Document:

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                                                                     EXHIBIT 4.1

                          SECURITIES PURCHASE AGREEMENT

      SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of January 13,
2005, by and among Infinity, Inc., a Colorado corporation, with headquarters
located at 1401 West Main Street, Suite C, Chanute, Kansas 66720 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").

      WHEREAS:

      A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT");

      B. The Buyers, severally, and not jointly, initially wish to purchase from
the Company and the Company initially wishes to sell to the Buyers, upon the
terms and conditions stated in this Agreement (I) senior secured notes,
substantially in the form attached as Exhibit A, in an original aggregate
principal amount of $30,000,000 (such notes, together with any promissory notes
or other securities issued in exchange or substitution therefor or replacement
thereof, and as any of the same may be amended, restated or modified and in
effect from time to time, the "INITIAL NOTES"), and (II) warrants, substantially
in the form attached as Exhibit C, to acquire that number of shares of the
Company's common stock, par value $0.0001 per share (the "COMMON STOCK"), equal
to the quotient of (a) 28% of the original principal amount of the Initial Notes
purchased by the Buyers at the Initial Closing, divided by (b) the Warrant
Exercise Price (as defined in the Initial 115% Warrants (as defined below)) as
of the Initial Closing Date (the "INITIAL 115% WARRANTS"), and (III) warrants,
substantially in the form attached as Exhibit C, to acquire that number of
shares of Common Stock equal to the quotient of (x) 27% of the principal amount
of the Initial Notes purchased by the Buyers at the Initial Closing, divided by
(b) the Warrant Exercise Price (as defined in the Initial 140% Warrants (as
defined below)) as of the Initial Closing Date (the "INITIAL 140% WARRANTS"; the
Initial 115% Warrants and the Initial 140% Warrants, together with any warrants
or other securities issued in exchange or substitution therefor or replacement
thereof, and as any of the same may be amended, restated or modified and in
effect from time to time, being referred to as the "INITIAL WARRANTS"; the
shares of Common Stock issuable upon exercise of the Initial Warrants being
referred to as the "INITIAL WARRANT SHARES");

      C. Subject to the terms and conditions set forth in this Agreement, during
the Additional Note Issuance Period (as defined in Section 1(b)), the Company
may have the option to sell, and if the Company exercises such option Buyers may
be obligated to buy (I) additional senior secured notes, each with a maturity
date that is 42 months after the date of issue thereof and otherwise
substantially in the form attached as Exhibit B, in an original aggregate
principal amount of up to $45,000,000 (such notes, together with any promissory
notes or other securities issued in exchange or substitution therefor or
replacement thereof, and as any of the same may be amended, restated, modified
or supplemented and in effect from time to time, "ADDITIONAL NOTES" and,
collectively with the Initial Notes, the "NOTES"), and (II) additional warrants
to

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acquire shares of Common Stock in accordance with, and in the number and form
set forth in, Section 1(b);

      D. The Notes shall be convertible into shares of Common Stock (the shares
of Common Stock issuable upon conversion of the Notes being referred to herein
as the "CONVERSION SHARES") in accordance with the terms of the Notes;

      E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached as Exhibit D (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws;

      F. Contemporaneously with the Initial Closing (as defined in Section
1(a)), the parties hereto and the Active Subsidiaries (as defined in Section
3(a)) will execute and deliver a Security Agreement, substantially in the form
attached as Exhibit E (the "SECURITY AGREEMENT"), pursuant to which the Company
and its Active Subsidiaries will agree to provide the Buyers with security
interests in all of the assets of the Company and its Subsidiaries;

      G. Contemporaneously with the Initial Closing, the parties hereto and each
of the Subsidiaries will execute and deliver one or more Deposit Account Control
Agreements, substantially in the forms attached as Exhibit F (the "ACCOUNT
CONTROL AGREEMENTS"), pursuant to which the Company and each of the Active
Subsidiaries that maintain bank, brokerage or other similar accounts will agree
to enable the Buyers to perfect their security interest in all of the Company's
and such Subsidiary's right, title and interest in certain accounts and in all
collateral from time to time credited to such accounts;

      H. Contemporaneously with the Initial Closing, the Active Subsidiaries
will execute and deliver a Guaranty, substantially in the form attached as
Exhibit G (the "GUARANTY"), pursuant to which the Active Subsidiaries will agree
to guaranty certain obligations of the Company; and

      I. Contemporaneously with the Initial Closing, the parties hereto will
execute and deliver a Pledge Agreement, substantially in the form attached as
Exhibit H (the "PLEDGE AGREEMENT"), pursuant to which the Company will agree to
pledge all of the capital stock in the Active Subsidiaries to the Buyers as
collateral for the Notes; and

      J. Contemporaneously with the Initial Closing, the Buyers and the Debtors
(as defined in the Security Agreement) will execute and deliver one or more
Mortgages, Deeds of Trust, Assignments of Production, Security Agreements,
Fixture Filings and Financing Statements, substantially in the form attached as
Exhibit I (the "MORTGAGES"), pursuant to which the Debtors will agree to grant
to the Buyers an interest in certain real and personal property, rights, titles,
interests and estates described therein.

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      NOW THEREFORE, the Company and the Buyers hereby agree as follows:

      1.    PURCHASE AND SALE OF NOTES AND WARRANTS.

            a. Purchase of Initial Notes and Warrants. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6(a) and 7(a)
below, the Company shall issue and sell to each Buyer, and each Buyer severally
agrees to purchase from the Company, (I) Initial Notes in the principal amount
set forth opposite such Buyer's name on the Schedule of Buyers, along with (II)
the related Initial 115% Warrants with respect to the number of Initial Warrant
Shares equal to the quotient (rounded to the nearest whole number, with 0.5
rounded up) of (A) 28% of the original principal amount of the Initial Notes
purchased by such Buyer at the Initial Closing, divided by (B) the Warrant
Exercise Price (as defined in the Initial 115% Warrants) on the Initial Closing
Date (as defined in Section 1(c)), and (III) the related Initial 140% Warrants
with respect to the number of Initial Warrant Shares equal to the quotient
(rounded to the nearest whole number, with 0.5 rounded up) of (X) 27% of the
original principal amount of the Initial Notes purchased by such Buyer at the
Initial Closing, divided by (Y) the Warrant Exercise Price (as defined in the
Initial 140% Warrants) on the Initial Closing Date (the "INITIAL CLOSING"). The
purchase price (the "INITIAL PURCHASE PRICE") of the Initial Notes and the
related Initial Warrants at the Initial Closing shall be equal to $1.00 for each
$1.00 of principal amount of the Initial Notes purchased (representing an
aggregate Initial Purchase Price of $30,000,000 for the aggregate original
principal amount of $30,000,000 of Initial Notes and the related Initial
Warrants, to be purchased at the Initial Closing).

            b. Purchase and Sale of Additional Notes and Warrants. Subject to
the satisfaction (or waiver) of the conditions set forth in Sections 1(d), 6(b)
and 7(b) below, during the period commencing on July 1, 2005 and ending on June
30, 2008 (the "ADDITIONAL NOTE ISSUANCE PERIOD"), the Company may elect to sell
Additional Notes and Additional Warrants (as defined in this Section 1(b)) to
the Buyers. At any time within the 10 consecutive Business Days (as defined in
this Section 1(b)) immediately following the Company's timely (without giving
effect to any extensions of time permitted by Rule 12b-25 under the 1934 Act (as
defined in the Notes)) filing of a quarterly report on Form 10-Q or annual
report on Form 10-K, as the case may be (a "PERIODIC REPORT"), during the
Additional Note Issuance Period, the Company may, in its sole discretion,
deliver (by facsimile) a written notice to each Buyer electing to sell
Additional Notes and Additional Warrants to the Buyers (an "ADDITIONAL SALE
ELECTION NOTICE"). The Additional Sale Election Notice shall set forth the
aggregate principal amount of Additional Notes to be sold to the Buyers (the
"ADDITIONAL NOTE ISSUANCE AMOUNT") on an Additional Closing Date (as defined in
Section 1(d)), which shall not be less than $3,000,000; provided, however, that
(A) the sum of the Additional Note Issuance Amount and the original aggregate
principal amount of all other Additional Notes issued and sold by the Company to
the Buyers during the 365-day period immediately preceding such Additional
Closing Date shall not exceed $15,000,000 in the aggregate, (B) the sum of the
Additional Note Issuance Amount and the aggregate principal amount of all other
Additional Notes issued and sold by the Company at any time pursuant to this
Agreement shall not exceed $45,000,000 in the aggregate, (C) the sum of the
Additional Note Issuance Amount and the aggregate principal amount and accrued
and unpaid interest of all other Notes outstanding as of each of the date of the
Additional Sale Election Notice and the Additional Closing Date shall not exceed
the Free Cash Flow Amount (as defined in the Notes), determined as of the end of
the quarterly or annual period covered by

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the most recently filed, or required to be filed, Periodic Report, and (D)
unless Shareholder Approval (as defined in Section 4(k)) has been obtained, the
Additional Note Issuance Amount shall not exceed an amount that would require,
pursuant to this Section 1(b), Buyers to buy Additional Warrants to acquire a
number of shares of Common Stock that, when multiplied by 1.2 and added to the
number of shares of Common Stock that have been issued upon exercise of any
Warrants (as defined in this Section 1(b)) or conversion of, or as interest on,
any Notes prior to the date of such Additional Sale Election Notice and added to
120% of the shares issuable as of the date of such Additional Sale Election
Notice upon exercise of all Warrants then outstanding, would exceed the Exchange
Cap (as defined in the Notes) (the limitations on the Additional Note Issuance
Amount set forth in the immediately preceding clauses (A), (B), (C) and (D)
being collectively referred to as the "ADDITIONAL NOTE ISSUANCE AMOUNT
LIMITATIONS"), and if the Additional Note Issuance Amount cannot be at least
$3,000,000 as a result of the Additional Note Issuance Amount Limitations, the
Company may not deliver an Additional Sale Election Notice and may not issue or
sell any Additional Notes on such Additional Closing Date. The Additional Sale
Election Notice shall also set forth (i) each Buyer's principal amount of
Additional Notes to be purchased (determined as provided in the next sentence),
and (ii) the Additional Closing Date for the purchase and sale of Additional
Notes and Additional Warrants pursuant to such Additional Sale Election Notice
(determined as provided in section 1(d) below). In the event that the Company
delivers an Additional Sale Election Notice in accordance with the foregoing,
subject to the conditions set forth in this Section 1(b) and Sections 1(d), 6(b)
and 7(b) below, the Company shall issue and sell to each Buyer, and each Buyer
severally agrees to buy from the Company, on the applicable Additional Closing
Date (an "ADDITIONAL CLOSING"), (I) Additional Notes in a principal amount equal
to the product of the Additional Note Issuance Amount, multiplied by such
Buyer's allocation percentage (as set forth opposite such Buyer's name in the
fourth column on the Schedule of Buyers (such Buyer's "ALLOCATION PERCENTAGE"),
and (II) warrants, substantially in the form attached as Exhibit C, to acquire
that number of shares of Common Stock equal to the quotient (rounded to the
nearest whole number, with 0.5 rounded up) of (a) 28% of the product of the
Additional Note Issuance Amount, multiplied by such Buyer's Allocation
Percentage, divided by (b) the Warrant Exercise Price (as defined in the
Additional 115% Warrants (as defined below)) as of the applicable Additional
Closing Date (the "ADDITIONAL 115% WARRANTS"), and (III) warrants, substantially
in the form attached as Exhibit C, to acquire that number of shares of Common
Stock equal to the quotient (rounded to the nearest whole number, with 0.5
rounded up) of (x) 27% of the product of the Additional Note Issuance Amount,
multiplied by such Buyer's Allocation Percentage, divided by (y) the Warrant
Exercise Price (as defined in the Additional 140% Warrants (as defined below))
as of the applicable Additional Closing Date (the "ADDITIONAL 140% WARRANTS";
the Additional 115% Warrants and the Additional 140% Warrants, together with any
warrants or other securities issued in exchange or substitution therefor or
replacement thereof, and as any of the same may be amended, restated, modified
or supplemented and in effect from time to time, the "ADDITIONAL WARRANTS" and,
collectively with the Initial Warrants, the "WARRANTS"; the shares of Common
Stock issuable upon exercise of the Additional Warrants being referred to as the
"ADDITIONAL WARRANT SHARES" and, collectively with the Initial Warrant Shares,
being referred to as the "WARRANT SHARES"). The purchase price (the "ADDITIONAL
PURCHASE PRICE" and, together with the Initial Purchase Price, each the
"PURCHASE PRICE") of the Additional Notes and the related Additional Warrants at
the applicable Additional Closing shall be equal to $1.00 for each $1.00 of
principal amount of the Additional Notes purchased. "BUSINESS DAY" means any day
other

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than Saturday, Sunday or other day on which commercial banks in the City of New
York are authorized or required by law to remain closed.

            c. The Initial Closing Date. The date and time of the Initial
Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m., New York City time, on
the first Business Day following the date of this Agreement, subject to the
satisfaction (or waiver) of all of the conditions to the Initial Closing set
forth in Sections 6(a) and 7(a) (or such later or earlier date as is mutually
agreed to by the Company and the Buyers). The Initial Closing shall occur on the
Initial Closing Date at the offices of Katten Muchin Zavis Rosenman, 525 West
Monroe Street, Suite 1600, Chicago, Illinois 60661-3693 or at such other time,
date and place as the Company and the Buyers may collectively designate in
writing.

            d. Additional Closing Dates. The date and time of any Additional
Closing (an "ADDITIONAL CLOSING DATE" and, together with the Initial Closing
Date, each a "CLOSING DATE") shall be 10:00 a.m., New York City time, on the
tenth (10th) Business Day following receipt by each Buyer of an Additional Sale
Election Notice, subject to the satisfaction (or waiver) of the conditions to
the Additional Closing set forth in Sections 1(b), 6(b) and 7(b) and the
conditions set forth in this Section 1(d) or the waiver thereof in writing by
such Buyer (or such later date as is mutually agreed to by the Company and the
Buyers). Notwithstanding the foregoing, the Company shall not be entitled to
deliver an Additional Sale Election Notice unless each of the following
conditions is satisfied (or waived in writing by the applicable Buyer) as of and
through the date on which the Company delivers to each Buyer the applicable
Additional Sale Election Notice (the "ADDITIONAL SALE ELECTION NOTICE DATE"),
and no Buyer shall be required to purchase the Additional Notes unless each of
the following conditions and the conditions set forth in Sections 1(b) and 7(b)
are satisfied (or waived in writing by the applicable Buyer) as of and through
the applicable Additional Closing Date (the "ADDITIONAL SALE ELECTION NOTICE
CONDITIONS"): (i) during the period beginning on the date of this Agreement and
ending on and including the applicable Additional Closing Date, there shall not
have occurred either (x) the public announcement of a pending, proposed or
intended Change of Control (as defined in the Notes) which has not been
abandoned or terminated and publicly announced as such or (y) a Triggering Event
or an Event of Default (each as defined in the Notes); (ii) during the sixty
(60) day period ending on and including such Additional Closing Date, there
shall not have occurred an event that with the passage of time or the giving of
notice would constitute a Triggering Event or an Event of Default; (iii) at all
times during the period beginning on the date of this Agreement and ending on
such Additional Closing Date, the Common Stock is listed on the Principal Market
(as defined in Section 3(s)) and the Common Stock shall not have been suspended
from trading nor shall delisting or suspension by the Principal Market have been
threatened either (A) in writing by such exchange or market or (B) by falling
below the minimum listing maintenance requirements of the Principal Market; (iv)
during the period beginning on the Initial Closing Date and ending on and
including such Additional Closing Date, the Company shall have delivered
Conversion Shares and Warrant Shares upon conversion or exercise, as the case
may be, of the Notes and the Warrants on a timely basis as set forth in Section
2(d)(ii) of the Notes or Section 2(a) of the Warrants; (v) as of the Additional
Sale Election Notice Date, Notes remain outstanding; (vi) there is not
outstanding any Indebtedness (as defined in the Notes) of the Company or any of
the Subsidiaries (as defined in Section 3(a)) that the Company or any Subsidiary
is prohibited from issuing, assuming or incurring under Section 4(n) or would be
prohibited from issuing, assuming or incurring under Section 4(n) if the

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Additional Notes proposed to be issued on the Additional Closing Date were
outstanding at the time of such issuance, assumption or incurrence; (vii) no
Permitted Subordinated Indebtedness (as defined in Section 4(n)) that is
outstanding on the applicable Additional Closing Date matures or otherwise
requires or permits redemption or repayment on or prior to the Maturity Date (as
defined in the Notes) of the Additional Notes proposed to be issued on the
applicable Additional Closing Date; (viii) no capital stock of the Company or
any Subsidiary is redeemable on or prior to the Maturity Date of the Additional
Notes proposed to be issued on the applicable Additional Closing Date; and (ix)
the Company shall have publicly disclosed (either on a Form 10-K, 10-Q or 8-K)
its After-tax PV10 (as defined in the Notes) as of a date during the last
forty-five (45) days of the fiscal quarter immediately preceding the Additional
Closing. Any Additional Closing shall occur on the applicable Additional Closing
Date at the offices of Katten Muchin Zavis Rosenman, 525 West Monroe Street,
Chicago, Illinois 60661-3693 or at such other time, date and place as the
Company and the Buyers may collectively designate in writing.

            e. Form of Payment. On each of the Closing Dates, (i) each Buyer
shall pay the applicable Purchase Price to the Company for the Notes and the
Warrants to be issued and sold to such Buyer on such Closing Date, by wire
transfer of immediately available funds in accordance with the Company's written
wire instructions, less any amount withheld pursuant to Section 4(h), and (ii)
the Company shall deliver to each Buyer, Notes (in the principal amounts as such
Buyer shall request) (the "NOTE CERTIFICATES") representing such principal
amount of the Notes that such Buyer is purchasing hereunder at such Closing,
along with warrants representing the Warrants that such Buyer is purchasing
hereunder at such Closing, duly executed on behalf of the Company and registered
in the name of such Buyer or its designee.

      2.    BUYER'S REPRESENTATIONS AND WARRANTIES.

      Each Buyer represents and warrants, as of the date of this Agreement, the
Initial Closing Date and each Additional Closing Date, with respect to only
itself, that:

            a. Investment Purpose. Such Buyer (i) is acquiring the Notes and the
Warrants purchased by such Buyer hereunder, (ii) upon any conversion of the
Notes, will acquire the Conversion Shares then issuable, and (iii) upon any
exercise of the Warrants will acquire the Warrant Shares issuable upon such
exercise thereof (the Notes, the Conversion Shares, the Warrants and the Warrant
Shares being collectively referred to herein as the "SECURITIES") for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.

            b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.

            c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying in part upon

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the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Securities.

            d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
that have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(l) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.

            e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

            f. Transfer or Resale. Such Buyer understands that, except as
provided in the Registration Rights Agreement, (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act, as amended (or a successor rule thereto) ("RULE 144"); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144, and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register the Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. Notwithstanding the foregoing, the
Securities may be pledged in connection with a bona fide margin account or other
loan or financing arrangement secured by the Securities.

            g. Legends. Such Buyer understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
sale of the Conversion Shares and the Warrant Shares have been registered under
the 1933 Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion Shares and the Warrant Shares, except
as set forth below, shall bear a restrictive

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legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):

      THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
      SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
      TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
      REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
      1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
      COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
      UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD
      PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
      SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
      OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for resale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration under the 1933 Act, (iii) such holder provides the Company with
reasonable assurances that the Securities can be sold pursuant to Rule 144(k),
or (iv) such holder provides the Company reasonable assurances that the
Securities have been or are being sold pursuant to Rule 144. Each Buyer
acknowledges, covenants and agrees to sell the Securities represented by a
certificate(s) from which the legend has been removed, only pursuant to (x) a
registration statement effective under the 1933 Act and in compliance with the
rules regarding the delivery of the prospectus included therein, (y) advice of
counsel that such sale is exempt from registration required by Section 5 of the
1933 Act, or (z) a transaction pursuant to Rule 144.

            h. Authorization; Enforcement; Validity. Such Buyer is a validly
existing corporation, partnership, limited liability company or other entity and
has the requisite corporate, partnership, limited liability or other
organizational power and authority to purchase the Securities pursuant to this
Agreement. This Agreement and the Registration Rights Agreement have been duly
and validly authorized, executed and delivered on behalf of such Buyer and are
valid and binding agreements of such Buyer enforceable against such Buyer in
accordance with their respective terms. The Security Agreement, the Account
Control Agreements and each of the other agreements entered into and other
documents executed by such Buyer in connection with the transactions
contemplated hereby and thereby as of the Initial Closing or any Additional
Closing will have been duly and validly authorized, executed and delivered on
behalf of such Buyer as of the Initial Closing or such Additional Closing, as
applicable, and will be valid and binding agreements of such Buyer enforceable
against such Buyer in accordance with their respective terms.

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            i. Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.

            j. No Other Agreements. As of the Initial Closing Date, such Buyer
has not, directly or indirectly, made any agreements with the Company relating
to the terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents (as defined in
Section 3(b)).

      3.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

            The Company represents and warrants, as of the date of this
Agreement, the Initial Closing Date and each Additional Closing Date, to each of
the Buyers, that:

            a. Organization and Qualification. Set forth in Schedule 3(a) is a
true and correct list of the entities in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest. Each of
the Company and its Active Subsidiaries is a corporation, limited liability
company, partnership or other entity and is duly organized and validly existing
in good standing under the laws of the jurisdiction in which it is incorporated
and has the requisite corporate, partnership, limited liability company or other
organizational power and authority to own its properties and to carry on its
business as now being conducted. Each of the Company and its Active Subsidiaries
is duly qualified to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition, credit worthiness or prospects of the Company and its
Active Subsidiaries taken as a whole, or on the transactions contemplated hereby
or on the agreements and instruments to be entered into in connection herewith,
or on the authority or ability of the Company or any Active Subsidiary to
perform its obligations under the Transaction Documents. Except as set forth in
Schedule 3(a), the Company holds all right, title and interest in and to 100% of
the capital stock, equity or similar interests of each of its Subsidiaries, in
each case, free and clear of any Liens (as defined below), including any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of free and clear ownership by a current holder, and no such
Subsidiary owns capital stock or holds an equity or similar interest in any
other Person. "LIEN" means, with respect to any asset, any mortgage, lien,
pledge, hypothecation, charge, security interest, encumbrance or adverse claim
of any kind and any restrictive covenant, condition, restriction or exception of
any kind that has the practical effect of creating a mortgage, lien, pledge,
hypothecation, charge, security interest, encumbrance or adverse claim of any
kind (including any of the foregoing created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor with respect to a Capital Lease Obligation (as defined in the Notes), or
any financing lease having substantially the same economic effect as any of the
foregoing). "SUBSIDIARY" means any entity in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest at the
time of this Agreement or at any time hereafter. "ACTIVE SUBSIDIARY" means any
Subsidiary other than an Inactive Subsidiary. "INACTIVE SUBSIDIARY" means any
Subsidiary that does not have, and has not within the past 12 months prior to
the date this representation is made had, any business or other activities or
operations, employees, assets,

                                       9
<PAGE>

Indebtedness or other liabilities (subordinated, contingent or otherwise) or
obligations (contractual or otherwise), provided that immediately upon any
Inactive Subsidiary's becoming an Active Subsidiary (whether by engaging in any
business or other activities or operations, coming into possession of any
assets, incurring any Indebtedness or other liabilities or obligations, or
otherwise), such Subsidiary shall for all purposes of this Agreement and the
other Transaction Documents be treated as if it had just been formed as an
Active Subsidiary. Each of the Company's Inactive Subsidiaries is designated as
such on Schedule 3(a).

            b. Authorization; Enforcement; Validity. Each of the Company and the
applicable Subsidiaries has the requisite corporate power and authority to enter
into and perform its obligations under each of this Agreement, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in
Section 5), the Notes, the Warrants, the Security Agreement, the Account Control
Agreements, the Guaranty, the Mortgages, the Pledge Agreement and each of the
other agreements to which it is a party or by which it is bound and which is
entered into by the parties hereto in connection with the transactions
contemplated hereby and thereby (collectively, the "TRANSACTION DOCUMENTS"), and
to issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and, to the
extent applicable, its Subsidiaries and the consummation by the Company and its
Subsidiaries of the transactions contemplated hereby and thereby, including the
issuance of up to $45,000,000 in principal amount of the Notes and the related
Warrants and the reservation for issuance and the issuance of the Conversion
Shares and Warrant Shares issuable upon conversion or exercise thereof, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
shareholders, except as contemplated by Section 4(k) and except for
authorization by the Company's Board of Directors for the issuance of in excess
of $45,000,000 in principal amount of the Notes and the related Warrants
contemplated by this Agreement. This Agreement and the other Transaction
Documents dated of even date herewith have been duly executed and delivered by
the Company and, to the extent applicable, its Subsidiaries and constitute the
valid and binding obligations of each of the Company and its Active Subsidiaries
that is a party thereto, enforceable against such parties in accordance with
their terms. As of each of the Closings, the Transaction Documents dated after
the date of this Agreement and on or prior to the date of such Closing shall
have been duly executed and delivered by such parties and shall constitute the
valid and binding obligations of each of the Company and its Subsidiaries that
is a party thereto, enforceable against such parties in accordance with their
terms.

            c. Capitalization. As of the date of this Agreement, the authorized
capital stock of the Company consists of (i) 300,000,000 shares of Common Stock,
of which as of the date of this Agreement 10,663,097 shares are issued and
outstanding, 1,361,131 shares are reserved for issuance pursuant to the
Company's stock option, restricted stock and stock purchase plans and 4,115,344
shares are issuable and reserved for issuance pursuant to securities (other than
the Notes and the Warrants) exercisable or exchangeable for, or convertible
into, shares of Common Stock and (ii) 5,000,000 shares of preferred stock, no
par value, of which as of the date of this Agreement, none is issued or
outstanding. All of such outstanding or issuable shares have been, or upon
issuance will be, validly issued and are, or upon issuance will be, fully paid
and nonassessable. Except as disclosed in Schedule 3(c), (A) no shares of the
capital stock of the Company or any of its Subsidiaries are subject to
preemptive rights or any other similar

                                       10
<PAGE>

rights or any Liens suffered or permitted by the Company or any of its
Subsidiaries; (B) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable for, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable for, any shares of capital
stock of the Company or any of its Subsidiaries; (C) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (D) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries that contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (E) there are no securities or instruments containing
anti-dilution or similar provisions that will or may be triggered by the
issuance of the Securities; and (F) the Company does not have any stock
appreciation rights or "phantom stock" plans or agreements or any similar plan
or agreement. The Company has furnished to each Buyer true and correct copies of
the Company's Articles of Incorporation, as amended and as in effect on the date
this representation is made (the "ARTICLES OF INCORPORATION"), and the Company's
Bylaws, as amended and as in effect on the date this representation is made (the
"BYLAWS"), and the terms of all securities convertible into, or exercisable or
exchangeable for, Common Stock, and the material rights of the holders thereof
in respect thereto.

            d. Issuance of Securities. The Notes are duly authorized and, upon
issuance in accordance with the terms hereof, shall be (i) free from all taxes
and Liens with respect to the issuance thereof and (ii) entitled to the rights
set forth in the Notes. At least 2,000,000 shares of Common Stock (subject to
adjustment pursuant to the Company's covenant set forth in Section 4(f) below)
have been duly authorized and reserved for issuance upon exercise of the Initial
Warrants and in connection with any Additional Closing, the Company will have
reserved at least 110% of the number of Warrant Shares issuable upon exercise of
any Additional Warrants then issued. Upon conversion or exercise in accordance
with the Notes or the Warrants, as the case may be, the Conversion Shares and
the Warrant Shares will be validly issued, fully paid and nonassessable and free
from all taxes and Liens with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock. Assuming the
accuracy of the representations and warranties of the Buyers set forth in
Section 2(a), 2(b), 2(d), 2(i) and 2(j), the issuance by the Company of the
Securities is exempt from registration under the 1933 Act and applicable state
securities laws.

            e. No Conflicts. The execution and delivery of the Transaction
Documents by the Company and, if applicable, its Subsidiaries, the performance
by such parties of their obligations thereunder and the consummation by such
parties of the transactions contemplated thereby (including the reservation for
issuance and issuance of the Conversion Shares and the Warrant Shares) will not
(i) result in a violation of the Articles of Incorporation or the Bylaws or the
organizational documents of any Subsidiary; (ii) conflict with, or constitute a
breach or default (or an event which, with the giving of notice or lapse of time
or both, constitutes or

                                       11
<PAGE>

would constitute a breach or default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or other remedy with
respect to, any agreement, indenture or instrument to which the Company or any
of its Subsidiaries is a party; (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market (as
defined in Section 3(s)) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected. Neither the Company nor any of its Active Subsidiaries is in
violation of any term of its articles of incorporation (or other organizational
charter) or is in material violation of any term of its bylaws (or partnership
or operating agreement), as applicable. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under (or with the
giving of notice or lapse of time or both would be in violation of or default
under) any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, except where such violation or default could not
reasonably be expected to have a Material Adverse Effect or to result in the
acceleration of any Indebtedness or other obligation. The business of the
Company and its Active Subsidiaries is not being conducted, and shall not be
conducted, in violation of any law, ordinance or regulation of any governmental
entity except as could not reasonably be expected to have a Material Adverse
Effect. Except for the filing of a proxy statement with the SEC as would be
required if the Company seeks shareholder approval pursuant to the rules of the
NASDAQ National Market for the issuance of an aggregate number of Warrant Shares
and Conversion Shares greater than 19.99% of the number of shares of Common
Stock outstanding immediately prior to the Initial Closing Date, the filings and
listings contemplated by the Registration Rights Agreement or described in
Section 4(b) and Section 4(g), and the filing of instruments to perfect security
interests, none of the Company and its Subsidiaries is required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations that
the Company or any of its Subsidiaries is required to obtain as described in the
preceding sentence have been obtained or effected on or prior to the date of
this Agreement. To the Knowledge (as defined below) of the Company, there are no
facts or circumstances that might give rise to any of the foregoing. The Company
and its Active Subsidiaries are in material compliance with applicable provision
of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations
thereunder (collectively, "SARBANES-OXLEY"). The "KNOWLEDGE" of the Company
means, unless otherwise specified, the actual knowledge of any "officer" (as
such term is defined in Rule 16a-1 under the 1934 Act) of the Company or of the
principal financial officer of any Active Subsidiary.

            f. SEC Documents; Financial Statements. Since December 31, 2002, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act (all of the foregoing filed prior to the date this
representation is made (including all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein) being hereinafter referred to as the "SEC DOCUMENTS"). A complete and
accurate list of the SEC Documents is set forth on Schedule 3(f). The Company
has made available to the Buyers or their respective representatives true and
complete copies of the SEC Documents. Each

                                       12
<PAGE>

of the SEC Documents was filed with the SEC within the time frames prescribed by
the SEC for the filing of such SEC Documents (including any extensions of such
time frames permitted by Rule 12b-25 under the 1934 Act) such that each filing
was timely filed (or deemed timely filed pursuant to Rule 12b-25 under the 1934
Act) with the SEC. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents.
None of the SEC Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the consolidated financial statements
of the Company and its Subsidiaries included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company and its Subsidiaries as of the dates thereof and the
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments). None
of the Company and its Subsidiaries, or any of their respective officers,
directors or Affiliates (as defined in Section 4(j)) or, to the Company's
Knowledge, any shareholder of the Company has made any other filing with the
SEC, issued any press release or made any other public statement or
communication on behalf of the Company or any of its Subsidiaries or otherwise
relating to the Company or any of its subsidiaries that contains any untrue
statement of a material fact or omits any statement of material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they are or were made, not misleading or has provided any other
information to the Buyers, including information referred to in Section 2(d),
that, considered in the aggregate, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are or
were made, not misleading. None of the Company, its Subsidiaries and their
respective officers, directors, employees or agents has provided the Buyers with
any material, nonpublic information. The Company is not required to file and
will not be required to file any agreement, note, lease, mortgage, deed or other
instrument entered into prior to the date this representation is made and in
effect on the date this representation is made and to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound that
has not been previously filed as an exhibit (including by way of incorporation
by reference) to its reports filed or made with the SEC under the 1934 Act. The
accounting firm that has expressed its opinion with respect to the consolidated
financial statements included in the Company's most recently filed annual report
on Form 10-K (the "AUDIT OPINION") is independent of the Company pursuant to the
standards set forth in Rule 2-01 of Regulation S-X promulgated by the SEC, and
such firm was otherwise qualified to render the Audit Opinion under applicable
law and the rules and regulations of the SEC. There is no transaction,
arrangement or other relationship between the Company and an unconsolidated or
other off-balance-sheet entity that is required to be disclosed by the Company
in its reports pursuant to the 1934 Act that has not been so disclosed in the
SEC Documents.

