for the Debt or any portion  thereof,  or (iii) any agreement or  stipulation by
Lender extending the time of payment or otherwise modifying or supplementing the
terms of the Note, this Security Instrument or the Other Security Documents.

         (b) It is agreed that the risk of loss or damage to the  Property is on
Borrower,  and Lender shall have no liability whatsoever for decline in value of
the Property,  for failure to maintain the Policies, or for failure to determine
whether  insurance  in force is  adequate  as to the  amount  of risks  insured.
Possession by Lender shall not be deemed an election of judicial relief,  if any
such  possession  is  requested  or  obtained,  with  respect to any Property or
collateral not in Lender's possession.

         (c) Lender may resort for the payment of the Debt to any other security
held by Lender or Trustee in such order and manner as Lender, in its discretion,
may elect.  Lender may take action to recover the Debt, or any portion  thereof,
or to enforce any covenant  hereof without  prejudice to the right of Trustee or
Lender thereafter to foreclose this Security  Instrument.  The rights of Trustee
and Lender  under this  Security  Instrument  shall be  separate,  distinct  and
cumulative and none shall be given effect to the exclusion of the others. No act
of Trustee or Lender shall be construed as an election to proceed  under any one
provision  herein to the exclusion of any other  provision.  Neither Trustee nor
Lender shall be limited exclusively to the rights and remedies herein stated but
shall be entitled to every right and remedy now or hereafter  afforded at law or
in equity.

         Section 11.8 Right to Release Any Portion of the Property.  Trustee, at
the  direction  of Lender,  may  release any  portion of the  Property  for such
consideration  as  Lender  may  require  without,  as to  the  remainder  of the
Property,  in any way  impairing  or  affecting  the  lien or  priority  of this
Security  Instrument,  or improving the position of any  subordinate  lienholder
with respect thereto,  except to the extent that the obligations hereunder shall
have been  reduced by the actual  monetary  consideration,  if any,  received by
Lender for such release,  and may accept by assignment,  pledge or otherwise any
other property in place thereof as Lender may require without being  accountable
for so doing to any other lienholder. This Security Instrument shall continue as
a lien and security interest in the remaining portion of the Property.

         Section 11.9  Violation of Laws.  If the Property is not in  compliance
with Applicable Laws, Lender may impose additional requirements upon Borrower in
connection  herewith  including,   without  limitation,   monetary  reserves  or
financial equivalents.

         Section  11.10  Right of Entry.  Lender and its  agents  shall have the
right  upon  prior  written  notice to enter and  inspect  the  Property  at all
reasonable  times upon not less than five (5) Business  Days' notice  (except in
the case of emergencies when no notice shall be required) to Borrower.

                       Article 12 - ENVIRONMENTAL HAZARDS

         The  representations  and  warranties  of  Borrower  set  forth in this
Article  12  are  subject  to  the  Disclosure  Schedules  delivered  to  Lender
concurrently  with the Purchase  Agreement,  as well as to all matters  filed of

                             Exhibit 10.5 - Page 36

<PAGE>

record by Borrower with the United States  Securities  and Exchange  Commission.
With  respect to  Property  owned by the  Company  prior to the advance of funds
under  the  Notes  and  the  recordation  of  this  Security  Instrument,   such
representations and warranties are made to the actual knowledge of the directors
and executive officers of Borrower, without independent investigation.

         Section 12.1  Environmental  Representations  and Warranties.  Borrower
represents and warrants,  based upon information that Borrower knows,  that: (a)
there are no Hazardous  Substances  (defined below) or underground storage tanks
in, on, or under the Property, except those that are both (i) in compliance with
Environmental Laws (defined below) and with permits issued pursuant thereto,  if
any,  and (ii) fully  disclosed  to Lender in writing  pursuant  to the  written
reports resulting from the environmental  assessments of the Property  delivered
to  Lender  (the  "Environmental  Report");  (b)  there  are no past or  present
Releases   (defined   below)  of  Hazardous   Substances  in  violation  of  any
Environmental  Law or which  would  require  Remediation  (defined  below)  by a
Governmental Authority in, on, under or from the Property except as described in
the Environmental  Report; (c) there is no past or present  non-compliance  with
Environmental  Laws, or with permits issued pursuant thereto, in connection with
the Property except as described in the Environmental  Report; (d) Borrower does
not  know  of,  and has not  received,  any  written  or oral  notice  or  other
communication  from any person  (including,  but not  limited to a  governmental
entity)  relating to Hazardous  Substances or Remediation  thereof,  of possible
liability of any person pursuant to any Environmental  Law, other  environmental
conditions in  connection  with the Property,  or any actual  administrative  or
judicial  proceedings in connection with any of the foregoing;  and (e) Borrower
has truthfully and fully provided to Lender, in writing, any and all information
relating to environmental  conditions in, on, under or from the Property that is
known to  Borrower  and that is  contained  in  Borrower's  files  and  records,
including,  but not limited to any reports relating to Hazardous  Substances in,
on,  under or from the  Property  and/or to the  environmental  condition of the
Property.  "Environmental  Law"  means  any  present,  and for the  purposes  of
Sections  12.2.  12.3 and 13.4  only,  future,  federal,  state and local  laws,
statutes,  ordinances,  rules,  regulations and the like, as well as common law,
relating to protection of human health or the environment, relating to Hazardous
Substances,  relating to liability for or costs of  Remediation or prevention of
Releases of Hazardous  Substances or relating to liability for or costs of other
actual or threatened  danger to human health or the environment.  "Environmental
Law" includes,  but is not limited to, the following statutes,  as amended,  any
successor thereto,  and any regulations  promulgated  pursuant thereto,  and any
state or local statutes,  ordinances, rules, regulations and the like addressing
similar issues:  the  Comprehensive  Environmental  Response,  Compensation  and
Liability  Act; the  Emergency  Planning and  Community  Right-to-Know  Act; the
Hazardous Substances  Transportation Act; the Resource Conservation and Recovery
Act  (including,  but not limited to Subtitle I relating to underground  storage
tanks);  the Solid Waste  Disposal  Act; the Clean Water Act; the Clean Air Act;
the Toxic Substances  Control Act; the Safe Drinking Water Act; the Occupational
Safety and Health Act;  the Federal  Water  Pollution  Control  Act; the Federal
Insecticide,  Fungicide and  Rodenticide  Act; the  Endangered  Species Act; the
National  Environmental Policy Act; and the River and Harbors Appropriation Act.
"Environmental Law" also includes,  but is not limited to, any present,  and for

