Document:

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                                                                    EXHIBIT 4.02

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                SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT

                                      Among

                     DEMARCO ENERGY SYSTEMS OF AMERICA, INC.

                                       and

                         THE INVESTORS SIGNATORY HERETO

                         Dated as of September 26, 2000

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                                                           Convertible Debenture

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NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.

No. 1                                                                   $250,000

                     DEMARCO ENERGY SYSTEMS OF AMERICA, INC.
                        10% SECURED CONVERTIBLE DEBENTURE
                             DUE SEPTEMBER 26, 2001

         THIS DEBENTURE is one of a series of duly authorized and issued
debentures of DeMarco Energy Systems of America, Inc., a Utah corporation,
having a principal place of business at 12885 Hwy 183, STE 108-A, Austin, Texas
78750 (the "Company"), designated as its 10% Secured Convertible Debentures, due
September 26, 2001, in the aggregate principal amount of One Million Five
Hundred Thousand Dollars ($1,500,000) (the "Debentures").

         FOR VALUE RECEIVED, the Company promises to pay to AJW Partners, LLC or
its registered assigns (the "Holder"), the principal sum of Two Hundred and
Fifty Thousand dollars ($250,000), on September 26, 2001 or such earlier date as
the Debentures are required or permitted to be repaid as provided hereunder (the
"Maturity Date") and to pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Debenture at the rate of 10% per
annum, payable on a quarterly basis on March 31, June 30, September 30 and
December 31 of each year while such Debentures are outstanding (each an
"Interest Payment Date") and on each Conversion Date (as defined herein) for
such principal amount, commencing on the earlier to occur of a Conversion Date
for such principal amount and September 30, 2000, in cash or shares of Common
Stock (as defined in Section 6). Subject to the terms and conditions herein, the
Holder may elect to receive interest hereunder in shares of Common Stock or
cash. If interest is paid by the Company in shares of its Common Stock, then the
number of shares of Common Stock issuable on account of such interest shall
equal the cash amount of such interest on such Interest Payment Date divided by
the Conversion Price (as defined below) on such date. Interest shall be
calculated on the basis on a 360-day year and shall accrue daily commencing on
the Original Issue Date (as defined in Section 6) until payment in full of the

                                      -2-                  Convertible Debenture
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principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Interest hereunder will be paid
to the Person (as defined in Section 6) in whose name this Debenture is
registered on the records of the Company regarding registration and transfers of
Debentures (the "Debenture Register"). All overdue accrued and unpaid interest
to be paid in cash hereunder shall entail a late fee at the rate of 12.5% per
annum ("Late Fee") (or such lower maximum amount of interest permitted to be
charged under applicable law) (to accrue daily, from the date such interest is
due hereunder through and including the date of payment), payable in cash. If
such Late Fee is paid by the Company in shares of its Common Stock, then the
number of shares of Common Stock issuable on account of such Late Fee shall
equal the cash amount of such Late Fee on such Late Fee payment date divided by
the Conversion Price on such date.

         This Debenture is subject to the following additional provisions:

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

ARTICLE V This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 6) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 6) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

ARTICLE VI Events of Default.

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

             (a) any default in the payment of the principal of, interest on or
liquidated damages in respect of, any Debentures, free of any claim of
subordination, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise);

             (b) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach of
any of the Transaction Documents (as defined in Section 6), and such failure or
breach shall not have been remedied within five Business Days after the date on
which notice of such failure or breach shall have been given;

                                      -3-                  Convertible Debenture
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             (c) the Company or any of its subsidiaries shall commence, or there
shall be commenced against the Company or any such subsidiary a case under any
applicable bankruptcy or insolvency laws as now or hereafter in effect or any
successor thereto, or the Company commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any subsidiary thereof or there
is commenced against the Company or any subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period of 60
days; or the Company or any subsidiary thereof is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period of 60 days; or
the Company or any subsidiary thereof makes a general assignment for the benefit
of creditors; or the Company shall fail to pay, or shall state that it is unable
to pay, or shall be unable to pay, its debts generally as they become due; or
the Company or any subsidiary thereof shall call a meeting of its creditors with
a view to arranging a composition, adjustment or restructuring of its debts; or
the Company or any subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company or any
subsidiary thereof for the purpose of effecting any of the foregoing;

             (d) the Company shall default in any of its obligations under any
other Debenture or any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness for
borrowed money or money due under any long term leasing or factoring arrangement
of the Company in an amount exceeding one million dollars ($1,000,000), whether
such indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and payable;

             (e) the Common Stock shall not be eligible for quotation on and
quoted for trading on the OTC Bulletin Board ("OTC') or listed for trading on
the Nasdaq SmallCap Market, New York Stock Exchange, American Stock Exchange or
the Nasdaq National Market (each, a "Subsequent Market") and shall not again be
eligible for and quoted or listed for trading thereon within five Trading Days;

             (f) the Company shall be a party to any Change of Control
Transaction (as defined in Section 6), shall agree to sell or dispose all or in
excess of 33% of its assets in one or more transactions (whether or not such
sale would constitute a Change of Control Transaction), or shall redeem or
repurchase more than a de minimis number of shares of Common Stock or other
equity securities of the Company (other than redemptions of Underlying Shares
(as defined in Section 6));

                                      -4-                  Convertible Debenture
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             (g) an Underlying Shares Registration Statement (as defined in
Section 6) shall not have been declared effective by the Commission (as defined
in Section 6) on or prior to the 120th day after the Original Issue Date;

             (h) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement (as defined in Section 8)), the effectiveness of
the Underlying Shares Registration Statement lapses for any reason or the Holder
shall not be permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Underlying Shares Registration
Statement, in either case, for more than five consecutive Trading Days or an
aggregate of eight Trading Days (which need not be consecutive Trading Days);

             (i) an Event (as defined in the Registration Rights Agreement)
shall not have been cured to the satisfaction of the Holder prior to the
expiration of thirty days from the Event Date (as defined in the Registration
Rights Agreement) relating thereto (other than an Event resulting from a failure
of an Underlying Shares Registration Statement to be declared effective by the
Commission on or prior to the 120th day after the Original Issue Date, which
shall be covered by Section 3(a)(vii));

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

             (k) the Company shall fail for any reason to deliver the payment in
cash pursuant to a Buy-In (as defined herein) within five days after notice is
deemed delivered hereunder; or

         6.2 During the time that any portion of this Debenture remains
outstanding, if any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become at the
Holder's election, immediately due and payable in cash, provided however, that
if the Company informs the Holder that it will be unable to pay the amounts due
in cash, the Holder may request payment of such amounts in stock. The number of
shares of Common Stock issuable in payment thereof shall be determined by
dividing the aggregate amount due to the Holder by the Conversion Price. The
aggregate amount payable upon an Event of Default shall be equal to the sum of
(i) the Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the
product of (A) the number of Underlying Shares issued in respect of conversions
hereunder within thirty (30) days of the date of a declaration of an Event of
Default and then held by the Holder and (B) the Per Share Market Value (as
defined in Section 6) on the date prepayment is due or the date the full
prepayment price is paid, whichever is greater. Interest shall accrue on the
prepayment amount hereunder from the seventh day after such amount is due (being
the date of an Event of Default) through the date of prepayment in full thereof
at the rate of 12.5% per annum (or such lesser

                                      -5-                  Convertible Debenture
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maximum amount that is permitted to be paid by applicable law), to accrue daily
from the date such payment is due hereunder through and including the date of
payment. All Debentures and Underlying Shares for which the full prepayment
price hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. The Holder need not provide and
the Company hereby waives any presentment, demand, protest or other notice of
any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded
and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.