                                       13
<PAGE>

            g. Absence of Certain Changes. Except as disclosed in any SEC
Documents which were filed with the SEC at least five (5) days prior to the date
of this Agreement, since December 31, 2003, there has been no Material Adverse
Effect. Neither the Company nor any of its Active Subsidiaries has taken any
steps, and neither the Company nor any of its Active Subsidiaries currently
expects to take any steps, to seek protection pursuant to any bankruptcy law nor
does the Company have any Knowledge or reason to believe that the creditors of
the Company or any of its Active Subsidiaries intend to initiate involuntary
bankruptcy proceedings or any Knowledge of any fact that would reasonably lead a
creditor to do so. Neither the Company nor any of its Active Subsidiaries is as
of the date this representation is made, nor after giving effect to the
transactions contemplated hereby, will be Insolvent (as defined below). For
purposes of this Section 3(g), "INSOLVENT" means (i) the present fair saleable
value of the Company's assets is less than the amount required to pay the
Company's total indebtedness, contingent or otherwise, (ii) the Company is
unable to pay its debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured, (iii) the Company
intends to incur, prior to the second anniversary of the date this
representation is made, or believes that it will incur, prior to the second
anniversary of the date this representation is made, debts that would be beyond
its ability to pay as such debts mature or (iv) the Company has unreasonably
small capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted. Except as disclosed
in Schedule 3(g), since December 31, 2003, the Company has not declared or paid
any dividends or sold any assets outside of the ordinary course of business,
individually or in the aggregate, in excess of $100,000. Except as disclosed in
Schedule 3(g), since December 31, 2003, the Company has not had any capital
expenditures outside the ordinary course of its business or individually in
excess of $1,000,000.

            h. Absence of Litigation. Except as set forth on Schedule 3(h) (i)
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the Knowledge of the Company, threatened against or affecting the
Company, the Common Stock or any of the Company's Subsidiaries or any of the
Company's or its Subsidiaries' officers or directors in their capacities as
such, other than any proceeding, inquiry or investigation arising in the
ordinary course related to permits, approvals or licenses related to the
Company's oil and gas exploration and production operations, (ii) during the
past three (3) years there has been no material action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the Knowledge of the
Company, threatened against or affecting the Company, the Common Stock or any of
the Subsidiaries or any of the Company's or its Subsidiaries' officers or
directors in their capacities as such, other than any proceeding, inquiry or
investigation arising in the ordinary course related to permits, approvals or
licenses related to the Company's oil and gas exploration and production
operations and (iii) to the Knowledge of the Company, none of the directors or
officers of the Company has been involved in securities-related litigation
during the past five years. None of the matters described in Schedule 3(h),
regardless of their outcome, could reasonably be expected to have a Material
Adverse Effect.

            i. Acknowledgment Regarding Buyer's Purchase of Notes and Warrants.
The Company acknowledges and agrees that each of the Buyers is acting solely in
the capacity of an arm's length purchaser with respect to the Company in
connection with the Transaction

                                       14
<PAGE>

Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that each Buyer is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby, and
any advice given by any of the Buyers or any of their respective representatives
or agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such Buyer's purchase of
the Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.

            j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except as set forth on Schedule 3(j), and except for the issuance
of the Notes and Warrants contemplated by this Agreement, no material event,
liability, development or circumstance has occurred or exists with respect to
the Company or its Subsidiaries or their respective business, properties, credit
worthiness, prospects, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the time this
representation is made that has not been publicly disclosed at least five (5)
days prior to the date that this representation is made.

            k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged or will
engage in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 1933 Act) in connection with the offer or sale
of the Securities.

            l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable shareholder approval provisions of the Principal Market or any
other authority, nor will the Company or any of its Subsidiaries take any action
or steps that would require registration of the issuance of any of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings for purposes of the 1933 Act or any applicable
shareholder provision of the Principal Market or any other authority.

            m. Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that any obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrants is, in each
case, absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other shareholders of the
Company.

            n. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any labor union dispute nor, to the Knowledge of the
Company is any such dispute threatened. None of the Company's or its
Subsidiaries' employees is a member of a union that

                                       15
<PAGE>

relates to such employee's relationship with the Company and neither the Company
nor any of its Subsidiaries is a party to a collective bargaining agreement.
Except as set forth in Schedule 3(n), no executive officer (as defined in Rule
501(f) of the 1933 Act) has notified the Company that such executive officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company. No executive officer, to the Knowledge of the Company, is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance would not result,
either individually or in the aggregate, in a Material Adverse Effect.

            o. Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted. None of the Company's
and its Subsidiaries' trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights have expired or terminated, or are expected to
expire or terminate within two years from the date this representation is made.
The Company has no Knowledge of any infringement by the Company or any of its
Subsidiaries of trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, trade secrets or other intellectual property rights of others, or of
any development of similar or identical trade secrets or technical information
by others. There is no claim, action or proceeding being made or brought
against, or to the Company's Knowledge, being threatened against, the Company or
any of its Subsidiaries regarding its trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses or trade secrets, or infringement of other intellectual
property rights. The Company does not have any Knowledge of any facts or
circumstances that could reasonably be expected to give rise to any of the
foregoing. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties.

            p. Environmental Laws. Except as set forth in Schedule 3(p), and
except as could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, the Company and its Subsidiaries (I) are in
compliance with any and all Environmental Laws (as defined below), (II) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses as
presently conducted and (III) are in compliance with all terms and conditions of
any such permit, license or approval. The term "ENVIRONMENTAL LAWS" means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including ambient air, surface water,
groundwater, land surface or subsurface strata), including laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or

                                       16
<PAGE>

toxic or hazardous substances or wastes into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of hazardous materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

            q. Title. Except as set forth in Schedule 3(bb), neither the Company
nor any of its Subsidiaries has any interest in real property or any oil, gas or
other mineral drilling, exploration or development rights. The Company and its
Subsidiaries have good and valid title to all personal property owned by them
that is material to the business of the Company and its Subsidiaries, in each
case free and clear of all Liens except such as are described in Schedule 3(q).
The Company and its Subsidiaries have good, marketable and indefeasible title in
fee simple to all real property owned (rather than leased) by them (the "OWNED
REAL PROPERTY") as set forth on Schedule 3(q), in each case free and clear of
all Liens, other than Permitted Liens, except such as are described in Schedule
3(q).

            r. Insurance. The Company and each of its Active Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its Active
Subsidiaries are engaged. Neither the Company nor any such Active Subsidiary has
been refused any insurance coverage sought or applied for, and neither the
Company nor any such Active Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material Adverse
Effect.

            s. Regulatory Permits. Except as set forth on Schedule 3(s) or as
could not, individually or in the aggregate, reasonably be expected to have any
of (i) a Material Adverse Effect, (ii) a Services Business Material Adverse
Effect, (iii) a Property Material Adverse Effect, or (iv) a material adverse
effect on the production, extraction, transportation or sale of oil, gas,
minerals or other Hydrocarbons (as defined in the Mortgages) from any portion of
the Real Property (as defined in Section 3(bb)) that is producing oil, gas,
minerals and/or other Hydrocarbons at the time this representation is made, the
Company and its Active Subsidiaries possess all certificates, authorizations,
approvals, licenses and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective businesses
as conducted at the time this representation is made ("PERMITS"), and neither
the Company nor any such Active Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such Permit.
Without limiting the foregoing, except as set forth on Schedule 3(s), the
Company and its Active Subsidiaries possess all Permits necessary to produce,
extract, transport and sell the oil, gas and other minerals in that portion of
Real Property that is producing oil, gas, minerals and/or other Hydrocarbons at
the time this representation is made. Except as set forth in Schedule 3(s) or as
could not reasonably be expected to have a Material Adverse Effect or a Property
Material Adverse Effect, the Company and its Active Subsidiaries have no reason
to believe that they will not be able to obtain necessary Permits as and when
necessary to enable the Company to produce, extract, transport and sell the oil,
gas, minerals and other Hydrocarbons in the Real Property. The Company is not in
violation of any of the rules, regulations or requirements of The NASDAQ
National Market (the "PRINCIPAL MARKET";

                                       17
<PAGE>

provided however, that, if after the date of this Agreement the Common Stock is
listed on the New York Stock Exchange or both the NASDAQ National Market or the
New York Stock Exchange, the "PRINCIPAL MARKET" shall mean the New York Stock
Exchange or both the NASDAQ National Market and the New York Stock Exchange, as
applicable) and has no knowledge of any facts or circumstances which would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. Since December 31, 2002, (i) the Company's
Common Stock has been listed on the Principal Market, (ii) trading in the Common
Stock has not been suspended by the SEC or the Principal Market and (iii) the
Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market. As used in this Agreement, "SERVICES BUSINESS MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition, credit
worthiness or prospects of the Services Business, and "PROPERTY MATERIAL ADVERSE
EFFECT" means any material adverse effect on the business, properties, assets,
operations, results of operations, financial condition, credit worthiness or
prospects of the Company and its Active Subsidiaries, taken as a whole, with
respect to any of the geographical areas described under the heading "major
properties"(or otherwise described) in Item 2 (or a comparable section) of the
Company's annual report on Form 10-K most recently filed by the Company prior to
the date this representation is made, or any such geographical area that will be
required to be described in the next annual report on Form 10-K to be filed by
the Company after the date this representation is made.

            t. Internal Accounting Controls; Disclosure Controls and Procedures.
The Company and each of its Active Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liability is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any differences. The Company maintains disclosure controls and
procedures required by Rule 13a-15 or Rule 15d-15 under the 1934 Act; such
controls and procedures are effective to ensure that the information required to
be disclosed by the Company in the reports that it files with or submits to the
SEC is recorded, processed, summarized and reported accurately within the time
periods specified in the SEC's rules and forms.

            u. Tax Status. The Company and each of its Active Subsidiaries (i)
has made or filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its Active
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes), (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and for which the Company has made appropriate
reserves on its books, and (iii) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations (referred to in clause
(i) above) apply. There are

                                       18
<PAGE>

no unpaid taxes in any material amount claimed in writing to be due by the
taxing authority of any jurisdiction, and to the Company's Knowledge, there is
no basis for any such claim.

            v. Transactions With Affiliates. Except as set forth in Schedule
3(v) or for transactions in which the sole obligation of the Company or any of
its Subsidiaries is the payment of cash in a maximum amount of $5,000
individually (for any single transaction) and $15,000 in the aggregate in any
calendar year, no Related Party (as defined in Section 4(j)) of the Company or
any of its Subsidiaries, nor any of their respective affiliates, is presently,
or has been within the past two years, a party to any transaction, contract,
agreement, instrument, commitment, understanding or other arrangement or
relationship with the Company or any of its Subsidiaries (other than for
services as an employee, officer and/or director), whether for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments or consideration to or from any such Related
Party. Except as set forth in Schedule 3(v), no Related Party of the Company or
any of its Subsidiaries, or any of their respective affiliates, has any direct
or indirect ownership interest in any Person (other than ownership of less than
2% of the outstanding common stock of a publicly traded corporation) in which
the Company or any of its Subsidiaries has any direct or indirect ownership
interest or with which the Company or any of its Subsidiaries competes or has a
business relationship.

            w. Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the Articles of Incorporation or the laws
of Colorado that is or could become applicable to the Buyers as a result of the
transactions contemplated by this Agreement, including the Company's issuance of
the Securities and the Buyers' ownership of the Securities.

            x. Rights Agreement. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.

            y. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor to the Company's Knowledge, any director, officer, agent,
employee or other person acting on behalf of the Company or any of its Active
Subsidiaries has, in the course of its actions for, or on behalf of, the
Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made
any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.

            z. No Other Agreements. As of the Initial Closing Date, the Company
has not, directly or indirectly, made any agreements with any Buyers relating to
the terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.

                                       19
<PAGE>

            aa. Outstanding Indebtedness; Liens. Payments of principal and other
payments due under the Notes will, upon issuance in connection with the
Closings, rank senior to all other Indebtedness (as defined in the Notes) of the
Company or any of its Subsidiaries (other than, at the Initial Closing, with
respect to the repayment of the Indebtedness required to be repaid by Section
4(u), and provided, however, that such payments will be no less than pari passu
with Indebtedness permitted under clauses (a)(IV), (a)(V), (a)(VI) (a)(VII),
(a)(VIII) and (A)(IX) of Section 4(n)) and, by virtue of their secured position,
to all trade account payables of the Company or any of its Subsidiaries. Except
as set forth on Schedule 3(aa), (I) neither the Company nor any of its
Subsidiaries has any outstanding Indebtedness or trade account payables, (II)
there are no Liens on any of the assets of the Company and its Subsidiaries, and
(III) there are no financing statements securing obligations of any amounts
filed against the Company or any of its Subsidiaries or any of their respective
assets.

            bb. Real Property. Schedule 3(bb) (subject to the exclusions set
forth therein) contains a complete and correct list of all the real property;
facilities; and oil, gas and other mineral drilling, exploration and development
rights, concessions, working interests and participation interests (including
all Hydrocarbon Property (as defined in the Mortgages)) that (i) are leased or
otherwise owned or possessed by the Company or any of its Subsidiaries, (ii) in
connection with which the Company or any of its Subsidiaries has entered into an
option agreement, participation agreement or acquisition and drilling agreement
or (iii) the Company or any of its Subsidiaries has agreed (or has an option) to
lease or otherwise acquire or may be obligated to lease or otherwise acquire in
connection with the conduct of its business (collectively, the "REAL PROPERTY").
Schedule 3(bb) also contains a complete and correct list of all leases and other
agreements with respect to which the Company or any of its Subsidiaries is a
party or otherwise bound or affected with respect to the Real Property, except
easements, rights of way, access agreements, surface damage agreements, surface
use agreements or similar agreements that pertain to Real Property that is
contained wholly within the boundaries of any owned or leased Real Property
otherwise described on Schedule 3(bb) (the "REAL PROPERTY LEASES"). The lists of
Real Property and Real Property Leases included in Schedule 3(bb) do not contain
any material non-public information. Except as set forth in Schedule 3(bb), the
Company is the legal and equitable owner of a leasehold interest in all of the
Real Property that is producing oil, gas, minerals and/or other Hydrocarbons at
the time this representation is made ("PRODUCING PROPERTY"), and possesses good,
marketable and defensible title thereto, free and clear of all Liens (other than
Permitted Liens) and other matters affecting title to such leasehold that could
impair the ability of the Company and its Subsidiaries to realize the benefits
of the rights provided to any of them under the Real Property Leases. Except
with respect to the Owned Real Property, the Company is the legal and equitable
owner of a leasehold interest in all of the Real Property that is not Producing
Property and, except as could not reasonably be expected, individually or in the
aggregate, to have any of a Material Adverse Effect, a Property Material Adverse
Effect or a Services Business Material Adverse Effect, possesses good,
marketable and defensible title thereto, free and clear of all Liens (other than
Permitted Liens) and other matters affecting title to such leasehold that could
impair the ability of the Company and its Subsidiaries to realize the benefits
of the rights provided to any of them under the Real Property Leases. All of the
Real Property Leases with respect to Producing Property are valid and in full
force and effect and are enforceable against all parties thereto, (ii) neither
the Company nor any of its Subsidiaries nor, to the Company's Knowledge, any
other party thereto is in default in any material respect under any of such Real
Property Leases and (iii) no event has

                                       20
<PAGE>

occurred which with the giving of notice or the passage of time or both could
constitute a default under, or otherwise give any party the right to terminate,
any of such Real Property Leases, or could adversely affect the Company's or any
of its Subsidiaries' interest in and title to the Real Property subject to any
of such Real Property Leases. Except as could not reasonably be expected,
individually or in the aggregate, to have any of a Material Adverse Effect, a
Property Material Adverse Effect or a Services Business Material Adverse Effect,
(i) all of the Real Property Leases with respect to all of the Real Property
that is not Producing Property are valid and in full force and effect and are
enforceable against all parties thereto, (ii) neither the Company nor any of its
Subsidiaries nor, to the Company's Knowledge, any other party thereto is in
default under any of such Real Property Leases and (iii) no event has occurred
which with the giving of notice or the passage of time or both could constitute
a default by the Company or its Subsidiaries under, or otherwise give any party
the right to terminate, any of such Real Property Leases, or could adversely
affect the Company's or any of its Subsidiaries' interest in and title to the
Real Property subject to any of such Real Property Leases. No Real Property
Lease is subject to termination, modification or acceleration as a result of the
transactions contemplated hereby. Except as set forth in Schedule 3(bb), all of
the Real Property Leases will remain in full force and effect upon, and permit,
the consummation of the transactions contemplated hereby (including the granting
of leasehold mortgages). Except as could not reasonably be expected,
individually or in the aggregate, to have either a Material Adverse Effect or a
Property Material Adverse Effect, the Real Property are permitted for their
present uses under applicable zoning laws, are permitted conforming structures
and comply with all applicable building codes, ordinances and other similar
legal requirements. Except as set forth on Schedule 3(bb), there are no pending
or, to the Knowledge of the Company, threatened condemnation, eminent domain or
similar proceedings, or litigation or other proceedings affecting the Real
Property, or any portion or portions thereof. Except as set forth on Schedule
3(bb), to the Knowledge of the Company, there are no pending or threatened
requests, applications or proceedings to alter or restrict any zoning or other
use restrictions applicable to the Real Property that would interfere with the
conduct of the Company's or any of its Subsidiaries' business as conducted at
the time this representation is made. Except as set forth on Schedule 3(bb),
there are no restrictions applicable to the Real Property that would interfere
with the Company's or any of its Subsidiary's making an assignment or granting
of a leasehold or other mortgage to the Buyers as contemplated by the Security
Documents (as defined in the Notes), including any requirement under any Real
Property Leases requiring the consent of, or notice to, any lessor of any such
Real Property. None of the Real Property of the Company and its Subsidiaries
located in the State of Kansas is currently producing any Hydrocarbons, and none
of such Real Property has any material value as of the date hereof.

            cc. Joint Value Enhancement Agreement. The Joint Value Enhancement
Agreement, dated December 3, 2003, among Infinity Oil & Gas of Wyoming, Inc.
("IOGW"), Schlumberger Technology Corporation and Red Oak Capital Management LP
(the "JVEA") has been terminated and will be of no further force or effect as of
and after February 6, 2005; provided, however, that (i) the obligation to make
Deferred Payments (as such term is defined in the JVEA) under Article 5 of the
JVEA in respect of each Bundle (as such term is defined in the JVEA) shall
continue for the full period provided by Article 5.2 of the JVEA for that
Bundle, and (ii) the confidentiality provisions of Article 10 of the JVEA shall
continue for a period of eighteen (18) months following the termination of the
JVEA.

                                       21
<PAGE>

      4.    COVENANTS.

            a. Best Efforts. Each party shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.

            b. Form D and Blue Sky. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to
qualify the Securities for, sale to the Buyers at each of the Closings pursuant
to this Agreement under applicable securities or "Blue Sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the Buyers on or prior to each of the Closing Dates. The Company shall make all
filings and reports relating to the offer and sale of the Securities required
under applicable securities or "Blue Sky" laws of the states of the United
States following each of the Closing Dates.

            c. Reporting Status. Until the latest of (i) the date that is one
year after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto), (ii) the date on which no Notes or Warrants
remain outstanding, and (iii) the date that is the last day of the Additional
Note Issuance Period (the "REPORTING PERIOD"), the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.

            d. Use of Proceeds. The Company will use the proceeds from the sale
of the Notes and Warrants first (i) to pay expenses and commissions related to
the sale of the Notes and Warrants, (ii) to repay all outstanding borrowings
(including principal thereof and accrued but unpaid interest and fees thereon)
of Consolidated Oil Well Services, Inc. (a Subsidiary of the Company)
("CONSOLIDATED"), under Consolidated's term loan and lines of credit
(collectively, the "LASALLE FACILITY") with LaSalle Bank, N.A. ("LASALLE"), such
repayment to be made as of the Initial Closing, (iii) to repay all outstanding
borrowings (including principal thereof and accrued but unpaid interest and fees
thereon) of Infinity Oil & Gas of Wyoming, Inc. (a Subsidiary of the Company)
("INFINITY-WYOMING"), under Infinity-Wyoming's credit facility (the "U.S. BANK
FACILITY") with U.S. Bank National Association ("U.S. Bank"), such repayment to
be made as of the Initial Closing, and (iv) to pay the redemption price of any
of the Company's 8% Subordinated Convertible Notes due 2006 (the "8% NOTES")
redeemed by the Company as required by Section 4(q), in each case as more
specifically described and in the amounts indicated in Schedule 4(d). Except as
provided in Section 4(r) and 4(u), the Company will use the remainder of such
proceeds to fund its oil and gas exploration and development operating
activities (and not for the redemption or repayment of any Indebtedness).

            e. Financial Information. The Company agrees to send the following
to each Investor (as that term is defined in the Registration Rights Agreement)
during the Reporting Period: (i) within one (1) day after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports
on Form 10-Q, any Current Reports on Form 8-K and any

                                       22
<PAGE>

registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, unless the foregoing are filed with the SEC through EDGAR and are
immediately available to the public through EDGAR; (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries, except to the extent such release is available through
Bloomberg Financial Markets (or any successor thereto) contemporaneously with
such issuance; and (iii) copies of any notices and other information made
available or given to the shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders.

            f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 100% of the aggregate number of shares of Common Stock
issuable upon exercise of all outstanding Warrants.

            g. Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stock's listing on the NASDAQ National Market or the New
York Stock Exchange. Neither the Company nor any of its Subsidiaries shall take
any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(g).

            h. Expenses. Subject to Section 9(k) below, at each Closing, the
Company shall pay each of the Buyers a non-accountable reimbursement amount
equal to such Buyer's Reimbursement Allocation Percentage, as set forth opposite
such Buyer's name on the Schedule of Buyers (which for all Buyers shall total
1.5%), multiplied by the original principal amount of Notes purchased by all the
Buyers at such Closing to cover due diligence, negotiating and preparing the
Transaction Documents and consummating the transactions contemplated thereby
(less at the Initial Closing, in the case of HFTP Investment L.L.C., a Buyer
("HFTP"), the $25,000 previously paid to HFTP as a reimbursement). The amount
payable to each Buyer pursuant to the preceding sentence at each Closing shall
be withheld as an off-set by such Buyer from its Purchase Price to be paid by it
at such Closing.

            i. Disclosure of Transactions and Other Material Information.
Contemporaneous with or prior to the earlier of (i) the Company's first public
announcement of the transactions contemplated hereby and (ii) 8:00 a.m. (New
York City time) on the second (2nd) Business Day following the Initial Closing
Date, the Company shall file a Form 8-K with the SEC describing the terms of the
transactions contemplated by the Transaction Documents and including as exhibits
to such Form 8-K this Agreement (including the schedules hereto, other than the
lists of Real Property and Real Property Leases included in Schedule 3(bb)), the
Form of Initial Note, the Form of Additional Note, the Registration Rights
Agreement, the Form of Warrant, the Form of Security Agreement, the Form of
Guaranty and the Form of Mortgage, in the form required by the 1934 Act (the
"ANNOUNCING FORM 8-K"). Unless required by law or a

                                       23
<PAGE>

rule of the Principal Market, the Company shall not make any public announcement
regarding the transactions contemplated hereby prior to the Initial Closing. No
later than 8:00 a.m. (New York City time) on the first (1st) Business Day
following each Additional Sale Election Notice Date and each Additional Closing
Date, the Company shall file a Form 8-K with the SEC describing the terms of the
transactions proposed or consummated in connection with such Additional Sale
Election Notice Date or Additional Closing Date. From and after the filing of
the Announcing Form 8-K with the SEC, no Buyer shall be in possession of any
material nonpublic information received from the Company, any of its
Subsidiaries or any of their respective officers, directors, employees or
agents. The Company shall not, and shall cause each of its Subsidiaries and its
and each of their respective officers, directors, employees and agents not to,
provide any Buyer with any material nonpublic information regarding the Company
or any of its Subsidiaries from and after the filing of the Announcing Form 8-K
with the SEC without the express prior written consent of such Buyer. In the
event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public disclosure
twenty-four (24) hours after notifying the Company in writing of its intention
to do so, in the form of a press release, public advertisement or otherwise, of
such material nonpublic information without the prior approval by the Company,
its Subsidiaries, or any of its or their respective officers, directors,
employees or agents. No Buyer shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
shareholders or agents for any such disclosure. Subject to the foregoing,
neither the Company nor any Buyer shall issue any press releases or any other
public statements with respect to the transactions contemplated hereby or
disclosing the name of any Buyer; provided, however, that the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in substantial
conformity with the Announcing Form 8-K and contemporaneously therewith and (ii)
as is required by applicable law and regulations (provided that each Buyer shall
be consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).

            j. Transactions With Affiliates. From the date of this Agreement
until the first date following the Initial Closing Date on which no Notes or
Warrants are outstanding, the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement any transaction,
contract, agreement, instrument, commitment, understanding or other arrangement
with any of its or any Subsidiary's officers, directors, persons who were
officers or directors at any time during the previous two years, shareholders
(other than any holder of less than 5% of the outstanding Common Stock), or
affiliates of the Company or any of its Subsidiaries, or with any individual
related by blood, marriage or adoption to any such individual or with any entity
in which any such entity or individual owns a beneficial interest (each a
"RELATED PARTY"), except for (a) customary employment arrangements and benefit
programs on reasonable terms, or (b) any transaction, contract, agreement,
instrument, commitment, understanding or other arrangement on an arms-length
basis that is on terms no less favorable than terms that would have been
obtainable from a person other than such Related Party and that is approved by a
majority of the disinterested directors of the Company. For purposes hereof, any
director who is also an officer of the Company or any Subsidiary shall not be a
disinterested director with respect to any such transaction, contract,
agreement, instrument,

                                       24
<PAGE>

commitment, understanding or other arrangement. "AFFILIATE" for purposes hereof
means, with respect to any person or entity, another person or entity that,
directly or indirectly, (i) has a 5% equity interest in that person or entity,
(ii) has a common ownership with that person or entity, (iii) controls that
person or entity, (iv) is controlled by that person or entity or (v) shares
common control with that person or entity. "CONTROL" or "CONTROLS" for purposes
hereof means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity.

            k. Shareholder Approval. In the event that the Company solicits
approval by the Company's shareholders of the Company's issuance of all of the
Conversion Shares and Warrant Shares, as set forth in this Agreement, the Notes
and the Warrants, in accordance with the rules and regulations of the Principal
Market (such approval being referred to herein as "SHAREHOLDER APPROVAL"), each
Buyer and a counsel of its choice shall be entitled to review, prior to filing
with the SEC, the proxy statement to be provided by the Company to its
shareholders in connection with soliciting Shareholder Approval, which proxy
statement shall not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

            l. Corporate Existence; Real Property Leases. From the date of this
Agreement until the first date following the Initial Closing Date on which no
Notes or Warrants are outstanding, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the assets of the
Company's assets (including, for the avoidance of any doubt, all or
substantially all of the assets of the Subsidiaries in the aggregate), except in
the event of a merger or consolidation or sale or transfer of all or
substantially all of the Company's assets (including, for the avoidance of any
doubt, all or substantially all of the assets of the Subsidiaries in the
aggregate), where the surviving or successor entity in such transaction (i)
assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is quoted on or listed for trading on the NASDAQ
National Market or the New York Stock Exchange. From the date of this Agreement
until the end of the Additional Note Issuance Period and for so long as any
Notes or Warrants are outstanding, the Company shall, and shall cause each of
its Subsidiaries to, refrain from violating, breaching or defaulting under in
any respect, or taking or failing to take any action that (with or without
notice or lapse of time or both) would constitute a violation or breach of, or
default under, any term or provision of any Real Property Lease to which the
Company or any of its Subsidiaries is a party, except to the extent such
violation, breach or default, action or in-action could not reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect.

            m. Pledge of Securities. The Company acknowledges and agrees that
the Securities may be pledged by an Investor (as defined in the Registration
Rights Agreement) in connection with a bona fide margin agreement or other loan
secured by the Securities. The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting any such pledge of Securities shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document, including Section 2(f) of
this Agreement; provided that an Investor and its pledgee shall be required to
comply with the provisions of

                                       25
<PAGE>

Section 2(f) in order to effect a sale, transfer or assignment of Securities to
such pledgee. The Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.

            n. Priority of Notes. From the date of this Agreement until the
first date following the Initial Closing Date on which no Notes are outstanding,
the Company shall not, and shall not permit any of its Subsidiaries to, (a)
issue, assume or incur any Indebtedness (as defined in the Notes), except for
(I) Indebtedness under the Notes, (II) Indebtedness (A) the holders of which
agree in writing to be subordinate to the Notes on terms and conditions
acceptable to the Buyers, including with regard to interest payments and
repayment of principal, (B) which does not mature or otherwise require or permit
redemption or repayment prior to or on the Maturity Date of any Notes then
outstanding, and (C) which is not secured by any of the assets of the Company or
any of its Subsidiaries ("PERMITTED SUBORDINATED INDEBTEDNESS"), (III)
Indebtedness solely between the Company and/or one of its domestic Active
Subsidiaries on the one hand, and the Company and/or one of its domestic Active
Subsidiaries on the other, provided that in each case a majority of the equity
of any such domestic Active Subsidiary is directly or indirectly owned by the
Company, such domestic Active Subsidiary is controlled by the Company and such
domestic Active Subsidiary is a party to the Guaranty Agreement and the Security
Agreement, (IV) surety bonds, bids, performance bonds, and similar obligations
(exclusive of obligations for the payment of borrowed money) obtained by the
Company and its Subsidiaries in the ordinary course of business for the purpose
of satisfying federal, state and/or local legal requirements for owning and
operating their oil and gas properties or for operating the Services Business
(as defined in Section 4(s)), (V) Capital Lease Obligations incurred in
connection with acquiring equipment for the Company's oil and gas exploration
and production business in amounts not exceeding individually, the fair market
value of the equipment subject to such Capital Lease Obligations and in an
aggregate outstanding amount not exceeding 7.5% of After-tax PV10 (as defined in
the Notes) at any one time, (VI) reimbursement obligations in respect of letters
of credit issued by one or more financial institutions for the account of the
Company or any of its Active Subsidiaries in connection with the Company's
establishment and maintenance of a Hedged (as defined in Section 4(t)) position
with respect to, at any time, a maximum of 2/3 of the Company's estimate of its
oil and gas production for the succeeding 12 calendar months on a rolling
12-calendar month basis, (VII) reimbursement obligations in respect of letters
of credit issued for the account of the Company or any of its Active
Subsidiaries for the purpose of securing performance obligations of the Company
or its Active Subsidiaries incurred in the ordinary course of business (and not
issued in connection with the Company's establishment and maintenance of a
Hedged position) so long as the aggregate face amount of all such letters of
credit does not exceed $1,000,000 at any one time, (VIII) Indebtedness under
that certain unsecured promissory note, dated January 27, 2003, in the name of
Dobber Aviation, L.L.C., in a principal amount not exceeding $2,500,000 (less
any payments of principal thereon or other reductions to principal made from
time to time with respect thereto), and (IX) that certain unsecured obligation
of the Company to Premium Assignment Corporation existing as of the date of this
Agreement in an amount not to exceed $159,623.86 (less any payments of such
obligation or other reductions to such obligation made from time to time with
respect thereto); (b) issue, incur, assure or extend the term of any
Indebtedness in a principal amount in excess of $2,000,000 where the proceeds of
such Indebtedness are to be used to develop, or in connection with the
development, of assets located outside the United States in

                                       26
<PAGE>

which the holders of the Notes do not have a valid perfected, first priority
security interest; (c) issue any capital stock of the Company or any Subsidiary
redeemable prior to or on the Maturity Date of any Notes then outstanding; (d)
directly or indirectly, create, assume or suffer to exist any Lien, other than a
Permitted Lien, on any asset now owned or hereafter acquired by the Company or
any of its Subsidiaries or (e) except as required or expressly permitted by
Section 4(d), 4(q), 4(r) or 4(u), redeem, or otherwise repay in cash any
principal of any Indebtedness (other than Indebtedness under the Notes and
Indebtedness permitted by clauses (a)(III), (a)(IV), (a)(V), (a)(VI), (a)(VII),
(a)(VIII) and (a)(IX) of this Section 4(n)). The provisions of this Section 4(n)
are in furtherance of Section 12 of the Notes, and in no way limit the other
restrictions on or obligations of the Company pursuant to Section 12 of the
Notes or otherwise.