                             Exhibit 10.5 - Page 37

<PAGE>

the purposes of Sections 12.2, 12.3 and 13.4 only,  future,  federal,  state and
local laws, statutes,  ordinances,  rules,  regulations and the like, as well as
common law:  conditioning  transfer of property upon a negative  declaration  or
other approval of a governmental authority of the environmental condition of the
property;   requiring  notification  or  disclosure  of  Releases  of  Hazardous
Substances or other environmental  condition of the Property to any governmental
authority or other person,  whether or not in connection  with transfer of title
to or interest in property.  "Hazardous  Substances" include but are not limited
to any and all substances (whether solid, liquid or gas) (i) defined, listed, or
otherwise  classified as pollutants,  hazardous  wastes,  hazardous  substances,
hazardous materials,  extremely hazardous wastes, or words of similar meaning or
regulatory effect under any present,  or for the purposes of Sections 12.2. 12.3
and 13.4  only,  future,  Environmental  Laws or (ii)  that may have a  negative
impact  on human  health  or the  environment,  including,  but not  limited  to
petroleum and petroleum products,  asbestos and  asbestos-containing  materials,
polychlorinated  biphenyls,  lead, radon, radioactive materials,  flammables and
explosives. "Release" of any Hazardous Substance includes, but is not limited to
any  release,  deposit,   discharge,   emission,   leaking,  spilling,  seeping,
migrating,  injecting,  pumping, pouring, emptying, escaping, dumping, disposing
or other movement of Hazardous Substances.  "Remediation"  includes,  but is not
limited to any response, remedial removal, or corrective action, any activity to
cleanup, detoxify,  decontaminate,  contain or otherwise remediate any Hazardous
Substance, any actions to prevent, cure or mitigate any Release of any Hazardous
Substance,  any action to comply with any Environmental Laws or with any permits
issued pursuant  thereto,  any  inspection,  investigation,  study,  monitoring,
assessment,  audit,  sampling  and testing,  laboratory  or other  analysis,  or
evaluation  relating to any Hazardous  Substances or to anything  referred to in
this Article 12.

         Section 12.2  Environmental  Covenants.  Borrower  covenants and agrees
that so long as the Borrower  owns,  manages,  is in possession of, or otherwise
controls the operation of the Property: (a) all uses and operations on or of the
Property,  whether by Borrower or any other person,  shall be  substantially  in
compliance with all Environmental Laws and permits issued pursuant thereto;  (b)
there shall be no Releases of  Hazardous  Substances  in, on,  under or from the
Property;  (c)  there  shall be no  Hazardous  Substances  in,  on, or under the
Property,  except those that are in compliance with all  Environmental  Laws and
with  permits  issued  pursuant  thereto,  if and to the  extent  required;  (d)
Borrower  shall  keep  the  Property  free  and  clear of all  liens  and  other
encumbrances  imposed pursuant to any Environmental  Law, whether due to any act
or omission of Borrower or any other  person (the  "Environmental  Liens");  (e)
Borrower shall, at its sole cost and expense, fully and expeditiously  cooperate
in all activities pursuant to Section 12.3 below, including,  but not limited to
providing all relevant  information and making  knowledgeable  persons available
for interviews;  (f) Borrower  shall, at its sole cost and expense,  perform any
environmental site assessment or other investigation of environmental conditions
in connection with the Property,  pursuant to any reasonable  written request of
Lender after  Lender has reason to believe  this Section 12.2 has been  violated
(including,  but not limited to sampling,  testing and analysis of soil,  water,
air, building materials and other materials and substances whether solid, liquid
or gas), and share with Lender the reports and other results thereof, and Lender
and other  Indemnified  Parties  (defined in Section  13.1) shall be entitled to
rely on such reports and other results thereof;  (g) Borrower shall, at its sole
cost and expense,  comply with all reasonable  written requests of Lender to (i)
reasonably effectuate  Remediation of any condition (including,  but not limited
to a Release of a Hazardous Substance) in, on, under or from the Property,  (ii)
comply with any  Environmental  Law,  (iii) comply with any  directive  from any
governmental  authority,  and (iv) take any other reasonable action necessary or
appropriate  for  protection  of human health or the  environment;  (h) Borrower
shall not do or allow any  tenant or other  user of the  Property  to do any act
that materially increases the dangers to human health or the environment,  poses
an  unreasonable  risk of harm to any person  (whether on or off the  Property),
impairs or may impair the value of the Property,  is contrary to any requirement
of any insurer, constitutes a public or private nuisance,  constitutes waste, or
violates  any  covenant,  condition,  agreement  or easement  applicable  to the
Property;  and (i) Borrower shall immediately  notify Lender in writing promptly
after it has become aware of (A) any presence or Releases or threatened Releases
of Hazardous  Substances in, on, under,  from or migrating  towards the Property
which  is  required  to  be  reported  to a  governmental  authority  under  any
Environmental Law, (B) any actual Environmental Lien affecting the Property, (C)
any required  Remediation of environmental  conditions relating to the Property,
and (D) any  written or oral  notice or other  communication  of which  Borrower
becomes  aware  from any  source  whatsoever  (including,  but not  limited to a
governmental  entity) relating in any way to Hazardous Substances or Remediation
thereof,  possible  liability of any person pursuant to any  Environmental  Law,
other environmental conditions in connection with the Property, or any actual or
threatened  administrative  or judicial  proceedings in connection with anything
referred to in this Article 12.

                             Exhibit 10.5 - Page 38

<PAGE>

         Section 12.3 Lender's Rights. Lender, its environmental consultant, and
any other  person  designated  by  Lender,  including,  but not  limited  to any
receiver and any representative of a governmental  entity, shall have the right,
but not the  obligation,  at  intervals  of not  less  than  one  year,  or more
frequently if the Lender reasonably believes that a Hazardous Substance or other
environmental  condition violates or threatens to violate any Environmental Law,
after notice to Borrower,  to enter upon the Property at all reasonable times to
assess any and all aspects of the  environmental  condition  of the Property and
its use, including,  but not limited to conducting any environmental  assessment
or audit of the Property or portions  thereof to confirm  Borrower's  compliance
with the  provisions  of this  Article 12, and Borrower  shall  cooperate in all
reasonable ways with Lender in connection with any such audit.  Such audit shall
be  performed  in a manner so as to  minimize  interference  with the conduct of
business at the  Property.  If such audit  discloses  that a  violation  of or a
liability  under any  Environmental  Law exists or if such audit was required or
prescribed by law, regulation or governmental or  quasi-governmental  authority,
Borrower  shall pay all costs and  expenses  incurred  in  connection  with such
audit;  otherwise,  the costs and expenses of such audit shall,  notwithstanding
anything to the contrary set forth in this Section, be paid by Lender.