ARTICLE VII  Conversion.

             (a) Conversion at Option of Holder. (A) This Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time, after the Original Issue Date
(subject to the limitations on conversion set forth in Section 4(a)(iii)
hereof). The number of shares of Common Stock issuable upon a conversion
hereunder shall be determined by adding the sum of (i) the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be converted
and (y) the Conversion Price (as defined herein), and (ii) the amount equal to
(I) the product of (x) the outstanding principal amount of this Debenture to be
converted and (y) the product of (1) the quotient obtained by dividing .10 by
360 and (2) the number of days for which such principal amount was outstanding,
divided by (II) the Conversion Price on the Conversion Date, provided, that if
the Company shall have timely elected to pay the interest due on a Conversion
Date in cash pursuant to the terms hereof, subsection (ii) shall not be used in
the calculation of the number of shares of Common Stock issuable upon a
conversion hereunder.

                 (B) Notwithstanding anything to the contrary contained herein,
if on any Conversion Date:

                 (1) the number of shares of Common Stock at the time
         authorized, unissued and unreserved for all purposes, or held as
         treasury stock, is insufficient to pay interest hereunder in shares of
         Common Stock;

                 (2) after the Interest Effectiveness Date (as defined in
         Section 6) such shares of Common Stock (x) are not registered for
         resale pursuant to an effective Underlying Shares Registration
         Statement and (y) may not be sold without volume restrictions pursuant
         to Rule 144(k) promulgated under the Securities Act (as defined in
         Section 6), as determined by counsel to the Company pursuant to a
         written opinion letter, addressed to the Company's transfer agent in
         the form and substance acceptable to the applicable Holder and such
         transfer agent (if the shares of Common Stock are permitted by the
         Holder to be delivered under this clause (2) prior to the Effectiveness
         Date (as defined in the Registration Rights Agreement) and thereafter
         an Underlying Shares Registration Statement shall be declared effective
         by the Commission, the Company

                                      -6-                  Convertible Debenture
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         shall, within three Trading Days after the date of such declaration of
         effectiveness, exchange such shares for shares of Common Stock that are
         free of restrictive legends of any kind);

                  (3) the Common Stock is not listed or quoted for trading on
         the OTC or on a Subsequent Market;

                  (4) the Company has failed to timely satisfy its conversion
         obligations hereunder; or

                  (5) the issuance of such shares of Common Stock would result
         in a violation of Sections 4(a)(iii),

                  then, at the option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to Section 4(a)(i)(A)(ii), shall
deliver, within three Trading Days of each applicable Conversion Date, an amount
in cash equal to the product of (a) the outstanding principal amount of the
Debentures to be converted on such Conversion Date and (b) the product of (x)
the quotient obtained by dividing .10 by 360 and (y) the number of days for
which such principal amount was outstanding.

                  (C) The Holder shall effect conversions by surrendering the
Debentures (or such portions thereof) to be converted, together with the form of
conversion notice attached hereto as Exhibit A (a "Conversion Notice") to the
Company. Each Conversion Notice shall specify the principal amount of Debentures
to be converted and the date on which such conversion is to be effected, which
date may not be prior to the date such Conversion Notice is deemed to have been
delivered hereunder (a "Conversion Date"). If no Conversion Date is specified in
a Conversion Notice, the Conversion Date shall be the date that such Conversion
Notice is deemed delivered hereunder. Subject to Section 4(b), each Conversion
Notice, once given, shall be irrevocable. If the Holder is converting less than
all of the principal amount represented by the Debenture(s) tendered by the
Holder with the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall honor such conversion to the
extent permissible hereunder and shall promptly deliver to such Holder (in the
manner and within the time set forth in Section 4(b)) a new Debenture for such
principal amount as has not been converted.

             (b) Certain Conversion Restrictions.

                                      -7-                  Convertible Debenture
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ARTICLE I A Holder may not convert Debentures or receive shares of Common Stock
as payment of interest hereunder to the extent such conversion or receipt of
such interest payment would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated thereunder) in excess of 4.999% of
the then issued and outstanding shares of Common Stock, including shares
issuable upon conversion of, and payment of interest on, the Debentures held by
such Holder after application of this Section. Since the Holder will not be
obligated to report to the Company the number of shares of Common Stock it may
hold at the time of a conversion hereunder, unless the conversion at issue would
result in the issuance of shares of Common Stock in excess of 4.999% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of
Debentures are convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of Debentures that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 4(b) and, at the option of the Holder, either retain any principal
amount tendered for conversion in excess of the permitted amount hereunder for
future conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.

                                      -8-                  Convertible Debenture
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ARTICLE II A Holder may not convert Debentures or receive shares of Common Stock
as payment of interest hereunder to the extent such conversion or receipt of
such interest payment would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of
the then issued and outstanding shares of Common Stock, including shares
issuable upon conversion of, and payment of interest on, the Debentures held by
such Holder after application of this Section. Since the Holder will not be
obligated to report to the Company the number of shares of Common Stock it may
hold at the time of a conversion hereunder, unless the conversion at issue would
result in the issuance of shares of Common Stock in excess of 9.999% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of
Debentures are convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of Debentures that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 4(b) and, at the option of the Holder, either retain any principal
amount tendered for conversion in excess of the permitted amount hereunder for
future conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.

             (c) Not later than three Trading Days after any Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of Debentures (subject
to the limitations set forth in Section 4(a)(iii) hereof), (ii) Debentures in a
principal amount equal to the principal amount of Debentures not converted, and
(iii) a bank check in the amount of accrued and unpaid interest (if the Company
has timely elected or is required to pay accrued interest in cash), provided,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon conversion of the principal amount of
Debentures until Debentures are delivered for conversion to the Company, or the
Holder notifies the Company that such Debentures have been lost, stolen or
destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the Holder, if
available, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates are not delivered to or as directed by
the applicable Holder by the third

                                       -9-                 Convertible Debenture
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Trading Day after a Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return the certificates representing the principal
amount of Debentures tendered for conversion.