            o. Restriction on Loans; Investments; Subsidiary Equity. From the
date of this Agreement until the first date following the Initial Closing Date
on which no Notes are outstanding, the Company shall not, and shall not permit
any of its Subsidiaries to, (i) except for Permitted Investments (as defined
herein) in which the holders of the Notes have a valid, perfected first priority
security interest, make any loans to, or investments in, any other person or
entity, including through lending money, deferring the purchase price of
property or services (other than trade accounts receivable on terms of ninety
(90) days or less), purchasing any note, bond (excluding surety and similar
bonds obtained by the Company and its Subsidiaries in the ordinary course of
their business to the extent permitted by clause (a)(IV) of Section 4(n)),
debenture or similar instrument, entering into any letter of credit (except as
permitted by clause (a)(VI) or (a)(VII) of Section 4(n)), guaranteeing (or
taking any action that has the effect of guaranteeing) any obligations of any
other person or entity, or acquiring any equity securities of, or other
ownership interest in, or making any capital contribution to any other entity
(provided, however that the Company and its domestic Active Subsidiaries may
make loans to each other to the extent the incurrence of the Indebtedness
represented by such loans would not be prohibited by Section 4(n)), (ii) invest
in, participate in, lease, purchase, obtain or otherwise acquire any real
property, facilities, or oil, gas or other mineral drilling, exploration or
development rights, concessions, working interests or participation interests
(collectively, "INTERESTS") in which the Buyers are not provided with a valid,
perfected first priority security interest in such Interests on or prior to the
date that is the earliest of (I) the tenth Business Day of the subsequent
calendar quarter, (II) ten (10) Business Days after the date on which the
aggregate acquisition price of such investments, participations, leases,
purchases or acquisitions exceeds $1,000,000 during a calendar quarter and (III)
concurrently with any investment, participation, lease, purchase or acquisition
that has an acquisition price that individually exceeds $1,000,000, or (iii)
issue, transfer or pledge any capital stock or equity interest in any Subsidiary
to any Person other than the Company. "PERMITTED INVESTMENTS" means any
investment in (A) direct obligations of the United States, or obligations
guaranteed by the United States, in each case which mature and become payable
within 90 days of the investment by the Company or any Subsidiary, (B)
commercial paper rated at least A-1 by Standard & Poor's Ratings Service and P-1
by Moody's Investors Services, Inc., (C) time deposits with, including
certificates of deposit issued by, any office located in the United States of
any bank or trust company which is organized under the laws of the United States
or any State thereof and has capital, surplus and undivided profits aggregating
at least $500,000,000 and which issues (or the parent of which issues)
certificates of deposit or commercial paper with a rating described in clause
(B) above, in each case which mature and become payable within 90 days of the
investment by the Company or any Subsidiary, (D) repurchase agreements with
respect to securities described in clause (A) above entered into

                                       27
<PAGE>

with an office of a bank or trust company meeting the criteria specified in
clause (C) above, provided in each case that such investment matures and becomes
payable within 90 days of the investment by the Company or any Subsidiary, or
(E) any money market or mutual fund which invests only in the foregoing types of
investments and the liquidity of which is satisfactory to the Secured Party (as
defined in the Security Agreement).

            p. Restriction on Purchases or Payments. From the date of this
Agreement until the first date following the Initial Closing Date on which no
Notes are outstanding, the Company shall not, and shall not permit any of its
Subsidiaries to, (i) declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock; provided however, that any
Subsidiary may declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any of its capital stock that is held solely by the Company or by a domestic
Active Subsidiary, provided that a majority of the equity of such domestic
Active Subsidiary is directly or indirectly owned by the Company, such domestic
Active Subsidiary is controlled by the Company and such domestic Active
Subsidiary is a party to the Guaranty Agreement and the Security Agreement, or
(ii) purchase, redeem or otherwise acquire, directly or indirectly, any shares
of the Company's capital stock or the capital stock of any of its Subsidiaries,
except repurchases of unvested shares at cost in connection with the termination
of the employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date of this Agreement and set forth on
Schedule 3(c).

            q. Redemption of 8% Subordinated Convertible Notes. As soon as
possible after the Initial Closing, and in any event within five (5) Business
Days thereafter, the Company shall mail or cause to be mailed a notice of
redemption of the 8% Notes in accordance with Section 3.02 of the Indenture for
the 8% Notes, dated as of December 21, 2001, between the Company and Wilmington
Trust Company, as trustee (the "8% INDENTURE"), to effect an optional redemption
of the 8% Notes pursuant to Section 3.05 of the 8% Indenture (such notice of
redemption to be mailed to the holders of the 8% Notes at least 30 days but not
more than 60 days before the redemption date), and shall redeem the 8% Notes in
accordance with Article III of the Indenture, subject to the right of the
holders of the 8% Notes to convert the 8% Notes into shares of Common Stock
pursuant to Article 8 of the 8% Indenture.

            r. Redemption of 7% Subordinated Convertible Notes. In the event
that, the Weighted Average Price (as defined in the Notes) of the Common Stock
exceeds $11.50 (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions after the date of this Agreement) on
any five (5) Trading Days (as defined in the Notes) during any period of 10
consecutive Trading Days while any of the Notes are outstanding, the Company
shall, as soon as possible after such fifth (5th) Trading Day and in any event
within five (5) Business Days thereafter, mail or cause to be mailed a notice of
redemption of the Company's 7% Subordinated Convertible Notes due 2007 (the "7%
NOTES") in accordance with Section 3.02 of the Indenture for the 7% Notes, dated
as of April 22, 2002, between the Company and Wilmington Trust Company, as
trustee (the "7% INDENTURE"), to effect an optional redemption of the 7% Notes
pursuant to Section 3.05 of the 7% Indenture (such notice of redemption to be
mailed to the holders of the 7% Notes at least 30 days but not more than 60 days
before the

                                       28
<PAGE>

redemption date), and shall redeem the 7% Notes in accordance with Article III
of the 7% Indenture, subject to the right of the holders of the 7% Notes to
convert the 7% Notes into shares of Common Stock pursuant to Article 8 of the 7%
Indenture. Except as provided in the immediately preceding sentence, from the
date of this Agreement until the earlier of the first date following the Initial
Closing Date on which no Notes are outstanding and April 15, 2007, the Company
shall not redeem, or otherwise repay in cash the principal of, the 7% Notes;
provided, however, that the Company may redeem, or otherwise repay in cash the
principal of, the 7% Notes using proceeds solely from the Company's issuance or
incurrence of Permitted Subordinated Indebtedness and the Company may redeem, or
otherwise prepay the principal of, the 7% Notes using nonredeemable capital
stock of the Company.

            s. Sale of Oil and Gas Well Services Operations. In the event that,
while any of the Notes are outstanding, the Company sells all or any portion of
its oil and gas well services operations (as described in the Company's annual
report on Form 10-K for the year ended December 31, 2003) (the "SERVICES
BUSINESS"), through the sale of any assets of such Services Business (other than
assets sold in the ordinary course of business in one or more good faith,
arms-length transactions to Persons that are not Related Parties where (I) the
aggregate value of all assets sold in such transactions is less than $300,000 in
any 365-day period and the holders of the Notes receive a valid, perfected first
priority security interest in the proceeds of such sales, or (II) the proceeds
of such sales are used solely for capital expenditures on assets for the
Services Business and the holders of the Notes receive a valid, perfected first
priority security interest in such assets), sale of any stock of Consolidated or
any other transaction, the Company shall promptly use any proceeds received from
such sale(s) by the Company or any of its Subsidiaries to redeem Principal (as
defined in the Notes) of the outstanding Notes, in accordance with the terms of
the Notes. In such case, the Company shall first redeem Principal of outstanding
Notes of the Series (as defined in the Notes) then having the latest Fixed
Maturity Date (as defined in the Notes) and then each Series having the next
latest Fixed Maturity Date, until all of such proceeds have been used.

            t. Hedging Requirement. As of each date (a "DETERMINATION DATE")
that is the end of a quarterly or annual period covered by a quarterly report on
Form 10-Q or annual report on Form 10-K (as the case may be) filed, or required
to be filed, by the Company with the SEC from the date of this Agreement until
the first date following the Initial Closing Date on which no Notes are
outstanding, at least 20% of the Company's estimate of its oil and gas
production for the 12-month period commencing immediately after such
Determination Date shall be protected from price fluctuations using derivatives,
fixed price agreements and/or volumetric production payments ("HEDGED"). Within
one (1) Business Day after the filing of the quarterly report on Form 10-Q or
annual report on Form 10-K covering the quarterly or annual period ended on such
Determination Date, the Company shall deliver to each Buyer a certificate as to
the Company's compliance with the foregoing, which certificate shall not contain
any material nonpublic information. The Company's obligation to hedge against
price fluctuations as set forth in this Section 3(t), the amount and nature of
such Hedged position and a statement as to the Company's compliance with this
requirement shall be disclosed in the quarterly report on Form 10-Q or annual
report on Form 10-K ended on such Determination Date, as filed with the SEC.

                                       29
<PAGE>

            u. Repayment of Certain Indebtedness. As soon as practicable after
the Initial Closing and in any event within thirty (30) Business Days
thereafter, the Company shall (i) repay all of the borrowings with respect to
the properties and vehicles listed on Schedule 4(u), in each case in the amounts
set forth thereon, and (ii) provide the Buyers valid perfected, first priority
security interests in such properties and vehicles (except, with respect to
vehicles, to the extent not required pursuant to the terms of the Security
Agreement) and all Owned Real Property not otherwise described on Schedule 4(u).

            v. Prohibition Against Variable Priced Securities. From the date of
this Agreement until the first date following the Initial Closing Date on which
no Notes or Warrants are outstanding, the Company shall not in any manner issue
or sell any Options (as defined below) or Convertible Securities (as defined
below) that are convertible into or exchangeable or exercisable for shares of
Common Stock at a price that varies or may vary with the market price of the
Common Stock, including by way of one or more resets to a fixed price or
increases in the number of shares of Common Stock issued or issuable, or at a
price that upon the passage of time or the occurrence of certain events
automatically is reduced or is adjusted or at the option of any Person may be
reduced or adjusted, whether or not based on a formulation of the then current
market price of the Common Stock, provided however, that the Company may
temporarily adjust the conversion price of the 7% Notes that are outstanding on
the date of this Agreement, to a lower fixed conversion price for a period of
not more than (30) thirty days in any 365-day period. For purposes of this
Agreement, "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) directly or indirectly convertible into or exchangeable or exercisable
for shares of Common Stock and "OPTIONS" means any rights, warrants or options
to subscribe for or purchase shares of Common Stock or Convertible Securities.

            w. Security Covenants. With respect to any Production Proceeds (as
defined in the Mortgages) received by Company or any of its Subsidiaries which
constitute (i) payment of oil or gas proceeds received on account of, or for the
benefit of, any third-party owner of oil or gas interests or (ii) taxes,
charges, costs and expenses that are required to be paid on account of such
Production Proceeds on account of, or for the benefit of, any third-party owner
of oil or gas interests (the items in clauses (i) and (ii), the "THIRD-PARTY
PRODUCTION PROCEEDS"), the Company shall, and shall cause its Subsidiaries to,
segregate that portion of Production Proceeds received on any day constituting
Third-Party Production Proceeds into a segregated Deposit Account (as defined in
the Security Agreement) covered by an Account Control Agreement (as defined in
the Security Agreement) which only has Third-Party Production Proceeds on
deposit therein at any time. Company shall, and shall cause its Subsidiaries to,
deposit all Production Proceeds not constituting Third-Party Production Proceeds
into a Deposit Account of the Company or one of its Subsidiaries which does not
contain Third-Party Production Proceeds or any other Production Proceeds that
are subject to an ownership interest or other claim by any third-party. The
Company shall provide written notice to the holders of the Notes as to which
Deposit Account is segregated for Third-Party Production Proceeds, and shall not
change the Deposit Account segregated for Third-Party Production Proceeds
without prior written consent of the holders of the Notes. Notwithstanding
anything else to the contrary contained in this Agreement or any Transaction
Document, Company shall, and shall cause its Active Subsidiaries to, enter into
Mortgages covering all Real Property located in the State of Kansas within
thirty (30) days of the Initial Closing and, in connection therewith, shall
simultaneously deliver to the Buyers an opinion from Kansas counsel acceptable
to the Buyers with respect to (i) the creation

                                       30
<PAGE>

and perfection of the security interests purported to be created by such
Mortgages, (ii) the compliance of such Mortgages with applicable laws, (iii)
taxes, fees or other charges required under applicable laws in connection with
the filing of such Mortgages, and (iv) such other opinions with respect to the
Mortgages as reasonably requested by the Buyers, in each case in form and
substance substantially similar to the opinions received by the Buyers in
connection with the Mortgages filed in connection with the Initial Closing. The
Company shall, and shall cause its Subsidiaries to, engage in the businesses
conducted by such Persons as of the date hereof (and businesses related or
complimentary thereto) and preserve, renew and keep in full force and effect
their respective material rights, privileges and franchises necessary or
desirable in the normal conduct of their business, including receiving,
collecting and enforcing their rights to receive payment of Production Proceeds,
enforcing liens and security interests in respect thereof and protecting their
interests in and to all Production Proceeds. Immediately upon creation of any
Active Subsidiary or any Inactive Subsidiary's becoming an Active Subsidiary,
the Company shall immediately pledge or cause to be pledged to the Buyers the
stock of such new Active Subsidiary in accordance with the terms of the Pledge
Agreement, and cause such Active Subsidiary to enter into the Guaranty and the
Security Agreement and such other Security Documents as necessary to grant to
the Buyers a security interest in, and lien on, substantially all of the assets
of such new Active Subsidiary, and comply with the terms thereof.

            x. North Sand Wash Leases. Notwithstanding anything to the contrary
contained in the Mortgages, IOGW shall be permitted to sell, free and clear of
any Liens in favor of the Buyers, all of its interests in and to the Real
Property Leases with respect to the Real Property located in the North Sand Wash
area that are subject to the letter of intent between IOGW and Contex Energy
Corporation dated December 14, 2004 (as previously disclosed to the Buyers), and
set forth on Exhibit A thereto, if, and only if, all of the following conditions
are satisfied: (i) such sale is consummated and IOGW receives the sale proceeds
thereof within four (4) months of the Initial Closing Date, (ii) no Event of
Default or Triggering Event, and no occurrence that, with the giving of notice
or passage of time would constitute an Event of Default or Triggering Event, has
occurred and is continuing at the time of such sale, (iii) such sale is to a
third party not affiliated with Company or any of its Subsidiaries, (iv) such
Real Property Leases do not cover an area of over 20,000 acres in the aggregate,
and (v) such Real Property Leases are sold for no less than $10.00 per net
mineral acre.

      5.    TRANSFER AGENT INSTRUCTIONS.

            The Company shall issue irrevocable instructions to its transfer
agent in the form attached hereto as Exhibit J (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"), and any subsequent transfer agent, to issue certificates or
credit shares to the applicable balance accounts at DTC, registered in the name
of each Buyer or its respective nominee(s), for the Conversion Shares and the
Warrant Shares in such amounts as specified from time to time by each Buyer to
the Company upon conversion of the Notes or exercise of the Warrants. Prior to
registration of the Conversion Shares and the Warrant Shares under the 1933 Act,
all such certificates shall bear the restrictive legend specified in Section
2(g). The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 2(f) (in the case of the Conversion
Shares and the Warrant Shares, prior to registration of the Conversion Shares
and the Warrant Shares under the 1933 Act) will be given by the Company to its
transfer agent and that the Securities shall otherwise be

                                       31
<PAGE>

freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. If a Buyer
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Securities may
be made without registration under the 1933 Act or the Buyer provides the
Company with reasonable assurances that the Securities can be sold pursuant to
Rule 144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates or credit
shares to the applicable balance accounts at DTC in such name and in such
denominations as specified by such Buyer and without any restrictive legend. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

      6.    CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

            a. Initial Closing Date. The obligation of the Company to issue and
sell the Initial Notes and the Initial Warrants to each Buyer at the Initial
Closing is subject to the satisfaction, at or before the Initial Closing Date,
of each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:

                  (i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.

                  (ii) Such Buyer shall have delivered to the Company the
Purchase Price (less the amount withheld pursuant to Section 4(h)) for the
Initial Notes and the Initial Warrants being purchased by such Buyer at the
Initial Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.

                  (iii) The representations and warranties of such Buyer shall
be true and correct as of the date when made and as of the Initial Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such date),
and such Buyer shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the Initial Closing
Date.

            b. Additional Closing Date. The obligation of the Company to issue
and sell the Additional Notes and Additional Warrants to each Buyer at any
Additional Closing is subject to the satisfaction, at or before the applicable
Additional Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived

                                       32
<PAGE>

by the Company at any time in its sole discretion by providing each Buyer with
prior written notice thereof:

                  (i) Such Buyer shall have delivered to the Company the
Purchase Price (less the amount withheld pursuant to Section 4(h)) for the
Additional Notes and Additional Warrants being purchased by such Buyer at such
Additional Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.

                  (ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of such Additional Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such date),
and such Buyer shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to such Additional Closing
Date.

      7.    CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

            a. Initial Closing Date. The obligation of each Buyer hereunder to
purchase the Initial Notes and the Initial Warrants from the Company at the
Initial Closing is subject to the satisfaction, at or before the Initial Closing
Date, of each of the following conditions, provided that these conditions are
for each Buyer's sole benefit and may be waived only by such Buyer at any time
in its sole discretion by providing the Company with prior written notice
thereof:

                  (i) Each of the Company and its Subsidiaries shall have
executed each of the Transaction Documents to which it is a party (other than
any Additional Notes and Additional Warrants) and delivered the same to such
Buyer.

                  (ii) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Initial Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such date)
and the Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Initial Closing
Date. Such Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Initial Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Buyer, including an update as of a date as close to the Initial Closing
Date as practicable of the representations contained in Sections 3(c) and 3(bb)
above.

                  (iii) Such Buyer shall have received (A) the opinion of Davis
Graham & Stubbs, LLP, dated as of the Initial Closing Date, which opinion will
address, among other things, laws of the State of Colorado applicable to the
transactions contemplated hereby, in form, scope and substance reasonably
satisfactory to such Buyer and in substantially the form of Exhibit K attached
hereto, and (B) the opinions of Davis Graham & Stubbs, LLP, Kluin & Bolt, LLC,
and Tate, Gowan and Wilson, each dated as of the Initial Closing Date, which
opinions will collectively address, among other things, certain laws of the
States of Wyoming, Kansas and Texas applicable to the security interests
provided pursuant to the Security Agreement, in form,

                                       33
<PAGE>

scope and substance reasonably satisfactory to such Buyer and in substantially
the form of Exhibit L attached hereto.

                  (iv) The Company shall have executed and delivered to such
Buyer the Note Certificates and the Initial Warrants (in such denominations as
such Buyer shall request) for the Initial Notes and the Initial Warrants being
purchased by such Buyer at the Initial Closing.

                  (v) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b) above and in a form reasonably
acceptable to such Buyer (the "RESOLUTIONS").

                  (vi) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Initial Notes and the exercise of the Initial
Warrants, at least 5,000,000 shares of Common Stock (such number to be adjusted
for any stock splits, stock dividends, stock combinations or other similar
transactions involving the Common Stock that are effective at any time after the
date of this Agreement).

                  (vii) The Irrevocable Transfer Agent Instructions shall have
been delivered to and acknowledged in writing by the Company's transfer agent,
and the Company shall have delivered a copy thereof to such Buyer.

                  (viii) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such entity's state or other jurisdiction of incorporation or
organization issued by the Secretary of State (or other applicable authority) of
such state or jurisdiction of incorporation or organization as of a date within
ten (10) days of the Initial Closing Date.

                  (ix) The Company shall have delivered to such Buyer a
secretary's certificate, dated as of the Initial Closing Date, certifying as to
(A) the Resolutions, (B) the Articles of Incorporation, certified as of a date
within ten (10) days of the Initial Closing Date, by the Secretary of State of
the State of Colorado, and (C) the Bylaws, each as in effect at the Initial
Closing.

                  (x) The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.

                  (xi) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five (5) days of the Initial Closing Date.

                  (xii) The Company and its Subsidiaries shall have delivered to
such Buyer evidence, satisfactory to such Buyer, of the repayment of all
borrowings (including all principal thereof and interest and fees thereon) under
the LaSalle Facility and the U.S. Bank Facility, and undertakings and
authorizations in a form acceptable to such Buyer concerning all UCC-3
termination statements and other notices, certificates, instruments, documents
and other

                                       34
<PAGE>

papers, filings and actions necessary or desirable to terminate and release all
security interests of LaSalle and U.S. Bank in the Collateral.

                  (xiii) The Company and its Subsidiaries shall have delivered
and pledged to such Buyer any and all Instruments, Negotiable Documents, Chattel
Paper (each of the foregoing terms, as defined in the Security Agreement) and
certificated securities (accompanied by stock powers executed in blank), duly
endorsed and/or accompanied by such instruments of assignment and transfer
executed by the Company and its Subsidiaries, in such form and substance as such
Buyer may request.

                  (xiv) The Company and its Subsidiaries shall have given,
executed, delivered, filed and/or recorded any financing statements, notices,
instruments, documents, agreements and other papers that may be necessary or
desirable (in the reasonable judgment of such Buyer) to create, preserve,
perfect or validate the security interest granted to such Buyer pursuant to the
Security Agreement and to enable such Buyer to exercise and enforce its rights
with respect to such security interest.

                  (xv) The Company shall not have made any public announcement
regarding the transactions contemplated by the Agreement prior to the Initial
Closing.

                  (xvi) The Company and its Subsidiaries shall have delivered to
such Buyer such other documents relating to the transactions contemplated by
this Agreement as such Buyer or its counsel may reasonably request.

            b. Additional Closing Date. The obligation of each Buyer hereunder
to purchase Additional Notes and Additional Warrants from the Company at any
Additional Closing is subject to the satisfaction, at or before the Additional
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived only by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:

                  (i) The Initial Closing shall have occurred.

                  (ii) The Company shall have complied with the requirements of
Section 1(b) (including the Additional Note Issuance Amount Limitations) and all
of the Additional Sale Notice Election Conditions set forth in Section 1(d)
shall have been satisfied as of such Additional Closing Date.

                  (iii) The representations and warranties of the Company
(including any exceptions thereto contained in the schedules hereto) shall be
true and correct as of the date when made and as of such Additional Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such date),
provided that such representations shall be true and correct as of such
Additional Closing Date giving effect to the updates required by the last
sentence of this paragraph (iii) so long as there is nothing disclosed in any
such updates that could, individually or in the aggregate, have a Material
Adverse Effect as determined by such Buyer, in good faith, in its sole
discretion, and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied

                                       35
<PAGE>

with by the Company at or prior to such Additional Closing Date. Such Buyer
shall have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of such Additional Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer,
including an update as of such Additional Closing Date of the representations
and related schedule contained in Section 3(c) above and an update of Schedules
3(a), 3(f), 3(g), 3(h), 3(n), 3(q), 3(s), 3(v), 3(aa) and 3(bb) hereto.

                  (iv) Such Buyer shall have received (A) the opinion of Davis
Graham & Stubbs, LLP (or such other law firm as is reasonably acceptable to the
Buyers being obligated to purchase at least two-thirds (2/3) of the aggregate
principal amount of the Additional Notes on such Additional Closing Date), dated
as of such Additional Closing Date, which opinion will address, among other
things, laws of the State of Colorado applicable to the transactions
contemplated hereby, in form, scope and substance reasonably satisfactory to
such Buyer and in substantially the form of Exhibit K attached hereto and (B)
the opinions of Davis Graham & Stubbs, LLP, Kluin & Bolt, LLC, and Tate, Gowan
and Wilson (or such other law firms as are reasonably acceptable to the Buyers
being obligated to purchase at least two-thirds (2/3) of the aggregate principal
amount of the Additional Notes on such Additional Closing Date), each dated as
of such Additional Closing Date, which opinions will collectively address, among
other things, certain laws of the States of Kansas, Wyoming and Texas (and any
other states in which the Company has properties or assets as of such Additional
Closing Date) applicable to the security interests provided pursuant to the
Security Agreement, in form, scope and substance reasonably satisfactory to such
Buyer and in substantially the form of Exhibit L attached hereto.

                  (v) The Company shall have executed and delivered to such
Buyer the Note Certificates and the Additional Warrants (in such denominations
as such Buyer shall request) for the Additional Notes and Additional Warrants
being purchased by such Buyer at such Additional Closing.

                  (vi) The Board of Directors of the Company shall have adopted,
and not rescinded or otherwise amended or modified resolutions consistent with
Section 3(b) above and in a form reasonably acceptable to such Buyer with
respect to the issuance at such Additional Closing Date of the Additional Notes
and Additional Warrants being purchased by the Buyers at such Additional Closing
Date.

                  (vii) As of such Additional Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the exercise of the Warrants, at least the number of shares
of Common Stock equal to 100% of the sum of (A) the aggregate number of shares
issuable as of such Additional Closing Date upon exercise of all Warrants
outstanding immediately prior thereto, and (B) the aggregate number of shares
that may be acquired as of such Additional Closing Date upon exercise of all
Additional Warrants issued and sold to all of the Buyers thereat.

                  (viii) The Irrevocable Transfer Agent Instructions shall
remain in effect as of such Additional Closing Date and the Company shall have
caused the Transfer Agent to deliver a letter to the Buyers to that effect.

                                       36
<PAGE>

                  (ix) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such entity's state or other jurisdiction of incorporation or
organization issued by the Secretary of State (or other applicable authority) of
such state of incorporation or organization as of a date within ten (10) days of
such Additional Closing Date.

                  (x) The Company shall have delivered to such Buyer a
secretary's certificate, dated as of such Additional Closing Date, certifying as
to (A) the Resolutions, (B) the Articles of Incorporation, certified as of a
date within ten (10) days of such Additional Closing Date, by the Secretary of
State of the State of Colorado and (C) the Bylaws, each as in effect at such
Additional Closing.

                  (xi) The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.

                  (xii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five (5) days of such Additional Closing
Date.

                  (xiii) The Company and its Subsidiaries shall have delivered
to such Buyer such other documents relating to the transactions contemplated by
this Agreement as such Buyer or its counsel may reasonably request.

      8.    INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their shareholders,
partners, officers, directors, employees and direct or indirect investors and
any of the foregoing persons' agents or other representatives (including those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "INDEMNITEES") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitees is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"INDEMNIFIED LIABILITIES"), incurred by any Indemnitees as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitees and arising out of or resulting from the
execution, delivery, performance or enforcement of the Transaction Documents in
accordance with the terms thereof or any other certificate, instrument or
document contemplated hereby or thereby in accordance with the terms thereof
(other than a cause of action, suit or claim brought or made against an
Indemnitee by such Indemnitee's owners, investors or affiliates), (d) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (e) the
status of such

                                       37
<PAGE>

Buyer or holder of the Securities as an investor in the Company. To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities that is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 8 shall
be the same as those set forth in Sections 6(a) and (d) of the Registration
Rights Agreement, including those procedures with respect to the settlement of
claims and the Company's rights to assume the defense of claims.

      9.    GOVERNING LAW; MISCELLANEOUS.

            a. Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The Parties acknowledge that
each of the Buyers has executed each of the Transaction Documents to be executed
by it in the State of New York and will have made the payment of the Purchase
Price from its bank account located in the State of New York. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

            b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to each other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

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

            d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity

                                       38
<PAGE>

or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.

            e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers that purchased at least two-thirds (2/3) of the aggregate
principal amount of the Initial Notes on the Initial Closing Date, or if prior
to the Initial Closing, by the Buyers listed on the Schedule of Buyers as being
obligated to purchase at least two-thirds (2/3) of the aggregate principal
amount of the Initial Notes. Any such amendment shall bind all holders of the
Notes and the Warrants. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Notes or Warrants then
outstanding. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents or holders of Notes, as the case may be.

            f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:

      If to the Company:

                Infinity, Inc.
                1401 West Main Street, Suite C
                Chanute, Kansas 66720
                Telephone: 620-431-6200
                Facsimile: 620-431-6262
                Attention: Chief Executive Officer

      and

                Infinity, Inc.
                950 17th Street
                Suite 800
                Denver, Colorado 80202
                Telephone: 720-932-7800
                Facsimile: 720-932-5409
                Attention: Senior Vice President

                                       39
<PAGE>

      With a copy to:

                Davis Graham & Stubbs, LLP
                1550 Seventeenth Street, Suite 500
                Denver, Colorado 80202
                Telephone: 303-892-9400
                Facsimile: 303-893-1379
                Attention: Deborah Friedman, Esq.

      If to the Transfer Agent:

                Computershare Investor Services
                350 Indiana Street
                Suite 800
                Golden, Colorado, 80401
                Telephone: 303-262-0714
                Facsimile: 303-262-0700
                Attention: Kathy Kinard

If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or, in the case of a Buyer or any other party named
above, at such other address and/or facsimile number and/or to the attention of
such other person as the recipient party has specified by written notice given
to each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or deposit with a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.

            g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds (2/3) of the aggregate principal
of the Notes then outstanding, including by merger or consolidation, except
pursuant to a Change of Control (as defined in Section 4(b) of the Notes) with
respect to which the Company is in compliance with Section 4(l) of this
Agreement, Section 4 of the Notes and Section 9 of the Warrants. A Buyer may
assign some or all of its rights hereunder without the consent of the Company;
provided, however, that any such assignment shall not release such Buyer from
its obligations hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and assumption, which consent
shall not be unreasonably withheld. Notwithstanding anything to the contrary
contained in the Transaction Documents, the Buyers shall be entitled to pledge
the Securities in connection with a bona fide margin account or other loan or
financing arrangement secured by the Securities.

                                       40
<PAGE>

            h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and, to the extent provided in Section 8 hereof, each Indemnitee, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.

            i. Survival. Unless this Agreement is terminated under Section
9(k)(i), the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive the Closings. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.

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

            k. Termination.

                  (i) In the event that the Initial Closing shall not have
occurred with respect to a Buyer on or before the third (3rd) Business Day
following the date of this Agreement due to the Company's or such Buyer's
failure to satisfy the conditions set forth in Sections 6(a) and 7(a) above (and
the nonbreaching party's failure to waive such unsatisfied condition(s)), the
nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 9(k)(i), the Company shall be
obligated to pay each of the Buyers (so long as such Buyer is not a breaching
party) its expense and commitment allowance as set forth in Section 4(h) as if
such Buyer had purchased the principal amount of Notes set forth opposite its
name on the Schedule of Buyers.

                  (ii) In the event that an Additional Closing shall not have
occurred with respect to a Buyer on or before the eighth (8th) Business Day
following an Additional Sale Election Notice Date due to the Company's or such
Buyer's failure to satisfy the conditions set forth in Sections 6(b) and 7(b)
above (and the nonbreaching party's failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate the
obligations with respect to such Additional Closing at the close of business on
such date without liability of any party to any other party with respect thereto
(and without affecting any other rights or obligations under this Agreement);
provided, however, that if a party's obligations with respect to such Additional
Closing are terminated pursuant to this Section 9(k)(ii), the Company shall be
obligated to reimburse the nonbreaching Buyers and their affiliates for their
expenses (including attorneys' fees and expenses) associated with such
Additional Closing.

            l. Placement Agent. The Company acknowledges that it has engaged
C.K. Cooper & Company as placement agent in connection with the sale of the
Notes and the related Warrants, which placement agent may have formally or
informally engaged other agents on its behalf. The Company shall be responsible
for the payment of any placement agent's fees or

                                       41
<PAGE>

broker's commissions relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including attorneys' fees and out-of-pocket
expenses) arising in connection with any such claim.

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

            n. Remedies. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies that such holders have been granted at any time under any other
agreement or contract and all of the rights that such holders have under any
law. Any person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security or proving actual damages), to recover damages by reason of any breach
of any provision of this Agreement and to exercise all other rights granted by
law.

            o. Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to the Registration Rights
Agreement, the Notes or Warrants or the Buyers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
by a trustee, receiver or any other person under any law (including any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.

            p. Independent Nature of Buyers. The obligations of each Buyer
hereunder are several and not joint with the obligations of any other Buyer, and
no Buyer shall be responsible in any way for the performance of the obligations
of any other Buyer hereunder. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder. The decision of
each Buyer to purchase the Securities pursuant to this Agreement has been made
by such Buyer independently of any other Buyer and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or any of its Subsidiaries
which may have been made or given by any other Buyer or by any agent or employee
of any other Buyer, and no Buyer or any of its agents or employees shall have
any liability to any other Buyer (or any other person or entity) relating to or
arising from any such information, materials, statements or opinions. Nothing
contained herein, and no action taken by any Buyer pursuant hereto or thereto,
shall be deemed to constitute the Buyers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Buyers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated hereby. Each Buyer shall be
entitled to independently protect and enforce its rights, including the rights
arising out of this Agreement the Notes or the Warrants, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.

                                       42
<PAGE>

            q. Interpretative Matters. Unless the context otherwise requires,
(a) all references to Sections, Schedules or Exhibits are to Sections, Schedules
or Exhibits contained in or attached to this Agreement, (b) each accounting term
not otherwise defined in this Agreement has the meaning assigned to it in
accordance with GAAP, (c) words in the singular or plural include the singular
and plural and pronouns stated in either the masculine, the feminine or neuter
gender shall include the masculine, feminine and neuter and (d) the use of the
word "including" in this Agreement shall be by way of example rather than
limitation.