                          Article 13 - INDEMNIFICATION

         Section 13.1 General Indemnification.  Borrower shall, at its sole cost
and expense,  indemnify  the Lenders (a) to the extent set forth in Section 4.11
of  the  Purchase   Agreement;   and  (b)  from  and  against  all   reasonable,
out-of-pocket  expenditures,  including  reasonable attorneys fees and expenses,
claims, demands,  liabilities,  losses,  damages,  causes of action,  judgments,
penalties,  costs and expenses which may be proposed upon,  asserted  against or
incurred or paid by Lenders on account of, in connection with, or arising out of
(i) any bodily injury or death or property damage occurring in or upon or in the
vicinity of the  Property;  and (ii) any act,  omission,  event or  circumstance
existing or  occurring on or prior to the Release  Date  (hereinafter  defined),
including,  without limitation,  the presence on, under or about the Property or
release  from the  Property of any  Hazardous  Substance,  resulting  from or in
connection  the  ownership,  construction,   occupancy,  operation,  use  and/or
maintenance  of the Property.  "Release  Date" shall mean the earlier of (x) the
date on which  Obligation) have been paid and performed in full, or (y) the date
of the completion of the  foreclosure  of the Property  Secured by this Security
Instrument.

                              Article 14 - WAIVERS

         Section 14.1 Waiver of  Counterclaim.  Borrower hereby waives the right
to assert a counterclaim,  other than a mandatory or compulsory counterclaim, in
any action or proceeding  brought against it by Trustee or Lender arising out of
or in any way connected  with this  Security  Instrument,  the Note,  any of the
Other Security Documents, or the Obligations.

         Section 14.2 Marshaling and Other Matters.  Borrower hereby waives,  to
the extent permitted by law, the benefit of all appraisement,  valuation,  stay,
extension,  reinstatement  and redemption laws now or hereafter in force and all
rights of marshaling  in the event of any sale  hereunder of the Property or any
part thereof or any interest therein.  Further, Borrower hereby expressly waives
any and all  rights  of  redemption  from  sale  under  any  order or  decree of
foreclosure of this Security Instrument on behalf of Borrower,  and on behalf of
each and  every  person  acquiring  any  interest  in or  title to the  Property
subsequent to the date of this Security  Instrument and on behalf of all persons
to the extent permitted by Applicable Law.

                             Exhibit 10.5 - Page 39

<PAGE>

         Section 14.3 Waiver of Notice.  To the extent  permitted by  Applicable
Law, Borrower shall not be entitled to any notices of any nature whatsoever from
Trustee  or Lender  except  with  respect to  matters  for which  this  Security
Instrument  specifically  and  expressly  provides  for the  giving of notice by
Trustee or Lender to  Borrower  and  except  with  respect to matters  for which
Trustee or Lender is required by  Applicable  Law to give  notice,  and Borrower
hereby  expressly  waives the right to receive any notice from Trustee or Lender
with  respect  to any  matter  for  which  this  Security  Instrument  does  not
specifically and expressly provide for the giving of notice by Trustee or Lender
to Borrower.

         Section  14.4  Waiver  of  Statute  of  Limitations.   Borrower  hereby
expressly  waives and  releases  to the fullest  extent  permitted  by law,  the
pleading  of any statute of  limitations  as a defense to payment of the Debt or
performance of its Other Obligations.

         Section  14.5 Sole  Discretion  of Lender.  Wherever  pursuant  to this
Security  Instrument  (a) Lender  exercises  any right given to it to approve or
disapprove,  (b) any arrangement or term is to be satisfactory to Lender, or (c)
any other  decision or  determination  is to be made by Lender,  the decision of
Lender to approve or disapprove  all decisions  that  arrangements  or terms are
satisfactory or not  satisfactory,  and all other  decisions and  determinations
made by Lender, shall be in the sole and absolute discretion of Lender and shall
be final and conclusive,  except as may be otherwise  expressly and specifically
provided herein.

         Section 14.6  Survival.  Except as hereinafter  specifically  set forth
below, the  representations  and warranties,  covenants,  and other  obligations
arising  under  Article 12 and Section  13.4 shall in no way be impaired by: any
satisfaction or other termination of this Security Instrument, any assignment or
other  transfer of all or any portion of this  Security  Instrument  or Lender's
interest in the Property  (but,  in such case,  shall  benefit both  Indemnified
Parties and any assignee or  transferee),  any exercise of Lender's or Trustee's
rights and remedies pursuant hereto including, but not limited to foreclosure or
acceptance  of a deed in lieu of  foreclosure,  any  exercise  of any rights and
remedies  pursuant  to the Notes or any of the  Other  Security  Documents,  any
transfer of all or any portion of the Property (whether by Borrower,  by Lender,
or by Trustee at the request of Lender following  foreclosure or acceptance of a
deed in  lieu of  foreclosure  or at any  other  time),  any  amendment  to this
Security Instrument,  the Notes or the Other Security Documents,  and any act or
omission that might otherwise be construed as a release or discharge of Borrower
from the  obligations  pursuant  hereto.  All  obligations  and  liabilities  of
Borrower  under  Article 12 and Section  13.4 shall cease and  terminate  on the
first (1st)  anniversary  of the date of payment to Lender in cash of the entire
Debt,  provided  that  contemporaneously  with or  subsequent  to such  payment,
Borrower,  at its sole cost and  expense,  delivers  to Lender an  environmental
audit of the  Property  in form  and  substance,  and  prepared  by a  qualified
environmental consultant,  reasonably satisfactory in all respects to Lender and
indicating the Property is in full compliance with all applicable  Environmental
Laws.

         Section 14.7 Waiver of Trial By Jury.  BORROWER  HEREBY WAIVES,  TO THE
FULLEST  EXTENT  PERMITTED  BY LAW,  THE  RIGHT TO TRIAL BY JURY IN ANY  ACTION,
PROCEEDING OR  COUNTERCLAIM,  WHETHER IN CONTRACT,  TORT OR OTHERWISE,  RELATING
DIRECTLY OR INDIRECTLY TO THE LOAN  EVIDENCED BY THE NOTE, THE  APPLICATION  FOR
THE LOAN EVIDENCED BY THE NOTE, THE NOTE, THIS SECURITY  INSTRUMENT OR THE OTHER
SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS,  EMPLOYEES,
DIRECTORS OR AGENTS IN CONNECTION THEREWITH.

                       Article 15 - INTENTIONALLY OMITTED

                             Exhibit 10.5 - Page 40

<PAGE>

                              Article 16 - NOTICES

         Section  16.1  Notices.  All  notices or other  written  communications
hereunder  shall be deemed to have been  properly  given (a) upon  delivery,  if
delivered in person or by facsimile  transmission  with receipt  acknowledged by
the  recipient  thereof,  (b) one (1) Business Day (defined  below) after having
been  deposited for overnight  delivery  with any  reputable  overnight  courier
service,  or (c) three (3) Business Days after having been deposited in any post
office or mail  depository  regularly  maintained by the U.S. Postal Service and
sent by registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:

If to Borrower:            Cubic Energy, Inc.
                           9870 Plano Road
                           Dallas, Texas  75238
                           Attention: Calvin A. Wallen III
                           Facsimile No.  972-681-9687

If to Trustee:             Alex Montano
                           c/o C. K. Cooper & Company
                           18300 Von Karman Avenue, Suite 440
                           Irvine, California 92612
                           Facsimile No.  949-477-9211

If to Lender:              C. K. Cooper & Company
                           18300 Von Karman Avenue, Suite 440
                           Irvine, California 92612
                           Attention:  Alex Montano
                           Facsimile No.  949-477-9211

or addressed as such party may from time to time  designate by written notice to
the other parties.