             (d) If the Company fails to deliver to the Holder such certificate
or certificates pursuant to Section 4(b)(i) by the third Trading Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, $2,000 for each Trading Day after such third
Trading Day until such certificates are delivered. Nothing herein shall limit a
Holder's right to pursue actual damages or declare an Event of Default pursuant
to Section 3 herein for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Debentures or as payment of
interest thereon by the third Trading Day after the Conversion Date, the Holder
may, by notice to the Company, require the Company to issue shares of Common
Stock pursuant to Section 4(c), except that for such purpose the Conversion
Price applicable thereto shall be the lesser of the Conversion Price on the
Conversion Date and the Conversion Price on the date of such Holder demand. Any
such shares will be subject to the provision of this Section.

             (e) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 4(b)(i) by the third Trading Day after the Conversion Date, and if
after such third Trading Day the Holder purchases (in an open market transaction
or otherwise) Common Stock to deliver in satisfaction of a sale by such Holder
of the Underlying Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Company shall (A) pay in cash to the Holder
(in addition to any remedies available to or elected by the Holder) the amount
by which (x) the Holder's total purchase price (including brokerage commissions,
if any) for the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the market price of the
Common Stock at the time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder, either reissue Debentures in principal amount
equal to the principal amount of the attempted conversion or deliver to the
Holder the number of shares of Common Stock that would have been issued had the
Company timely complied with its delivery requirements under Section 4(b)(i).
For example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the market price of the Underlying Shares on
the date of conversion was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the Company to make
payment in respect of

                                      -10-                 Convertible Debenture
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a Buy-In for the failure to timely deliver certificates hereunder and the
Company timely pays in full such payment, the Company shall not be required to
pay such Holder liquidated damages under Section 4(b)(ii) in respect of the
certificates resulting in such Buy-In.

             (f) The conversion price (the "Conversion Price") in effect on any
Conversion Date shall be the lesser of (1) $0.34 (the "Initial Conversion
Price"), and (2) 60% of the average of the lowest three inter-day trading prices
(which need not occur on consecutive Trading Days) during the ten Trading Days
immediately preceding the applicable Conversion Date (which may include Trading
Days prior to the Original Issue Date), provided, that such ten Trading Day
period shall be extended for the number of Trading Days during such period in
which (A) trading in the Common Stock is suspended by the OTC or a Subsequent
Market on which the Common Stock is then listed, or (B) after the date declared
effective by the Commission, the Underlying Shares Registration Statement is
either not effective, the Prospectus included in the Underlying Shares
Registration Statement may not be used by the Holder for the resale of
Underlying Shares.

             (g) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Company, then the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.

             (h) If the Company, at any time while any Debentures are
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Conversion Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at such Per Share Market Value. Such adjustment shall be
made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or

                                      -11-                 Convertible Debenture
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warrants. However, upon the expiration of any such right, option or warrant to
purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Conversion Price pursuant to this Section, if any such right,
option or warrant shall expire and shall not have been exercised, the Conversion
Price shall immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it would have
been (but reflecting any other adjustments in the Conversion Price made pursuant
to the provisions of this Section after the issuance of such rights or warrants)
had the adjustment of the Conversion Price made upon the issuance of such
rights, options or warrants been made on the basis of offering for subscription
or purchase only that number of shares of the Common Stock actually purchased
upon the exercise of such rights, options or warrants actually exercised.

             (i) If the Company or any subsidiary thereof, as applicable with
respect to Common Stock Equivalents (as defined below), at any time while
Debentures are outstanding, shall issue shares of Common Stock or rights,
warrants, options or other securities or debt that are convertible into or
exchangeable for shares of Common Stock ("Common Stock Equivalents") entitling
any Person to acquire shares of Common Stock at a price per share less than the
Conversion Price (if the holder of the Common Stock or Common Stock Equivalent
so issued shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or otherwise,
or due to warrants, options or rights issued in connection with such issuance,
be entitled to receive shares of Common Stock at a price less than the
Conversion Price, such issuance shall be deemed to have occurred for less than
the Conversion Price), then, at the sole option of the Holder, the Conversion
Price shall be adjusted to mirror the conversion, exchange or purchase price for
such Common Stock Equivalents (including any reset provisions thereof),
provided, that for purposes hereof, all shares of Common Stock that are issuable
upon conversion, exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued.

             (j) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of Common Stock (and not to Holders) evidences
of its indebtedness or assets or rights or warrants to subscribe for or purchase
any security, then in each such case the Conversion Price at which Debentures
shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value determined
as of the record date mentioned above, and of which the numerator shall be such
Per Share Market Value on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

                                      -12-                 Convertible Debenture
<PAGE>   13

             (k) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holders shall have the right thereafter
to, at their option, (A) convert the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the Holders of the
Debentures shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled or (B) require the Company to prepay
the aggregate of its outstanding principal amount of Debentures, plus all
interest and other amounts due and payable thereon, at a price determined in
accordance with Section 3(b). The entire prepayment price shall be paid in cash.
This provision shall similarly apply to successive reclassifications or share
exchanges.

             (l) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. No
adjustments in either the Conversion Price or the Initial Conversion Price shall
be required if such adjustment is less than $0.01, provided, however, that any
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.

             (m) Whenever either the Initial Conversion Price or the Conversion
Price is adjusted pursuant to any of Section 4(c)(ii) - (v), the Company shall
promptly mail to each Holder a notice setting forth the Initial Conversion Price
or Conversion Price (as applicable) after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.

             (n) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or

                                      -13-                 Convertible Debenture
<PAGE>   14

warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. Holders are entitled to convert
Debentures during the 20-day period commencing the date of such notice to the
effective date of the event triggering such notice.

             (o) In case of any (1) merger or consolidation of the Company with
or into another Person, or (2) sale by the Company of more than one-half of the
assets of the Company (on an as valued basis) in one or a series of related
transactions, a Holder shall have the right to (A) if permitted under Section
3(b) hereof, exercise its rights of prepayment under Section 3(b) with respect
to such event, (B) convert its aggregate principal amount of Debentures then
outstanding into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and such Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the shares of Common Stock into which such aggregate principal
amount of Debentures could have been converted immediately prior to such merger,
consolidation or sales would have been entitled, or (C) in the case of a merger
or consolidation, (x) require the surviving entity to issue shares of
convertible preferred stock or convertible debentures with such aggregate stated
value or in such face amount, as the case may be, equal to the aggregate
principal amount of Debentures then held by such Holder, plus all accrued and
unpaid interest and other amounts owing thereon, which newly issued shares of
preferred stock or debentures shall have terms identical (including with respect
to conversion) to the terms of this Debenture (except, in the case of preferred
stock, as may be required to reflect the differences between equity and debt)
and shall be entitled to all of the rights and privileges of a Holder of
Debentures set forth herein and the agreements pursuant to which the Debentures
were issued (including, without limitation, as such rights relate to the
acquisition, transferability, registration and listing of such shares of stock
other securities issuable upon conversion thereof), and (y) simultaneously with
the issuance of such convertible preferred stock or convertible debentures,
shall have the right to convert such instrument only into shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger or consolidation or (C) require
the surviving entity from such merger, acquisition or business combination to
pay to the Holder, in cash, the Black Scholes value of this Debenture. In the
case of clause (C), the conversion price applicable for the newly issued shares
of convertible preferred stock or convertible debentures shall be based upon the
amount of securities, cash and property that each share of Common Stock would
receive in such transaction and the Conversion Price in effect immediately prior
to the effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to give
the Holders the right to receive the securities, cash and property set forth in

                                      -14-                 Convertible Debenture
<PAGE>   15

this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.