                                   * * * * * *

                                       43
<PAGE>

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

COMPANY:                                 BUYERS:

INFINITY, INC.                           HFTP INVESTMENT L.L.C.
                                         By: Promethean Asset Management L.L.C.
                                             Its: Investment Manager
By: /s/ James A. Tuell
    --------------------------------
     Name: James A. Tuell
     Title: Senior Vice President
                                         By: /s/ Robert J. Brantman
                                             -----------------------------------
                                             Name: Robert J. Brantman
                                             Title: Partner and Authorized
                                                    Signatory

                                         AG DOMESTIC CONVERTIBLES, L.P
                                         By: Angelo, Gordon & Co., L.P.
                                             Managing Member of the General
                                             Partner

                                         By: /s/ Joseph R. Wekselblatt
                                             -----------------------------------
                                             Name:  Joseph R. Wekselblatt
                                             Title: Authorized Person

                                         AG OFFSHORE CONVERTIBLES, LTD.
                                         By: Angelo, Gordon & Co., L.P. Director

                                         By: /s/ Joseph R. Wekselblatt
                                             -----------------------------------
                                             Name:  Joseph R. Wekselblatt
                                             Title: Authorized Person

                                       44
<PAGE>

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
                                                                                    REIMBURSEMENT         INVESTOR'S LEGAL
                         BUYER ADDRESS             PRINCIPAL AMOUNT OF  ALLOCATION   ALLOCATION           REPRESENTATIVE'S
 BUYER'S NAME         AND FACSIMILE NUMBER           INITIAL NOTES      PERCENTAGE   PERCENTAGE     ADDRESS AND FACSIMILE NUMBER
---------------   ----------------------------    --------------------  ----------  -------------   --------------------------------
<S>               <C>                             <C>                   <C>         <C>             <C>
HFTP Investment   c/o Promethean Asset Management     $15,000,000           50%         1.17%       Katten Muchin Zavis Rosenman
L.L.C.            L.L.C.                                                                            525 W. Monroe Street Chicago,
                  750 Lexington Avenue                                                              Illinois 60661-3693
                  22nd Floor                                                                        Attention: Mark D. Wood, Esq.
                  New York, New York 10022                                                          Telephone: (312) 902-5200
                  Attention: Robert J.                                                              Facsimile: (312) 902-1061
                  Brantman
                  Telephone: (212) 702-5200
                  Facsimile: (212) 758-9620
                  Residence: Delaware

AG Domestic       c/o Angelo, Gordon & Co.            $ 5,000,000        16.67%         0.11%       Paul, Weiss, Rifkind, Wharton
Convertibles,     245 Park Avenue                                                                   & Garrison LLP 1285 Avenue of
L.P               New York, New York 10167                                                          the Americas
                  Attention:  Gary I. Wolf                                                          New York, New York 10019-6064
                  Telephone: (212) 692-2058                                                         Attention: Douglas A. Cifu, Esq.
                  Facsimile:  (212) 867-6449                                                        Telephone: (212) 373-3000
                  Residence:  Delaware                                                              Facsimile: (212)  759-3990

AG Offshore       c/o Angelo, Gordon & Co.            $10,000,000        33.33%         0.22%       Paul, Weiss, Rifkind,
Convertibles,     245 Park Avenue                                                                   Wharton & Garrison LLP 1285
Ltd.              New York, New York 10167                                                          Avenue of the Americas New York,
                  Attention: Gary I. Wolf                                                           New York 10019-6064
                  Telephone: (212) 692-2058                                                         Attention: Douglas A. Cifu, Esq.
                  Facsimile: (212) 867-6449                                                         Telephone: (212) 373-3000
                  Residence: British Virgin                                                         Facsimile: (212)  759-3990
                  Islands
</TABLE>

<PAGE>

                                    SCHEDULES

Schedule 3(a)    Subsidiaries
Schedule 3(c)    Capitalization
Schedule 3(f)    SEC Documents
Schedule 3(g)    Absence of Certain Changes
Schedule 3(h)    Litigation
Schedule 3(j)    Undisclosed Liabilities
Schedule 3(n)    Employee Relations
Schedule 3(p)    Environmental Laws
Schedule 3(q)    Title
Schedule 3(s)    Regulatory Permits
Schedule 3(v)    Transactions with Affiliates
Schedule 3(aa)   Outstanding Indebtedness; Liens
Schedule 3(bb)   Real Property, Leases
Schedule 4(d)    Use of Proceeds
Schedule 4(u)    Repayment of Certain Indebtedness

                                    EXHIBITS

Exhibit A        Form of Initial Note
Exhibit B        Form of Additional Note
Exhibit C        Form of Warrant
Exhibit D        Form of Registration Rights Agreement
Exhibit E        Form of Security Agreement
Exhibit F        Forms of Account Control Agreement
Exhibit G        Form of Guaranty
Exhibit H        Form of Pledge Agreement
Exhibit I        Form of Mortgage
Exhibit J        Form of Irrevocable Transfer Agent Instructions
Exhibit K        Form of Company Counsel Opinion
Exhibit L        Form of Company Regulatory Counsel Opinion
<PAGE>

                                    SCHEDULES

                          Dated as of January 13, 2005

These Schedules are the Schedules referred to in the Securities Purchase
Agreement, dated as of January 13, 2005 by and among Infinity, Inc., a Colorado
corporation (the "COMPANY"), and HFTP Investment L.L.C., a Delaware limited
liability company; AG Domestic Convertibles, L.P., a Delaware limited
partnership; and AG Offshore Convertibles, Ltd., a British Virgin Islands
corporation (the "PURCHASE AGREEMENT").

                                  INTRODUCTION

Capitalized terms and others used in these Schedules and not otherwise defined
herein are used as defined in the Purchase Agreement.

These Schedules are qualified in their entirety by reference to specific
provisions of the Purchase Agreement and are not intended to constitute, and
shall not be construed as constituting, any representation or warranty of the
Company except as and to the extent expressly provided in the Purchase
Agreement.

<PAGE>

                                  SCHEDULE 3(a)
                          ORGANIZATION, QUALIFICATIONS

<TABLE>
<CAPTION>
  NAME OF WHOLLY-OWNED SUBSIDIARY               STATE OF ORGANIZATION
<S>                                             <C>
Infinity Oil and Gas of Texas, Inc.             Delaware
Infinity Oil & Gas of Wyoming, Inc.             Wyoming
Consolidated Oil Well Services, Inc.            Kansas
CIS-Oklahoma, Inc.                              Kansas
Infinity Oil & Gas of Kansas, Inc.              Kansas
Consolidated Pipeline, Inc.                     Texas--Inactive
CIS Oil and Gas, Inc.                           Kansas--Inactive
L.D.C. Food Systems, Inc.                       New Jersey--Inactive
Infinity Operating Company                      Colorado--Inactive
Infinity Nicaragua Ltd.                         Bahamas - Inactive
Infinity Nicaragua Offshore Ltd                 Bahamas--Inactive
Rio Grande Resources, SA*                       Nicaragua--Inactive
</TABLE>

* Infinity Nicaragua Ltd. and Infinity Nicaragua Offshore Ltd. together own a
98.2% interest in Rio Grande Resources, SA. Pursuant to Nicaraguan law,
Nicaraguan companies must have a minimum of three shareholders and there are
three shareholders of Rio Grande.

                                       2
<PAGE>

                                  SCHEDULE 3(c)
                                 CAPITALIZATION

(A)   None.

(B)

      (i)   As of the date of this Agreement there are 1,165,250 options
            outstanding that were issued pursuant to Infinity's employee option
            plans.

      (ii)  7% Subordinated Convertible Notes due 2007
            8% Subordinated Convertible Notes due 2006

      (iii) Other Outstanding Stock Options and Warrants

<TABLE>
<CAPTION>
                                                                                                   EXPIRATION
     LAST NAME               FIRST NAME                OPTIONS        WARRANTS        PRICE            DATE
--------------------------------------------------------------------------------------------------------------
<S>                 <C>                                <C>            <C>             <C>          <C>
ADS Consulting                                            5,000                       8.7500        11/25/2007
ADS Consulting                                           10,000                       8.7500         6/27/2008
Burstein            Harvey M.                            50,000                       8.7500         1/23/2008
Burstein            Harvey M.                            34,000                       8.7500         4/15/2008
C. E. Unterberg Towbin                                        0       220,000         5.9900         6/13/2006
C. E. Unterberg Towbin                                        0       200,000         9.0550         4/15/2007
C. E. Unterberg Towbin                                   52,500                       8.7500         4/18/2008
DeBare              Charles                               8,000                       8.7500         4/18/2008
DeBare              Mary                                  8,000                       8.7500         4/18/2008
Depew               Mark                                 15,000                       8.7500        11/22/2007
Drawbridge Special Ops Fund                                           138,873         7.8800          7/2/2008
Esposito            Robert & Agatha                       4,000                       8.7500         4/18/2008
Falkner             Jerry                                40,000                       3.2190         7/13/2005
Frank               Neal                                  8,000                       8.7500         4/18/2008
Goettlieb           Michael                               8,000                       8.7500         4/18/2008
Gutfreund           John H.                               8,000                       8.7500         4/18/2008
Highbridge/Zwirn Special Ops.                                         138,873         7.8800          7/2/2008
Loeffelbein         James D.                             11,250                       7.3400          3/7/2007
Loeffelbein         James D.                             50,000                       8.7500         1/23/2008
Loeffelbein         James D.                             17,000                       8.7500         4/15/2008
Loeffelbein         James D.                             20,000                       8.7500         12/6/2009
Morse               Michael                              16,250                       7.3400          3/7/2007
Morse               Michael                              30,000                       8.7500         1/23/2008
Moskowitz           Jeffrey C.                            8,000                       8.7500         4/18/2008
Moskowitz           Jeffrey C., CEUT Moskowitz
                    Investments                          32,000                       8.7500         4/18/2008
Nolet Associates                                         62,500                       7.3400          3/7/2007
Nolet Associates                                        150,000                       8.7500        11/22/2007
Nolet Associates                                         75,000                       8.7500         5/26/2008
Nolet Associates                                         50,000                       8.7500         6/18/2008
Nolet Associates                                        107,500                       8.7500         6/27/2008
</TABLE>

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                                                                     EXPIRATION
     LAST NAME               FIRST NAME                OPTIONS        WARRANTS        PRICE             DATE
---------------------------------------------------------------------------------------------------------------
<S>                 <C>                               <C>            <C>              <C>           <C>
PBA Associates                                           25,000                       8.7500         6/18/2008
Peltz               Marlene                              10,000                       8.7500        11/22/2007
Sadley              Susan                                11,250                       7.3400          3/7/2007
Sadley              Susan                                12,500                       8.7500        11/22/2007
Sampson             Scott Sampson TTEE FBO SAS
                    Trust                                16,000                       8.7500         4/18/2008
Shea                Edmund & Mary Shea Family
                    Foundation                           16,000                       8.7500         4/18/2008
Shea                Edmund, Siam Partners II             16,000                       8.7500         4/18/2008
Shea                Edmund, Tahoe Partnership            16,000                       8.7500         4/18/2008
Strickstein         Ann                                   5,000                       8.7500        11/22/2007
Strickstein         Irving                               40,000                       7.3400          3/7/2007
Strickstein         Irving                              100,000                       8.7500        11/22/2007
Strickstein         Irving                               75,000                       8.7500         5/26/2008
Strickstein         Irving                               50,000                       8.7500         6/18/2008
Strickstein         Irving                              107,500                       8.7500         6/27/2008
Strickstein         Robert                               11,250                       7.3400          3/7/2007
Strickstein         Robert                               12,500                       8.7500        11/22/2007
Strickstein         Scott                                 5,000                       8.7500        11/22/2007
Strickstein         Tara                                  5,000                       8.7500        11/22/2007
U. S. Capital Growth Fund LLC                            14,150                       7.3400          3/7/2007
U. S. Capital Growth Fund LLC                            20,000                       8.7500         1/23/2008
Unterberg           Thomas I.                            12,000                       8.7500         4/18/2008

TOTAL                                                 1,460,150       697,746
</TABLE>

(C)   Outstanding Registration Rights.

The following is a list of all parties to registration rights agreements or
arrangements pursuant to which the Company is obligated to register the sale of
securities and the holdings (subject to such registration rights agreements or
arrangements). Amounts shown are based on information provided by each investor
and are accurate as of the date of the applicable registration statement or
registration statement supplements.

The "Common Stock" column below includes the following securities: (i) common
stock held by the investor, (ii) common stock issuable upon conversion of the 8%
notes, (iii) common stock issuable upon conversion of the 7% notes, (iv) common
stock issuable upon exercise of warrants held by the investor, and (v) common
stock issuable upon exercise of options.

                                       4
<PAGE>

*No registration statement filed.

<TABLE>
<CAPTION>
                                                                                   TYPE OF SECURITY
                                                                -------------------------------------------------------
                                                                 Common        8% Notes        7% Notes
              NAME OF INVESTOR                                    Stock       ($ amount)      ($ amount)       Warrants
---------------------------------------------------------       -------       ----------      ----------       --------
<S>                                                             <C>           <C>             <C>              <C>
A. Robert Towbin TTEE FBO Lisa Olim Trust                         5,200         50,000
A. Robert Towbin TTEE FBO: Barry Towbin Trust                     5,200         50,000
Aberdeen Strategic Capital L.P                                   36,608        352,000
Adam Flatto TTEE AF Services Money Purchase Plan                  3,120         30,000
Adam Ritzer                                                       2,600         25,000
ADS Consulting, LLC                                              15,000
Agath A. Esposito and Robert M. Esposito M.D. JTWROS              4,000
Alan R. Baumann Revocable Trust, Alan R. Baumann, Barbara         8,177                          70,530
   Baumann &William Frazier TTEES
Andrew Arno ACF Jesse Benjamin Arno                               4,644         25,000           17,632
Andrew Arno ACF Matthew Arno                                     14,866         25,000          105,795
Andrew Chavkin and Ellen Weiss                                    8,177                          70,530
Andrew G. Celli & James Satloff TTEES FBO: Andrew Thomas          1,040         10,000
   Celli Trust
Andrew G. Celli & James Satloff TTEES FBO: Dustin                 6,689         25,000           35,265
   Nathaniel Satloff Trust
Andrew G. Celli & James Satloff TTEES FBO: Hannah Andrea          1,560         15,000
   Celli Trust
Andrew G. Celli & James Satloff TTEES FBO: Rebecca Rose           2,600         25,000
   Celli Trust
Andrew G. Celli & James Satloff TTEES FBO: Theodore J.            6,689         25,000           35,265
   Satloff Trust
Ann Strickstein                                                   5,000
Anthony Charos & Kevin Charos                                     2,600         25,000
Arlon Hamby and Dorothy Hamby                                     8,177                          70,530
Barbara L. Townsend 1991 Revocable Intervivos Sep.                5,000
   Property Trust
Barbara Levy                                                      4,089                          35,265
Barbara Yaspan                                                    4,089                          35,265
Bella & Israel Unterberg Foundation #2                           13,377         50,000           70,530
Blossom Berlin                                                    2,600         25,000
Bruce Alan MacNaughton Trust                                      8,177                          70,530
Bruce Slovin                                                     21,555         50,000          141,060
Burton Rubin                                                      4,089                          35,265
C.E. Unterberg, Towbin                                          119,389        250,000          352,650        310,000
C.E. Unterberg, Towbin Capital Partners I, LP                    52,000        500,000
Capital Ventures International                                  100,000
Catalyst International Ltd.                                      11,565         31,000           72,940
Catalyst Partners L.P.                                           24,378         74,000          143,881
Charles Cole Eckhardt & Lisa Novick-Eckhardt                      5,200         50,000
Charles DeBare                                                    8,000
Charles Schwab &Co. Inc. CDN FBO: Neil A. Chamberlin Jr.
   IRA                                                           11,448                          98,742
</TABLE>

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                                                   TYPE OF SECURITY
                                                                -------------------------------------------------------
                                                                 Common        8% Notes        7% Notes
                   NAME OF INVESTOR                               Stock       ($ amount)      ($ amount)       Warrants
----------------------------------------------------------      -------       ----------      ----------       --------
<S>                                                             <C>           <C>             <C>              <C>
Charles W. Stendig TTEE of the Charles W. Stendig Trust          10,777         25,000           70,530
Cheyenne Holdings Limited Partnership                            81,774                         705,300
Claire Levin                                                      2,600         25,000
Cranshire Capital, LP                                           100,000
Dan &Ellen Weiner TTEES The Werner Family Trust FBO Benno,       24,532                         211,590
   Joshua &Carl Weiner
David House                                                      40,887                         352,650
Dean T. Langford                                                 16,355                         141,060
Donald L. Day TTEE Donald L. Day Rev Trust                       12,266                         105,795
Doris S. Kennedy                                                 81,774                         705,300
Douglas Fagen                                                     4,089                          36,265
Drawbridge Special Opportunities Fund, LP                       133,750
Duck Partners, LP                                                24,532                         211,590
Earl Ellis                                                       16,355                         141,060
Edmund and Mary Shea Family Foundation                           16,000
Ellen U. Celli                                                   26,755        100,000          142,060
Ellen U. Celli &Emily U. Satloff TTEES, T.I. Unterberg            4,089                          35,265
   Grandchildren's Trust
Emily Grabel Miller &John Irving Miller M.D.                      4,089                          35,265
Emily U. Satloff                                                 18,577        100,000           70,530
Eric Haskell                                                      8,177                          70,530
Gary Fagen                                                        4,089                          35,265
Gloria D. Kelley                                                  4,089                          35,265
Gracie Capital                                                  163,548                       1,410,600
Great Plains Trust Company                                       26,000        250,000
Hamilton Multi-Strategy Master Fund L.P.                        163,548                       1,410,600
Harvey Brandner, Anita Weinberger &Ellen Colton TTEES             4,089                          35,265
   Bernard Brandner Testamentary Trust
Harvey M. Burstein                                               84,000
Herbert S. Hoffman, IRA                                           3,640         35,000
Highbridge/Zwirn Special   Opportunities Fund, LP               133,750
Howard Lynch                                                      4,089                          35,265
</TABLE>

                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                                                   TYPE OF SECURITY
                                                                -------------------------------------------------------
                                                                 Common        8% Notes        7% Notes
                 NAME OF INVESTOR                                 Stock       ($ amount)      ($ amount)       Warrants
--------------------------------------------------              -------       ----------      ----------       --------
<S>                                                             <C>           <C>             <C>              <C>
Hull Associates LP                                               40,887                         352,650
Hurricane International                                          16,355                         141,060
Irving Strickstein                                              457,500
J. Bruce Llewellyn                                               12,266                         105,795
J. Harvey Gleberman & M. Gleberman TTEES J. Harvey                2,600         25,000
   Gleberman Revocable Trust FBO: J.H. Gleberman
James Alperin                                                     2,080         20,000
James D. Loeffelbein                                             67,000
James E. Borner & Ann B. Borner                                  32,710                         282,120
James H. Stone                                                    7,506         25,000           42,318
James T. Whipple                                                  5,200         50,000
James W. Quinn                                                    4,089                          35,265
Jeffrey C. Moskowitz                                             18,400        100,000
Jeffrey C. Moskowitz*                                             8,000
Jemp, Inc                                                         2,600         25,000
John Gutfreund                                                   16,355                         141,060
John Gutfreund*                                                   8,000
John J.F. Sherrerd                                               57,242                         493,710
John Lewin                                                        8,177                          70,530
John R. Cronin                                                    5,200         50,000
Kenneth M. Townsend                                              13,000
Kenneth Sheinberg                                                10,400        100,000
Kimberly Townsend Talkington                                      1,000
Leonard Bruce Lanni & Linda Rose Lanni                            5,200         50,000
Linnea Schuster Family Trust                                      2,000
Lisa Frumkes                                                      4,089                          35,265
Marjorie & Clarence E. Unterberg Foundation, Inc.                85,953        325,000          458,445
Mark Depew                                                       15,000
Marlene Peltz                                                    10,000
Marlin Entertainment Group Ltd.                                   5,200         50,000
Mary DeBare                                                       8,000
Michael A. Wall Trust                                            15,600        150,000
Michael Bunyaner                                                 10,400        100,000
Michael E. Marrus                                                32,600         25,000
Michael Glita and Joan D. Glita                                   5,724                          49,371
Michael I. Gottleib                                               8,000
Michael P. Hagerty                                                8,177                          70,530
Miriam Gleberman & J. Harve Gleberman, TTEES Miram                4,089                          35,265
   Gleberman Rev Trust
Neal Frank                                                        8,000
Neil Chavkin                                                      8,177                          70,530
Nolet Associates                                                382,500
Norman Scott                                                      8,177                          70,530
Paine Webber as IRA CDN FBO: Jordan Berlin, IRA Rollover          5,200         50,000
Paine Webber as IRA Custodian FBO: Andrew S. Bluestone,           2,600         25,000
   IRA Rollover
Paine Webber as IRA Custodian FBO: Burton Rubin, IRA              2,600         25,000
Paine Webber as IRA Custodian FBO: J. Bruce Llewellyn, IRA       17,800         75,000
Paine Webber as IRA Custodian FBO: James Borner IRA               4,680         45,000
   Rollover
Paine Webber as IRA Custodian FBO: Morris Dangott, IRA           10,400        100,000
   Rollover
Paul B. Robbins &Sheri L. Robbins TTEES of The Paul B.            8,177                          70,530
   Robbins and Sheri Robbins Trust
Paul D.C. Huang                                                   2,600         25,000
Paul D.C. Huang                                                   4,089                          35,265
</TABLE>

                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                                                   TYPE OF SECURITY
                                                             ---------------------------------------------------------
                                                                              8% Notes        7% Notes
                   NAME OF INVESTOR                          Common Stock    ($ amount)      ($ amount)       Warrants
                   ----------------                          ------------    ----------      ----------       --------
<S>                                                          <C>             <C>             <C>              <C>
PBA Enterprises, LLC                                             25,000
Peter S. Rawlings                                                20,800        200,000
Plampton Ltd.                                                    10,400        100,000
Platinum Partners Value Arbitrage Fund, LP                      100,000
R. Matluck & T. Unterberg TTEES C.E. Unterberg, Towbin            5,200         50,000
   401(k) Profit Sharing Plan FBO: Andrew Arno
Ray Pinion                                                       16,355                         141,600
Richard A. McKay                                                 21,000
Ridgecrest Partners L.P.                                          2,430         10,000           11,990
Ridgecrest Partners Ltd.                                         23,951        110,000          107,910
Ridgecrest Partners QP, L.P.                                     59,183        275,000          263,782
Rita J. Bishop, IRA                                               1,000
Robert & Agatha Esposito                                          4,089                          35,265
Robert Chavkin                                                    6,689         25,000           35,265
Robert D. Long                                                   31,200        300,000
Robert L. Bishop IRA Rollover                                     2,000
Robert Strickstein                                               12,500
Ronald Frumkes                                                    8,177                          70,530
Ronald Shiftan                                                   24,155         75,000          141,060
Scone Foundation                                                  8,177                          70,530
Scone Investments, L.P.                                          18,284         50,000           56,424
Scott G. Fine                                                     4,089                          35,265
Scott Sampson TTEE FBO SAS Trust I IS U/A/D 07/30/93             48,710                         282,120
Scott Strickstein                                                 5,000
Seneca Capital LP                                               327,096                       2,821,200
Sensus LLC                                                       10,400        100,000
Senvest Master Fund                                              40,887                         352,650
Siam Partners II                                                 16,000
Smithfield Fiduciary LLC                                        100,000
Solar Group S.A.                                                 26,000        250,000
Spindrift Investors (Bermuda) L.P.                              660,000
Spindrift Partners L.P.                                         540,000
SRG Capital LLC                                                 100,000
Stanley Cohen                                                     9,813                          84,636
Stanley Cohen Irrevocable Trust 1994 Trust FBO: Issue             4,160         40,000
Stephen J. Adler &Jonathan D. Adler CO-TTEES for The Harry        8,177                          70,000
   Adler Revocable Trust
Stephen Jacobs                                                   18,435         20,000          142,060
Stephen Lewin                                                     8,177                          70,530
Stephen Lewin 1997 Trust John Lewis Trustee FBO: Sean             4,907                          42,318
   Lewin and Colette Lewin
Straus - GEPT Partners, LP                                       90,121                         246,855
Straus Partners LP                                              147,777                         726,459
Straus-Spelman L.P.                                               9,813                          84,636
</TABLE>

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                                   TYPE OF SECURITY
                                                             ---------------------------------------------------------
                                                                              8% Notes        7% Notes
                   NAME OF INVESTOR                          Common Stock    ($ amount)      ($ amount)       Warrants
                   ----------------                          ------------    ----------      ----------       --------
<S>                                                          <C>             <C>             <C>              <C>
Stuart E. Kantor                                                  2,600         25,000
Stuart Schapiro Keogh, Bear Stearns Secs Corp. Custodian         12,266                         105,795
Summit Industrial                                                16,535                         141,060
Susan Sadley                                                     12,500
Tahoe Partnership I                                              16,000
Tara Strickstein                                                  5,000
The Andrew Degraff Berkey, II Trust                               4,000
The Baesler Family Revocable Trust                                5,000
The Barker Family Trust                                          30,000
The Donald D. and Sally E. Peck Trust                             6,000
The Philip A. Sprague Marital QTIP Trust                          2,000
The Scone Foundation, Inc.                                        6,240         60,000
The Shirley T. Bullenworth Revocable Trust                       10,000
The Timken Living Trust                                          26,000        250,000
Thomas I. Unterberg                                              43,100        100,000          282,120
Thomas I. Unterberg Trust, A. Robert Towbin TTEE                 68,732        425,000          211,590
Thomas I. Unterberg TTEE FBO: Ellen Celli Family Trust            5,200         50,000
Thomas I. Unterberg TTEE FBO: Emily Satloff Family Trust         13,377         50,000           70,530
Thomas I. Unterberg*                                             12,000
Truk International Fund, LP                                       7,000
Truk Opportunity Fund, LLC                                       93,000
U.S. Capital Fund, L.L.C.                                        20,000
Vincent Yen                                                      32,710                         282,120
Wardenclyffe Micro-cap Fund L.P.                                  4,992         48,000
Wayen Investments                                                 5,870         25,000          282,120
William D. Hyler                                                  5,200         50,000
William J. Borner & Kim Koopersmith Borner                        4,089                          35,265
William N. Shiebler                                               5,200         50,000
William Scott Symons &Loretta Symons                             40,887                         352,650
Yaudoon David Chiang                                              5,200         50,000
                                                                             ---------       ----------        -------
TOTAL                                                                        6,475,000       17,688,924        310,000
                                                                             =========       ==========        =======
</TABLE>

                                       9
<PAGE>

(D)

      (i)   7% Subordinated Convertible Notes due 2007

      (ii)  8% Subordinated Convertible Notes due 2006

(E)

      Each of the indentures governing the 7% Subordinated Convertible Notes due
2007 and 8% Subordinated Convertible Notes due 2006 provide similar
anti-dilution protection for the holders of those notes. The issuance of the
Initial Notes and the Initial Warrants will not trigger these anti-dilution
provisions because the conversion price of the Initial Notes (based on the price
of the Company's common stock on January 12, 2005) and the exercise price of the
Initial Warrants are both higher than the prevailing conversion prices for the
7% and 8% notes. In the future, if the Initial Notes are converted into common
stock at a conversion price below the conversion price then in effect for the 7%
or 8% notes, the conversion price of the 7% and 8% notes will be adjusted on a
weighted-average basis as provided in the applicable indenture.

(F) None.

                                       10
<PAGE>

                                  SCHEDULE 3(f)
                                  SEC DOCUMENTS

10K Filing Results                 APPENDIX A

<TABLE>
<CAPTION>
          COMPANY NAME                    FORM TYPE                   DATE
SYMBOL    (FILER NAME)                     (ITEMS)               (PERIOD ENDING)        SIZE            PAGE
<S>       <C>                 <C>                                <C>                   <C>              <C>
IFNY      INFINITY INC                       8-K                    12/29/2004           3.0 KB           3
                                            (5.02)                 (12/29/2004)

IFNY      INFINITY INC        8-K (1.01, 2.02, 2.04, 3.02, 9.01)    11/16/2004         128.1 KB          45
                                                                   (11/12/2004)

IFNY      INFINITY INC                     NT 10-Q                  11/16/2004           5.3 KB           3
                                                                   (09/30/2004)

IFNY      INFINITY INC                       10-Q                   11/16/2004         765.8 KB          36
                                                                   (09/30/2004)

IFNY      INFINITY INC        8-K (1.01, 2.02, 2.04, 3.02, 9.01)    11/16/2004         128.1 KB          45
                                                                   (11/12/2004)

IFNY      INFINITY INC                     NT 10-Q                  08/17/2004           5.2 KB           3
                                                                   (06/30/2004)

IFNY      INFINITY INC                       10-Q                   08/17/2004         162.8 KB          52
                                                                   (06/30/2004)

IFNY      INFINITY INC                       8-K                    08/16/2004          56.3 KB          20
                                             (12)                  (08/16/2004)

IFNY      INFINITY INC                     DEF 14A                  05/20/2004         119.6 KB          37
                                                                   (06/17/2004)

IFNY      INFINITY INC                       8-K                    05/17/2004          35.2 KB          15
                                           (7, 12)                 (05/17/2004)

IFNY      INFINITY INC                      10-Q                    05/17/2004         127.5 KB          48
                                                                   (03/31/2004)

IFNY      INFINITY INC                      10-K/A                  04/29/2004          67.9 KB          20
                                                                   (12/31/2003)

IFNY      INFINITY INC                       10-K                   04/14/2004         490.5 KB         139
                                                                   (12/31/2003)

IFNY      INFINITY INC                       8-K                    03/30/2004          57.8 KB          20
                                           (7, 12)                 (03/29/2004)

IFNY      INFINITY INC                     NT 10-K                  03/30/2004          24.4 KB           1
                                                                   (12/31/2003)

IFNY      INFINITY INC                       8-K                    01/21/2004          70.8 KB          24
                                            (5,7)                  (01/16/2004)

IFNY      INFINITY INC                       8-K                    12/12/2003           6.0 KB           4
                                             (5)                   (12/10/2003)

IFNY      INFINITY INC                       10-Q                   11/19/2003         326.6 KB           8
                                                                   (09/30/2003)

IFNY      INFINITY INC                     NT 10-Q                  11/17/2003           5.8 KB           1
                                                                   (09/30/2003)

IFNY      INFINITY INC                       8-K                    11/14/2003          36.2 KB          13
                                           (7, 12)                 (11/14/2003)

1FNY      INFINITY INC                       10-Q                   08/19/2003         106.7 KB          10
                                                                   (06/30/2003)

IFNY      INFINITY INC                       8-K                    08/15/2003          39.4 KB          14
                                           (7, 12)                 (08/13/2003)

IFNY      INFINITY INC                     NT 10-Q                  08/15/2003           5.7 KB           1
                                                                   (06/30/2003)

IFNY      INFINITY INC                       8-K                    05/21/2003          21.4 KB           8
                                            (7,9)                  (05/15/2003)

IFNY      INFINITY INC                       10-Q                   05/15/2003          63.0 KB           7
                                                                   (03/31/2003)

IFNY      INFINITY INC                     DEF 14A                  04/29/2003          51.7 KB           1
                                                                   (06/05/2003)

IFNY      INFINITY INC                      10KSB                   04/14/2003         274.6 KB           6
                                                                   (12/31/2002)

IFNY      INFINITY INC                     NT 10-K                  03/31/2003           6.0 KB           1
                                                                   (12/31/2002)
</TABLE>

                                       11
<PAGE>

                                  SCHEDULE 3(g)
                           ABSENCE OF CERTAIN CHANGES

(i)   By Agreement dated April 16, 2004, Consolidated acquired substantially all
      of the assets and liabilities of Blue Star Acid Services, Inc., and
      Wyoming Oil & Minerals Inc., providers of acid and cementing services in
      eastern and central Kansas and north-central Oklahoma, for $1.2 million in
      cash and the assumption of $0.2 million in liabilities.

(ii)  On July 16, 2004, Infinity-Texas acquired approximately 28,400 (21,800
      net) acres of leasehold in the Barnett Shale area of the Fort Worth Basin
      of north central Texas for approximately $1.6 million.

(iii) On September 15, 2004, Consolidated closed the sale of selected assets to
      an exploration and production company and Consolidated customer, for $4.1
      million in cash. The assets sold consisted of 37 oilfield service trucks,
      13 trailers, real estate and other support equipment, vehicles and
      inventory relating to a portion of Consolidated's Chanute, Kansas
      operations.