         Either  party by  notice  to the  other  may  designate  additional  or
different addresses for subsequent notices or communications.

         For  purposes of this  Subsection,  "Business  Day" shall mean a day on
which  commercial  banks are not  authorized  or required by law to close in the
State of New York.

                           Article 17 - APPLICABLE LAW

         Section 17.1 Choice of Law. THIS SECURITY INSTRUMENT SHALL BE GOVERNED,
CONSTRUED,  APPLIED AND ENFORCED IN ACCORDANCE  WITH THE LAWS OF THE STATE WHERE
THE PROPERTY IS LOCATED AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

         Section 17.2 Usury Laws.  This  Security  Instrument  and the Notes are
subject to the express  condition that at no time shall Borrower be obligated or
required to pay interest on the Debt at a rate which could subject the Lender of
the Notes to either  civil or criminal  liability as a result of being in excess
of the maximum  interest rate which  Borrower is permitted by applicable  law to
contract or agree to pay.  If by the terms of this  Security  Instrument  or the
Note,  Borrower is at any time required or obligated to pay interest on the Debt

                             Exhibit 10.5 - Page 41

<PAGE>

at a rate in  excess  of such  maximum  rate,  the rate of  interest  under  the
Security  Instrument and the Notes shall be deemed to be immediately  reduced to
such  maximum rate and the  interest  payable  shall be computed at such maximum
rate and all prior  interest  payments in excess of such  maximum  rate shall be
applied and shall be deemed to have been  payments in reduction of the principal
balance  of the Note.  All sums paid or agreed to be paid to Lender for the use,
forbearance,  or  detention  of the  Debt  shall,  to the  extent  permitted  by
applicable law, be amortized,  prorated,  allocated,  and spread  throughout the
full stated  term of the Notes until  payment in full so that the rate or amount
of interest  on account of the Debt does not exceed the  maximum  lawful rate of
interest  from time to time in effect and  applicable to the Debt for so long as
the Debt is outstanding.

         Section 17.3 Provisions  Subject to Applicable Law. All rights,  powers
and remedies  provided in this Security  Instrument may be exercised only to the
extent that the exercise  thereof does not violate any applicable  provisions of
law and are intended to be limited to the extent necessary so that they will not
render this Security  Instrument  invalid,  unenforceable  or not entitled to be
recorded, registered or filed under the provisions of any Applicable Law.

         Section  17.4  Inapplicable  Provision.  If any  term of this  Security
Instrument or any  application  thereof shall be invalid or  unenforceable,  the
remainder of this  Security  Instrument  and any other  application  of the term
shall not be affected thereby.

                          Article 18 - SECONDARY MARKET

         Section 18.1 Dissemination of Information.  If Lender determines at any
time to sell,  transfer or assign the Note,  this  Security  Instrument  and the
Other Security Documents,  and any or all servicing rights with respect thereto,
or to grant  participations  therein (the  "Participations")  or issue  mortgage
pass-through  certificates or other securities  (such sale and/or issuance,  the
"Securitization")  evidencing a beneficial interest in a rated or unrated public
offering or private  placement  (the  "Securities"),  Lender may forward to each
purchaser,  transferee,  assignee,  servicer,  participant,  investor,  or their
respective  successors in such Participations  and/or Securities  (collectively,
the "Investor") or any Rating Agency rating such Securities and each prospective
Investor,  all documents and  information  which Lender now has or may hereafter
acquire relating to the Debt and to Borrower, any Guarantor, any Indemnitors and
the Property (including,  without limitation,  all financial statements),  which
shall have been  furnished by Borrower,  any  Guarantor or any  Indemnitors,  as
Lender  determines  necessary or  desirable.  Borrower,  any  Guarantor  and any
Indemnitor  agree to cooperate with Lender in connection  with any transfer made
or any  Securities  created  pursuant to this Section,  such documents as may be
reasonably  requested by Lender and, upon Lender's reasonable  request,  meeting
with any Rating Agency for due diligence  purposes.  Borrower shall also furnish
and Borrower,  any Guarantor and any Indemnitor  consent to Lender furnishing to
such  Investors or such  prospective  Investors or any Rating Agency any and all
information  concerning  the Property,  the Leases,  the financial  condition of
Borrower,  any Guarantor and any  Indemnitor as may be requested by Lender,  any
Investor or any  prospective  Investor or Rating Agency in  connection  with any
sale,  transfer or Participation.  Borrower shall deliver on the date hereof, at
Borrower's sole cost and expense,  a  nonconsolidation  opinion,  and within ten
(10) days after demand of Lender,  an update of same (which update Borrower will
not be  required  to provide  more than once),  each in form and  substance  and
delivered  by  counsel  acceptable  to Lender and the  Rating  Agency  rating or
proposed to rate the Securities, as may be required by Lender and/or such Rating
Agency.  Borrower's  failure to  deliver  the  opinions  required  hereby  shall
constitute an Event of Default hereunder.

                             Exhibit 10.5 - Page 42

<PAGE>

                               Article 19 - COSTS

         Section 19.1 Performance at Borrower's Expense.  Borrower  acknowledges
and confirms that Lender shall impose certain  administrative  processing and/or
commitment  fees in connection  with (a) the extension,  renewal,  modification,
amendment  and  termination  of its loans,  (b) the release or  substitution  of
collateral therefor, (c) obtaining certain consents,  waivers and approvals with
respect to the Property, or (d) the review of any Lease or proposed Lease or the
preparation  or  review of any  subordination,  non-disturbance  agreement  (the
occurrence  of any of the above shall be called an  "Event").  Borrower  further
acknowledges  and confirms that it shall be  responsible  for the payment of all
costs of  reappraisal of the Property or any part thereof,  whether  required by
law,  regulation,  Lender or any governmental or  quasi-governmental  authority.
Borrower hereby  acknowledges  and agrees to pay,  immediately,  with or without
demand,  all such fees (as the same may be increased  or decreased  from time to
time),  and any additional fees of a similar type or nature which may be imposed
by Lender  from time to time,  upon the  occurrence  of any Event or  otherwise.
Wherever it is provided  for herein that  Borrower  pay any costs and  expenses,
such costs and expenses shall include, but not be limited to, all legal fees and
disbursements  of Lender (whether of retained firms, the  reimbursement  for the
expenses of in-house  staff or otherwise) and all costs and expenses of Trustee,
if any.