         7.2 The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.

         7.3 Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the Holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.

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

         7.5 Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Company, at 12885 Hwy 183,
STE 108-A, Austin, Texas 78750, Facsimile No.: (512) 335-6380, attention Chief
Financial Officer, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance with
this Section, with a copy to (other than for Conversion Notices) Curtis Ashmos,
Esq. (facsimile number (512) 305-4800). Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight

                                      -15-                 Convertible Debenture
<PAGE>   16

courier service or sent by certified or registered mail, postage prepaid,
addressed to each Holder at the facsimile telephone number or address of such
Holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 6:30 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
6:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) four days after deposit in the United States
mail, (iv) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given.

ARTICLE VIII Optional Prepayment.

         8.1 Subject to Section 5(b) below, the Company shall have the right,
exercisable during the first thirty days after the Original Issue Date only, in
accordance with the terms hereof and upon ten Trading Days' prior written notice
to the Holders to be prepaid (an "Optional Prepayment Notice"), to prepay all or
any portion of the outstanding principal amount of the Debentures which has not
previously been repaid or for which Conversion Notices have not previously been
delivered. The prepayment price applicable to prepayments under this Section
5(a) shall equal the Prepayment Price and shall be paid in cash. Any such
prepayment shall be free of any claim of subordination. The tenth Trading Day
after receipt by the Holders of an Optional Prepayment Notice is referred to
herein as the ("Optional Prepayment Date").

         8.2 If any portion of the Prepayment Price shall not be paid by the
Company by the second (2nd) Trading Day following the Optional Prepayment Date,
the Prepayment Price shall be increased by 12.5% per annum (or such lesser
maximum amount that is permitted to be paid by applicable law) to accrue daily
from the date such interest is due hereunder through and including the date of
payment (which amount shall be paid as liquidated damages and not as a penalty).
In addition, if any portion of the Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (x) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the principal amount of Debentures for which the
Prepayment Price, plus accrued liquidated damages and accrued interest thereon,
has not been paid in full (the "Unpaid Prepayment Principal Amount"), in which
event the applicable Per Share Market Value shall be the lower of the Per Share
Market Value calculated on the Optional Prepayment Date and the Per Share Market
Value as of the Holder's written demand for conversion, or (y) invalidate ab
initio such optional prepayment, notwithstanding anything herein contained to
the contrary. If the Holder elects option (x) above, the Company shall, within
three Trading Days after such election is deemed delivered hereunder, deliver to
the Holder the shares of Common Stock issuable upon conversion of the Unpaid
Prepayment Principal Amount subject to such conversion demand and otherwise
perform its obligations hereunder with respect thereto. If the Holder elects
option (y) above, the Company

                                      -16-                 Convertible Debenture
<PAGE>   17

shall promptly, and in any event not later than three Trading Days from receipt
of notice of such election, return to the Holder new Debentures for the full
Unpaid Prepayment Principal Amount and shall no longer have any prepayment
rights under this Debenture. If, upon an election under option (x) above, the
Company fails to deliver certificates representing the shares of Common Stock
issuable upon conversion of the Unpaid Prepayment Principal Amount within the
time period set forth in this Section, the Company shall pay to the Holder in
cash, as liquidated damages and not as a penalty, $2,000 per day until the
Company delivers such certificates to the Holder.

ARTICLE IX Definitions. For the purposes hereof, the following terms shall have
the following meanings:

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

             "Change of Control Transaction" means the occurrence of any of (i)
an acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity that is not wholly-owned by the Company, consolidation or sale of
50% or more of the assets of the Company in one or a series of related
transactions, or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).

             "Commission" means the Securities and Exchange Commission.

             "Common Stock" means the common stock, no par value per share, of
the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.

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

             "Mandatory Prepayment Amount" for any Debentures shall equal the
sum of (i) the greater of (A) 130% of the principal amount of Debentures to be
prepaid, plus all accrued and unpaid interest thereon, and (B) the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory

                                      -17-                 Convertible Debenture
<PAGE>   18

Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value on (x) the date the Mandatory Prepayment Amount is demanded
or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in
full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Debentures.

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

             "Per Share Market Value" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the Subsequent
Market on which the shares of Common Stock are then listed or quoted, or if
there is no such price on such date, then the closing bid price on the
Subsequent Market on the date nearest preceding such date, or (b) if the shares
of Common Stock are not then listed or quoted on a Subsequent Market, the
closing bid price for a share of Common Stock in the OTC, as reported by the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the shares of Common Stock are not then reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the Holder, or (d) if the shares of Common Stock are not then publicly traded
the fair market value of a share of Common Stock as determined by an Appraiser
selected in good faith by the Holders of a majority in interest of the principal
amount of Debentures then outstanding.

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

             "Prepayment Price" for any Debentures shall equal the sum of (i)
the greater of (A) 130% of the principal amount of Debentures to be prepaid,
plus all accrued and unpaid interest thereon, and (B) the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon, divided
by the Conversion Price on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is less, multiplied by the Per Share Market Value on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
such Debentures.

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

                                      -18-                 Convertible Debenture
<PAGE>   19

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

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

             "Trading Day" means (a) a day on which the shares of Common Stock
are traded on a Subsequent Market on which the shares of Common Stock are then
listed or quoted, or (b) if the shares of Common Stock are not listed on a
Subsequent Market, a day on which the shares of Common Stock are traded in the
over-the-counter market, as reported by the OTC, or (c) if the shares of Common
Stock are not quoted on the OTC, a day on which the shares of Common Stock are
quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, that in the event that the shares of
Common Stock are not listed or quoted as set forth in (a), (b) and (c) hereof,
then Trading Day shall mean any day except a Business Day.

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

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

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

ARTICLE X Except as expressly provided herein, no provision of this Debenture
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, interest and liquidated damages (if any)
on, this Debenture at the time, place, and rate, and in the coin or currency,
herein prescribed. This Debenture is a direct obligation of the Company. This
Debenture ranks pari passu with all other Debentures now or hereafter issued
under the terms set forth herein. As long as there are Debentures outstanding,
the Company shall not and shall cause it subsidiaries not to, without the
consent of the Holders, (i) amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of the Holders;
(ii) repay, repurchase or offer to repay, repurchase or otherwise acquire shares
of its Common Stock or other equity securities other than as to the Underlying
Shares to the extent permitted or required under the Transaction Documents; or
(iii) enter into any agreement with respect to any of the foregoing. The Company
may only voluntarily prepay the outstanding principal amount on the Debentures
in accordance with Section 5 hereof.