                                       12
<PAGE>

                                  SCHEDULE 3(h)
                                   LITIGATION

3(H)

      (a)   Reed Zars, the surface owner adjacent to Infinity's Woodley Springs
            four-well coalbed methane pilot project, has made a number of
            challenges to the validity of the permit issued by Routt County,
            Colorado for the pilot project. Most recently, by Order dated
            November 15, 2004, the District Court of Routt County dismissed the
            complaint filed by Reed Zars, challenging the issuance of the
            Woodley Springs Permit. Reed Zars v. Routt County Regional Planning
            Department, Board of County Commissioners of Routt County, 04CV75
            (2004). The Woodley Springs pilot project is currently shut-in for
            the winter. Infinity Oil & Gas of Wyoming, Inc. may seek to renew or
            obtain a new permit to operate this pilot in the spring of 2005, and
            Infinity anticipates that Mr. Zars will continue to object to the
            issuance of this permit.

      (b)   In a letter dated July 28, 2004, the Bureau of Land Management
            ("BLM") made inquiry of Infinity Oil & Gas of Wyoming, Inc. to
            verify volumes of oil and gas production from the Riley Ridge Unit
            in Sublette County, Wyoming. Infinity Oil & Gas of Wyoming, Inc. has
            responded to the inquiry but has received no further communication
            from the BLM.

                                       13
<PAGE>

                                  SCHEDULE 3(j)
                             UNDISCLOSED LIABILITIES

                                      None.

                                       14
<PAGE>

                                  SCHEDULE 3(n)
                               EMPLOYEE RELATIONS

                                      None.

                                       15
<PAGE>

                                  SCHEDULE 3(p)
                               ENVIRONMENTAL LAWS

1.    Reed Zars, the surface owner adjacent to Infinity's Woodley Springs
      four-well coalbed methane pilot project, has made a number of challenges
      to the validity of the permit issued by Routt County, Colorado for the
      pilot project. Most recently, by Order dated November 15, 2004, the
      District Court of Routt County dismissed the complaint filed by Reed Zars,
      challenging the issuance of the Woodly Springs Permit. Reed Zars v. Routt
      County Regional Planning Department, Board of County Commissioners of
      Routt County, 04CV75 (2004). The Woodley Springs pilot project is
      currently shut-in for the winter. Infinity Oil & Gas of Wyoming, Inc. may
      seek to renew or obtain a new permit to operate this pilot in the spring
      of 2005, and Infinity anticipates that Mr. Zars will continue to object to
      the issuance of this permit.

2.    The South Piney Environmental Impact Statement for Riley Ridge Natural Gas
      Development Project Area in Sublette County, Wyoming is currently pending
      (Labarge).

3.    The Bitter Creek Shallow Gas Exploration and Development Environmental
      Assessment for the Pipeline Project Area in Sweetwater County, Wyoming is
      currently pending.

                                       16
<PAGE>

                                  SCHEDULE 3(q)
                                      TITLE

LIENS

1.    Loan and Security Agreement, as amended on September 15, 2004 and UCC-1
      Financing Statement, filed in Kansas on December 3, 2001 by LaSalle Bank,
      N.A., covering all (current and after-acquired) assets of Consolidated Oil
      Well Services, Inc. All indebtedness in the amount of $3,855,830.77 and
      liens described herein are to be paid in full and released in connection
      with the Initial Closing.

2.    Mortgage, Deed of Trust, Security Agreement, Assignment of Production and
      Financing Statement, dated May 1, 2004, recorded June 7, 2004, in book
      2004L and page 2734 of the records of Moffat County, Colorado, in favor of
      Irving Strickstein and Nolet Associates, covering real and personal
      property including without limitation the leases and lands described
      therein. All indebtedness secured by the liens described herein has been
      paid in full and the liens described herein have been released pursuant to
      mortgage releases to be filed promptly after the Initial Closing.

3.    Mortgage, Deed of Trust, Security Agreement, Assignment of Production and
      Financing Statement, dated July 2, 2003, recorded July 25, 2003, at
      Reception No. 587049, and Amendment to Mortgage dated September 4, 2003,
      recorded September 18, 2003, at Reception No. 590551 of the records of
      Routt County, Colorado, in favor of Irving Strickstein and Nolet
      Associates, covering real and personal property including without
      limitation the leases and lands described therein. All indebtedness
      secured by the liens described herein has been paid in full and the liens
      described herein have been released pursuant to mortgage releases to be
      filed promptly after the Initial Closing.

4.    Mortgage, Deed of Trust, Security Agreement, Assignment of Production and
      Financing Statement, dated July 2, 2003, recorded August 6, 2003, in Book
      125 at Page 338, and Amendment to Mortgage dated September 4, 2003,
      recorded September 18, 2003, in Book 105 at Page 331 of the records of
      Sublette County, Wyoming, in favor of Irving Strickstein and Nolet
      Associates, covering real and personal property including without
      limitation the leases and lands described therein. All indebtedness
      secured by the liens described herein has been paid in full and the liens
      described herein have been released pursuant to mortgage releases to be
      filed promptly after the Initial Closing.

5.    Mortgage, Security Agreement, Assignment, Financing Statement and Fixture
      Filing, dated September 4, 2003, recorded September 16, 2003, in book 984
      and page 1380 of the records of Sweetwater County, Wyoming, in favor of
      U.S. Bank National Association, covering real and personal property
      including without limitation the leases and lands described therein. All
      indebtedness in the amount of $5,037,285.67 and liens described herein are
      to be paid in full and released in connection with the Initial Closing.

6.    Mortgage, Security Agreement, Assignment, Financing Statement and Fixture
      Filing, dated September 4, 2003, recorded September 7, 2003, in book 105
      and page 242 of the records of Sublette County, Wyoming, in favor of U.S.
      Bank National Association, covering real and personal property including
      without limitation the leases and lands

                                       17
<PAGE>

      described therein. All indebtedness in the amount of $5,037,285.67 and
      liens described herein are to be paid in full and released in connection
      with the Initial Closing.

7.    UCC-1 Financing Statement 2003-20100518 filed with the Wyoming Secretary
      of State on October 24, 2003 by U.S. Bank National Association. All
      indebtedness in the amount of $5,037,285.67 and liens described herein are
      to be paid in full and released in connection with the Initial Closing.

8.    Mortgage dated May 15, 2001, from Consolidated Industrial Services Inc.
      and CIS-Oklahoma, Inc. to NBC Bank, an Oklahoma banking corporation,
      granting a lien upon three metes and bounds tracts located at South
      Highway 123, Road 2706, Bartlesville, Oklahoma 74005, in the NE/4 of
      Section 16, Township 26 North, Range 12 East in Osage County, Oklahoma.
      All indebtedness secured by the liens described herein are to be paid in
      full and such liens released pursuant to Section 4(u) of the Purchase
      Agreement (See Schedule 4(u)(1)).

9.    Mortgage dated January 29, 2003, granting Home Bank & Trust Company a lien
      upon property located at 8655 Dorn Road, Thayer, Kansas. All indebtedness
      secured by the liens described herein are to be paid in full and such
      liens released pursuant to Section 4(u) of the Purchase Agreement (See
      Schedule 4(u)(2)).

10.   Mortgage dated May 12, 2000, recorded in Book 1602 at page 445, of the
      records of Campbell County, Wyoming, covering real estate located at 300
      Enterprise Street, Gillette, Wyoming. All indebtedness secured by the
      liens described herein are to be paid in full and such liens released
      pursuant to Section 4(u) of the Purchase Agreement (See Schedule 4(u)(7)).

11.   Ford Motor Credit lien against 2004 Ford F-250 VIN 1FTNX21S54ED53727. All
      indebtedness secured by the liens described herein are to be paid in full
      and such liens released pursuant to Section 4(u) of the Purchase Agreement
      (See Schedule 4(u)(3)).

12.   Ford Motor Credit lien against 2002 Ford F250 VIN- 1FTNX21L22ED65002. All
      indebtedness secured by the liens described herein are to be paid in full
      and such liens released pursuant to Section 4(u) of the Purchase Agreement
      (See Schedule 4(u)(4)).

13.   Daimler Chrysler Credit Corp. lien against 2004 Dodge 2500 VIN-
      3D7KU28C94G272982. All indebtedness secured by the liens described herein
      are to be paid in full and such liens released pursuant to Section 4(u) of
      the Purchase Agreement (See Schedule 4(u)(6)).

14.   Ford Motor Credit lien against 2004 Ford F150 CC VIN- 1FTPW14594KD74027.
      All indebtedness secured by the liens described herein are to be paid in
      full and such liens released pursuant to Section 4(u) of the Purchase
      Agreement (See Schedule 4(u)(5)).

15.   As to Personal Property, the Company is subject the following Permitted
      Liens:

            (a) Liens created by the Security Documents;

            (b) Liens for taxes or other governmental charges not at the time
            due and payable so long as the Company and its Subsidiaries maintain
            adequate reserves in

                                       18
<PAGE>

            accordance with United States generally accepted accounting
            principles ("GAAP") in respect of such taxes and charges which
            include county ad valorem taxes, state severance or similar gross
            product taxes, and oil and gas conservation commission taxes;

            (c) Liens arising in the ordinary course of business in favor of
            carriers, warehousemen, mechanics and materialmen, or other similar
            Liens imposed by law, which remain payable without penalty and in
            each case for which adequate reserves in accordance with GAAP are
            being maintained including oil and gas liens under applicable state
            statutes which relate back to the date upon which work was first
            performed;

            (d) Liens arising in the ordinary course of business in connection
            with worker's compensation, unemployment compensation and other
            types of social security (excluding Liens arising under ERISA) or
            Liens consisting of cash collateral securing the Company's or any of
            its Active Subsidiaries' performance of surety bonds, bids,
            performance bonds and similar obligations (exclusive of obligations
            for the payment of borrowed money) permitted pursuant to clause
            (a)(IV) of Section 12 of the Note and, in each case, for which the
            Company maintains adequate reserves including bonds obtained for
            federal, state and local authorities to secure plugging and
            reclamation activities;

            (e) Liens in favor of U.S. Bank and LaSalle in respect of the Duke
            LC Account and the Returned Items Account (each as defined in the
            Security Agreement) to the extent such accounts are maintained and
            permitted to exist in accordance with the terms of the Security
            Agreement;

            (f) Liens consisting of cash collateral securing the Company's and
            its Active Subsidiaries' reimbursement obligations under letters of
            credit permitted by clauses (a)(VI) and (a)(VII) of Section 12,
            provided that the aggregate amount of cash collateral securing such
            Indebtedness does not exceed the undrawn face amount of all such
            letters of credit outstanding at any one time;

            (g) Liens securing Indebtedness listed on Schedule 4(u) of the
            Securities Purchase Agreement for up to thirty (30) days following
            the Initial Closing Date;

            (h) Liens on equipment subject to Capital Lease Obligations
            permitted to be incurred pursuant to clause (a)(V) of Section 12, to
            the extent such Liens secure such Capital Lease Obligations
            including lease agreements between Infinity Oil and Gas of Texas
            Inc. and Hanover Compression for a compressor, separator and dehy.

OWNED REAL PROPERTY

1.    4.4-acre tract owned by CIS-Oklahoma, Inc. described in Corporation
      Warranty Deed dated November 15, 1999, and located at 2631 S. Eisenhower
      Avenue, Ottawa, Kansas (Franklin County).

                                       19
<PAGE>

2.    Real property acquired from Blue Star Acid Services, Inc. located at 8655
      Dorn Road, Thayer, Kansas covering a 3.9-acre tract in the NW/4 of Section
      30, Township 29 South, Range 18 East, Neosho County, Kansas.

3.    Real property located at 300 Enterprise St., Gillette, Wyoming 82716, in
      Campbell County, Wyoming, as more particularly described in the Real
      Estate Mortgage dated May 12, 2000, recorded in Book 1602 at page 445 of
      the records of Campbell County, Wyoming.

4.    Real property owned by CIS-Oklahoma, Inc. located at South Highway 123,
      Road 2706, Bartlesville, Oklahoma 74005, located in the NE/4 of Section
      16, Township 26 North, Range 12 East of the Indian Meridian, Osage County,
      Oklahoma.

                                       20
<PAGE>

                                  SCHEDULE 3(s)
                               REGULATORY PERMITS

1.    Reed Zars, the surface owner adjacent to Infinity's Woodley Springs
      four-well coalbed methane pilot project, has made a number of challenges
      to the validity of the permit issued by Routt County, Colorado for the
      pilot project. Most recently, by Order dated November 15, 2004, the
      District Court of Routt County dismissed the complaint filed by Reed Zars,
      challenging the issuance of the Woodley Springs Permit. Reed Zars v. Routt
      County Regional Planning Department, Board of County Commissioners of
      Routt County, 04CV75 (2004). The Woodley Springs pilot project is
      currently shut-in for the winter. Infinity Oil & Gas of Wyoming, Inc. may
      seek to renew or obtain a new permit to operate this pilot in the spring
      of 2005, and Infinity anticipates that Mr. Zars will continue to object to
      the issuance of this permit.

2.    The South Piney Environmental Impact Statement for Riley Ridge Natural Gas
      Development Project Area in Sublette County, Wyoming is currently
      pending.(Labarge).

3.    The Bitter Creek Shallow Gas Exploration and Development Environmental
      Assessment for the Pipeline Project Area in Sweetwater County, Wyoming is
      currently pending.

                                       21
<PAGE>

                                  SCHEDULE 3(v)
                          TRANSACTIONS WITH AFFILIATES

(i)   In July 2003, Infinity entered into an eighteen-month financial consulting
      agreement with Irving Strickstein, an Infinity shareholder, in
      consideration for which Mr. Strickstein was issued 125,000 options to
      purchase Infinity's Common Stock.

(ii)  The LaSalle Facility was secured in part by a personal guarantee by
      Stanton E. Ross, President and Chief Executive Officer of Infinity, in the
      amount of $1 million.

(iii) Infinity, Inc. and its subsidiaries paid $16,720 to James A. Tuell for
      services rendered during the period beginning September 2003 and through
      January 2005 as an independent contractor.

(iv)  In June 2004, Infinity executed a promissory note payable to Stanton Ross
      for $20,000. The note has been repaid in full.

(v)   Infinity engaged Northeast Securities, Inc. as a placement agent in
      connection with its November 2004 private placement for a fee of
      $52,377.00 O. Lee Tawes, a director of Infinity, is a principal of
      Northeast Securities, Inc.

                                       22
<PAGE>

                                 SCHEDULE 3(aa)
                         OUTSTANDING INDEBTEDNESS, LIENS

I.    Outstanding Indebtedness; Trade Accounts Payable

      1.    Amounts owing on accounts payable are estimated to range from
            $5,250,000 to $5,850,0000 as of December 31, 2004. Under the terms
            of the Note and Securities Purchase Agreement, the Company has
            agreed to certain restrictions on the type and amount of accounts
            payable which may be outstanding.

      2.    Aircraft Usage Agreement executed January 27, 2003, between Dobber
            Aviation, L.L.C. and Infinity, Inc. covering a Cessna Citation
            aircraft, Model No. 525A, Serial No. 525A-0140, Federal Aviation
            Administration Registration No. N140DA with respect to payment of
            $2,617,975.

      3.    Promissory Note dated May 15, 2001, from Consolidated Oil Well
            Services Inc. to NBC Bank in the principal amount of $380,000. This
            Note is guaranteed by Infinity Inc. under a Guaranty Agreement dated
            May 15, 2001. All indebtedness hereunder will be paid in full as
            required under Section 4(u) of the Purchase Agreement (See Schedule
            4(u)(1)).

      4.    By Assignment and Assumption Agreement dated April 2004, Blue Star
            Acid Services, Inc. assigned to Consolidated Oil Well Services, Inc.
            all interest in and Consolidated agreed to pay the Note dated
            January 29, 2003, from Blue Star Acid Services, Inc. to Home Bank &
            Trust Company in the principal amount of $32,000. All indebtedness
            hereunder will be paid in full as required under Section 4(u) of the
            Purchase Agreement (See Schedule 4(u)(2)).

      5.    Note dated November 11, 2000, from CIS-Oklahoma Inc. to Bank of
            Commerce in the principal amount of $348,000. All indebtedness
            hereunder will be paid in full as required under Section 4(u) of the
            Purchase Agreement (See Schedule 4(u)(7)).

      6.    7% Subordinated Convertible Notes due 2007

      7.    8% Subordinated Convertible Notes due 2006

      8.    Ford Motor Credit: 2004 Ford F-250 VIN 1FTNX21S54ED53727. All
            indebtedness secured by the liens described herein are to be paid in
            full and such liens released pursuant to Section 4(u) of the
            Purchase Agreement. See Schedule 4(u)(3).

      9.    Ford Motor Credit: 2002 Ford F250 VIN- 1FTNX21L22ED65002. All
            indebtedness secured by the liens described herein are to be paid in
            full and such liens released pursuant to Section 4(u) of the
            Purchase Agreement. See Schedule 4(u)(4).

      10.   Daimler Chrysler Credit Corp.: 2004 Dodge 2500 VIN-
            3D7KU28C94G272982. All indebtedness secured by the liens described
            herein are to be paid in full and

                                       23
<PAGE>

            such liens released pursuant to Section 4(u) of the Purchase
            Agreement. See Schedule 4(u)(6).

      11.   Ford Motor Credit: 2004 Ford F150 CC VIN- 1FTPW14594KD74027. All
            indebtedness secured by the liens described herein are to be paid in
            full and such liens released pursuant to Section 4(u) of the
            Purchase Agreement. See Schedule 4(u)(5).

II.   Liens

      1.    Mortgage dated May 15, 2001, from Consolidated Industrial Services
            Inc. and CIS-Oklahoma, Inc. to NBC Bank, an Oklahoma banking
            corporation, granting a lien upon three metes and bounds tracts
            located in the NE/4 of Section 16, Township 26 North, Range 12 East
            in Osage County, Oklahoma. All indebtedness hereunder will be paid
            in full as required under Section 4(u) of the Purchase Agreement
            (See Schedule 4(u)(1)).

      2.    Mortgage dated May 12, 2000, recorded in Book 1602 at page 445, of
            the records of Campbell County, Wyoming, covering real estate
            located at 300 Enterprise Street, Gillette, Wyoming. All
            indebtedness hereunder will be paid in full as required under
            Section 4(u) of the Purchase Agreement (See Schedule 4(u)(7)).

      3.    Mortgage dated January 29, 2003, granting Home Bank & Trust Company
            a lien upon property located at 8655 Dorn Road, Thayer, Kansas. All
            indebtedness secured by the liens described herein are to be paid in
            full and such liens released pursuant to Section 4(u) of the
            Purchase Agreement (See Schedule 4(u)(2)).

      4.    Loan and Security Agreement, as amended on September 15, 2004 and
            UCC-1 Financing Statement, filed in Kansas on December 3, 2001 by
            LaSalle Bank, N.A., covering all (current and after-acquired) assets
            of Consolidated Oil Well Services, Inc. All indebtedness in the
            amount of $3,855,830.77 and liens described herein are to be paid in
            full and released in connection with the Initial Closing.

      5.    Mortgage, Deed of Trust, Security Agreement, Assignment of
            Production and Financing Statement, dated May 1, 2004, recorded June
            7, 2004, in book 2004L and page 2734 of the records of Moffat
            County, Colorado, in favor of Irving Strickstein and Nolet
            Associates, covering real and personal property including without
            limitation the leases and lands described therein. All indebtedness
            secured by the liens described herein has been paid in full and the
            liens described herein have been released pursuant to mortgage
            releases to be filed on or before the Initial Closing.

      6.    Mortgage, Deed of Trust, Security Agreement, Assignment of
            Production and Financing Statement, dated July 2, 2003, recorded
            July 25, 2003, at Reception No. 587049, and Amendment to Mortgage
            dated September 4, 2003, recorded September 18, 2003, at Reception
            No. 590551 of the records of Routt County, Colorado, in favor of
            Irving Strickstein and Nolet Associates, covering real and personal
            property including without limitation the leases and lands described

                                       24
<PAGE>

            therein. All indebtedness secured by the liens described herein has
            been paid in full and the liens described herein have been released
            pursuant to mortgage releases to be filed on or before the Initial
            Closing.

      7.    Mortgage, Deed of Trust, Security Agreement, Assignment of
            Production and Financing Statement, dated July 2, 2003, recorded
            August 6, 2003, in Book 125 at Page 338, and Amendment to Mortgage
            dated September 4, 2003, recorded September 18, 2003, in Book 105 at
            Page 331 of the records of Sublette County, Wyoming, in favor of
            Irving Strickstein and Nolet Associates, covering real and personal
            property including without limitation the leases and lands described
            therein. All indebtedness secured by the liens described herein has
            been paid in full and the liens described herein have been released
            pursuant to mortgage releases to be filed on or before the Initial
            Closing.

      8.    Mortgage, Deed of Trust, Security Agreement, Assignment of
            Production and Financing Statement, dated July 2, 2003, recorded
            July 25, 2003, in Book 980 at Page 338, and Amendment to Mortgage
            dated September 4, 2003, recorded September 18, 2003, in Book 984 at
            Page 1759 of the records of Sweetwater County, Wyoming, in favor of
            Irving Strickstein and Nolet Associates, covering real and personal
            property including without limitation the leases and lands described
            therein. All indebtedness secured by the liens described herein has
            been paid in full and the liens described herein have been released
            pursuant to mortgage releases to be filed on or before the Initial
            Closing.

      9.    Mortgage, Security Agreement, Assignment, Financing Statement and
            Fixture Filing, dated September 4, 2003, recorded September 16,
            2003, in book 984 and page 1380 of the records of Sweetwater County,
            Wyoming, in favor of U.S. Bank National Association, covering real
            and personal property including without limitation the leases and
            lands described therein. All indebtedness in the amount of
            $5,037,285.67 and liens described herein are to be paid in full and
            released in connection with the Initial Closing.

      10.   Mortgage, Security Agreement, Assignment, Financing Statement and
            Fixture Filing, dated September 4, 2003, recorded September 7, 2003,
            in book 105 and page 242 of the records of Sublette County, Wyoming,
            in favor of U.S. Bank National Association, covering real and
            personal property including without limitation the leases and lands
            described therein. All indebtedness in the amount of $5,037,285.67
            and liens described herein are to be paid in full and released in
            connection with the Initial Closing.

      11.   UCC-1 Financing Statement 2003-20100518 filed with the Wyoming
            Secretary of State on October 24, 2003 by U.S. Bank National
            Association. All indebtedness in the amount of $5,037,285.67 and
            liens described herein are to be paid in full and released in
            connection with the Initial Closing.

      12.   Financing Statement filed on January 21, 2002 in favor of ABB
            Structural Finance American covering a copier lease.

                                       25
<PAGE>

      13.   The Company's assets are subject to the following Permitted Liens:

            (a) Liens created by the Security Documents;

            (b) Liens for taxes or other governmental charges not at the time
            due and payable so long as the Company and its Subsidiaries maintain
            adequate reserves in accordance with United States generally
            accepted accounting principles ("GAAP") in respect of such taxes and
            charges which include county ad valorem taxes, state severance or
            similar gross product taxes, oil and gas conservation taxes,
            commission;

            (c) Liens arising in the ordinary course of business in favor of
            carriers, warehousemen, mechanics and materialmen, or other similar
            Liens imposed by law, which remain payable without penalty and in
            each case for which adequate reserves in accordance with GAAP are
            being maintained including oil and gas liens under applicable state
            statutes which relate back to the date upon which work was first
            performed;

            (d) Liens arising in the ordinary course of business in connection
            with worker's compensation, unemployment compensation and other
            types of social security (excluding Liens arising under ERISA) or
            Liens consisting of cash collateral securing the Company's or any of
            its Active Subsidiaries' performance of surety bonds, bids,
            performance bonds and similar obligations (exclusive of obligations
            for the payment of borrowed money) permitted pursuant to clause
            (a)(IV) of Section 12 of the Note and, in each case, for which the
            Company maintains adequate reserves including bonds obtained for
            federal, state or local authorities to secure plugging and
            reclamation activities;

            (e) easements, rights of way, restrictions, minor defects or
            irregularities in title and other similar Liens arising in the
            ordinary course of business and not materially detracting from the
            value of the property subject thereto and not interfering in any
            material respect with the ordinary conduct of the business of the
            Company or any Subsidiary;

            (f) Liens in favor of U.S. Bank and LaSalle in respect of the Duke
            LC Account and the Returned Items Account (each as defined in the
            Security Agreement) to the extent such accounts are maintained and
            permitted to exist in accordance with the terms of the Security
            Agreement;

            (g) Liens consisting of cash collateral securing the Company's and
            its Active Subsidiaries' reimbursement obligations under letters of
            credit permitted by clauses (a)(VI) and (a)(VII) of Section 12,
            provided that the aggregate amount of cash collateral securing such
            Indebtedness does not exceed the undrawn face amount of all such
            letters of credit outstanding at any one time;

            (h) Liens securing Indebtedness listed on Schedule 4(u) of the
            Securities Purchase Agreement for up to thirty (30) days following
            the Initial Closing Date;

                                       26
<PAGE>

            (i) Liens on equipment subject to Capital Lease Obligations
            permitted to be incurred pursuant to clause (a)(V) of Section 12, to
            the extent such Liens secure such Capital Lease Obligations
            including lease agreements between Infinity Oil and Gas of Texas
            Inc. and Hanover Compression for a compressor, separator and dehy.

            (j) Liens in favor of Schlumberger Technology Corporation and Red
            Oak Capital Management LP (collectively, the "Service Parties"),
            granted pursuant to the Joint Value Enhancement Agreement, dated
            December 3, 2003, among Infinity Oil & Gas of Wyoming, Inc. ("IOGW")
            and the Service Parties (as in effect on the date of the Purchase
            Agreement, the "JVEA"), on the three (3) Project Wells (as such term
            is defined in the JVEA) described on Exhibit C to Schedule VIII of
            the Security Agreement, to the extent such Liens secure the
            obligations of IOGW to the Service Parties under the JVEA.

III. Financing Statements Filed Against the Company

     See part II above.

                                       27
<PAGE>

                                 SCHEDULE 3(bb)
                              REAL PROPERTY, LEASES

1.    All real property interests of Company are listed in Exhibits A and B of
      this Schedule 3(bb).

            Exhibit A    Oil and Gas Leases and Oil and Gas Wells

            Exhibit B    Office Leases, Camp Leases and real property

2.    Infinity Oil & Gas of Kansas Inc. owns a partial working interest in
      non-producing leases in southwest Kansas for which it does not have a
      complete legal description. In addition, Infinity Oil and Gas of Texas,
      Inc. and Infinity Oil & Gas of Wyoming, Inc. are currently obtaining oil
      and gas leases on a daily basis and, therefore, oil and gas leases taken
      or acquired within ten Business Days of Closing may not appear on this
      Schedule.

3.    The description wells in Exhibit A is the Companies' list of "facilities"
      for purposes of describing the facilities owned by Company and its
      subsidiaries for drilling, production and marketing of oil and gas.

4.    Reed Zars, the surface owner adjacent to Infinity's Woodley Springs
      four-well coalbed methane pilot project, has made a number of challenges
      to the validity of the permit issued by Routt County, Colorado for the
      pilot project. Most recently, by Order dated November 15, 2004, the
      District Court of Routt County dismissed the complaint filed by Reed Zars,
      challenging the issuance of the Woodley Springs Permit. Reed Zars v. Routt
      County Regional Planning Department, Board of County Commissioners of
      Routt County, 04CV75 (2004). The Woodley Springs pilot project is
      currently shut-in for the winter. Infinity Oil & Gas of Wyoming, Inc. may
      seek to renew or obtain a new permit to operate this pilot in the spring
      of 2005, and Infinity anticipates that Mr. Zars will continue to object to
      the issuance of this permit.

5.    The South Piney Environmental Impact Statement for Riley Ridge Natural Gas
      Development Project Area in Sublette County, Wyoming is currently pending.

6.    The Bitter Creek Shallow Gas Exploration and Development Environmental
      Assessment for the Pipeline Project Area in Sweetwater County, Wyoming is
      currently pending (Labarge).

7.    The leases in the North Sand Wash Area are subject to a Letter of Intent
      dated December 14, 2004, whereby Cedar Ridge LLC offers to purchase from
      Infinity Oil & Gas of Wyoming, Inc. all of its leasehold interest in a
      portion of the North Sand Wash Area.

8.    As to the representation that "there are no pending or, to the Knowledge
      of the Company, threatened . . . litigation or other proceedings affecting
      the Real Property . . ." there is a letter dated July 28, 2004, from the
      Bureau of Land Management making inquiry of Infinity Oil & Gas of Wyoming,
      Inc. to verify volumes of oil and gas production from the Riley Ridge Unit
      in Sublette County, Wyoming. Infinity Oil & Gas of Wyoming, Inc. has
      responded to the inquiry but has received no further word.

                                       28
<PAGE>

                                  SCHEDULE 4(d)
                                 USE OF PROCEEDS

(i)   Payment of expenses and commissions, totaling approximately $2,500,000.

(ii)  Repayment of the LaSalle facility, in the amount of $3,853,502.38, plus
      the per diem amount set forth in the payoff letter delivered in connection
      therewith, if applicable.

(iii) Repayment of the US Bank Facility, in the amount of $5,037,285.67, plus
      the per diem amount set forth in the payoff letter delivered in connection
      therewith, if applicable.

(iv)  Redemption of the 8% Subordinated Convertible Notes due 2006, in the
      principal amount of up to $2,493,000, exclusive of interest and premiums.

                                       29
<PAGE>

                                  SCHEDULE 4(u)
                        REPAYMENT OF CERTAIN INDEBTEDNESS

<TABLE>
<CAPTION>
                                    DESCRIPTION                                            CURRENT BALANCE
--------------------------------------------------------------------------------           ---------------
<S>                                                                                        <C>
1.  HOME NATIONAL BANK - BARTLESVILLE FACILITY                                              $  298,927.14
2.  HOME BANK AND TRUST - THAYER FACILITY                                                   $   21,227.75
3.  FORD MOTOR CREDIT 2004 Ford F-250 VIN 1FTNX21S54ED53727                                 $   29,116.58
4.  FORD MOTOR CREDIT 2002 Ford F250 VIN- 1FTNX21L22ED65002                                 $   22,865.19
5.  FORD MOTOR CREDIT 2004 Ford F150 CC VIN- 1FTPW14594KD74027                              $   17,259.26
6.  DAIMLER CHRYSLER CREDIT CORP 2004 Dodge 2500 VIN- 3D7KU28C94G272982                     $   31,263.41
7.  BANK OF COMMERCE - GILLETTE FACILITY                                                    $  124,743.44
</TABLE>

Descriptions of each item on this schedule are incorporated by reference from
Schedule 3(aa).

                                       30<PAGE>
                                                                     EXHIBIT 4.2

                                                                       EXHIBIT A

                              FORM OF INITIAL NOTE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTION 2(D)(VIII) HEREOF.
THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(D)(VIII) HEREOF.

                               SENIOR SECURED NOTE

__________ __, 200__                                               $____________

      FOR VALUE RECEIVED, INFINITY, INC., a Colorado corporation (the
"COMPANY"), hereby promises to pay to the order of __________________ or
registered assigns (the "HOLDER") the principal amount of ___________________
United States Dollars ($________________) when due, whether upon maturity,
acceleration, redemption or otherwise, and to pay interest ("INTEREST") on the
unpaid principal balance hereof on each Interest Payment Date (as defined in
Section 2(a)(xix)) and upon maturity, or earlier upon conversion, acceleration
or redemption pursuant to the terms hereof, at the Applicable Interest Rate.
Interest on this Note payable on each Interest Payment Date and upon maturity,
or earlier upon conversion, acceleration or redemption pursuant to the terms
hereof, shall accrue from the Issuance Date and shall be computed on the basis
of a 365-day year and actual days elapsed.

            (1) Payments of Principal. All payments of principal of this Note
(to the extent such principal is not converted into Shares (as defined in
Section 2(a)(xli) in accordance with the terms hereof) shall be made in lawful
money of the United States of America by wire transfer of immediately available
funds to such account as the Holder may from time to time designate by written
notice in accordance with the provisions of this Note. Except as provided in
Section 7, the Company has no right, but under certain circumstances may have an
obligation, to make payments of principal of this Note in cash prior to the
Maturity Date (as defined in Section 2(a)(xxiii)). Whenever any amount expressed
to be due by the terms of this Note is due on any

<PAGE>

day that is not a Business Day (as defined in Section 2(a)(vi)), the same shall
instead be due on the next succeeding day that is a Business Day. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in the Securities Purchase Agreement, dated as of January 13,
2005, pursuant to which this Note and the Other Notes (as defined below) were
originally issued (as such agreement may be amended from time to time as
provided in such agreement, the "SECURITIES PURCHASE AGREEMENT"). This Note and
all Other Notes issued by the Company pursuant to the Securities Purchase
Agreement on the Initial Closing Date and any Additional Closing Dates and all
notes issued in exchange therefor or replacement thereof are collectively
referred to in this Note as the "NOTES." This Note and each of the Other Notes
originally issued by the Company on the same Closing Date shall be deemed to be
of the same "SERIES."