         Section 19.2  Attorneys' Fees for  Enforcement.  (a) Borrower shall pay
all legal fees incurred by Lender in connection  with (i) the preparation of the
Note, this Security  Instrument and the Other Security  Documents;  and (ii) the
items set forth in Section 19.1 above,  and (b) Borrower  shall pay to Lender on
demand any and all expenses,  including legal expenses and reasonable attorneys'
fees,  incurred or paid by Lender or Trustee in  protecting  its interest in the
Property or the Collateral or in collecting  any amount payable  hereunder or in
enforcing its rights  hereunder with respect to the Property or the  Collateral,
whether or not any legal  proceeding is commenced  hereunder or  thereunder  and
whether  or not any  default  or Event of Default  shall  have  occurred  and is
continuing,  together  with  interest  thereon at the Default Rate from the date
paid or incurred by Lender or Trustee until such expenses are paid by Borrower.

                            Article 20 - DEFINITIONS

         Section 20.1 General Definitions.  Unless the context clearly indicates
a contrary intent or unless otherwise  specifically  provided herein, words used
in this Security  Instrument may be used  interchangeably  in singular or plural
form and the word "Borrower"  shall mean "each Borrower and any subsequent owner
or owners of the Property or any part thereof or any interest therein," the word
"Lender"  shall mean  "Lender and any  subsequent  Lender of the Note," the word
"Note" shall mean "the Notes and any other evidence of  indebtedness  secured by
this  Security  Instrument,"  the word  "person"  shall  include an  individual,
corporation,  limited  liability  company,  partnership,  trust,  unincorporated
association,  government, governmental authority, and any other entity, the word
"Property"  shall include any portion of the Property and any interest  therein,
the word "Trustee" shall mean "Trustee and its successors and assigns",  and the
phrases  "attorneys'  fees"  and  "counsel  fees"  shall  include  any  and  all
attorneys',  paralegal and law clerk fees and disbursements,  including, but not
limited to fees and  disbursements at the pre-trial,  trial and appellate levels
incurred  or paid by Lender in  protecting  its  interest in the  Property,  the
Leases and the Rents and enforcing its rights under this Security Instrument.

         Section  20.2  Headings,  Etc.  The  headings  and  captions of various
Sections of this Security  Instrument are for  convenience of reference only and
are not to be construed as defining or limiting, in any way, the scope or intent
of the provisions hereof.

                             Exhibit 10.5 - Page 43

<PAGE>

                      Article 21 - MISCELLANEOUS PROVISIONS

         Section  21.1  No  Oral  Change.  This  Security  Instrument,  and  any
provisions  hereof, may not be modified,  amended,  waived,  extended,  changed,
discharged or  terminated  orally or by any act or failure to act on the part of
Borrower,  Lender or Trustee,  but only by an agreement in writing signed by the
party  against  whom  enforcement  of  any  modification,   amendment,   waiver,
extension, change, discharge or termination is sought.

         Section 21.1 Liability.  If Borrower  consists of more than one person,
the obligations and liabilities of each such person hereunder shall be joint and
several. This Security Instrument shall be binding upon and inure to the benefit
of Borrower and Lender and their respective successors and assigns forever.

         Section  21.3   Duplicate   Originals;   Counterparts.   This  Security
Instrument  may be  executed  in any  number  of  duplicate  originals  and each
duplicate original shall be deemed to be an original.  This Security  Instrument
may be executed in several  counterparts,  each of which  counterparts  shall be
deemed an original  instrument  and all of which  together  shall  constitute  a
single  Security  Instrument.  The failure of any party  hereto to execute  this
Security  Instrument,  or any  counterpart  hereof,  shall not relieve the other
signatories from their obligations hereunder.

         Section 21.4 Number and Gender.  Whenever the context may require,  any
pronouns  used herein shall  include the  corresponding  masculine,  feminine or
neuter  forms,  and the singular  form of nouns and pronouns  shall  include the
plural and vice versa.

         Section  21.5  Subrogation.  If any or all of the proceeds of the Notes
have  been used to  extinguish,  extend  or renew  any  indebtedness  heretofore
existing against the Property,  then, to the extent of the funds so used, Lender
shall be subrogated to all of the rights,  claims,  liens, titles, and interests
existing against the Property  heretofore held by, or in favor of, the Lender of
such indebtedness and such former rights,  claims, liens, titles, and interests,
if any,  are not waived but  rather  are  continued  in full force and effect in
favor of Lender  and are  merged  with the lien and  security  interest  created
herein as cumulative security for the repayment of the Debt, the performance and
discharge of  Borrower's  obligations  hereunder,  under the Notes and the Other
Security Documents and the performance and discharge of the Other Obligations.

         Section 21.6 Entire Agreement.  The Note, this Security  Instrument and
the Other Security Documents  constitute the entire  understanding and agreement
between Borrower, Lender and Trustee with respect to the transactions arising in
connection with the Debt and supersede all prior written or oral  understandings
and agreements between Borrower and Lender with respect thereto. Borrower hereby
acknowledges  that, except as incorporated in writing in the Note, this Security
Instrument and the Other Security Documents, there are not, and were not, and no
persons  are  or  were  authorized  by  Lender  to  make,  any  representations,
understandings,  stipulations,  agreements  or promises,  oral or written,  with
respect  to the  transaction  which is the  subject of the Note,  this  Security
Instrument and the Other Security Documents.

                             Exhibit 10.5 - Page 44

<PAGE>

                         Article 22 - TRUSTEE PROVISIONS

         Section 22.1 The Trustee.

         (a) It shall be no part of the duty of Trustee to see to any recording,
filing or  registration of this Security  Instrument or any other  instrument in
addition or supplemental hereto, or to give any notice thereof, or to see to the
payment  of or be under any duty in respect  of any tax or  assessment  or other
governmental charge which may be levied or assessed on the Property, or any part
thereof,  or against  Borrower,  or to see to the  performance  or observance by
Borrower of any of the covenants and agreements contained herein.  Trustee shall
not be  responsible  for  the  execution,  acknowledgment  or  validity  of this
Security  Instrument or of any instrument in addition or supplemental  hereto or
for the sufficiency of the security purported to be created hereby, and makes no
representation in respect thereof or in respect of the rights of Lender. Trustee
shall have the right to advice of counsel upon any matters arising hereunder and
shall be fully  protected  in  relying  as to legal  matters  on the  advice  of
counsel. Trustee shall not incur any personal liability hereunder except for his
own gross  negligence or willful  misconduct and Trustee shall have the right to
rely on any  instrument,  document or signature  authorizing  or supporting  any
action  taken or  proposed  to be taken by Trustee  hereunder  and  believed  by
Trustee in good faith to be genuine.