                                      -19-                 Convertible Debenture
<PAGE>   20

ARTICLE XI This Debenture shall not entitle the Holder to any of the rights of a
stockholder of the Company, including without limitation, the right to vote, to
receive dividends and other distributions, or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company, unless
and to the extent converted into shares of Common Stock in accordance with the
terms hereof.

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

ARTICLE XIII No indebtedness of the Company is senior to this Debenture in right
of payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any indebtedness of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom that is senior in any respect to the Company's
obligations under the Debentures.

ARTICLE XIV This Debenture shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to conflicts of laws
thereof. The Company and the Holder hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.

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

                                      -20-                 Convertible Debenture
<PAGE>   21

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

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

ARTICLE XVIII The payment obligations under this Debenture and the obligations
of the Company to the Holder arising upon the conversion of all or any of the
Debentures in accordance with the provisions hereof are secured pursuant to the
Security Agreement (as defined in the Purchase Agreement).

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]

                                      -21-                 Convertible Debenture
<PAGE>   22

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

                                  DEMARCO ENERGY SYSTEMS OF AMERICA, INC.

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

                                                           Convertible Debenture
<PAGE>   23

EXHIBIT A

NOTICE OF CONVERSION

(To be Executed by the Registered Holder
in order to Convert the Debenture)

The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $.001 par value per share (the "Common Stock"), of DeMarco Energy
Systems of America, Inc. (the "Company") according to the conditions hereof, as
of the date written below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates and opinions
as reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.

Conversion calculations:
                              --------------------------------------------------
                              Date to Effect Conversion

                              --------------------------------------------------
                              Principal Amount of Debentures to be Converted

                              --------------------------------------------------
                              Number of shares of Common Stock to be Issued

                              --------------------------------------------------
                              Applicable Conversion Price

                              --------------------------------------------------
                              Signature

                              --------------------------------------------------
                              Name

                              --------------------------------------------------
                              Address<PAGE>   1

                                                                   EXHIBIT 4.03

SECURITY AGREEMENT

         SECURITY AGREEMENT, dated as of September 26, 2000, between DeMarco
Energy Systems of America, Inc., a Utah corporation ("DeMarco Energy"), and the
secured parties signatory hereto and their respective endorsees, transferees
and assigns (Collectively, the "Secured Party").

WITNESSETH:

         WHEREAS, pursuant to a Secured Convertible Debenture Purchase
Agreement, dated the date hereof between DeMarco Energy and the Secured Party
(the "Purchase Agreement"), DeMarco Energy has agreed to issue to the Secured
Party and the Secured Party has agreed to purchase from DeMarco Energy an
aggregate principal amount of $1,500,000 of DeMarco Energy's 10% Secured
Convertible Debentures, due September 26, 2001 (the "Debentures"), which are
convertible into shares of DeMarco Energy's Common Stock, $.001 par value (the
"Common Stock"); and

         WHEREAS, in order to induce the Secured Party to purchase the
Debentures, DeMarco Energy has agreed to execute and deliver to the Secured
Party this Agreement for the benefit of the Secured Party and to grant to it a
first priority security interest in certain property of DeMarco Energy to
secure the prompt payment, performance and discharge in full of all of DeMarco
Energy's obligations under the Debentures.

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

ARTICLE XIX Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "general intangibles" and "proceeds") shall have the respective
meanings given such terms in Article 9 of the UCC.

                  (a) "Collateral" means the collateral in which the Secured
Party is granted a security interest by this Agreement and which shall include
the following, whether presently owned or existing or hereafter acquired or
coming into existence, and all additions and accessions thereto and all
substitutions and replacements thereof, and all proceeds, products and accounts
thereof, including, without limitation, all proceeds from the sale or transfer
of the Collateral and of insurance covering the same and of any tort claims in
connection therewith:

                  (a) All Goods of the Company, including, without limitations,
all machinery, equipment, computers, motor vehicles, trucks, tanks, boats,
ships, appliances, furniture, special and general tools, fixtures, test and
quality control devices and other equipment of every kind and nature and
wherever situated, together with all documents of title and documents
representing the same, all additions and accessions thereto, replacements
therefor, all parts therefor, and all substitutes for any of the foregoing and
all other items used and useful in connection with the Company's businesses and
all improvements thereto (collectively, the "Equipment"); and

<PAGE>   2

                  (b) All Inventory of the Company; and

                  (c) All of the Company's contract rights and general
intangibles, including, without limitation, all partnership interests, stock or
other securities, licenses, distribution and other agreements, computer
software development rights, leases, franchises, customer lists, quality
control procedures, grants and rights, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, copyrights, deposit
accounts, and income tax refunds (collectively, the "General Intangibles"); and

                  (d) All Receivables of the Company including all insurance
proceeds, and rights to refunds or indemnification whatsoever owing, together
with all instruments, all documents of title representing any of the foregoing,
all rights in any merchandising, goods, equipment, motor vehicles and trucks
which any of the same may represent, and all right, title, security and
guaranties with respect to each Receivable, including any right of stoppage in
transit; and

                  (e) All of the Company's documents, instruments and chattel
paper, files, records, books of account, business papers, computer programs and
the products and proceeds of all of the foregoing Collateral set forth in
clauses (i)-(iv) above.

                  (b) "Company" shall mean, collectively, DeMarco Energy and
all of the subsidiaries of DeMarco Energy, a list of which is contained in
Schedule A, attached hereto.

                  (c) "Obligations" means all of the Company's obligations
under this Agreement and the Debentures, in each case, whether now or hereafter
existing, voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and
whether or not from time to time decreased or extinguished and later decreased,
created or incurred, and all or any portion of such obligations or liabilities
that are paid, to the extent all or any part of such payment is avoided or
recovered directly or indirectly from the Secured Party as a preference,
fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time.

                  (d) "UCC" means the Uniform Commercial Code, as currently in
effect in the State of Utah.

ARTICLE XX Grant of Security Interest. As an inducement for the Secured Party
to purchase the Debentures and to secure the complete and timely payment,
performance and discharge in full, as the case may be, of all of the
Obligations, the Company hereby, unconditionally and irrevocably, pledges,
grants and hypothecates to the Secured Party, a continuing security interest
in, a first lien upon and a right of set-off against all of the Company's
right, title and interest of whatsoever kind and nature in and to the
Collateral (the "Security Interest").

ARTICLE XXI Representations, Warranties, Covenants and Agreements of the
Company. The Company represents and warrants to, and covenants and agrees with,
the Secured Party as follows:

         21.1 The Company has the requisite corporate power and authority to
enter into this Agreement and otherwise to carry out its obligations
thereunder. The execution, delivery and performance by the Company of this
Agreement and the filings contemplated therein have been

                                      -2-
<PAGE>   3

duly authorized by all necessary action on the part of the Company and no
further action is required by the Company.