            (2) Conversion of this Note. This Note shall be converted into
Shares on the terms and conditions set forth in this Section 2.

                  (a) Certain Defined Terms. For purposes of this Note, the
following terms shall have the following meanings:

                        (i) "3-MONTH LIBOR RATE" means the London Interbank
            Offered Rate of LIBOR with respect to a three-month period for
            deposits of United States Dollars as reported by Bloomberg Financial
            Markets (or any successor thereto, "BLOOMBERG") at approximately
            10:00 a.m. (New York time) through its "LIBOR Rates" function
            (accessed by typing "LR" [GO] on a Bloomberg terminal, and looking
            at the row entitled "3 MONTH" and under the column entitled "DOLLAR
            LIBOR") (or such other page as may replace that page on that
            service, or such other service as may be selected jointly by the
            Company and the Holders of the Notes). If such rate appears on the
            Bloomberg LIBOR Rates page on any date of determination of the
            3-Month LIBOR Rate (a "LIBOR DETERMINATION DATE"), the 3-Month LIBOR
            Rate for such date of determination will be such rate. If on any
            LIBOR Determination Date such rate does not appear on the Bloomberg
            LIBOR Rates page, the Company and the Holders of the Notes will
            jointly request each of four major reference banks in the London
            interbank market, as selected jointly by the Company and the Holders
            of the Notes, to provide the Company with its offered quotation for
            United States dollar deposits for the upcoming three-month period,
            to prime banks in the London interbank market at approximately 4:00
            p.m., London time on any such LIBOR Determination Date and in a
            principal amount that is representative for a single transaction in
            United States Dollars in such market at such time. If at least two
            reference banks provide the Company with offered quotations, 3-Month
            LIBOR Rate on such LIBOR Determination Date will be the arithmetic
            mean of all such quotations. If on such LIBOR Determination Date
            fewer than two of the reference banks provide the Company with
            offered quotations, 3-Month LIBOR Rate on such LIBOR Determination
            Date will be the arithmetic mean of the offered per annum rates that
            three major banks in New York City selected jointly by the Company
            and the Holders of the Notes quote at approximately 11:00 A.M.

                                       2
<PAGE>

            in New York City on such LIBOR Determination Date for three-month
            United States dollar loans to leading European banks, in a principal
            amount that is representative for a single transaction in United
            States dollars in such market at such time. If these New York City
            quotes are not available, then the 3-Month LIBOR Rate determined on
            such LIBOR Determination Date will continue to be 3-Month LIBOR Rate
            as then currently in effect on such LIBOR Determination Date.

                        (ii) "AFTER-TAX PV10" means, as of the date of any
            determination, the present value of estimated future revenues to be
            generated by the Company and its Subsidiaries, on a consolidated
            basis, from the production of their proved reserves (calculated in
            accordance with SEC guidelines and based on the most recent
            independent reserve report), net of estimated lease operating
            expenses, production taxes, federal income taxes and future
            development costs, using price and costs as of the date of
            determination without future escalation and without giving effect to
            non-property related expenses such as general and administrative
            expenses, debt service and depreciation, depletion and amortization,
            and discounted using an annual discount rate of 10% (as most
            recently disclosed by the Company on a Form 10-K, 10-Q or 8-K based
            on an independent reserve report that was current as of the date
            that the Company's After-tax PV10 was disclosed in such Form 10-K,
            10-Q or 8-K); provided that After-tax PV10 shall mean zero unless
            the Company has (A) publicly disclosed (either on a Form 10-K, 10-Q
            or 8-K) its After-tax PV10 as of a date within 100 days of such date
            of determination and (B) certified as of such date of determination
            that, to the Knowledge of the Company, After-tax PV10, if determined
            as of such date of determination, would not be materially lower than
            After-tax PV10 as most recently disclosed by the Company on a Form
            10-K, 10-Q or 8-K.

                        (iii) "AGGREGATE NOTES BALANCE" means, as of the date of
            any determination, the aggregate outstanding principal amount of all
            the Notes, together with all accrued but unpaid interest thereon.

                        (iv) "ALLOCATION PERCENTAGE" means, with respect to each
            holder of Note as of the date of any determination, a fraction of
            which the numerator is the aggregate principal amount of the Notes
            originally purchased by such holder on the Initial Closing Date and
            any Additional Closing Dates occurring on or prior to such date of
            determination, and of which the denominator is the aggregate
            principal amount of the Notes purchased by all holders on the
            Initial Closing Date and such Additional Closing Dates.

                        (v) "APPLICABLE INTEREST RATE" initially shall mean the
            per annum interest rate equal to the sum of (a) the 3-Month LIBOR
            Rate in effect on the Issuance Date, and (b) six and three-quarter
            percent (6.75%); provided, however, that on the first Business Day
            of each calendar quarter commencing

                                       3
<PAGE>

            after the Issuance Date (each, an "INTEREST RESET DATE"), such rate
            shall be adjusted to the per annum interest rate equal to the sum of
            (a) the 3-Month LIBOR Rate in effect on such date, and (b) six and
            three-quarter percent (6.75%). Each Applicable Interest Rate will be
            applicable as of and after the Interest Reset Date to which it
            relates to, but not including, the next succeeding Interest Reset
            Date.

                        (vi) "BUSINESS DAY" means any day other than Saturday,
            Sunday or other day on which commercial banks in the city of New
            York are authorized or required by law to remain closed.

                        (vii) "COMMON STOCK" means (A) the Company's common
            stock, $0.0001 par value per share, and (B) any capital stock
            resulting from a reclassification of such common stock.

                        (viii) "COMPANY ALTERNATIVE REDEMPTION RATE" means at
            any time during a 12-month period beginning on and including a date
            set forth below, the rate, expressed as a percentage, set forth
            opposite such date below:

<TABLE>
<S>                                         <C>
Issuance Date                               105%
First Anniversary of the Issuance Date      104%
Second Anniversary of the Issuance Date     103%
Third Anniversary of the Issuance Date      102%
</TABLE>

            and, if there has been a Maturity Date Extension (as defined below),
            the Company Alternative Redemption Rate, at any time during the
            12-month period beginning on and including the fourth anniversary of
            the Issuance Date, shall be 101%.

                        (ix) "CONVERSION AMOUNT" means (A) the sum of (1) the
            principal amount of this Note to be converted, redeemed or otherwise
            with respect to which this determination is being made and (2) the
            Interest Amount with respect to the amount referred to in the
            immediately preceding clause (1), or (B) in the case of an Interest
            Conversion (as defined in Section 6), the Interest Amount to be
            converted.

                        (x) "CONVERSION PRICE" means, as of any Conversion Date
            or other date of determination, 95% of the Weighted Average Price of
            the Common Stock on the Trading Day immediately preceding the
            Conversion Date applicable to the conversion for which such
            determination is being made, subject to adjustment as provided
            herein.

                        (xi) "DOLLARS" or "$" means United States Dollars.

                        (xii) "EXPECTED TRADING DAYS" means, with respect to any
            Company Alternative Conversion Period (as defined in Section 8(a)),
            the number

                                       4
<PAGE>

            of regularly scheduled Business Days in such period on which the
            Principal Market is scheduled to be open for trading of the Common
            Stock.

                        (xiii) "FIXED MATURITY DATE" means [INSERT THE FOURTH
            ANNIVERSARY OF THE ISSUANCE DATE], or if there has been a Maturity
            Date Extension, [INSERT THE FIFTH ANNIVERSARY OF THE ISSUANCE DATE.]

                        (xiv) "FREE CASH FLOW AMOUNT" means, as of the date of
            any determination, the sum of (I) the lesser of (A) the product of
            (1) the Free Cash Multiple, multiplied by (2) the Services Business
            Free Cash Flow and (B) the product of (x) 2, multiplied by (y) the
            Services Business Revenue, plus (II) the lesser of (1) 50% of the
            result of the immediately preceding clause (I), and (2) 30% of the
            Company's After-tax PV10, plus (III) 10% of the Company's After-tax
            PV10.

                        (xv) "FREE CASH FLOW MULTIPLE" shall be the following
            number: 10 for any determination of the Free Cash Flow Amount on
            December 31, 2004, 9.5 for any determination of the Free Cash Flow
            Amount on March 31, 2005, 9.0 for any determination of the Free Cash
            Flow Amount on June 30, 2005, 8.5 for any determination of the Free
            Cash Flow Amount on September 30, 2005, and 8.0 for any
            determination of the Free Cash Flow Amount after September 30, 2005.

                        (xvi) "FREE CASH FLOW TEST FAILURE" means that, as of
            the date of any determination, the Free Cash Flow Amount is less
            than or equal to the Aggregate Notes Balance.

                        (xvii) "FREE CASH FLOW TEST FAILURE AMOUNT" means that,
            in the event that there is a Free Cash Flow Test Failure as of the
            date of any determination, an amount equal to the product of (A) a
            fraction, of which the numerator is the outstanding principal amount
            of this Note, together with all accrued but unpaid Interest thereon
            as of such date, and of which the denominator is the outstanding
            principal amount of all Notes of the same Series as this Note,
            together with all accrued but unpaid interest thereon as of such
            date, multiplied by (B) an amount equal to the result of (x) the
            Aggregate Notes Balance as of such date of determination, minus (y)
            the Priority Notes Balance as of such date of determination, minus
            (z) the Free Cash Flow Amount; provided that, for purposes of this
            calculation of "Free Cash Flow Test Failure Amount," if the result
            of (x)-(y)-(z) above is less than zero, then the amount used for (B)
            in the above calculation shall be zero; and provided, further, that
            the Free Cash Flow Test Failure Amount, as defined and determined
            under this Note, shall not exceed the Principal of this Note
            together with all accrued but unpaid Interest thereon.

                                       5
<PAGE>

                        (xviii) "INTEREST AMOUNT" means, with respect to any
            Principal, all accrued and unpaid Interest (including any Default
            Interest as defined in Section 6) on such Principal through and
            including such date of determination.

                        (xix) "INTEREST PAYMENT DATE" means the first Business
            Day of each calendar quarter, beginning with the calendar quarter
            that commences on April 1, 2005; through and including the last
            calendar quarter that commences prior to the Maturity Date.

                        (xx) "ISSUANCE DATE" means the original date of issuance
            of this Note pursuant to the Securities Purchase Agreement,
            regardless of any exchange or replacement hereof.

                        (xxi) "LIEN" means, with respect to any asset, any
            mortgage, lien, pledge, hypothecation, charge, security interest,
            encumbrance or adverse claim of any kind and any restrictive
            covenant, condition, restriction or exception of any kind that has
            the practical effect of creating a mortgage, lien, pledge,
            hypothecation, charge, security interest, encumbrance or adverse
            claim of any kind (including any of the foregoing created by,
            arising under or evidenced by any conditional sale or other title
            retention agreement, the interest of a lessor with respect to a
            Capital Lease Obligation, or any financing lease having
            substantially the same economic effect as any of the foregoing).

                        (xxii) "MANDATORY COMPLIANCE AMOUNT" means, as of the
            date of any determination, (A) the Free Cash Flow Test Failure
            Amount, minus (B) any Principal as to which a notice has been given
            to the Holder by the Company for conversion or redemption in
            accordance herewith, but which has not been converted or paid prior
            to the date of such determination, provided the Company is in
            compliance with Sections 7 and 8 in connection therewith (such
            amount in this clause (B) being referred to as the "EXCLUDED
            AMOUNT").

                        (xxiii) "MATURITY DATE" means the earliest to occur of
            (A) the Fixed Maturity Date, (B) the date of a Maturity Date
            Triggering Event, (C) such date as all amounts due under this Note
            have been fully paid.

                        (xxiv) "MATURITY DATE EXTENSION" means the holders of
            Notes representing at least two-thirds (2/3) of the aggregate
            principal amount of the then outstanding Notes that are of the same
            Series as this Note, have (A) received a notice from the Company no
            earlier than sixty (60) days, and no later than thirty (30) days
            prior to [INSERT THE THIRD ANNIVERSARY OF THE ISSUANCE DATE] (which
            notice the Company may deliver on only one occasion with respect to
            such Series of Notes), requesting the holders of such Series of
            Notes to extend the Fixed Maturity Date by twelve (12) months and
            (B) within ten (10) Business Days of receipt of the notice described
            in clause (A) (such 10-Business-Day Period, the "RESPONSE PERIOD"),
            agreed in writing to extend the Maturity Date of all the

                                       6
<PAGE>

            Notes of such Series by twelve (12) months, (provided that, for the
            avoidance of doubt, if the Company does not receive such written
            agreement within the Response Period from the requisite holders of
            the Notes of such Series, such requested extension shall be deemed
            denied and the Fixed Maturity Date shall not be extended).

                        (xxv) "MATURITY DATE TRIGGERING EVENT" means any
            principal amount of the 7% Notes is outstanding on the Business Day
            immediately preceding the scheduled maturity date of the 7% Notes,
            unless the Free Cash Flow Amount as of the end of the quarterly or
            annual period covered by the quarterly report on Form 10-Q or annual
            report on Form 10-K most recently filed, or required to be filed, by
            the Company with the SEC exceeds 150% of the Aggregate Notes Balance
            as of the Business Day immediately preceding the scheduled maturity
            of the 7% Notes.

                        (xxvi) "OTHER NOTES" means all of the senior secured
            notes, other than this Note, that have been issued by the Company
            pursuant to the Securities Purchase Agreement and all notes issued
            in exchange therefor or replacement thereof.

                        (xxvii) "PERMITTED LIEN" means (a) Liens created by the
            Security Documents; (b) Liens existing on the date of this Agreement
            not otherwise described in any other clause of this definition and
            set forth on Schedule 3(bb); (c) Liens for taxes or other
            governmental charges not at the time due and payable so long as the
            Company and its Subsidiaries maintain adequate reserves in
            accordance with United States generally accepted accounting
            principles ("GAAP") in respect of such taxes and charges; (d) Liens
            arising in the ordinary course of business in favor of carriers,
            warehousemen, mechanics and materialmen, or other similar Liens
            imposed by law, which remain payable without penalty or which are
            being contested in good faith by appropriate proceedings diligently
            prosecuted, which proceedings have the effect of preventing the
            forfeiture or sale of the property subject thereto, and in each case
            for which adequate reserves in accordance with GAAP are being
            maintained; (e) Liens arising in the ordinary course of business in
            connection with worker's compensation, unemployment compensation and
            other types of social security (excluding Liens arising under ERISA)
            or Liens consisting of cash collateral securing the Company's or any
            of its Active Subsidiaries' performance of surety bonds, bids,
            performance bonds and similar obligations (exclusive of obligations
            for the payment of borrowed money) permitted pursuant to clause
            (a)(IV) of Section 12 and, in each case, for which the Company
            maintains adequate reserves; (f) attachments, appeal bonds (and cash
            collateral securing such bonds), judgments and other similar Liens,
            for sums not exceeding $500,000 in the aggregate for Company and its
            Subsidiaries, arising in connection with court proceedings, provided
            that the execution or other enforcement of such Liens is effectively
            stayed; (g) easements, rights of way, restrictions, minor defects or

                                       7
<PAGE>

            irregularities in title and other similar Liens arising in the
            ordinary course of business and not materially detracting from the
            value of the property subject thereto and not interfering in any
            material respect with the ordinary conduct of the business of the
            Company or any Subsidiary; (h) Liens in favor of U.S. Bank and
            LaSalle in respect of the Duke LC Account and the Returned Items
            Account (each as defined in the Security Agreement) to the extent
            such accounts are maintained and permitted to exist in accordance
            with the terms of the Security Agreement; (i) Liens consisting of
            cash collateral securing the Company's and its Active Subsidiaries'
            reimbursement obligations under letters of credit permitted by
            clauses (a)(VI) and (a)(VII) of Section 12, provided that the
            aggregate amount of cash collateral securing such Indebtedness does
            not exceed the undrawn face amount of all such letters of credit
            outstanding at any one time; (j) Liens securing Indebtedness listed
            on Schedule 4(u) of the Securities Purchase Agreement for up to
            thirty (30) days following the Initial Closing Date; (k) Liens on
            equipment subject to Capital Lease Obligations permitted to be
            incurred pursuant to clause (a)(V) of Section 12, to the extent such
            Liens secure such Capital Lease Obligations; and (l) Liens in favor
            of Schlumberger Technology Corporation and Red Oak Capital
            Management LP (collectively, the "SERVICE PARTIES"), granted
            pursuant to the Joint Value Enhancement Agreement, dated December 3,
            2003, among Infinity Oil & Gas of Wyoming, Inc. ("IOGW") and the
            Service Parties (as in effect on the date hereof, the "JVEA"), on
            the three (3) Project Wells (as such term is defined in the JVEA)
            described on Exhibit C to Schedule VIII of the Security Agreement,
            to the extent such Liens secure the obligations of IOGW to the
            Service Parties under the JVEA.

                        (xxviii) "PERSON" means an individual, a limited
            liability company, a partnership, a joint venture, a corporation, a
            trust, an unincorporated organization or a government or any
            department or agency thereof or any other legal entity.

                        (xxix) "PRINCIPAL" means the outstanding principal
            amount of this Note as of any date of determination.

                        (xxx) "PRIORITY NOTES BALANCE" means, as of the date of
            any determination, the aggregate outstanding principal amount of all
            the Notes that have a Fixed Maturity Date that is later than the
            Fixed Maturity Date of this Note, together with all accrued but
            unpaid interest thereon.

                        (xxxi) "PRINCIPAL MARKET" means, with respect to the
            Common Stock or any other security, the NASDAQ National Market or if
            the Common Stock or such other security, as the case may be, is not
            traded on the NASDAQ National Market, then the principal securities
            exchange or trading market for the Common Stock or such other
            security.

                                       8
<PAGE>

                        (xxxii) "REGISTRABLE SECURITIES" for purposes of this
            Note means Shares issued or issuable upon conversion of this Note,
            and any shares of capital stock issued or issuable with respect to
            such Shares as a result of any stock split, stock dividend,
            recapitalization, exchange or similar event or otherwise, without
            regard to any limitations on conversions of this Note.

                        (xxxiii) "REGISTRATION RIGHTS AGREEMENT" means that
            certain registration rights agreement, dated as of January 13, 2005,
            among the Company and the initial holders of the Notes relating to
            the filing of registration statements covering, among other things,
            the resale of Registrable Securities, as such agreement may be
            amended from time to time as provided in such agreement.

                        (xxxiv) "REGISTRATION STATEMENT" means a registration
            statement or registration statements filed under the 1933 Act
            pursuant to the Registration Rights Agreement covering the resale of
            Registrable Securities.

                        (xxxx) "SEC" means the United States Securities and
            Exchange Commission, or any successor thereto.

                        (xxxvi) "SECURITY AGREEMENT" means that certain security
            agreement among the Company, its Active Subsidiaries and the initial
            holders of the Notes relating to the granting by the Company and the
            Subsidiaries of a first-priority security interest in all the assets
            of the Company and its Active Subsidiaries, as such agreement may be
            amended from time to time as provided in such agreement.

                        (xxxvii) "SECURITY DOCUMENTS" means any agreement,
            document or instrument executed concurrently herewith or at any time
            hereafter pursuant to which the Company, its Active Subsidiaries or
            any other Person either (i) guarantees payment or performance of all
            or any portion of the obligations hereunder or under any other
            instruments delivered in connection with the transactions
            contemplated hereby and by the Securities Purchase Agreement, and/or
            (ii) provides, as security for all or any portion of such
            obligations, a Lien on any of its assets in favor of the Holder, as
            any or all of the same may be amended, supplemented, restated or
            otherwise modified from time to time.

                        (xxxviii) "SERIES ALLOCATION PERCENTAGE" means, with
            respect to each holder of Notes of the same Series as this Note, a
            fraction of which the numerator is the aggregate principal amount of
            Notes of such Series initially purchased by such holder on the
            Issuance Date and of which the denominator is the aggregate
            principal amount of Notes of such Series purchased by all holders on
            the Issuance Date.

                        (xxxix) "SERVICES BUSINESS FREE CASH FLOW" means, as of
            the date of any determination, the result of (A) the consolidated
            net operating income before interest, taxes, depreciation and
            amortization of the oil field services

                                       9
<PAGE>

            segment of the operations of the Company and its Subsidiaries (as
            such segment is described in the Company's annual report on Form
            10-K for the year ended December 31, 2003), excluding net operating
            income derived from the Company and its affiliates, for the 12-month
            period ended on such date of determination, plus (B) the aggregate
            amount of interest, service charges and fees paid by the Company in
            connection with the LaSalle Facility and the mortgage Indebtedness
            of Consolidated Oil Well Services, Inc. listed on Schedule 4(u) to
            the Securities Purchase Agreement prior to December 31, 2004 but
            during the 12-month period ended on such date of determination,
            minus (C) all capital expenditures not funded solely out of the
            proceeds of Permitted Subordinate Debt or issuances of
            non-redeemable capital stock of the Company, interest and income
            taxes, in each case, of such segment for such 12-month period, all
            as determined in accordance with GAAP applied on a consistent basis
            and disclosed in the Company's most recently filed quarterly report
            on Form 10-Q and/or annual report on Form 10-K, as applicable.

                        (xxxx) "SERVICES BUSINESS REVENUE" means, as of the date
            of any determination, the consolidated revenue from the oil field
            services segment of the operations of the Company and its
            Subsidiaries (as such segment is described in the Company's annual
            report on Form 10-K for the year ended December 31, 2003) excluding
            net revenue derived from the Company and its affiliates, for the
            12-month period ended on such date of determination, determined in
            accordance with GAAP applied on a consistent basis and disclosed in
            the Company's most recently filed quarterly report on Form 10-Q
            and/or annual report on Form 10-K, as applicable.

                        (xli) "SHARES" means shares of Common Stock.

                        (xlii) "TRADING DAY" means any day on which the Common
            Stock is traded on its Principal Market; provided that "Trading Day"
            shall not include any day on which the Principal Market is open for
            trading for less than 4.5 hours.

                        (xliii) "WARRANTS" means the warrants issued to the
            holders of the Notes pursuant to the Securities Purchase Agreement,
            and all warrants issued in exchange or substitution therefor or
            replacement thereof pursuant to the terms of such warrants or the
            Securities Purchase Agreement.

                        (xliv) "WEIGHTED AVERAGE PRICE" means, for any security
            as of any date, the dollar volume-weighted average price for such
            security on its Principal Market during the period beginning at 9:30
            a.m. New York City time (or such other time as its Principal Market
            publicly announces is the official open of trading) and ending at
            4:00 p.m. New York City time (or such other time as its Principal
            Market publicly announces is the official close of trading) as
            reported by Bloomberg through its "Volume at Price" functions, or if
            the foregoing does not apply, the dollar volume-weighted average
            price of such security in the over-the-

                                       10
<PAGE>

            counter market on the electronic bulletin board for such security
            during the period beginning at 9:30 a.m. New York City time (or such
            other time as such over-the-counter market publicly announces is the
            official open of trading), and ending at 4:00 p.m. New York City
            time (or such other time as such over-the-counter market publicly
            announces is the official close of trading) as reported by
            Bloomberg, or, if no dollar volume-weighted average price is
            reported for such security by Bloomberg for such hours, the average
            of the highest closing bid price and the lowest closing ask price of
            any of the market makers for such security as reported in the "pink
            sheets" by the National Quotation Bureau, Inc. If the Weighted
            Average Price cannot be calculated for such security on such date on
            any of the foregoing bases, the Weighted Average Price of such
            security on such date shall be the fair market value as mutually
            determined by the Company and the holders of Notes representing at
            least two-thirds (2/3) of the aggregate principal amount of the
            Notes then outstanding as to which such determination is being made.
            If the Company and the holders of the Notes representing at least
            two-thirds (2/3) of the aggregate principal amount of the Notes then
            outstanding as to which such determination is being made are unable
            to agree upon the fair market value of the Common Stock, then such
            dispute shall be resolved pursuant to Section 2(d)(iii) below with
            the term "Weighted Average Price" being substituted for the term
            "Conversion Price." All such determinations shall be appropriately
            adjusted for any stock dividend, stock split, stock combination or
            other similar transaction during any period during which the
            Weighted Average Price is being determined.

                  (b) Holder's Conversion Right; Mandatory Redemption at
Maturity. Subject to the provisions of Section 5, at any time or times on or
after the Issuance Date, the Holder shall be entitled to convert all or any part
of the Principal (and the Interest Amount relating thereto) into fully paid and
nonassessable Shares in accordance with Section 2(d), at the Conversion Rate (as
defined in Section 2(c)). The Company shall not issue any fraction of a Share
upon any conversion. If the issuance would result in the issuance of a fraction
of a Share, then the Company shall round such fraction of a Share up or down to
the nearest whole share (with 0.5 rounded up). If any Principal remains
outstanding on the Maturity Date, then all such Principal (and the Interest
Amount relating thereto) shall be redeemed as of such date in accordance with
Section 2(d)(vii).

                  (c) Conversion Rate. The number of Shares issuable upon
conversion of any portion of this Note pursuant to Section 2 shall be determined
according to the following formula (the "CONVERSION RATE"):

                                Conversion Amount
                                Conversion Price

                  (d) Mechanics of Conversion. The conversion of this Note shall
be conducted in the following manner:

                                       11
<PAGE>

                        (i) Holder's Delivery Requirements. To convert a
            Conversion Amount into Shares on any date (the "CONVERSION DATE"),
            the Holder shall (A) transmit by facsimile (or otherwise deliver),
            for receipt on or prior to 11:59 p.m. New York City time on such
            date, a copy of an executed conversion notice in the form attached
            hereto as Exhibit I (the "CONVERSION NOTICE") to the Company, and
            (B) if required by Section 2(d)(viii), surrender to a common carrier
            for delivery to the Company, no later than three (3) Business Days
            after the Conversion Date, the original Note being converted (or an
            indemnification undertaking reasonably acceptable to the Company
            with respect to this Note in the case of its loss, theft or
            destruction).

                        (ii) Company's Response. Upon receipt or deemed receipt
            by the Company of a copy of a Conversion Notice, the Company (I)
            shall immediately send, via facsimile, a confirmation of receipt of
            such Conversion Notice to the Holder and the Company's designated
            transfer agent (the "TRANSFER AGENT"), which confirmation shall
            constitute an instruction to the Transfer Agent to process such
            Conversion Notice in accordance with the terms herein and (II) on or
            before the second (2nd) Business Day following the date of receipt
            or deemed receipt by the Company of such Conversion Notice (the
            "SHARE DELIVERY DATE") (A) provided that the Transfer Agent is
            participating in The Depository Trust Company ("DTC") Fast Automated
            Securities Transfer Program and provided that the Holder is eligible
            to receive Shares through DTC, credit such aggregate number of
            Shares to which the Holder shall be entitled to the Holder's or its
            designee's balance account with DTC through its Deposit Withdrawal
            Agent Commission system, or (B) if the foregoing shall not apply,
            issue and deliver to the address as specified in the Conversion
            Notice, a certificate, registered in the name of the Holder or its
            designee, for the number of Shares to which the Holder shall be
            entitled. If this Note is submitted for conversion, as may be
            required by Section 2(d)(viii), and the Principal represented by
            this Note is greater than the Principal being converted, then the
            Company shall, as soon as practicable and in no event later than
            three (3) Business Days after receipt of this Note (the "NOTE
            DELIVERY DATE") and at its own expense, issue and deliver to the
            Holder a new Note representing the Principal not converted.

                        (iii) Dispute Resolution. In the case of a dispute as to
            the determination of the Conversion Price or the arithmetic
            calculation of the Conversion Rate, the Company shall instruct the
            Transfer Agent to issue to the Holder the Shares representing the
            number of Shares that is not disputed and shall transmit an
            explanation of the disputed determinations or arithmetic
            calculations to the Holder via facsimile within two (2) Business Day
            of receipt or deemed receipt of the Holder's Conversion Notice or
            other date of determination. If the Holder and the Company are
            unable to agree upon the determination of the Conversion Price or
            arithmetic calculation of the Conversion Rate within one (1)
            Business Day of such disputed determination or arithmetic
            calculation being transmitted to the Holder, then the Company shall
            promptly (and in any event

                                       12
<PAGE>

            within two (2) Business Days) submit via facsimile (A) the disputed
            determination of the Conversion Price to an independent, reputable
            investment banking firm agreed to by the Company and the holders of
            the Notes representing at least two-thirds (2/3) of the aggregate
            principal amounts of the Notes then outstanding as to which such
            determination is being made, or (B) the disputed arithmetic
            calculation of the Conversion Rate to the Company's independent,
            outside accountant, as the case may be. The Company shall direct the
            investment bank or the accountant, as the case may be, to perform
            the determinations or calculations and notify the Company and the
            Holder of the results no later than two (2) Business Days from the
            time it receives the disputed determinations or calculations. Such
            investment bank's or accountant's determination or calculation, as
            the case may be, shall be binding upon all parties absent
            demonstrable error.

                        (iv) Record Holder. The person or persons entitled to
            receive the Shares issuable upon a conversion of this Note shall be
            treated for all purposes as the legal and record holder or holders
            of such Shares on the Conversion Date.

                        (v) Company's Failure to Timely Convert.

                              (A) Cash Damages. If within three (3) Business
Days after the Company's receipt of the facsimile copy of a Conversion Notice or
deemed receipt of a Conversion Notice the Company shall fail to issue and
deliver a certificate to the Holder for, or credit the Holder's or its
designee's balance account with DTC with, the number of Shares to which the
Holder is entitled upon the Holder's conversion of any Conversion Amount, or if
the Company fails to issue and deliver a new Note representing the Principal to
which such Holder is entitled on or before the Note Delivery Date pursuant to
Section 2(d)(ii), then in addition to all other available remedies that the
Holder may pursue hereunder and under the Securities Purchase Agreement
(including indemnification pursuant to Section 8 thereof or at law or in
equity), the Company shall pay additional damages to the Holder for each day
after the Share Delivery Date such conversion is not timely effected and/or each
day after the Note Delivery Date such Note is not delivered in an amount equal
to 0.5% of the sum of (a) the product of (I) the number of Shares not issued to
the Holder or its designee on or prior to the Share Delivery Date and to which
the Holder is entitled and (II) the Weighted Average Price of the Common Stock
on the Share Delivery Date (such product is referred to herein as the "SHARE
PRODUCT AMOUNT"), and (b) in the event the Company has failed to deliver a Note
to the Holder on or prior to the Note Delivery Date, the product of (y) the
number of Shares issuable upon conversion of the Principal represented by the
Note as of the Note Delivery Date and (z) the Weighted Average Price of the
Common Stock on the Note Delivery Date; provided that in no event shall cash
damages accrue pursuant to this Section 2(d)(v)(A) with respect to the Share
Product Amount during the period, if any, in which the Conversion Price or the
arithmetic calculation of the Conversion Rate is subject to a bona fide dispute
that is subject to and being resolved pursuant to, and in compliance with the
time periods and other provisions of, the dispute resolution provisions of
Section 2(d)(iii), provided that the Shares are delivered to the Holder within
two (2) Business Days of the resolution of such bona fide dispute.
Alternatively, subject to Section 2(d)(iii), at the election of

                                       13
<PAGE>

the Holder made in the Holder's sole discretion, the Company shall pay to the
Holder, in lieu of the additional damages referred to in the preceding sentence
(but in addition to all other available remedies that the Holder may pursue
hereunder and under the Securities Purchase Agreement (including indemnification
pursuant to Section 8 thereof or at law or in equity)), 110% of the amount by
which (A) the Holder's total purchase price (including brokerage commissions, if
any) for the Shares purchased to make delivery in satisfaction of a sale by the
Holder of the Shares to which the Holder is entitled but has not received upon a
conversion exceeds (B) the net proceeds received by the Holder from the sale of
the Shares to which the Holder is entitled but has not received upon such
conversion. If the Company fails to pay the additional damages set forth in this
Section 2(d)(v)(A) within five (5) Business Days of the date incurred, then the
Holder entitled to such payments shall have the right at any time, so long as
the Company continues to fail to make such payments, to require the Company,
upon written notice, to immediately issue, in lieu of such cash damages, the
number of Shares equal to the quotient of (X) the aggregate amount of the
damages payments described herein divided by (Y) the Conversion Price in effect
on such Conversion Date as specified by the Holder in the Conversion Notice.

                              (B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason the Holder has not received all of the
Shares prior to the tenth (10th) Business Day after the Share Delivery Date with
respect to a conversion of this Note, other than due to the limitation contained
in Section 5(b) or to the pendency of a dispute being resolved in accordance
with Section 2(d)(iii) (a "CONVERSION FAILURE"), then the Holder, upon written
notice to the Company (a "VOID CONVERSION NOTICE"), may void its Conversion
Notice with respect to, and retain or have returned, as the case may be, any
portion of this Note that has not been converted pursuant to the Holder's
Conversion Notice; provided that the voiding of the Holder's Conversion Notice
shall not affect the Company's obligations to make any payments that have
accrued prior to the date of such notice pursuant to Section 2(d)(v)(A) or
otherwise.