         (b) Trustee may resign by an instrument in writing addressed to Lender,
or Trustee may be removed at any time with or without  cause by an instrument in
writing  executed  by  Lender.  In case of the  death,  resignation,  removal or
disqualification of Trustee, or if for any reason Lender shall deem it desirable
to appoint a substitute or successor  trustee to act instead of the herein named
trustee or any substitute or successor trustee, then Lender shall have the right
and is hereby  authorized  and  empowered to appoint a successor  trustee,  or a
substitute trustee,  without other formality than appointment and designation in
writing  executed  by  Lender,  which  substituted  trustee  may be Lender or an
affiliate of Lender,  and the  authority  hereby  conferred  shall extend to the
appointment of other successor and substitute  trustees  successively  until the
Debt  secured  hereby has been paid in full,  or until the Property is fully and
finally sold hereunder. Such appointment and designation by Lender shall be full
evidence of the right and  authority  to make the same and of all facts  therein
recited.  If Lender is a corporation  or  association  and such  appointment  is
executed in its behalf by an officer of such  corporation or  association,  such
appointment  shall be  conclusively  presumed to be executed with  authority and
shall be valid  and  sufficient  without  proof of any  action  by the  board of
directors or any superior  officer of the corporation or  association.  Upon the
making of any such appointment and  designation,  all of the estate and title of
Trustee in the Property shall vest in the named successor or substitute Trustee,
and he shall thereupon succeed to and shall hold, possess and execute all of the
rights, powers, privileges, immunities and duties herein conferred upon Trustee;
but,  nevertheless,  upon the written  request of Lender or of the  successor or
substitute  Trustee,  the  trustee  ceasing to act shall  execute and deliver an
instrument  transferring  to such  successor  or  substitute  Trustee all of the
estate and title in the Property of the trustee so ceasing to act, together with
all the rights, powers, privileges,  immunities and duties herein conferred upon
the Trustee,  and shall duly assign,  transfer and deliver any of the properties
and moneys  held by said  trustee  hereunder  to said  successor  or  substitute
Trustee.  All references herein to "Trustee" shall be deemed to refer to Trustee
(including  any  successor or  substitute  appointed  and  designated  as herein
provided) from time to time acting hereunder.

         (c)  Trustee  shall not be liable for any error of judgment or act done
by Trustee in good faith, or be otherwise  responsible or accountable  under any
circumstances whatsoever (including Trustee's negligence),  except for Trustee's
gross negligence or willful misconduct.  Trustee shall have the right to rely on
any instrument, document or signature authorizing or supporting any action taken
or  proposed to be taken by him  hereunder,  believed by him in good faith to be

                             Exhibit 10.5 - Page 45

<PAGE>

genuine.  All moneys received by Trustee shall,  until used or applied as herein
provided,  be held in trust for the purposes for which they were  received,  but
need not be segregated in any manner from any other moneys (except to the extent
required by law),  and Trustee  shall be under no liability  for interest on any
moneys received by him hereunder.  Borrower hereby ratifies and confirms any and
all  acts  which  the  herein-named  Trustee  or his  successor  or  successors,
substitute or  substitutes,  in this trust,  shall do lawfully by virtue hereof.
Borrower will reimburse Trustee for, and save him harmless against,  any and all
liability and expenses  which may be incurred by him in the  performance  of his
duties.  The  foregoing  indemnity  shall not  terminate  upon  discharge of the
secured Debt or foreclosure,  or release or other termination,  of this Security
Instrument.

                        Article 23 - LOCAL LAW PROVISIONS

         The provisions  set forth on Exhibit B annexed hereto are  incorporated
herein by reference as if fully set forth herein.

                  [remainder of page intentionally left blank]

                             Exhibit 10.5 - Page 46

<PAGE>

         IN WITNESS  WHEREOF,  THIS  SECURITY  INSTRUMENT  has been  executed by
Borrower as of the date first above written.

                                              BORROWER:

                                              CUBIC ENERGY, INC.,
                                              a Texas corporation

                                              By: /s/ Calvin A. Wallen III
                                                 -------------------------------
                                                 Name:   Calvin A. Wallen III
                                                      --------------------------
                                                 Title:  Chief Executive Officer
                                                       -------------------------

                             Exhibit 10.5 - Page 47

<PAGE>

                                                     EXHIBIT A

                                               (Description of Land)

1.       That .25 working  interest of Cubic Energy,  Inc. to be acquired in two
         wells To Be Drilled-  Moseley 25-1,  Moseley 26-1, Town 14N, Range 16W,
         Sections 25, 26, Desoto Parish, Louisiana

2.       That 25% Mineral Interest of Cubic Energy, Inc. in Eight Sections to be
         acquired,  Desoto  Parish,  Louisiana  [excluding  the interests in the
         Kraemer 24-1, Moseley 25-1, and Moseley 26-1] -
                  Town 14N, Range 16W, Sections 24, 25, 26 Town 14N, Range 15W,
                  Sections 18, 19, 20, 29, 30

3.       The  after-acquired  working  interest  of Cubic  Energy,  Inc.  in the
         Kraemer 24-1 Well in Desoto Parish, Louisiana -
                  Town 14N, Range 16W, Section 24

4.       That .25  interest  to be  acquired in the  production  facilities  and
         gathering systems in Desoto Parish, Louisiana
                  Town 14N, Range 16W, Sections 24, 25, 26 Town 14N, Range 15W,
                  Sections 18, 19, 20, 29, 30

5.       Existing  Working  Interest ["WI"],  Net Revenue  Interests  ["NRI"] as
         below:

                                                                  WI      NRI
                                                                  --      ---

Yeats No. 1                                                       0.90    0.72

         Section 1, Block 2, T. & P. R.R. Co. Survey, A-848
         Palo Pinto County, Texas

Wanda T. Yeats No. 1A                                             0.90    0.72

         Section 1, Block 2, T. & P. R.R. Co. Survey, A-848
         Palo Pinto County, Texas

Yeats No. 2                                                       0.90    0.72

         Section 1, Block 2, T. & P. R.R. Co. Survey, A-848
         Palo Pinto County, Texas

Yeats No. 3                                                       0.90    0.72

         Section 1, Block 2, T. & P. R.R. Co. Survey, A-848
         Palo Pinto County, Texas

Yeats No. 4                                                       0.90    0.72

         B.B.B. & C. #46 Survey, A-58 Palo Pinto County, Texas

Yeats No. 5                                                       0.90     0.72

         Section 1, Block 2, T. & P. R.R. Co. Survey, A-848
         Palo Pinto County, Texas

                             Exhibit 10.5 - Page 48

<PAGE>

M.L. Reagan No. 11-1, 11-2, 11-3, 11-4T                           0.00    0.0525

         Section 11, Block 2, T. & P. R.R. Co. Survey, A-813
         Palo Pinto County, Texas

M.L. Reagan No. 2011                                              1.00    0.865

         Section 11, Block 2, T. & P. R.R. Co. Survey, A-813
         Palo Pinto County, Texas

Reagan No. 3011                                                   1.00    0.865

         Section 11, Block 2, T. & P. R.R. Co. Survey, A-813
         Palo Pinto County, Texas

Reagan No. 4011                                                   1.00    0.865

         Section 11, Block 2, T. & P. R.R. Co. Survey, A-813
         Palo Pinto County, Texas

Reagan No. 5011                                                   1.00    0.865

         Section 11, Block 2, T. & P. R.R. Co. Survey, A-813
         Palo Pinto County, Texas

Mary Reagan No. 112                                               1.00    0.875

         Section 12, Block 2, T. & P. R.R. Co. Survey, A-2009
         Palo Pinto County, Texas

Mary Reagan No. 312                                               1.00    0.875

         Section 12, Block 2, T. & P. R.R. Co. Survey, A-2009
         Palo Pinto County, Texas

Baker No. 1                                                       0.80    0.64

         James Lahee #17 Survey, A-352
         Eastland County, Texas

Lilley No. 3                                                      0.80    0.64

         James Lahee #17 Survey, A-352
         Eastland County, Texas

Simmons No. 1                                                     0.80    0.64

         James Lahee #17 Survey, A-267
         Callahan County, Texas

                             Exhibit 10.5 - Page 49AMERICAN RESIDENTIAL FUNDING, INC.