         21.2 The Company represents and warrants that it has no place of
business or offices where its respective books of account and records are kept
(other than temporarily at the offices of its attorneys or accountants) or
places where Collateral is stored or located, except as set forth on Schedule A
attached hereto;

         21.3 The Company is the sole owner of the Collateral (except for
non-exclusive licenses granted by the Company in the ordinary course of
business), free and clear of any liens, security interests, encumbrances,
rights or claims, and is fully authorized to grant the Security Interest in and
to pledge the Collateral. There is not on file in any governmental or
regulatory authority, agency or recording office an effective financing
statement, security agreement, license or transfer or any notice of any of the
foregoing (other than those that have been filed in favor of the Secured Party
pursuant to this Agreement) covering or affecting any of the Collateral. So
long as this Agreement shall be in effect, the Company shall not execute and
shall not knowingly permit to be on file in any such office or agency any such
financing statement or other document or instrument (except to the extent filed
or recorded in favor of the Secured Party pursuant to the terms of this
Agreement).

         21.4 No part of the Collateral has been judged invalid or
unenforceable. No written claim has been received that any Collateral or the
Company's use of any Collateral violates the rights of any third party. There
has been no adverse decision to the Company's claim of ownership rights in or
exclusive rights to use the Collateral in any jurisdiction or to the Company's
right to keep and maintain such Collateral in full force and effect, and there
is no proceeding involving said rights pending or, to the best knowledge of the
Company, threatened before any court, judicial body, administrative or
regulatory agency, arbitrator or other governmental authority.

         21.5 The Company shall at all times maintain its books of account and
records relating to the Collateral at its principal place of business and its
Collateral at the locations set forth on Schedule A attached hereto and may not
relocate such books of account and records or tangible Collateral unless it
delivers to the Secured Party at least 30 days prior to such relocation (i)
written notice of such relocation and the new location thereof (which must be
within the United States) and (ii) evidence that appropriate financing
statements and other necessary documents have been filed and recorded and other
steps have been taken to perfect the Security Interest to create in favor of
the Secured Party valid, perfected and continuing first priority liens in the
Collateral.

         21.6 This Agreement creates in favor of the Secured Party a valid
security interest in the Collateral securing the payment and performance of the
Obligations and, upon making the filings described in the immediately following
sentence, a perfected first priority security interest in such Collateral.
Except for the filing of financing statements on Form-1 under the UCC with the

                                      -3-
<PAGE>   4

jurisdictions indicated on Schedule B, attached hereto, no authorization or
approval of or filing with or notice to any governmental authority or
regulatory body is required either (i) for the grant by the Company of, or the
effectiveness of, the Security Interest granted hereby or for the execution,
delivery and performance of this Agreement by the Company or (ii) for the
perfection of or exercise by the Secured Party of its rights and remedies
hereunder.

         21.7 On the date of execution of this Agreement, the Company will
deliver to the Secured Party one or more executed UCC financing statements on
Form-1 with respect to the Security Interest for filing with the jurisdictions
indicated on Schedule B, attached hereto and in such other jurisdictions as may
be requested by the Secured Party.

         21.8 The execution, delivery and performance of this Agreement does
not conflict with or cause a breach or default, or an event that with or
without the passage of time or notice, shall constitute a breach or default,
under any agreement to which the Company is a party or by the Company is bound.
No consent (including, without limitation, from stock holders or creditors of
the Company) is required for the Company to enter into and perform its
obligations hereunder.

         21.9 The Company shall at all times maintain the liens and Security
Interest provided for hereunder as valid and perfected first priority liens and
security interests in the Collateral in favor of the Secured Party until this
Agreement and the Security Interest hereunder shall terminated pursuant to
Section 11. The Company hereby agrees to defend the same against any and all
persons. The Company shall safeguard and protect all Collateral for the account
of the Secured Party. At the request of the Secured Party, the Company will
sign and deliver to the Secured Party at any time or from time to time one or
more financing statements pursuant to the UCC (or any other applicable statute)
in form reasonably satisfactory to the Secured Party and will pay the cost of
filing the same in all public offices wherever filing is, or is deemed by the
Secured Party to be, necessary or desirable to effect the rights and
obligations provided for herein. Without limiting the generality of the
foregoing, the Company shall pay all fees, taxes and other amounts necessary to
maintain the Collateral and the Security Interest hereunder, and the Company
shall obtain and furnish to the Secured Party from time to time, upon demand,
such releases and/or subordinations of claims and liens which may be required
to maintain the priority of the Security Interest hereunder.

         21.10 The Company will not transfer, pledge, hypothecate, encumber,
license (except for non-exclusive licenses granted by the Company in the
ordinary course of business), sell or otherwise dispose of any of the
Collateral in the ordinary course of business without the prior written consent
of the Secured Party.

         21.11 The Company shall keep and preserve its Equipment, Inventory and
other tangible Collateral in good condition, repair and order and shall not
operate or locate any such Collateral (or cause to be operated or located) in
any area excluded from insurance coverage.

         21.12 The Company shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Party promptly, in sufficient detail, of any
substantial change in the Collateral, and of the occurrence of any event which
would have a material adverse effect on the value of the Collateral or on the
Secured Party's security interest therein.

         21.13 The Company shall promptly execute and deliver to the Secured
Party such further deeds, mortgages, assignments, security agreements,
financing statements or other instruments, documents, certificates and
assurances and take such further action as the Secured

                                      -4-
<PAGE>   5

Party may from time to time request and may in its sole discretion deem
necessary to perfect, protect or enforce its security interest in the
Collateral including, without limitation, the execution and delivery of a
separate security agreement with respect to the Company's intellectual property
("Intellectual Property Security Agreement") in which the Secured Party has
been granted a security interest hereunder, substantially in a form acceptable
to the Secured Party, which Intellectual Property Security Agreement, other
than as stated therein, shall be subject to all of the terms and conditions
hereof.

         21.14 The Company shall permit the Secured Party and its
representatives and agents to inspect the Collateral at any time, and to make
copies of records pertaining to the Collateral as may be requested by the
Secured Party from time to time.

         21.15 The Company will take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any rights, claims,
causes of action and accounts receivable in respect of the Collateral.

         21.16 The Company shall promptly notify the Secured Party in
sufficient detail upon becoming aware of any attachment, garnishment, execution
or other legal process levied against any Collateral and of any other
information received by the Company that may materially affect the value of the
Collateral, the Security Interest or the rights and remedies of the Secured
Party hereunder.

         21.17 All information heretofore, herein or hereafter supplied to the
Secured Party by or on behalf of the Company with respect to the Collateral is
accurate and complete in all material respects as of the date furnished.

         21.18 Schedule A, attached hereto contains a list of all of the
subsidiaries of DeMarco Energy.

ARTICLE XXII Defaults. The following events shall be "Events of Default":

         22.1 The occurrence of an Event of Default (as defined in the
Debentures) under the Debentures;

         22.2 Any representation or warranty of the Company in this Agreement or
in the Intellectual Property Security Agreement shall prove to have been
incorrect in any material respect when made; and

         22.3 The failure by the Company to observe or perform any of its
obligations hereunder or in the Intellectual Property Security Agreement for
ten (10) days after receipt by the Company of notice of such failure from the
Secured Party.