                              (C) Redemption. In the event of a Conversion
Failure, the Holder, upon written notice to the Company, may require that the
Company redeem, in accordance with Section 3, all of the Principal, including
the Principal previously submitted for conversion and with respect to which the
Company has not delivered shares of Common Stock; provided that the Holder shall
not be entitled to require redemption of any Principal pursuant to this clause
(C) solely as a result of a Conversion Failure caused by any Principal being the
subject of a bona fide dispute that is subject to and being resolved pursuant
to, and in compliance with the time periods and other provisions of, the dispute
resolution provisions of Section 2(d)(iii), provided the Shares are delivered to
the Holder within two (2) Business Days of the resolution of such bona fide
dispute.

                        (vi) Pro Rata Conversion. In the event the Company
            receives a Conversion Notice from more than one holder of the Notes
            for the same Conversion Date and the Company can convert some, but
            not all, of such Notes, then, subject to Section 5(c), the Company
            shall convert from each holder of the Notes electing to have Notes
            converted at such time a pro rata amount of such holder's Note
            submitted for conversion based on the principal amount of the Note

                                       14
<PAGE>

            submitted for conversion on such date by such holder relative to the
            principal amount of the Notes submitted for conversion on such date.

                        (vii) Mechanics of Mandatory Redemption. If any
            Principal remains outstanding on the Maturity Date, then the Holder
            shall surrender this Note, duly endorsed for cancellation, to the
            Company, and such Principal shall be redeemed by the Company as of
            the Maturity Date by payment on the Maturity Date to the Holder of
            an amount equal to the sum of (A) 100% of such Principal plus (B)
            the Interest Amount with respect to such Principal.

                        (viii) Book-Entry. Notwithstanding anything to the
            contrary set forth herein, upon conversion of this Note in
            accordance with the terms hereof, the Holder shall not be required
            to physically surrender this Note to the Company unless all of the
            Principal is being converted. The Holder and the Company shall
            maintain records showing the Principal converted or redeemed and the
            dates of such conversions or redemptions or shall use such other
            method, reasonably satisfactory to the Holder and the Company, so as
            not to require physical surrender of this Note upon each such
            conversion or redemption. In the event of any dispute or
            discrepancy, such records of the Company establishing the Principal
            to which the Holder is entitled shall be controlling and
            determinative in the absence of demonstrable error. Notwithstanding
            the foregoing, if this Note is converted or redeemed as aforesaid,
            the Holder may not transfer this Note unless the Holder first
            physically surrenders this Note to the Company, whereupon the
            Company will forthwith issue and deliver upon the order of the
            Holder a new Note of like tenor, registered as the Holder may
            request, representing in the aggregate the remaining Principal
            represented by this Note. The Holder and any assignee, by acceptance
            of this Note, acknowledge and agree that, by reason of the
            provisions of this paragraph, following conversion or redemption of
            any portion of this Note, the Principal of this Note may be less
            than the principal amount stated on the face hereof.

                  (e) Taxes. The Company shall pay any and all taxes (excluding
income taxes, franchise taxes or other taxes levied on gross earnings, profits
or the like of the Holder) that may be payable with respect to the issuance and
delivery of Shares upon the conversion of this Note.

            (3) Redemption at Option of the Holder.

                  (a) Redemption Option Upon Triggering Event. In addition to
all other rights of the Holder contained herein, after a Triggering Event (as
defined in Section 3(b)), the Holder shall have the right, at the Holder's
option, to require the Company to redeem all or a portion of the Principal at a
price ("REDEMPTION PRICE") equal to the sum of (i) 120% of such Principal plus
(ii) the Interest Amount with respect to such Principal.

                                       15
<PAGE>

                  (b) Triggering Event. A "TRIGGERING EVENT" shall be deemed to
have occurred at such time as any of the following events:

                        (i) the failure of any Note Registration Statement (as
            defined in the Registration Rights Agreement) required to be filed
            pursuant to Section 2(a)(iii) or Section 2(e)(iii) of the
            Registration Rights Agreement to be declared effective by the SEC on
            or prior to the date that is 45 days after the applicable
            Effectiveness Deadline (as defined in the Registration Rights
            Agreement);

                        (ii) while a Note Registration Statement filed pursuant
            to Section 2(a)(iii), Section 2(a)(iv) or Section 2(e)(iii) of the
            Registration Rights Agreement is required to be maintained effective
            pursuant to the terms of the Registration Rights Agreement, the
            effectiveness of such Note Registration Statement lapses for any
            reason (including the issuance of a stop order) or is unavailable to
            the Holder for sale of Note Registrable Securities (as defined in
            the Registration Rights Agreement) in accordance with the terms of
            the Registration Rights Agreement, and such lapse or unavailability
            continues for a period of five (5) consecutive Trading Days or for
            more than an aggregate of ten (10) Trading Days in any 365-day
            period (other than days during an Allowable Grace Period (as defined
            in the Registration Rights Agreement));

                        (iii) the suspension from trading or failure of the
            Common Stock to be listed on the NASDAQ National Market or the New
            York Stock Exchange for a period of five (5) consecutive Trading
            Days or for more than an aggregate of ten (10) Trading Days in any
            365-day period;

                        (iv) the Company's or the Transfer Agent's notice to any
            holder of the Notes, including by way of public announcement, at any
            time, of its intention not to comply with a request for conversion
            of any Notes into Shares that is tendered in accordance with the
            provisions of the Notes (excluding, however, a notice that relates
            solely to a bona fide dispute that is subject to and being resolved
            pursuant to, and in compliance with the time periods and other
            provisions of, the dispute resolution provisions of Section
            2(d)(iii), provided neither such dispute nor such notice is publicly
            disclosed);

                        (v) a Conversion Failure (as defined in Section
            2(d)(v)(B));

                        (vi) upon the Company's receipt or deemed receipt of a
            Conversion Notice, the Company not being obligated to issue Shares
            upon such conversion due to the provisions of Section 5(c).

                        (vii) the Company or any of its Subsidiaries breaches
            any representation, warranty, covenant or other term or condition of
            the Securities Purchase Agreement, the Registration Rights
            Agreement, the Warrants, this Note, the Security Documents or any
            other agreement, document, certificate or other

                                       16
<PAGE>

            instrument delivered in connection with the transactions
            contemplated thereby and hereby, except to the extent that such
            breach would not have a Material Adverse Effect (as defined in
            Section 3(a) of the Securities Purchase Agreement) and except, in
            the case of a breach of a covenant or other term that is curable,
            only if such breach continues for a period of at least ten (10) days
            after any "officer" (as such term is defined in Rule 16a-1 under the
            1934 Act) of the Company, or the principal financial officer of any
            of the Company's Active Subsidiaries, knew or reasonably should have
            known of such breach; or

                        (viii) the Company does not comply with the provisions
            of Section 6, 7, 12 or 13 hereof or Section 4(l), 4(n), 4(o), 4(p),
            4(q), 4(r), 4(s), 4(t) or 4(v) or the last sentence of Section 4(w)
            of the Securities Purchase Agreement.

                  (c) Mechanics of Redemption at Option of Holder. Within one
(1) Business Day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("NOTICE OF
TRIGGERING EVENT") to the Holder and each holder of the Other Notes. At any time
after the earlier of the Holder's receipt of a Notice of Triggering Event and
the Holder's becoming aware of a Triggering Event, the Holder may require the
Company to redeem up to all of the Principal by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF
HOLDER") to the Company, which Notice of Redemption at Option of Holder shall
indicate (i) the Principal that the Holder is electing to have the Company
redeem from it and (ii) the applicable Redemption Price, as calculated pursuant
to Section 3(a) above; provided that a Notice of Redemption at Option of Holder
may only be sent during the period beginning on and including the date of the
Triggering Event and ending on and including the date which is twenty (20)
Business Days after the date on which the Holder receives a Notice of Triggering
Event from the Company with respect to such Triggering Event.

                  (d) Payment of Redemption Price. Upon the Company's receipt of
a Notice(s) of Redemption at Option of the Holder from any holder of the Other
Notes, the Company shall promptly notify the Holder by facsimile of the
Company's receipt of such notice(s). Each holder that has sent such a notice
shall, if required pursuant to Section 2(d)(viii), promptly submit to the
Company such holder's Note that such holder has elected to have redeemed. The
Company shall deliver the applicable Redemption Price to the Holder within five
(5) Business Days after the Company's receipt of a Notice of Redemption at
Option of Holder, provided that the Holder's Note shall have been so delivered
to the Company. If the Company is unable to redeem all of the Notes submitted
for redemption, the Company shall (i) redeem a pro rata amount from each holder
of the Notes based on the principal amount of the Notes submitted for redemption
by such holder relative to the aggregate principal amount of the Notes submitted
for redemption by all holders of the Notes, and (ii) in addition to any remedy
the Holder may have under this Note, the Securities Purchase Agreement and the
Security Documents, pay to the Holder interest at the rate of the lesser of 1.5%
per month (prorated for partial months) or the highest lawful maximum interest
rate in respect of the unredeemed Principal until paid in full.

                                       17
<PAGE>

                  (e) Void Redemption. In the event that the Company does not
pay the Redemption Price within the time period set forth in Section 3(d), at
any time thereafter and until the Company pays such unpaid Redemption Price in
full, the Holder shall have the option (the "VOID OPTIONAL REDEMPTION OPTION")
to, in lieu of redemption, require the Company to promptly return to the Holder
any or all of the Notes or any portion thereof representing the Principal that
was submitted for redemption by the Holder under this Section 3 and for which
the Redemption Price (together with any interest thereon) has not been paid, by
sending written notice thereof to the Company via facsimile (the "VOID OPTIONAL
REDEMPTION NOTICE"). Upon the Company's receipt of such Void Optional Redemption
Notice, (i) the Notice of Redemption at Option of Holder shall be null and void
with respect to the Principal subject to the Void Optional Redemption Notice,
and (ii) the Company shall immediately return to the Holder any Note subject to
the Void Optional Redemption Notice.

                  (f) Disputes; Miscellaneous. In the event of a bona fide
dispute as to the determination of the arithmetic calculation of the Redemption
Price, such dispute shall be resolved pursuant to Section 2(d)(iii) above, with
the term "Redemption Price" being substituted for the term "Conversion Rate." A
holder's delivery of a Void Optional Redemption Notice and exercise of its
rights following such notice shall not affect the Company's obligations to make
any payments that have accrued prior to the date of such notice. In the event of
a redemption pursuant to this Section 3 of less than all of the Principal, the
Company shall promptly cause to be issued and delivered to the Holder a Note
representing the remaining Principal that has not been redeemed, if necessary.

            (4) Other Rights of the Holders.

                  (a) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person or other transaction that is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the
consummation of any (i) sale of all or substantially all of the Company's assets
to an acquiring Person (including, for the avoidance of doubt, the sale of all
or substantially all of the assets of the Company's Subsidiaries in the
aggregate) or (ii) other Organic Change following which the Company is not a
surviving entity, the Company will secure from the Person purchasing such assets
or the successor resulting from such Organic Change (in each case, the
"ACQUIRING ENTITY") a written agreement, in form and substance satisfactory to
the holders representing at least two-thirds (2/3) of the aggregate principal
amount of the Notes then outstanding, to deliver to the Holder in exchange for
this Note, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to this Note and satisfactory to the
holders representing at least two-thirds (2/3) of the aggregate principal amount
of the Notes then outstanding. Prior to the consummation of any other Organic
Change, the Company shall make appropriate provision (in form and substance
satisfactory to the holders representing at least two-thirds (2/3) of the
aggregate principal amount of the Notes then outstanding) to ensure that the
Holder will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the

                                       18
<PAGE>

Shares immediately theretofore acquirable and receivable upon the conversion of
this Note (without regard to any limitations or restrictions on conversion) such
shares of stock, securities or assets that would have been issued or payable in
such Organic Change with respect to or in exchange for the number of Shares that
would have been acquirable and receivable upon the conversion of this Note as of
the date of such Organic Change (without taking into account any limitations or
restrictions on the conversion of this Note).

                  (b) Optional Redemption Upon Change of Control. In addition to
the rights of the Holder under Section 4(a), upon a Change of Control (as
defined below) of the Company the Holder shall have the right, at the Holder's
option, to require the Company to redeem all or a portion of the Principal at a
price equal to 105% (or 115% in the case of an event satisfying the definition
of Change of Control pursuant to subsection (iii) below) of the Principal plus
the Interest Amount with respect to such Principal (the "CHANGE OF CONTROL
REDEMPTION PRICE"). No sooner than thirty (30) nor later than twenty (20)
Business Days prior to the consummation of a Change of Control, but not prior to
the public announcement of such Change of Control, the Company shall deliver
written notice thereof via facsimile and overnight courier (a "NOTICE OF CHANGE
OF CONTROL") to the Holder. At any time during the period beginning after
receipt of a Notice of Change of Control (or, in the event a Notice of Change of
Control is not delivered at least twenty (20) Business Days prior to a Change of
Control, at any time on or after the date which is twenty (20) Business Days
prior to a Change of Control) and ending on the date of such Change of Control,
the Holder may require the Company to redeem all or a portion of the Principal
by delivering written notice thereof via facsimile and overnight courier (a
"NOTICE OF REDEMPTION UPON CHANGE OF CONTROL") to the Company, which Notice of
Redemption Upon Change of Control shall be irrevocable (provided that the
Company complies with its obligations under this Section 4(b)) and shall
indicate (i) the Principal that the Holder is submitting for redemption, and
(ii) the applicable Change of Control Redemption Price, as calculated pursuant
to this Section 4(b). Upon the Company's receipt of a Notice(s) of Redemption
Upon Change of Control from any holder of the Other Notes, the Company shall
promptly, but in no event later than one (1) Business Day following such
receipt, notify the Holder by facsimile of the Company's receipt of such
Notice(s) of Redemption Upon Change of Control. The Company shall deliver the
Change of Control Redemption Price simultaneously with the consummation of the
Change of Control; provided that, if required by Section 2(d)(viii), this Note
shall have been so delivered to the Company. The Company shall not enter into
any binding agreement or other arrangement with respect to a Change of Control
unless the Company provides that the payments provided for in this Section 4(b)
shall have priority to payments to stockholders in connection with such Change
of Control and the Company complies with such provision. For purposes of this
Section 4(b), "CHANGE OF CONTROL" means (i) the consolidation, merger or other
business combination of the Company with or into another Person (other than (A)
a consolidation, merger or other business combination in which holders of the
Company's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, a majority of the combined voting
power of the surviving entity or entities entitled to vote generally for the
election of a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, or (B)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company), (ii) the sale or transfer of all
or substantially all of the Company's assets (including, for the avoidance of
doubt,

                                       19
<PAGE>

the sale of all or substantially all of the assets of the Company's Subsidiaries
in the aggregate) or (iii) the consummation of a purchase, tender or exchange
offer made to and accepted by the holders of more than the 50% of the
outstanding Shares.

            (5) Limitations on Conversion.

                  (a) Permitted Conversions. The Holder shall not have the right
to convert this Note except (i) at any time after the Holder delivers a Void
Optional Redemption Notice pursuant to Section 3(e), (ii) at any time after the
Holder delivers a Void Acceleration Notice pursuant to Section 11(c), (iii) at
any time after an Event of Default (as defined in Section 11(a)) arising from an
event described in clause (v) or (vi) of Section 11(a), and (iv) in connection
with a Company Alternative Conversion pursuant to Section 8, including in
connection with an Interest Conversion pursuant to Section 6 or a Mandatory
Compliance Conversion pursuant to Section 13.

                  (b) 4.99% Limitation. The Company shall not effect any
conversion of this Note and the Holder shall not have the right to convert
Principal or any Interest Amount in excess of that portion of the Principal
Amount or any Interest Amount that, upon giving effect to such conversion, would
cause the aggregate number of Shares beneficially owned by the Holder and its
affiliates to exceed 4.99% of the total outstanding Shares following such
conversion or issuance of Interest Shares. For purposes of the foregoing
proviso, the aggregate number of Shares beneficially owned by the Holder and its
affiliates shall include the Shares issuable upon conversion of this Note, with
respect to which the determination of such proviso is being made, but shall
exclude the Shares that would be issuable upon (i) conversion of the remaining,
unconverted Principal and any Interest Amount with respect thereto beneficially
owned by the Holder and its affiliates and (ii) exercise, conversion or exchange
of the unexercised, unconverted or unexchanged portion of any other securities
of the Company (including any warrants or convertible preferred stock) subject
to a limitation on conversion, exercise or exchange analogous to the limitation
contained herein beneficially owned by the Holder and its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 5, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 ACT"). For purposes of this Section
5(b), in determining the number of outstanding Shares the Holder may rely on the
number of outstanding Shares as reflected in (1) the Company's most recent
quarterly report on Form 10-Q, or annual report on Form 10-K, as the case may
be, (2) a more recent public announcement by the Company or (3) any other notice
by the Company or the transfer agent for the common stock setting forth the
number of Shares outstanding. Upon the written request of the Holder, the
Company shall promptly, but in no event later than two (2) Business Days
following the receipt of such request, confirm in writing to the Holder the
number of Shares then outstanding. In any case, the number of outstanding Shares
shall be determined after giving effect to the conversion, exercise or exchange
of securities of the Company, including the Notes and the Warrants, by the
Holder and its affiliates since the date as of which such number of outstanding
Shares was reported. For purposes of determining the maximum number of Shares
that the Company may issue to the Holder pursuant to Section 5(b) upon
conversion of this Note on a particular Conversion Date, Holder's delivery of a
Conversion Notice with respect to such conversion shall

                                       20
<PAGE>

constitute a representation (on which the Company may rely without
investigation) by the Holder that, upon the issuance of the Shares to be issued
to it on such Conversion Date, the shares of Common Stock beneficially owned by
the Holder and its affiliates shall not exceed 4.99% of the total outstanding
Shares immediately after giving effect to such conversion, as determined in
accordance with this Section 5(b).

                  (c) Limitation on Number of Shares Issuable Hereunder. The
Company shall not be obligated to issue any Shares upon conversion of this Note
if the issuance of such Shares would exceed that number of Shares which the
Company may issue upon conversion of the Notes and upon exercise of the Warrants
(the "EXCHANGE CAP") without breaching the Company's obligations under the rules
or regulations of the Principal Market, except that such limitation shall not
apply in the event that the Company (a) obtains Shareholder Approval or (b)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the Holders
representing at least two-thirds (2/3) of the aggregate principal amount of the
Notes then outstanding. Until Shareholder Approval or such written opinion is
obtained, no purchaser of Notes pursuant to the Securities Purchase Agreement
(the "PURCHASERS") shall be issued, upon conversion of, or as interest on, this
Note, a number of Shares greater than the product of (i) the difference of (x)
the Exchange Cap, minus (y) the sum of (A) the aggregate number of Shares that
have been issued upon exercise of any Warrants or upon conversion of any Notes
prior to the date of such determination and (B) 120% of the Shares issuable as
of the date of such determination upon exercise of all Warrants then
outstanding, multiplied by (ii) such Purchaser's Allocation Percentage (the "CAP
ALLOCATION AMOUNT"). In the event that any Purchaser shall sell or otherwise
transfer any of such Purchaser's Notes, the transferee shall be allocated a pro
rata portion of such Purchaser's Cap Allocation Amount. In the event that any
holder of Notes shall convert all of such holder's Notes and exercise all of
such holder's Warrants into a number of Shares in an amount which, in the
aggregate, is less than such holder's Cap Allocation Amount, then the difference
between such holder's Cap Allocation Amount and the number of Shares actually
issued to such holder upon conversion of such holder's Notes and exercise of
such holder's Warrants shall be allocated to the respective Cap Allocation
Amounts of the remaining holders of Notes and Warrants on a pro rata basis in
proportion to the aggregate number of Shares issuable upon conversion of the
Notes and exercise of the Warrants then held by each such Holder.

            (6) Interest. Interest shall be payable on each Interest Payment
Date, to the record holder of this Note on such Interest Payment Date, in cash
or, as permitted by the provisions of Section 8, by electing to convert such
Interest by giving a Company Alternative Conversion Notice (as defined below) at
least five (5) Business Days prior to such Interest Payment Date (each an
"INTEREST CONVERSION ELECTION") for a Company Alternative Conversion with
respect to an Interest Amount equal to the entire amount of such Interest (the
"INTEREST CONVERSION AMOUNT") in accordance with, and subject to the conditions
and requirements of, Section 8 (an "INTEREST CONVERSION"). If the Company does
not make an Interest Conversion Election with respect to such Interest, such
Interest shall be paid in cash. The Company may only make an Interest Conversion
Election if it makes the same election with respect to all the Notes of the same
Series. An Interest Conversion Election shall be irrevocable by the Company.

                                       21
<PAGE>

Upon delivery of an Alternative Conversion Notice with respect to an Interest
Conversion Amount, the Company shall comply with the provisions of Sections 8.
Any accrued and unpaid Interest which is not paid within five (5) Business Days
of such accrued and unpaid Interest's Interest Payment Date shall bear interest
at the rate of the lesser of 1.5% per month (prorated for partial months) or the
highest lawful maximum interest rate per annum from such Interest Payment Date
until the same is paid in full (the "DEFAULT INTEREST"). The Company shall pay
any and all taxes (excluding income taxes, franchise taxes or other taxes levied
on gross earnings, profits or the like of the Holder) that may be payable with
respect to the issuance and delivery of Interest Shares.

            (7) Company Alternative Redemption.

                  (a) General. At any time after Issuance Date, the Company
shall have the right to redeem some or all of the Principal (a "COMPANY
ALTERNATIVE REDEMPTION") (excluding Principal that is part of a Pro Rata
Conversion Amount relating to a Company Alternative Conversion Notice Date
occurring prior to the Company Alternative Redemption Notice Date) for an amount
in cash equal to the product of (A) the applicable Company Alternative
Redemption Rate and (B) the sum of (i) the Principal being redeemed pursuant to
this Section 7 and (ii) the Interest Amount with respect to such Principal as of
the Company Alternative Redemption Date (as defined below) (the "COMPANY
ALTERNATIVE REDEMPTION PRICE"); provided that the Conditions to Company
Alternative Redemption (as set forth in Section 7(c)) and the conditions of this
Section 7(a) and Section 7(b) are satisfied (or waived in writing by the
Holder). The Company may exercise its right to Company Alternative Redemption by
delivering to the Holder written notice (the "COMPANY ALTERNATIVE REDEMPTION
NOTICE") at least five (5) Business Days prior to the date of consummation of
such redemption ("COMPANY ALTERNATIVE REDEMPTION DATE"). The date on which the
Holder receives the Company Alternative Redemption Notice is referred to as the
"COMPANY ALTERNATIVE REDEMPTION NOTICE DATE." A Company Alternative Redemption
Notice shall be irrevocable by the Company. If the Company elects a Company
Alternative Redemption pursuant to this Section 7(a), then it must
simultaneously take the same action with respect to all of the Other Notes of
the same Series as this Note. If the Company elects a Company Alternative
Redemption (and similar action under Other Notes of the same Series) with
respect to less than all of the aggregate principal amount of Notes of such
Series then outstanding, then the Company shall elect to redeem a principal
amount (together with the related Interest Amount) from each of the holders of
Notes of such Series equal to the product of (I) the aggregate principal amount
of the Notes of such Series that the Company has elected to redeem pursuant to
this Section 7 (or the similar provisions of such Other Notes), multiplied by
(II) the Holder's Series Allocation Percentage (such amount with respect to each
holder of the Notes is referred to as its "PRO RATA REDEMPTION AMOUNT" and with
respect to the Holder is referred to as the Pro Rata Redemption Amount). In the
event that the initial holder of any Notes of such Series shall sell or
otherwise transfer any of such holder's Notes, the transferee shall be allocated
a pro rata portion of such holder's Series Allocation Percentage. The Company
Alternative Redemption Notice shall state (i) the date selected by the Company
for the Company Alternative Redemption Date in accordance with this Section
7(a), (ii) the aggregate principal amount of Notes of such Series that the
Company has elected to redeem from all of the holders of Notes of such Series
pursuant to

                                       22
<PAGE>

this Section 7 and (iii) each holder's Pro Rata Redemption Amount of the
principal amount of Notes of such Series the Company has elected to redeem
pursuant to this Section 7(a).

                  (b) Mechanics of Company Alternative Redemption. If the
Company has exercised its right to Company Alternative Redemption in accordance
with Section 7(a) and the conditions of this Section 7 are satisfied on the
Company Alternative Redemption Date (including the Conditions to Company
Alternative Redemption as set forth in Section 7(c)) (or waived in writing by
the Holder), then the Holder's Pro Rata Redemption Amount, if any, that remains
outstanding on the Company Alternative Redemption Date shall be redeemed by the
Company on such Company Alternative Redemption Date by the payment by the
Company to the Holder on such Company Alternative Redemption Date, by wire
transfer of immediately available funds, of an amount equal to the Company
Alternative Redemption Price for the Holder's Pro Rata Redemption Amount.
Notwithstanding anything contained herein to the contrary, no notice delivered
by the Company to any Holder regarding a Condition to Company Alternative
Redemption shall contain any material non-public information.

                  (c) Conditions to Company Alternative Redemption. For purposes
of this Section 7, "CONDITIONS TO COMPANY ALTERNATIVE REDEMPTION" means the
following conditions: (i) during the period beginning on and including the
Issuance Date and ending on and including the applicable Company Alternative
Redemption Date, there shall not have occurred either (x) the public
announcement of a pending, proposed or intended Change of Control that has not
been abandoned, terminated or consummated and publicly disclosed as such at
least ten (10) Trading Days prior to the Company Alternative Redemption Notice
Date or (y) a Triggering Event or an Event of Default, or an event that with the
passage of time or the giving of notice and without being cured would constitute
a Triggering Event or an Event of Default; and (ii) on each day during the
period beginning 90 days prior to the Company Alternative Redemption Notice Date
and ending on and including the applicable Company Alternative Redemption Date,
the Company and its Subsidiaries otherwise shall have been in compliance with in
all material respects and shall not have breached or been in breach in any
material respect of any provision or covenant of the Securities Purchase
Agreement or any of the other Transaction Documents.

                  (d) Remedies. In the event that the Company does not pay the
Company Alternative Redemption Price in full for the Holder's Pro Rata
Redemption Amount on the Company Alternative Redemption Date and the Conditions
to Company Alternative Redemption were satisfied, or to the extent not
satisfied, were waived by the Holder, then in addition to any remedy the Holder
may have under this Note and the Securities Purchase Agreement (including
indemnification pursuant to Section 8 thereof or at law or in equity), the
Company Alternative Redemption Price payable in respect of such unredeemed Pro
Rata Redemption Amount shall bear interest at the rate of the lesser of 1.5% per
month (prorated for partial months) and the highest lawful maximum interest
rate.

            (8) Company Alternative Conversion.

                  (a) General. After the date that is ten (10) Trading Days
after the

                                       23
<PAGE>

Registration Statement has been declared effective by the SEC, the Company shall
have the right, in accordance with the terms and subject to the conditions of
this Section 8 (and, in the case of any Interest Conversion Amount, Section 6,
and, in the case of any Mandatory Compliance Amount, Section 13) and provided
that the Conditions to Company Alternative Conversion (as set forth below) are
satisfied, to require that all or any portion of the Principal (together with
the Interest Amount with respect thereto) or any Interest payable on any
Interest Payment Date be converted at the applicable Conversion Price (a
"COMPANY ALTERNATIVE CONVERSION"). The Company may exercise its right to elect a
Company Alternative Conversion by delivering to the Holder written notice
thereof (a "COMPANY ALTERNATIVE CONVERSION NOTICE") at least five (5) Business
Days prior to the first Trading Day of the Company Alternative Conversion Period
(as defined below). The date on which the Holder receives the Company
Alternative Conversion Notice, as applicable is referred to as the "COMPANY
ALTERNATIVE CONVERSION NOTICE DATE"). If the Company elects a Company
Alternative Conversion (including an Interest Conversion pursuant to Section 6
or a Mandatory Compliance Conversion pursuant to Section 13) pursuant to this
Section 8, then it must simultaneously take the same action with respect to all
of the Other Notes of the same Series. The Company shall require conversion of a
Conversion Amount from each holder of Notes of such Series equal to (x) the
product of (I) the aggregate principal amount of Notes of such Series that the
Company has elected to convert pursuant to this Section 8 (or the similar
provisions of such Other Notes), together with the Interest Amount thereon,
multiplied by (II) such holder's Series Allocation Percentage or (y) in the case
of an Interest Conversion, the Interest Conversion Amount (such Conversion
Amount with respect to each such holder is referred to as its "PRO RATA
CONVERSION AMOUNT"). The Company Alternative Conversion Notice shall indicate
the number of consecutive Trading Days selected by the Company during which the
Holder must convert its Pro Rata Conversion Amount (the "COMPANY ALTERNATIVE
CONVERSION PERIOD") and the date of the first day of the Company Alternative
Conversion Period, which date must be at least five (5) Business Days after the
Company Alternative Conversion Notice Date, provided that (I) the Company
Alternative Conversion Period shall be at least ten (10) Trading Days and no
more than thirty (30) Trading Days, (II) in the case of a Company Alternative
Conversion that is a Mandatory Compliance Conversion under Section 13 or an
Interest Conversion under Section 6, the Company Alternative Conversion Period
shall be the twenty (20) consecutive Trading Days commencing five (5) Business
Days after such Company Alternative Conversion Notice Date, and (III) any
Company Alternative Conversion Period set forth in any Company Alternative
Conversion Notice given pursuant to any Other Notes on the same day shall be the
same as the Company Alternative Conversion Period set forth in the Company
Alternative Conversion Notice given pursuant to this Note. The Company
Alternative Conversion Notice shall also indicate the date selected by the
Company for the last Trading Day of the Company Alternative Conversion Period,
which is the last date by which the Holder must convert its Pro Rata Conversion
Amount (the "FINAL COMPANY ALTERNATIVE CONVERSION DATE"), (x) the aggregate
principal amount (or Interest in the case of an Interest Conversion Election) of
the Series of Notes that the Company has elected to convert from all the holders
of Notes of such Series pursuant to this Section 8 (or other similar provisions
in such Other Notes), and (y) each holder's Pro Rata Conversion Amount.

                  (b) Mechanics of Company Alternative Conversion. If the
Company has exercised its right

                                       24
<PAGE>

to Company Alternative Conversion in accordance with Section 8(a) and Section 6
or 13, as applicable, and the conditions of this Section 8 are satisfied (or
waived in writing by the Holder) on the Company Alternative Conversion Notice
Date and at each time the Holder delivers a Conversion Notice or is deemed to
have delivered a Conversion Notice with respect to any portion of the Pro Rata
Conversion Amount (a "COMPANY ALTERNATIVE CONVERSION DATE") (including the
Conditions to Company Alternative Conversion as set forth in Section 8(c)),
then, subject to Sections 5 and 8(d), the Holder shall convert the Pro Rata
Conversion Amount, together with any Interest Amount with respect to the
allocable portion of principal represented by such Pro Rata Conversion Amount
accruing through and including the applicable Conversion Date, in whole or in
part and at such time or times as the Holder, in its sole discretion determines,
during the Company Alternative Conversion Period; provided, however, that the
Holder shall not be permitted to convert during the Company Alternative
Conversion Period, any portion of the Conversion Amount that exceeds the product
of (i) the Holder's Series Allocation Percentage and (ii) twenty percent (20%)
of the sum of the daily dollar trading volume (as reported by Bloomberg) of the
Common Stock on its Principal Market on each of the Trading Days during the
Company Alternative Conversion Period (such limitation, the "VOLUME CONVERSION
RESTRICTION AMOUNT"). In the event any Pro Rata Conversion Amount has not been
converted by the Holder prior to the Final Company Alternative Conversion Date,
then, subject to the limitations set forth in Sections 5 and 8(e), the remaining
Pro Rata Conversion Amount shall be converted as of the Final Company
Alternative Conversion Date, as if the Holder had delivered a Conversion Notice
pursuant to Section 2 with respect to such Pro Rata Conversion Amount on the
Final Company Alternative Conversion Date but without the Holder being required
to actually deliver such Conversion Notice, provided that the Conditions to
Company Alternative Conversion are satisfied (or waived in writing by the
Holder) on the Final Company Alternative Conversion Date. In the event that the
Conditions to Company Alternative Conversion are not satisfied on the Final
Company Alternative Conversion Date (and, for the avoidance of doubt, on each
day during the Company Alternative Conversion Period), then the Company
Alternative Conversion shall be null and void with respect to all or any part
designated by the Holder of the unconverted Pro Rata Conversion Amount and the
Holder shall be entitled to all the rights of a holder of this Note with respect
to such amount of the Pro Rata Conversion Amount and, accordingly, shall be
subject to all the other provisions of this Note, including that if such amount
remains outstanding on the Maturity Date, then the Company shall redeem the
Principal represented by such amount in accordance with Section 2(d)(vii),
unless such Pro Rata Conversion Amount is an Interest Conversion Amount, a
Mandatory Compliance Amount or an Excluded Amount, in which the case Company
shall be deemed to have given a Company Alternative Redemption Notice with
respect to such unconverted Pro Rata Conversion Amount (and, for purposes of
Section 7(a), shall be entitled to give such Company Alternative Redemption
Notice), and such amount shall be redeemed or paid by the Company within five
(5) Business Days in accordance with Section 7. Notwithstanding the foregoing,
at any time during a Company Alternative Conversion Period that does not relate
to an Interest Conversion or a Mandatory Compliance Conversion, the Company may
give written notice to the Holder of termination of such Company Alternative
Conversion Period, provided that the Company gives the same notice to all
holders of Notes of this Series, and in such case, such Company Alternative
Conversion Period shall terminate at the end of the first Business Day following
the Holder's receipt of such notice of termination, the Company Alternative
Conversion shall be null

                                       25
<PAGE>

and void with respect to any part of the Pro Rata Conversion Amount that has not
been converted as of such termination of the Company Alternative Conversion
Period (by delivering a Conversion Notice on or prior to the first Business Day
following the Holder's receipt of such notice of termination), and the Holder
shall be entitled to all the rights of a holder of the Note with respect to such
amount of the Pro Rata Conversion Amount and, accordingly, shall be subject to
all the other provisions of this Note, including that if such amount remains
outstanding on the Maturity Date, then the Company shall redeem the Principal
represented by such amount in accordance with Section 2(d)(vii). Notwithstanding
anything contained herein to the contrary, no notice delivered by the Company to
any Holder regarding a Condition to Company Alternative Conversion shall contain
any material non-public information.