                               ANZA CAPITAL, INC.

                          ____________________________

                       NOTE AND WARRANT PURCHASE AGREEMENT

                          ____________________________

<PAGE>
                       NOTE AND WARRANT PURCHASE AGREEMENT

     This  Note  and  Warrant  Purchase  Agreement is made as of the 11th day of
October,  2004  (the  "EFFECTIVE  DATE")  by  and  between  American Residential
Funding, Inc., a Nevada corporation (the "COMPANY"), Anza Capital, Inc, a Nevada
corporation ("ANZA"), and Amres Holding, LLC, a Nevada limited liability company
("PURCHASER").

     The parties hereby agree as follows:

1.   Amount and Terms of the Loan; Issuance of Warrants

     1.1  The  Loan.  Subject  to  the  terms  of  this Agreement, the Purchaser
agrees  to lend to the Company the amount set forth opposite Purchaser's name on
the  Schedule  of Purchasers attached hereto (each, a "LOAN AMOUNT") against the
issuance  and  delivery  by the Company of a convertible secured promissory note
for  the  Loan  Amount  in  substantially  the form attached hereto as Exhibit A
                                                                       ---------
(each,  a  "NOTE"  and  collectively, the "NOTES"), dated the applicable Closing
Date  (as  defined  below).  Each  Note may be converted, at Purchaser's option,
into shares of the Company's capital stock as provided in such Note.

     1.2  Issuance  of  Warrant.  Subject  to  the terms of this Agreement, Anza
agrees  to  sell  to Purchaser, and Purchaser agrees to purchase, at the Closing
(as  hereinafter  defined),  a warrant for the amount of shares set forth in the
Schedule of Purchasers attached hereto in substantially the form attached hereto
as Exhibit B (the "WARRANT").
   ---------

2.   The  Closing

     2.1  Closing  Date.  The  closing  of the purchase and sale of the Note and
Warrant  (the  "CLOSING")  shall be held on the Effective Date, or at such other
time  as  the  Company  and  the  Purchaser  shall  agree  (the "CLOSING DATE").

     2.2  Delivery.  At the Closing, (i) Purchaser will deliver to the Company a
check  or  wire  transfer  funds  in  the  amount  of Purchaser's Loan Amount as
indicated  on  the  Schedule of Purchasers; and (ii) the Company shall issue and
deliver  to  Purchaser  a  Note  in  favor of Purchaser payable in the principal
amount  of Purchaser's Loan Amount and Anza shall issue and deliver to Purchaser
a  Warrant  to  purchase the applicable number of shares of Anza's common stock.

3.   Representations, Warranties and Covenants of the Company and Anza

     The  Company  and  Anza  hereby  represent and warrant to each Purchaser as
follows:

                                  Page 1 of 9
<PAGE>
     3.1  Corporate  Power.  The  Company and Anza will have at the Closing Date
all requisite corporate power to execute and deliver this Agreement and to carry
out and perform its obligations under the terms of this Agreement.

     3.2  Authorization.  All  corporate  action  on the part of the Company and
Anza,  their  directors  and  stockholders  necessary  for  the  authorization,
execution,  delivery  and  performance  of this Agreement by the Company and the
performance  of  the Company's obligations hereunder, including the issuance and
delivery  of  the  Note and Warrant and the reservation of the equity securities
issuable  upon  exercise of the Warrant or conversion of the Note has been taken
or  will  be  taken  prior  to  the  issuance  of  such equity securities.  This
Agreement,  the Note and the Warrant, when executed and delivered by the Company
and Anza, shall constitute valid and binding obligations of the Company and Anza
enforceable  in  accordance  with  their  terms,  subject  to  laws  of  general
application  relating to bankruptcy, insolvency, the relief of debtors and, with
respect  to  rights  to indemnity, subject to federal and state securities laws.
All  common stock of Anza, when issued in compliance with the provisions of this
Agreement,  the  Note  or  the  Warrant,  will be validly issued, fully paid and
nonassessable  and  free of any liens or encumbrances.  The issuance of the Note
and  Warrant  pursuant  to the provisions of this Agreement will not violate any
preemptive rights or rights of first refusal granted by the Company or Anza, and
the  Note  and  Warrant will be issued in compliance with all applicable federal
and  state securities laws, and will be free of any liens or encumbrances, other
than any liens or encumbrances created by or imposed upon the holders through no
action  of the Company or Anza; provided, however, that the Note and the Warrant
may be subject to restrictions on transfer under state and/or federal securities
laws  as  set forth herein or as otherwise required by such laws at the time the
transfer  is  proposed.

     3.3  Governmental  Consents.  All  consents,  approvals,  orders,  or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with, any governmental authority, required on the part of the Company
and  Anza in connection with the valid execution and delivery of this Agreement,
the  offer,  sale or issuance of the Note, the Warrant and the equity securities
issuable  upon  exercise  of  the  Warrant,  conversion  of  the  Note  or  the
consummation  of  any  other  transaction  contemplated  hereby  shall have been
obtained  and  will  be effective at the Closing, except for notices required or
permitted  to  be  filed  with certain state and federal securities commissions,
which  notices  will  be  filed  on  a  timely  basis.

     3.4  Offering.  Assuming the accuracy of the representations and warranties
of  Purchaser  contained  in Section 4 hereof, the offer, issue, and sale of the
Note  and  Warrant  are  and will be exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended (the "ACT"), and
have  been  registered  or  qualified  (or  are  exempt  from  registration  and
qualification)  under the registration, permit, or qualification requirements of
all  applicable  state  securities  laws.

                                  Page 2 of 9
<PAGE>
4.   Representations and Warranties of the Purchaser

     4.1  Purchase  for  Own Account.  Purchaser represents that he is acquiring
the  Note,  the  equity  securities  issuable  upon  conversion of the Note, the
Warrant  and  the  equity  securities  issuable  upon  exercise  of  the Warrant
(collectively,  the  "SECURITIES")  solely  for  his  own account and beneficial
interest  for  investment and not for sale or with a view to distribution of the
Securities  or  any  part  thereof,  has  no  present  intention  of selling (in
connection  with a distribution or otherwise), granting any participation in, or
otherwise  distributing  the  same,  and  does  not  presently  have  reason  to
anticipate  a  change  in  such  intention.