                                      -5-
<PAGE>   6

ARTICLE XXIII Duty To Hold In Trust. Upon the occurrence of any Event of
Default and at any time thereafter, the Company shall, upon receipt by it of
any revenue, income or other sums subject to the Security Interest, whether
payable pursuant to the Debentures or otherwise, or of any check, draft, note,
trade acceptance or other instrument evidencing an obligation to pay any such
sum, hold the same in trust for the Secured Party and shall forthwith endorse
and transfer any such sums or instruments, or both, to the Secured Party for
application to the satisfaction of the Obligations.

ARTICLE XXIV Rights and Remedies Upon Default. Upon occurrence of any Event of
Default and at any time thereafter, the Secured Party shall have the right to
exercise all of the remedies conferred hereunder and under the Debentures, and
the Secured Party shall have all the rights and remedies of a secured party
under the UCC and/or any other applicable law (including the Uniform Commercial
Code of any jurisdiction in which any Collateral is then located). Without
limitation, the Secured Party shall have the following rights and powers:

         24.1 The Secured Party shall have the right to take possession of the
Collateral and, for that purpose, enter, with the aid and assistance of any
person, any premises where the Collateral, or any part thereof, is or may be
placed and remove the same, and the Company shall assemble the Collateral and
make it available to the Secured Party at places which the Secured Party shall
reasonably select, whether at the Company's premises or elsewhere, and make
available to the Secured Party, without rent, all of the Company's respective
premises and facilities for the purpose of the Secured Party taking possession
of, removing or putting the Collateral in saleable or disposable form.

         24.2 The Secured Party shall have the right to operate the business of
the Company using the Collateral and shall have the right to assign, sell,
lease or otherwise dispose of and deliver all or any part of the Collateral, at
public or private sale or otherwise, either with or without special conditions
or stipulations, for cash or on credit or for future delivery, in such parcel
or parcels and at such time or times and at such place or places, and upon such
terms and conditions as the Secured Party may deem commercially reasonable, all
without (except as shall be required by applicable statute and cannot be
waived) advertisement or demand upon or notice to the Company or right of
redemption of the Company, which are hereby expressly waived. Upon each such
sale, lease, assignment or other transfer of Collateral, the Secured Party may,
unless prohibited by applicable law which cannot be waived, purchase all or any
part of the Collateral being sold, free from and discharged of all trusts,
claims, right of redemption and equities of the Company, which are hereby
waived and released.

                                      -6-
<PAGE>   7

ARTICLE XXV Applications of Proceeds. The proceeds of any such sale, lease or
other disposition of the Collateral hereunder shall be applied first, to the
expenses of retaking, holding, storing, processing and preparing for sale,
selling, and the like (including, without limitation, any taxes, fees and other
costs incurred in connection therewith) of the Collateral, to the reasonable
attorneys' fees and expenses incurred by the Secured Party in enforcing its
rights hereunder and in connection with collecting, storing and disposing of
the Collateral, and then to satisfaction of the Obligations, and to the payment
of any other amounts required by applicable law, after which the Secured Party
shall pay to the Company any surplus proceeds. If, upon the sale, license or
other disposition of the Collateral, the proceeds thereof are insufficient to
pay all amounts to which the Secured Party is legally entitled, the Company
will be liable for the deficiency, together with interest thereon, at the rate
of 12.5% per annum (the "Default Rate"), and the reasonable fees of any
attorneys employed by the Secured Party to collect such deficiency. To the
extent permitted by applicable law, the Company waives all claims, damages and
demands against the Secured Party arising out of the repossession, removal,
retention or sale of the Collateral, unless due to the gross negligence or
willful misconduct of the Secured Party.

ARTICLE XXVI Costs and Expenses.The Company agrees to pay all out-of-pocket
fees, costs and expenses incurred in connection with any filing required
hereunder, including without limitation, any financing statements, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Secured Party.
The Company shall also pay all other claims and charges which in the reasonable
opinion of the Secured Party might prejudice, imperil or otherwise affect the
Collateral or the Security Interest therein. The Company will also, upon
demand, pay to the Secured Party the amount of any and all reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts
and agents, which the Secured Party may incur in connection with (i) the
enforcement of this Agreement, (ii) the custody or preservation of, or the sale
of, collection from, or other realization upon, any of the Collateral, or (iii)
the exercise or enforcement of any of the rights of the Secured Party under the
Debentures. Until so paid, any fees payable hereunder shall be added to the
principal amount of the Debentures and shall bear interest at the Default Rate.

ARTICLE XXVII Responsibility for Collateral. The Company assumes all
liabilities and responsibility in connection with all Collateral, and the
obligations of the Company hereunder or under the Debentures shall in no way be
affected or diminished by reason of the loss, destruction, damage or theft of
any of the Collateral or its unavailability for any reason.

                                      -7-
<PAGE>   8

ARTICLE XXVIII Security Interest Absolute. All rights of the Secured Party and
all Obligations of the Company hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Debentures or any agreement entered into in connection with the foregoing,
or any portion hereof or thereof; (b) any change in the time, manner or place
of payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any
departure from the Debentures or any other agreement entered into in connection
with the foregoing; (c) any exchange, release or nonperfection of any of the
Collateral, or any release or amendment or waiver of or consent to departure
from any other collateral for, or any guaranty, or any other security, for all
or any of the Obligations; (d) any action by the Secured Party to obtain,
adjust, settle and cancel in its sole discretion any insurance claims or
matters made or arising in connection with the Collateral; or (e) any other
circumstance which might otherwise constitute any legal or equitable defense
available to the Company, or a discharge of all or any part of the Security
Interest granted hereby. Until the Obligations shall have been paid and
performed in full, the rights of the Secured Party shall continue even if the
Obligations are barred for any reason, including, without limitation, the
running of the statute of limitations or bankruptcy. The Company expressly
waives presentment, protest, notice of protest, demand, notice of nonpayment
and demand for performance. In the event that at any time any transfer of any
Collateral or any payment received by the Secured Party hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or insolvency
laws of the United States, or shall be deemed to be otherwise due to any party
other than the Secured Party, then, in any such event, the Company's
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof. The Company waives all
right to require the Secured Party to proceed against any other person or to
apply any Collateral which the Secured Party may hold at any time, or to
marshal assets, or to pursue any other remedy. The Company waives any defense
arising by reason of the application of the statute of limitations to any
obligation secured hereby.

ARTICLE XXIX Term of Agreement. This Agreement and the Security Interest shall
terminate on the date on which all payments under the Debentures have been made
in full and all other Obligations have been paid or discharged. Upon such
termination, the Secured Party, at the request and at the expense of the
Company, will join in executing any termination statement with respect to any
financing statement executed and filed pursuant to this Agreement.

