Document:

LETTER AGREEMENT

     This Letter  Agreement  (this  "Agreement") is entered into as of April 22,
2004, by and among GulfWest  Energy Inc., a Texas  corporation  (the  "Parent"),
GulfWest Oil & Gas Company (the  "Company") and the investors  listed on the
signature page hereto (each an "Investor" and, collectively, the "Investors").

                                    RECITALS

     WHEREAS,  the Investors acquired 8,000 shares (the "Initial Shares") of the
Company's Series A Cumulative  Exchangeable  Preferred Stock, par value $.01 per
share, of the Company (the "Preferred Stock");

     WHEREAS,  the Investors desire to be granted by the Parent,  and the Parent
desires to grant to the Investors,  certain  rights  contained in this Agreement
and the Statement of Resolution (as defined below);

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

                                    AGREEMENT

1.   Definitions.

     For purposes of this  Agreement,  the  following  terms have the  following
     meanings:

     "Securities Act, Exchange Act or Act" refers to the Securities Act of 1933,
     as amended from time to time.

     "Commission" refers to the Securities and Exchange Commission.

     "Common  Stock" means the common stock,  par value $.001 per share,  of the
     Parent exchangeable for the Preferred Stock.

     "Exercise  Price" refers to the per share  purchase  price of the shares of
     the Underlying Common Stock subject to the Penalty Warrants (as hereinafter
     defined) and issuable  upon  exercise,  in whole or in part, of the Penalty
     Warrants.  The  Exercise  Price for each share of  Underlying  Common Stock
     shall equal $.35 per share.  The Exercise Price is subject to adjustment as
     provided in Section 4.8 herein.

     "Final  Exercise Date" refers to the last day of the Exercise Period of the
     Penalty Warrants, which is the fifth anniversary of the date of issuance.

     "Holders"  refers to all of the holders of the Exchange Common Stock issued
     by the Parent upon  exchange  of the  Preferred  Stock,  the holders of the
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     Penalty  Warrants,  the  holders of the  Underlying  Common  Stock , or the
     holders of the Senior Debt, as the context denotes.

     "Penalty Warrants" refers to warrants to purchase Common Stock to be issued
     to the Investors if certain Registration requirements are not met.

     "Register,"   "Registered"  and  "Registration"  refer  to  a  registration
     effected  by  preparing  and  filing a  registration  statement  or similar
     document in compliance  with the  Securities  Act, and the  declaration  or
     order of effectiveness of such registration statement or document.

     "Registrable  Securities"  means any  Exchange  Common Stock which has been
     issued  pursuant to the exchange of the Initial  Shares  together  with any
     Common Stock issuable upon the exercise of any penalty warrants.

     "SEC" means the U.S. Securities and Exchange Commission.

     "Statement   of   Resolution"   refers  to  the   Statement  of  Resolution
     Establishing  and  Designating  a Series of Shares of GulfWest Oil Company,
     Series A Preferred  Stock,  par value $.01 per share,  which  includes  the
     requirement for this Agreement

     "Subordination" means the Subordination of the Preferred Stock to the prior
     payment  in full of all  amounts  that may be owed from time to time  under
     that certain Amended and Restated  Credit  Agreement dated as of April ___,
     2004,  among the  Company,  each of the  Lenders  from  time to time  party
     thereto,   and   Highbridge/Zwirn   Special   Opportunities  Fund  L.P.  as
     administrative  agent for the  Lenders  (the  "Credit  Agreement")  and any
     indebtedness that replaces or refinances the indebtedness  under the Credit
     Agreement (collectively,  the "Senior Debt"). Such subordination is for the
     benefit of the holders of the Senior  Debt and may be enforced  against the
     Company and the  holders of the Series A Preferred  Stock by the holders of
     the Senior Debt.

     "Underlying Common Stock" refers to the shares of the Common Stock issuable
     or issued under this  Agreement  pursuant to the  exercise,  in whole or in
     part, of the Penalty Warrants.

     2.  Representations  and Warranties.  The Parent and the Company represents
     and warrants to the Investor as follows:

          2.1  Corporate  and Other  Action.  The  Parent and  Company  have all
     requisite  corporate  power  and  authority  and has  taken  all  necessary
     corporate  action,  to authorize,  execute,  deliver and perform all of its
     obligations under this Agreement.  This Agreement has been duly authorized,
     executed and delivered by the Parent and Company, and is a legal, valid and
     binding agreement of the Parent and Company  enforceable against the Parent
     and  Company in  accordance  with its terms.  No  authorization,  approval,
     consent or other order of any regulatory authority (including the rules and
     regulations  of any trading  market or quotation  system  applicable to the
     Parent  or an of its  subsidiaries)  is  required  for such  authorization,
     execution, delivery, performance, issue or sale.
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          2.2 No Violation.  The execution and delivery of this  Agreement,  the
     consummation of the  transactions  herein  contemplated  and the compliance
     with the terms and  provisions of this Agreement will not conflict with, or
     result in a breach  of, or  constitute  a  default  or an event  permitting
     acceleration  under  (i) the  Articles  of  Incorporation  or Bylaws of the
     Parent or Company or any indenture,  mortgage,  deed of trust,  note,  bank
     loan, credit agreement,  franchise,  license,  lease,  permit, or any other
     agreement or  instrument  to which the Parent or Company is a party or (ii)
     any judgment,  decree, order, statute, rule or regulation applicable to the
     Parent  or  Company  (including  federal  and  state  securities  laws  and
     regulations  and  the  rules  and  regulations  of any  trading  market  or
     quotation system applicable to the Parent or an of its subsidiaries.