     4.2  Ability  to  Bear  Economic  Risk.  Purchaser  acknowledges  that  an
investment in the Securities involves a high degree of risk, and represents that
it  is  able,  without materially impairing its financial condition, to hold the
Securities for an indefinite period of time and to suffer a complete loss of its
investment.

     4.3  Further  Limitations  on  Disposition.  Purchaser further acknowledges
that  the  Securities  are restricted securities under Rule 144 of the Act, and,
therefore, when issued by Company to Purchaser will contain a restrictive legend
substantially  similar  to  the  following:

          THESE  SECURITIES  HAVE  NOT  BEEN  REGISTERED  UNDER  THE
          SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT
          BE  SOLD,  OFFERED  FOR SALE, PLEDGED OR HYPOTHECATED IN THE
          ABSENCE  OF  AN  EFFECTIVE  REGISTRATION STATEMENT AS TO THE
          SECURITIES  UNDER  THE  ACT  OR  AN  OPINION  OF  COUNSEL
          SATISFACTORY  TO  THE  COMPANY THAT SUCH REGISTRATION IS NOT
          REQUIRED.

     Without  in any way limiting the representations set forth above, Purchaser
further  agrees  not  to  make  any  disposition  of  all  or any portion of the
Securities  unless  and  until:

          (a)  There  is  then  in effect a Registration Statement under the Act
     covering  such  proposed  disposition  and  such  disposition  is  made  in
     accordance  with  such  Registration  Statement;  or

          (b)  Purchaser  shall  have  notified  the  Company  of  the  proposed
     disposition  and shall have furnished the Company with a detailed statement
     of  the  circumstances  surrounding  the  proposed  disposition,  and  if
     reasonably  requested  by  the  Company, Purchaser shall have furnished the
     Company with an opinion of counsel, reasonably satisfactory to the Company,
     that  such  disposition  will not require registration under the Act or any
     applicable  state  securities  laws.

                                  Page 3 of 9
<PAGE>
          (c)  Notwithstanding  the  provisions of paragraphs (a) and (b) above,
     no such registration statement or opinion of counsel shall be necessary for
     a  transfer  by  such  Purchaser  to  a  stockholder or partner (or retired
     partner)  of  Purchaser, or transfers by gift, will or intestate succession
     to  any spouse or lineal descendants or ancestors, if all transferees agree
     in  writing to be subject to the terms hereof to the same extent as if they
     were  Purchasers  hereunder.

          (d)  Accredited  Investor  Status.  Purchaser  is  an  "accredited
     investor" as such term is defined in Rule 501 under the Act.

5.   Miscellaneous

     5.1  Binding  Agreement.  The  terms and conditions of this Agreement shall
inure  to  the  benefit  of  and  be  binding upon the respective successors and
assigns  of  the  parties.  Nothing  in this Agreement, expressed or implied, is
intended  to  confer  upon any third party any rights, remedies, obligations, or
liabilities  under  or by reason of this Agreement, except as expressly provided
in  this  Agreement.

     5.2  Governing  Law.  This  Agreement  shall  be  governed by and construed
under  the  laws  of  the  State  of  California  as applied to agreements among
California  residents,  made  and  to  be performed entirely within the State of
California.

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

     5.4  Titles and Subtitles.  The titles and subtitles used in this Agreement
are  used  for  convenience  only  and are not to be considered in construing or
interpreting  this  Agreement.

     5.5  Notices.  All  notices  required  or  permitted  hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed facsimile if sent during normal
business  hours  of the recipient, if not, then on the next business day, or (c)
one  (1)  day  after  deposit  with  a  nationally recognized overnight courier,
specifying  next  day  delivery,  with  written  verification  of  receipt.  All
communications  shall  be  sent  to the Company and Anza at 3200 Bristol Street,
Suite  700, Costa Mesa, CA  92626, Facsimile (714) 424-0389, and to Purchaser at
the  address  set forth on the Schedule of Purchasers attached hereto or at such
other address as the Company or Purchaser may designate by ten (10) days advance
written  notice  to  the  other  parties  hereto.

     5.6  Modification;  Waiver.  No  modification or waiver of any provision of
this  Agreement  or  consent to departure therefrom shall be effective unless in
writing and approved by the Company, Anza, and the Purchaser.

                                  Page 4 of 9
<PAGE>
     5.7  Entire  Agreement.  This  Agreement and the Exhibits hereto constitute
the  full and entire understanding and agreement between the parties with regard
to  the subjects hereof and no party shall be liable or bound to any other party
in  any  manner  by  any  representations,  warranties, covenants and agreements
except  as  specifically  set  forth  herein.

     5.8  Expenses.  The  Company  shall pay all costs and expenses with respect
to the negotiation, execution, delivery and performance of the Agreement.

     5.9  Conflict of Interest.  Purchaser acknowledges that The Lebrecht Group,
APLC represents Anza and has represented Anza in connection with the negotiation
and  drafting  of  this  Agreement.  One  or  more  of  the  Purchaser's  may be
affiliated  with  Anza,  and  the  Company, Anza, and Purchaser hereby waive any
conflict  of  interest  that  may arise as a result of the representation by The
Lebrecht  Group,  APLC.

[remainder of page intentionally left blank; signature page to follow]

                                  Page 5 of 9
<PAGE>
     In  Witness  Whereof,  the  parties  have  executed  this  Note and Warrant
Purchase Agreement as of the date first written above.

"Company"                               "Purchaser"

American Residential Funding, Inc.,     Amres Holding, LLC,
a Nevada corporation                    a Nevada limited liability company

  /s/ Vincent Rinehart                  /s/   Vincent Rinehart
-----------------------------------     ----------------------------------
By:   Vincent Rinehart                  By:   Vincent Rinehart
Its:  President                         Its:  Managing Member

"Anza"

Anza Capital, Inc.,
a Nevada corporation

  /s/ Vincent Rinehart
-----------------------------------
By:   Vincent Rinehart
Its:  President

SCHEDULES  AND  EXHIBITS

Schedule of Purchasers
Exhibit A: Form of Convertible Promissory Note
Exhibit B: Form of Warrant

                                  Page 6 of 9
<PAGE>
                             SCHEDULE OF PURCHASERS

               Name & Address           Loan Amount        Warrants
               ------------------       ---------------------------
               Amres Holding, LLC         $125,000         250,000

                                  Page 7 of 9
<PAGE>
                                    EXHIBIT A

                       FORM OF CONVERTIBLE PROMISSORY NOTE

                                  Page 8 of 9
<PAGE>
                                    EXHIBIT B

                                 FORM OF WARRANT

                                  Page 9 of 9
<PAGE>

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