                                      -8-
<PAGE>   9

ARTICLE XXX Power of Attorney; Further Assurances. (a) The Company authorizes
the Secured Party, and does hereby make, constitute and appoint it, and its
respective officers, agents, successors or assigns with full power of
substitution, as the Company's true and lawful attorney-in-fact, with power, in
its own name or in the name of the Company, to, after the occurrence and during
the continuance of an Event of Default, (i) endorse any notes, checks, drafts,
money orders, or other instruments of payment (including payments payable under
or in respect of any policy of insurance) in respect of the Collateral that may
come into possession of the Secured Party; (ii) to sign and endorse any UCC
financing statement or any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other documents
relating to the Collateral; (iii) to pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or threatened
against the Collateral; (iv) to demand, collect, receipt for, compromise,
settle and sue for monies due in respect of the Collateral; and (v) generally,
to do, at the option of the Secured Party, and at the Company's expense, at any
time, or from time to time, all acts and things which the Secured Party deems
necessary to protect, preserve and realize upon the Collateral and the Security
Interest granted therein in order to effect the intent of this Agreement and
the Debentures all as fully and effectually as the Company might or could do;
and the Company hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is coupled with an
interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding.

                  (b) On a continuing basis, the Company will make, execute,
acknowledge, deliver, file and record, as the case may be, in the proper filing
and recording places in any jurisdiction, including, without limitation, the
jurisdictions indicated on Schedule B, attached hereto, all such instruments,
and take all such action as may reasonably be deemed necessary or advisable, or
as reasonably requested by the Secured Party, to perfect the Security Interest
granted hereunder and otherwise to carry out the intent and purposes of this
Agreement, or for assuring and confirming to the Secured Party the grant or
perfection of a security interest in all the Collateral.

                  (c) The Company hereby irrevocably appoints the Secured Party
as the Company's attorney-in-fact, with full authority in the place and stead
of the Company and in the name of the Company, from time to time in the Secured
Party's discretion, to take any action and to execute any instrument which the
Secured Party may deem necessary or advisable to accomplish the purposes of
this Agreement, including the filing, in its sole discretion, of one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of the Company where permitted by law.

ARTICLE XXXI Notices. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered
or certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following
addresses:

         If to the Company:                 DeMarco Energy Systems of America
                                            12885 HWY 183, STE 108-A,
                                            Austin, Texas  78750
                                            Facsimile No.: (512) 335-6380
                                            Attn: Chief Financial Officer

                                      -9-
<PAGE>   10

     With copies to:            Locke Liddell & Sapp LLP
                                100 Congress Avenue Suite 300
                                Austin, Texas 78701
                                Facsimile No.: (512) 305-4800
                                Attn: Curtis R. Ashmos, Esq.

     If to the Secured Party:   AJW Partners, LLC
                                155 First Street, Suite B
                                Mineola, NY 11501
                                Facsimile No.: (516) 739-7115
                                Attn: Corey S. Ribotsky

                                                 and

                                New Millennium Capital Partners II, LLC
                                155 First Street, Suite B
                                Mineola, NY 11501
                                Facsimile No.: (516) 739-7115
                                Attn: Glenn A. Arbeitman

     With copies to:            Robinson Silverman Pearce Aronsohn & Berman LLP
                                1290 Avenue of the Americas
                                New York, NY  10104
                                Facsimile No.: (212) 541-4630
                                Attn: Eric L. Cohen. Esq.

ARTICLE XXXII Other Security. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Party shall have the right, in its sole discretion, to pursue,
relinquish, subordinate, modify or take any other action with respect thereto,
without in any way modifying or affecting any of the Secured Party's rights and
remedies hereunder.

ARTICLE XXXIII    Miscellaneous.

         33.1 No course of dealing between the Company and the Secured Party,
nor any failure to exercise, nor any delay in exercising, on the part of the
Secured Party, any right, power or privilege hereunder or under the Debentures
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.

         33.2 All of the rights and remedies of the Secured Party with respect
to the Collateral, whether established hereby or by the Debentures or by any
other agreements, instruments or documents or by law shall be cumulative and
may be exercised singly or concurrently.

                                     -10-
<PAGE>   11

         33.3 This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and is intended to supersede all
prior negotiations, understandings and agreements with respect thereto. Except
as specifically set forth in this Agreement, no provision of this Agreement may
be modified or amended except by a written agreement specifically referring to
this Agreement and signed by the parties hereto.

         33.4 In the event that any provision of this Agreement is held to be
invalid, prohibited or unenforceable in any jurisdiction for any reason, unless
such provision is narrowed by judicial construction, this Agreement shall, as
to such jurisdiction, be construed as if such invalid, prohibited or
unenforceable provision had been more narrowly drawn so as not to be invalid,
prohibited or unenforceable. If, notwithstanding the foregoing, any provision
of this Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other jurisdiction.

         33.5 No waiver of any breach or default or any right under this
Agreement shall be considered valid unless in writing and signed by the party
giving such waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default or right, whether of the same or similar nature or
otherwise.

         33.6 This Agreement shall be binding upon and inure to the benefit of
each party hereto and its successors and assigns.

         33.7 Each party shall take such further action and execute and deliver
such further documents as may be necessary or appropriate in order to carry out
the provisions and purposes of this Agreement.

         33.8 This Agreement shall be construed in accordance with the laws of
the State of New York, except to the extent the validity, perfection or
enforcement of a security interest hereunder in respect of any particular
Collateral which are governed by a jurisdiction other than the State of New
York in which case such law shall govern. Each of the parties hereto
irrevocably submit to the exclusive jurisdiction of any New York State or
United States Federal court sitting in Manhattan county over any action or
proceeding arising out of or relating to this Agreement, and the parties hereto
hereby irrevocably agree that all claims in respect of such action or
proceeding may be heard and determined in such New York State or Federal court.
The parties hereto agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. The parties hereto further
waive any objection to venue in the State of New York and any objection to an
action or proceeding in the State of New York on the basis of forum non
convenient.

                                     -11-
<PAGE>   12

         33.9 EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATER OF
THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO
RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO
A JURY TRIAL FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING
THAT, NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE
EVENT OF A LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.

         33.10 This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement. In the event
that any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

                             * * * * * * * * * * *

                                     -12-
<PAGE>   13

                  IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be duly executed on the day and year first above written.

                               DEMARCO ENERGY SYSTEMS OF AMERICA, INC.

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

                               AJW PARTNERS, LLC
                               By: SMS Group, LLC

                               By:
                                   --------------------------------------------
                                   Name: Corey S. Ribotsky
                                   Title:

                               NEW MILLENNIUM CAPITAL PARTNERS II, LLC
                               By: First Street Manager II, LLC

                               By:
                                   --------------------------------------------
                                   Name: Glenn A. Arbeitman
                                   Title:

<PAGE>   14

SCHEDULE A

Principal Place of Business of the Company:

Locations Where Collateral is Located or Stored:

List of subsidiaries of the Company:

<PAGE>   15

SCHEDULE B

Jurisdictions:

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