          2.3  Validity.  The shares of Common  Stock of the Parent  issued upon
     exchange of the Series A Preferred Stock have been duly authorized and when
     issued will be validly issued and outstanding, fully paid and nonassessable
     and free of preemptive rights liens and charges.

          2.4  Capitalization.  As of the date hereof,  the  authorized  capital
     stock of the Parent consists of 40,000,000 shares of Common Stock, of which
     as of the date hereof,  18,492,541 shares are issued and outstanding,  none
     are held as treasury  shares,  5,000,585  shares are  reserved for issuance
     pursuant to options and warrants,  500,000 shares are reserved for issuance
     upon conversion of the Parent's Series D Preferred Stock,  2,250,000 shares
     are  reserved  for  issuance  upon  conversion  of the  Parent's  Series  E
     Preferred  Stock and  1,000,000  shares  are  reserved  for  issuance  upon
     conversion  of  the  Parent's  Series  F  Preferred   Stock.  All  of  such
     outstanding  shares have been, or upon issuance will be, validly issued and
     are fully paid and  nonassessable.  No shares of the Parent's capital stock
     are subject to preemptive  rights or any other similar  rights or any liens
     or encumbrances  suffered or permitted by the Parent.  The Company's Common
     Stock has been pledged to the holder of the Senior Debt by the Parent,  who
     is the sole shareholder of the Company.  The Parent's  outstanding  options
     and warrants contain customary  anti-dilution  and piggy-back  registration
     provisions and the Parent's  Series E and Series F Preferred  stock contain
     redemption  and  registration  provisions but none will be triggered by the
     issuance  of the  Preferred  Stock or the Common  Stock  described  in this
     Agreement.   Except  as  described  in  this  Section  2.4,  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, any shares of capital stock of the Parent or the
     Company, or contracts, commitments, understandings or arrangements by which
     the Parent or the Company is or may become bound to issue additional shares
     of capital stock or options, warrants, scrip, rights to subscribe to, calls
     or  commitments of any character  whatsoever  relating to, or securities or
     rights  convertible  into, any shares of capital stock of the Parent or the
     Company.  Except for the registration rights provided for herein, 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 Act.  There are no  outstanding  securities or instruments of the

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     Company or any of its subsidiaries  which 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.   There  are  no   securities   or   instruments   containing
     anti-dilution or similar  provisions that will be triggered by the issuance
     of the Preferred Stock or the Common Stock as described in this Agreement.

          2.5 Integrated  Offering.  Neither the Parent, the Company, nor any of
     their  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 Preferred  Stock or Common Stock under
     the Act or cause this offering of the Preferred Stock or Common Stock to be
     integrated  with prior  offerings  by the Parent for purposes of the Act or
     any  applicable   shareholder  approval  provisions,   including,   without
     limitation,  under the rules and  regulations  of any exchange or automated
     quotation system on which any of the securities of the Parent are listed or
     designated,  nor will the Parent or any of its subsidiaries take any action
     or steps that would require  registration  of any of the Preferred Stock or
     Common Stock under the Act or cause the offering of the Preferred  Stock or
     Common Stock to be integrated with other offerings.

          2.6 Application of Takeover  Protections.  The Parent and its board of
     directors  have  taken all  necessary  action,  if any,  in order to render
     inapplicable any control share acquisition,  business  combination,  poison
     pill (including any distribution under a rights agreement) or other similar
     anti-takeover  provision under the Articles of Incorporation or the laws of
     the state of its  incorporation  which is or could become applicable to the
     Investor as a result of the  transactions  contemplated  by this Agreement,
     including,  without  limitation,  the Parent's issuance of the Common Stock
     and the  Investor's  ownership  of the  Preferred  Stock  and/or the Common
     Stock.

          2.7 Rights Agreement.  The Parent 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 Parent,  except for
     customary change in control arrangements in Employment Agreements.

          2.8 Foreign Corrupt  Practices.  Neither the Parent,  nor the Company,
     nor any director, officer, agent, employee or other person acting on behalf
     of the Parent or the Company  has, in the course of its actions  for, or on
     behalf  of,  the  Parent,   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.