                  (c) Conditions to Company Alternative Conversion. "CONDITIONS
TO COMPANY ALTERNATIVE CONVERSION" means the following conditions: (i) except in
the case of an Interest Conversion or Mandatory Compliance Conversion, the
aggregate principal amount of the Notes of any Series selected for conversion by
the Company as reflected in the Company Alternative Conversion Notice is at
least $500,000 (or, if less, the aggregate principal amount of the Notes of such
Series then outstanding); (ii) none of the Expected Trading Days during the
Company Alternative Conversion Period to which the Company Alternative
Conversion Notice relates shall be Expected Trading Days in any Company
Alternative Conversion Period as to which another Company Alternative Conversion
Notice has been given pursuant to this Note or any Other Notes; (iii) the
aggregate Conversion Amount of the Notes selected for conversion by the Company
as reflected in the Company Alternative Conversion Notice shall not exceed
fifteen percent (15%) of the product of (I) the arithmetic average of the daily
dollar trading volume (as reported by Bloomberg) of the Common Stock on its
Principal Market over the twenty (20) consecutive Trading Days ending on and
including the date that is immediately preceding the Company Alternative
Conversion Notice Date multiplied by (II) the number of Expected Trading Days
during the Company Alternative Conversion Period to which the Company
Alternative Conversion Notice relates; (iv) the Company shall not have delivered
the Company Alternative Conversion Notice during any other Company Alternative
Conversion Period nor, except in the case of a Company Alternative Conversion
being effected for purposes of a Mandatory Compliance Conversion under Section
13, within twenty (20) Trading Days after the previous Final Company Alternative
Conversion Date; (v) during the period beginning on and including the Issuance
Date and ending on and including the Company Alternative Conversion Date, there
shall not have occurred either (x) the public announcement of a pending,
proposed or intended Change of Control that has not been abandoned, terminated
or consummated and publicly disclosed as such at least ten (10) Trading Days
prior to the Company Alternative Conversion Date or (y) a Triggering Event or an
Event of Default (as defined in Section 11); (v) during the period beginning on
the Issuance Date and ending on and including the Company Alternative Conversion
Date, the Company shall have delivered Shares upon conversion of the Notes and
upon exercise of the Warrants on a timely basis as set forth in Section 2(d)(ii)
of the Notes and Section 2(a) of the Warrants, respectively; (vi) on each day
during the period beginning on and including the date that is forty-five (45)
days prior to the Company Alternative Conversion Notice Date and ending on and
including the applicable Company Alternative Conversion Date, the Common Stock
is listed on the NASDAQ National Market

                                       26
<PAGE>

or the New York Stock Exchange and the Common Stock has not been suspended from
trading on the NASDAQ National Market or the New York Stock Exchange nor shall
delisting or suspension by the NASDAQ National Market or the New York Stock
Exchange have been threatened either (A) in writing by the NASDAQ National
Market or the New York Stock Exchange or (B) by falling below the minimum
listing maintenance requirements of the NASDAQ National Market or the New York
Stock Exchange; (vii) on each day during the period beginning on and including
the date that is ten (10) days prior to the Company Alternative Conversion
Notice Date and ending on and including the Company Alternative Conversion Date,
a Registration Statement shall be effective and available for the sale of not
less 150% of the Registrable Securities issuable upon conversion as of the
Company Alternative Conversion Notice Date of the aggregate Conversion Amount
selected for conversion by the Company as reflected in the Company Alternative
Conversion Notice, in accordance with the Registration Rights Agreement, and
there shall not have been any Grace Period applicable to such Registration
Statement (as defined in the Registration Rights Agreement); (viii) on each day
during the period beginning ninety (90) days prior to the Company Alternative
Conversion Notice Date, the Company and its Subsidiaries otherwise shall have
been in compliance with in all respects and shall not have breached or been in
breach of any provision or covenant of the Notes or any other Transaction
Documents; and (ix) the Company shall have obtained all requisite approvals of
its stockholders for the issuance of the Shares to the holders of the Notes.

                  (d) Company Alternative Conversion Floor. If the Weighted
Average Price of the Common Stock during the applicable Company Alternative
Conversion Period falls below $4.00 (subject to adjustment for stock splits,
stock dividends, stock combinations and other similar events after the date of
the Securities Purchase Agreement) or such higher price (which shall not exceed
85% of the lesser of (i) the arithmetic average of the Weighted Average Price of
the Common Stock on each of the five (5) Trading Days immediately preceding the
Company Alternative Conversion Notice Date and (ii) the Weighted Average Price
on the Trading Day immediately preceding the Company Alternative Conversion
Notice Date) as provided by the Company in the applicable Company Alternative
Conversion Notice (the "COMPANY ALTERNATIVE CONVERSION TRIGGER PRICE"), then any
Company Alternative Conversion pursuant to Section 8(b) shall automatically
terminate with respect to any Pro Rata Conversion Amount that is not subject to
a Conversion Notice delivered to the Company on or prior to the Company
Alternative Conversion Floor Trigger Date (as defined below), in accordance with
this Section 8(d). The Company Alternative Conversion Trigger Price shall be
subject to adjustment for any stock dividend, stock split, stock combination or
other similar transaction. The first Trading Day, if any, during the applicable
Company Alternative Conversion Period on which the Weighted Average Price of the
Common Stock is less than the Company Alternative Conversion Trigger Price shall
constitute a "COMPANY ALTERNATIVE CONVERSION FLOOR TRIGGER DATE" with respect to
such Company Alternative Conversion Period. On the first day immediately
following the Company Alternative Conversion Floor Trigger Date the Company
Alternative Conversion shall be null and void with respect any portion of the
Pro Rata Conversion Amount that the Holder has not converted on or prior to the
Company Alternative Conversion Floor Trigger Date (by delivering a Conversion
Notice on or prior to the Company Alternative Conversion Floor Trigger Date),
and the holder shall be entitled to all the rights of a holder of this Note with
respect to such amount of the Pro Rata Conversion Amount and, accordingly, shall
be subject to all the other provisions of this Note, including that if such

                                       27
<PAGE>

amount remains outstanding on the Maturity Date, then the Company shall redeem
the Principal represented by such amount in accordance with Section 2(d)(vii),
unless such Pro Rata Conversion Amount is an Interest Conversion Amount, a
Mandatory Compliance Amount or an Excluded Amount, in which case the Company
shall be deemed to have given a Company Alternative Redemption Notice with
respect to such unconverted Pro Rata Conversion Amount (and, for purposes of
Section 7(a) shall be entitled to give such Company Alternative Conversion
Notice), and such amount shall be redeemed or paid by the Company within two (2)
Business Days of the Company Alternative Conversion Floor Trigger Date in
accordance with Section 7.

                  (e) Company Alternative Conversion Period Volume Limitations.
Notwithstanding anything contained in this Section 8 to the contrary, on the
applicable Final Company Alternative Conversion Date, (i) the Holder shall not
be required (but shall be permitted subject to clause (ii) of this Section 8(e))
to convert (and shall not be deemed, solely as a result of Section 8(b), to have
converted) any portion of the Pro Rata Conversion Amount on the applicable Final
Company Alternative Conversion Date in excess of the difference between (A) the
product of (I) the Holder's Series Allocation Percentage and (II) ten percent
(10%) of the sum of the daily dollar trading volume (as reported by Bloomberg)
of the Common Stock on its Principal Market on each of the Trading Days during
the Company Alternative Conversion Period, minus (B) any Pro Rata Conversion
Amount converted by the Holder during the Company Alternative Conversion Period
and (ii) the Holder shall neither be required nor permitted to convert (and
shall not be deemed, solely as a result of Section 8(b) to have converted) any
portion of the Pro Rata Conversion Amount on the applicable Final Company
Alternative Conversion Date in excess of the difference between (A) the
applicable Volume Conversion Restriction Amount, minus (B) any Pro Rata
Conversion Amount converted by the Holder during the Company Alternative
Conversion Period. Following the Final Company Alternative Conversion Date, the
Company Alternative Conversion shall be null and void with respect to the
unconverted Pro Rata Conversion Amount, and the Holder shall be entitled to all
the rights of a holder of this Note with respect to such amount of the Pro Rata
Conversion Amount, and, accordingly, shall be subject to all the other
provisions of this Note, including that if such amount remains outstanding on
the Maturity Date, then the Company shall redeem the Principal represented by
such amount in accordance with Section 2(d)(vii), unless such Pro Rata
Conversion Amount is an Interest Conversion Amount, a Mandatory Compliance
Amount or an Excluded Amount, in which case the Company shall be deemed to have
given a Company Alternative Redemption Notice with respect to such unconverted
Pro Rata Conversion Amount (and, for purposes of Section 7(a), shall be entitled
to give such Company Alternative Redemption Notice), and such amount shall be
redeemed or paid by the Company within five (5) Business Days in accordance with
Section 7.

            (9) Reservation of Shares.

                  (a) Reservation. The Company shall, so long as any of the
Notes are outstanding, take all action necessary to reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Notes, such number of Shares as shall from time
to time be sufficient to effect the conversion of all of the principal amount
then outstanding under the Notes (together with accrued and unpaid Interest

                                       28
<PAGE>

thereon); provided that the number of Shares so reserved shall at no time be
less than 100% of the number of Shares for which the Notes are at any time
convertible (without regard to any limitations on conversions) (the "REQUIRED
RESERVE AMOUNT"). The initial number of Shares reserved for conversions of the
Notes and each increase in the number of Shares so reserved shall be allocated
pro rata among the holders of the Notes based on the principal amount of the
Notes held by each holder at the time of issuance of the Notes or increase in
the number of reserved Shares, as the case may be. In the event the Holder shall
sell or otherwise transfer any portion of the Holder's Notes, each transferee
shall be allocated a pro rata portion of the number of Shares reserved for such
transferor. Any Shares reserved and allocated to any Person that ceases to hold
any Notes shall be allocated to the remaining holders of the Notes, pro rata
based on the principal amount of the Notes then held by such holders.

                  (b) Insufficient Authorized Shares. If at any time while any
of the Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved Shares to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of Shares equal to the
Required Reserve Amount, then the Company shall immediately take all action
necessary to increase the Company's authorized Shares to an amount sufficient to
allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding.

            (10) Voting Rights. The Holders of the Notes shall have no voting
rights, except as required by law and as expressly provided in this Note.

            (11) Defaults and Remedies.

                  (a) Events of Default. An "EVENT OF DEFAULT" is (i) default in
payment of any Principal of this Note, any Company Alternative Redemption Price,
or any Change of Control Redemption Price, when and as due; (ii) default in
payment of any Interest on this Note that is not included in an amount described
in the immediately preceding clause (i) that is not cured within two (2)
Business Days from the date such Interest was due; (iii) failure by the Company
for ten (10) days after notice to it to comply with any other provision of this
Note in all material respects; (iv) any default in payment of at least $300,000,
individually or in the aggregate, under or acceleration prior to maturity of, or
any event or circumstances arising such that, any person is entitled, or could,
with the giving of notice and/or lapse of time and/or the fulfillment of any
condition and/or the making of any determination, become entitled, to require
repayment before its stated maturity of, or to take any step to enforce any
security for, any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed of at least $300,000 by the Company or any of its Subsidiaries or for
money borrowed the repayment of at least $300,000 of which is guaranteed by the
Company or any of its Subsidiaries, whether such indebtedness or guarantee now
exists or shall be created hereafter; (v) if the Company or any of its
Subsidiaries pursuant to or within the meaning of any Bankruptcy Law (as defined
below); (A) commences a voluntary case; (B) consents to the entry of an order
for relief against it in an involuntary case; (C) consents to the appointment of
a Custodian of it or any of its Subsidiaries for all or substantially all of its
property; (D) makes a general assignment for the benefit of its creditors; or

                                       29
<PAGE>

(E) admits in writing that it is generally unable to pay its debts as the same
become due; (vi) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (1) is for relief against the Company in an
involuntary case; (2) appoints a Custodian (as defined below) of the Company or
any Subsidiary for all or substantially all of its property; or (3) orders the
liquidation of the Company or any Subsidiary; (vii) the Company fails to file,
or is determined to have failed to file, in a timely manner any report required
to be filed with the SEC pursuant to the 1934 Act, provided that any filing made
within the time period permitted by Rule 12b-25 under the 1934 Act and pursuant
to a timely filed Form 12b-25 shall, for purposes of this clause (vii), be
deemed to be timely filed; (viii) the Company or any of its Subsidiaries
breaches any representation, warranty, covenant or other term or condition of
the Security Documents that adversely affects the security interest of the
Holder (or any agent or representative thereof on their behalf) in any material
portion of the Collateral (as defined in the Security Agreement) or the
perfection or priority thereof; or (ix) one or more judgments, non-interlocutory
orders or decrees shall be entered by a U.S. state or federal or a foreign court
or administrative agency of competent jurisdiction against any the Company or
any of its Subsidiaries involving in the aggregate a liability (to the extent
not covered by independent third-party insurance) as to any single or related
series of transactions, incidents or conditions, of $300,000 or more, and the
same shall remain unsatisfied, unvacated, unbonded or unstayed pending appeal
for a period of thirty (30) days after the entry thereof. The term "BANKRUPTCY
LAW" means Title 11, U.S. Code, or any similar federal or state law for the
relief of debtors. The term "CUSTODIAN" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law. Within five (5)
Business Days after the occurrence of any Event of Default set forth in clause
(iv), (v), (vi), (viii) or (ix) above, the Company shall deliver written notice
thereof to the Holder.

                  (b) Remedies. If an Event of Default occurs and is continuing,
the Holder of this Note may declare all of this Note, including all amounts due
hereunder (the "ACCELERATION AMOUNT"), to be due and payable immediately, except
that in the case of an Event of Default arising from events described in clauses
(v) and (vi) of Section 11(a), this Note shall immediately become due and
payable without further action or notice. In addition to any remedy the Holder
may have under this Note and the Securities Purchase Agreement, such unpaid
amount shall bear interest at the rate of the lesser of 1.5% per month (prorated
for partial months) or the highest lawful maximum interest rate until paid in
full. Nothing in this Section 11 shall limit any other rights the Holder may
have under this Note, the Security Documents or the Securities Purchase
Agreement, including Sections 2 and 3 of this Note.

                  (c) Void Acceleration. In the event that the Company does not
pay the Acceleration Amount within five (5) Business Days of this Note becoming
due under Section 11(b), at any time thereafter and until the Company pays such
unpaid Acceleration Amount in full, the Holder shall have the option to, in lieu
of redemption, require the Company to promptly return this Note (to the extent
this Note has been previously delivered to the Company), in whole or any portion
thereof, to the Holder, by sending written notice thereof to the Company via
facsimile (the "VOID ACCELERATION NOTICE"). Upon the Company's receipt of such
Void Acceleration Notice, (i) the acceleration pursuant to Section 11(b) shall
be null and void with respect to the portion of this Note subject to such Void
Acceleration Notice, and (ii)

                                       30
<PAGE>

the Company shall promptly return the portion of this Note (to the extent this
Note has been previously delivered to the Company) subject to such Void
Acceleration Notice.

            (12) Other Indebtedness. Payments of principal and other payments
due under this Note shall not be subordinated to any obligations of the Company.
The Holder of this Note is entitled to the benefits of the Security Documents,
and in the event of a transfer of this Note in accordance with the terms hereof
and the Securities Purchase Agreement, the Holder shall be deemed to have
assigned its rights under the Security Documents. For so long as this Note is
outstanding, the Company shall not, and shall not permit any of its Subsidiaries
to, (a) issue, incur, assume or extend the term of any Indebtedness (as defined
below) except for (I) Indebtedness under the Notes, (II) Indebtedness, (A) the
holders of which agree in writing to be subordinate to the Notes on terms and
conditions acceptable to the Buyers, including with regard to interest payments
and repayment of principal, (B) which does not mature or otherwise require or
permit redemption or repayment prior to or on the Maturity Date of any Notes
then outstanding; and (C) which is not secured by any assets of the Company or
any of its Subsidiaries, (III) Indebtedness solely between the Company and/or
one of its domestic Active Subsidiaries, on the one hand, and the Company and/or
one of its domestic Active Subsidiaries, on the other, provided that in each
case a majority of the equity of any such domestic Active Subsidiary is directly
or indirectly owned by the Company, such domestic Active Subsidiary is
controlled by the Company and such domestic Active Subsidiary is a party to the
Guaranty Agreement and the Security Agreement, (IV) surety bonds, bids,
performance bond, and similar obligations (exclusive of obligations for the
payment of borrowed money) obtained by the Company and its Subsidiaries in the
ordinary course of business for the purpose of satisfying federal, state and/or
local legal requirements for owning and operating their oil and gas properties
or operating the Services Business, (V) Capital Lease Obligations incurred in
connection with acquiring equipment for the Company's oil and gas exploration
and production business in amounts not exceeding individually, the fair market
value of the equipment subject to such Capital Lease Obligations and in an
aggregate outstanding amount not exceeding 7.5% of After-tax PV10 at any one
time, (VI) reimbursement obligations in respect of letters of credit issued by
one or more financial institutions for the account of the Company or any of its
Active Subsidiaries in connection with the Company's establishment and
maintenance of a Hedged position with respect to, at any time, a maximum of 2/3
of the Company's estimate of its oil and gas production for the succeeding 12
calendar months on a rolling 12-calendar month basis, (VII) reimbursement
obligations in respect of letters of credit issued for the account of the
Company or any of its Active Subsidiaries for the purpose of securing
performance obligations of the Company or its Active Subsidiaries incurred in
the ordinary course of business (and not issued in connection with the Company's
establishment and maintenance of a Hedged position) so long as the aggregate
face amount of all such letters of credit do not exceed $1,000,000 at any one
time, (VIII) Indebtedness under that certain unsecured promissory note, dated
January 27, 2003, in the name of Dobber Aviation, L.L.C., in a principal amount
not exceeding $2,500,000 (less any payments of principal thereon or other
reductions to principal made from time to time with respect thereto), and (IX)
that certain unsecured obligation of the Company to Premium Assignment
Corporation existing as of the date of this Agreement in an amount not to exceed
$159,623.86 (less any payments of such obligation or other reductions to such
obligation made from time to time with respect thereto); (b) issue, incur,
assume, or extend the term of any

                                       31
<PAGE>

Indebtedness in a principal amount in excess of $2,000,000 where the proceeds of
such Indebtedness are to be used to develop, or in connection with the
development of, assets located outside the United States in which the holders of
the Notes do not have a valid, perfected first priority security interest; (c)
issue any capital stock of the Company or any Subsidiary redeemable prior to the
Maturity Date; (d) directly or indirectly, create, assume or suffer to exist any
Lien, other than a Permitted Lien, on any asset now owned or hereafter acquired
by the Company or any of its Subsidiaries; or (e) except as required or
expressly permitted by Section 4(d), 4(q), 4(r) or 4(u) of the Securities
Purchase Agreement, redeem, or otherwise repay in cash any principal of, any
Indebtedness (other than Indebtedness under the Notes). For purposes of this
Note: (x) "INDEBTEDNESS" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
unsecured account trade payables that are (i) entered into or incurred in the
ordinary course of the Company's and its Subsidiaries' business, (ii) on terms
that require full payment within 90 days, (iii) not unpaid in excess of 90 days
beyond invoice due date or are being contested in good faith and as to which
such reserve as is required by GAAP has been made and (iv) not exceeding at any
one time an aggregate among the Company and its Subsidiaries of $5,000,000 in
the oil and gas production segment of the Company's business (as such segment is
described in the Company's annual report on Form 10-K for the year ended
December 31, 2003) or $1,000,000 in all other segments of the Company's
business, collectively, (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D)
all obligations evidenced by notes, bonds, debentures, redeemable capital stock
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
Capital Lease Obligations, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
Lien, pledge, change, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person that owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) "CAPITAL LEASE OBLIGATION"
means, as to any Person, any obligation that is required to be classified and
accounted for as a capital lease on a balance sheet of such Person prepared in
accordance with GAAP, and the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with GAAP; and (z) "CONTINGENT
OBLIGATION" means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto.

                                       32
<PAGE>

            (13) Free Cash Flow Amount and Mandatory Compliance Conversion or
Redemption. On the first Business Day following each date that the Company files
or is required to file an annual report on Form 10-K or a quarterly report on
Form 10-Q (which in each case shall disclose the Free Cash Flow Amount as of the
end of the period covered by such report and details of the calculation thereof,
and the components thereof), the Company shall deliver to the Holder a
certificate executed by its principal financial officer (an "OFFICER'S
CERTIFICATE") certifying as to whether or not as of the end of the period
covered by such report, there is a Free Cash Flow Test Failure and the related
calculations with respect thereto. Notwithstanding anything contained herein to
the contrary, no Officer's Certificate delivered by the Company to any Holder
regarding a Free Cash Flow Test Failure shall contain any material non-public
information. Upon each occurrence of a Free Cash Flow Test Failure, the Company
shall provide the Holder, by the third (3rd) Business Day following the delivery
of the Officer's Certificate either (i) if permitted by the provisions of
Section 8, a Company Alternative Conversion Notice for a Company Alternative
Conversion of Principal of this Note equal to the applicable Mandatory
Compliance Amount, and any Interest Amount related thereto, in accordance with,
and subject to the conditions and requirements of, Section 8 (a "MANDATORY
COMPLIANCE CONVERSION"), (ii) a Company Alternative Redemption Notice for a
Company Alternative Redemption of the Principal of this Note equal to the
applicable Mandatory Compliance Amount, and any Interest Amount related thereto,
in accordance with Section 7 (a "MANDATORY COMPLIANCE REDEMPTION") or (iii) a
combination of the immediately preceding clauses (i) and (ii); provided that all
of the outstanding applicable Mandatory Compliance Amount, and any Interest
Amount related thereto, must be converted or redeemed by the Company, subject to
the provisions of Section 7 and/or 8, as applicable; provided further that the
Company may elect more than one of the Mandatory Compliance Conversion and the
Mandatory Compliance Redemption, if each such election is with respect to at
least 20% of the Mandatory Compliance Amount and if such election is the same
for all Notes of the same Series. If the Company has not satisfied the
conditions required to make a Mandatory Compliance Conversion election with
respect to one or more Series of Notes, subject to satisfaction of the
conditions of Section 8, the Company may still make a Mandatory Compliance
Conversion election with respect to those Series of Notes for which it can
satisfy the conditions for delivery of a Mandatory Compliance Conversion
election. Upon delivery of a Company Alternative Redemption Notice or Company
Alternative Conversion Notice pursuant to the preceding sentence, the Company is
required to comply with the provisions of Sections 7 and 8, respectively. If a
Company Alternative Conversion Notice does not cover the entire applicable
Mandatory Compliance Amount or no Company Alternative Conversion Notice is given
with respect to an applicable Mandatory Compliance Amount, the Company will be
deemed to have elected a Mandatory Compliance Redemption hereunder with respect
to the remaining Mandatory Compliance Amount not covered by a Company
Alternative Conversion Notice (and, for purposes of Section 7(a), shall be
entitled to elect such Mandatory Compliance Redemption).

            (14) Participation; Restrictions. While this Note is outstanding,
the Company shall not, and shall not permit any of its Subsidiaries to: (i)
declare, set aside or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
capital stock or split, combine or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for any

                                       33
<PAGE>

capital stock; provided however, that any Subsidiary may declare, set aside or
pay any dividends on or make any other distributions (whether in cash, stock,
equity securities or property) in respect of any of its capital stock that is
held solely by the Company or by a domestic Active Subsidiary, provided that a
majority of the equity of such domestic Active Subsidiary is directly or
indirectly owned by the Company, such domestic Active Subsidiary is controlled
by the Company and such domestic Active Subsidiary is a party to the Guaranty
Agreement and the Security Agreement, (ii) purchase, redeem or otherwise
acquire, directly or indirectly, any shares of its capital stock or the capital
stock of any of its Subsidiaries, direct or indirect, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof and set forth on Schedule 3(c) of the Securities
Purchase Agreement, or (iii) grant, issue or sell any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of its capital stock. While this
Note is outstanding, the Company and its Subsidiaries shall not enter into any
agreement which would limit or restrict the Company's or any of its
Subsidiaries' ability to perform under, or take any other voluntary action to
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it under, this Note, the Securities Purchase Agreement,
the Registration Rights Agreement, the Warrants and the Security Documents.

            (15) Notices.

                  (a) The Company will give written notice to the Holder at
least ten (10) Business Days prior to the date on which the Company closes its
books or takes a record (I) with respect to any dividend or distribution upon
the Common Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights to vote with respect to
any Organic Change (as defined in Section 4(a)), dissolution or liquidation,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.

                  (b) The Company will also give written notice to the Holder at
least ten (10) Business Days prior to the date on which any Organic Change (as
defined in Section 4(a)), dissolution or liquidation will take place, provided
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.

            (16) Vote to Change the Terms of the Notes. The written consent of
the Company and the holders representing at least two-thirds (2/3) of the
principal amount then outstanding under the Notes of the same Series shall be
required for any change that relates only to such Series of Notes (including
this Note) and upon receipt of such consent, each such Note of the such Series
shall be deemed amended thereby. The written consent of the Company and the
holders representing at least two-thirds (2/3) of the principal amount then
outstanding under the all of the Notes shall be required for any change that
relates to all of the Notes (including this Note), and upon receipt of such
consent, each Note shall be deemed amended thereby.

            (17) Lost or Stolen Notes. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note,

                                       34
<PAGE>

and, in the case of loss, theft or destruction, of an indemnification
undertaking by the Holder to the Company in customary form and reasonably
satisfactory to the Company and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver a new Note of
like tenor and date; provided, however, the Company shall not be obligated to
re-issue a Note if the Holder contemporaneously requests the Company to convert
this Note in its entirety into Shares as permitted hereunder.

            (18) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note, at law or in equity
(including a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy, and nothing herein shall limit the
Holder's right to pursue actual damages for any failure by the Company to comply
with the terms of this Note. The Company covenants to the Holder that there
shall be no characterization concerning this instrument other than as expressly
provided herein. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

            (19) Specific Shall Not Limit General; Construction. No specific
provision contained in this Note shall limit or modify any more general
provision contained herein. This Note shall be deemed to be jointly drafted by
the Company and all Purchasers and shall not be construed against any person as
the drafter hereof.

            (20) Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.

            (21) Notice. Whenever notice is required to be given under this
Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Securities Purchase Agreement.

            (22) Transfer of this Note. The Holder may assign or transfer some
or all of its rights hereunder, subject to compliance with the 1933 Act and the
provisions of Section 2(f) of the Securities Purchase Agreement without the
consent of the Company, provided that any transfer of this Note to a Person that
is not an affiliate of the Holder of this Note of less than all of the Principal
represented hereby, shall be in Principal amount of not less than $2,000,000.

                                       35
<PAGE>

            (23) Payment of Collection, Enforcement and Other Costs. If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding; or (b) an attorney is
retained to represent the Holder in any bankruptcy, reorganization, receivership
of the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action, including reasonable
attorneys' fees and disbursements.

            (24) Cancellation. After all principal and other amounts at any time
owed under this Note have been paid in full or converted into Shares in
accordance with the terms hereof, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.

            (25) Note Exchangeable for Different Denominations. Subject to
Section 2(d)(viii), in the event of a conversion or redemption pursuant to this
Note of less than all of the Principal, the Company shall promptly cause to be
issued and delivered to the Holder, upon tender by the Holder of this Note, a
new Note of like tenor representing the remaining Principal that has not been so
converted or redeemed. This Note is exchangeable, upon the surrender hereof by
the Holder at the principal office of the Company, for a new Note or Notes
containing the same terms and conditions and representing in the aggregate the
Principal, and each such new Note will represent such portion of such Principal
as is designated by the Holder at the time of such surrender. The date the
Company issued this Note shall be the "Issuance Date" hereof regardless of the
number of times a new Note shall be issued.

            (26) Waiver of Notice. To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, the Security Documents and the Securities Purchase Agreement.

            (27) Governing Law. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
country or jurisdiction) that would cause the application of the laws of any
jurisdiction or country other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Note 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

                                       36
<PAGE>

right to serve process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

            (28) Effect of Redemption or Conversion; No Prepayment. Upon payment
of the Redemption Price, the Change of Control Redemption Price, the Company
Alternative Redemption Price or the amount provided for in Section 2(d)(vii),
each in accordance with the terms hereof with respect to any portion of the
Principal of this Note, or delivery of Shares upon conversion of any portion of
the Principal in accordance with the terms hereof, such portion of the Principal
of this Note shall be deemed paid in full and shall no longer be deemed
outstanding for any purpose. Except as specifically set forth in this Note,
including Section 2, the Company does not have any right, option, or obligation,
to pay any portion of the Principal at any time prior to the Maturity Date.

            (29) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Holder hereunder or the Holder enforces or exercises
its rights hereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
by a trustee, receiver or any other person under any law (including any
bankruptcy law, U.S. state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

            (30) Interpretative Matters. Unless the context otherwise requires,
(a) all references to Sections, Schedules or Exhibits are to Sections, Schedules
or Exhibits contained in or attached to this Note, (b) each accounting term not
otherwise defined in this Note has the meaning assigned to it in accordance with
GAAP, (c) words in the singular or plural include the singular and plural and
pronouns stated in either the masculine, the feminine or neuter gender shall
include the masculine, feminine and neuter and (d) the use of the word
"including" in this Note shall be by way of example rather than limitation. If a
stock split, stock dividend, stock combination or other similar event occurs
during any period over which an average price is being determined, then an
appropriate adjustment will be made to such average to reflect such event.

                                   * * * * * *

                                       37
<PAGE>

            IN WITNESS WHEREOF, the Company has caused this Note to be signed by
_____________, its ____________________, as of the ___ day of _________ 200__.

                                     INFINITY, INC.

                                     By: _______________________________________
                                         Name:
                                         Title:

<PAGE>

                                    EXHIBIT I
                                 INFINITY, INC.
                                CONVERSION NOTICE

      Reference is made to the Convertible Note (the "NOTE") of Infinity, Inc.,
a Colorado corporation (the "COMPANY"). In accordance with and pursuant to the
Note, the undersigned hereby elects to convert the Conversion Amount (as defined
in the Note) of the Note indicated below into Shares of Common Stock, par value
$0.0001 per share (the "COMMON STOCK"), of the Company, as of the date specified
below.

      Date of Conversion:_______________________________________________________

      Aggregate Conversion Amount to be converted, other than pursuant to
Section 6:________________

      Principal, applicable thereto, to be converted:___________________________

      Interest Conversion Amount to be converted pursuant to Section 6:_________

Please confirm the following information:

      Conversion Price:________________________________________________________

      Number of shares of Common Stock to be issued:___________________________

Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

      Issue to:_________________________________________________________________

      Facsimile Number:_________________________________________________________

      Authorization:__________________________
              By:_____________________________
              Title:__________________________

      Dated:__________________________________

      DTC Participant Number and Name (if electronic book entry transfer):______
      Account Number (if electronic book entry transfer):_______________________

<PAGE>

                                 ACKNOWLEDGMENT

      The Company hereby acknowledges this Conversion Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated ___________ ___, 200_
from the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                             INFINITY, INC.

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________

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