          2.9 SEC Documents;  Financial  Statements.  Since January 1, 2002, the
     Parent  has filed  all  reports,  schedules,  forms,  statements  and other
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     documents required to be filed by it with the SEC pursuant to the reporting
     requirements  of the Exchange Act (all of the foregoing  filed prior to the
     date hereof and all exhibits included therein and financial  statements and
     schedules  thereto and documents  incorporated  by reference  therein being
     hereinafter  referred to as the "SEC  Documents").  As of their  respective
     dates,  the SEC  Documents  complied  in all  material  respects  with  the
     requirements  of the Exchange Act and the rules and  regulations of the SEC
     promulgated thereunder applicable to the SEC Documents, and none of the SEC
     Documents,  at the time they were  filed  with the SEC  (except as they may
     have been correctly amended),  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 financial  statements of the Parent 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  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 Parent as of the dates
     thereof  and the results of its  operations  and cash flows for the periods
     then  ended  (subject,  in the  case of  unaudited  statements,  to  normal
     year-end audit adjustments).

     3.  Exchange for Common  Stock.  The Parent  hereby  agrees to exchange the
Series A Preferred  Stock for its Common Stock (the  "Exchange  Common  Stock"),
under certain terms and  conditions  contained in Agreement,  at any time by the
holder by providing written notice (the "Exchange Notice") to the Company of the
holder's election to exchange any or all of the shares of the Series A Preferred
Stock for  Exchange  Common  Stock.  The shares of Exchange  Common  Stock to be
issued upon exchange shall be issued by the Parent once the holder of the Series
A Preferred  Stock to be  exchanged  tenders the  certificates  evidencing  such
shares of Series A Preferred Stock to the Company for cancellation.

          3.1 Exchange  Price.  Each share of Series A Preferred  Stock shall be
     exchangeable in accordance with this Section 3 into the number of shares of
     Exchange Common Stock that results from dividing the liquidation  value for
     Series A Preferred Stock (including the stated  liquidation  preference and
     accrued but unpaid  dividends) by the exchange price for Series A Preferred
     Stock that is in effect at the time of exchange (the "Exchange Price"). The
     initial  Exchange Price for the Series A Preferred  Stock shall be $.35 per
     share.  The Exchange Price of the Series A Preferred Stock shall be subject
     to adjustment from time to time as provided below.

          3.2 Adjustment Upon Exchange Common Stock Event. Upon the happening of
     an Exchange Common Stock Event (as hereinafter defined), the Exchange Price
     of the Series A Preferred Stock shall, simultaneously with the happening of
     such Exchange  Common Stock Event,  be adjusted by multiplying the Exchange
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     Price of  Series A  Preferred  Stock in  effect  immediately  prior to such
     Exchange Common Stock Event by a fraction, (a) the numerator of which shall
     be the number of shares of Common Stock issued and outstanding  immediately
     prior to such Exchange Common Stock Event, and (b) the denominator of which
     shall  be the  number  of  shares  of  Exchange  Common  Stock  issued  and
     outstanding  immediately  after such Exchange  Common Stock Event,  and the
     product so obtained  shall  thereafter  be the Exchange  Price for Series A
     Preferred  Stock.  The Exchange Price for Series A Preferred Stock shall be
     adjusted in the same manner upon the happening of each subsequent  Exchange
     Common Stock Event. As used herein,  the term "Exchange Common Stock Event"
     means,  Subject  to the  Subordination,  (i) the  issue  by the  Parent  of
     additional  shares of its Common Stock as a dividend or other  distribution
     on its  outstanding  Common Stock,  (ii) a subdivision  of the  outstanding
     shares of its Common Stock into a greater  number of shares of Common Stock
     or (iii) a combination of the outstanding shares of its Common Stock into a
     smaller number of shares of Common Stock.

          3.3 Adjustment for Other Dividends and  Distributions.  Subject to the
     Subordination, if at any time or from time to time after the Original Issue
     Date the Parent  pays a  dividend  or makes any other  distribution  to the
     holders of its Common Stock payable in its securities  other than shares of
     Exchange  Common Stock,  then in each such event provision shall be made so
     that the  holders  of the  Series A  Preferred  Stock  shall  receive  upon
     exchange  thereof,  in addition to the number of shares of Exchange  Common
     Stock  receivable  upon exchange  thereof,  the amount of securities of the
     Company that they would have  received  had their Series A Preferred  Stock
     been  exchanged  into  Exchange  Common Stock on the date of such event (or
     such record date, as applicable) and had they thereafter, during the period
     from the date of such event (or such record  date,  as  applicable)  to and
     including the exchange date, retained such securities receivable by them as
     aforesaid during such period,  subject to all other adjustments  called for
     during such period  under this  Section 3 with respect to the rights of the
     holders  of the  Series A  Preferred  Stock or with  respect  to such other
     securities by their terms.

          3.4 Adjustment for Reclassification,  Exchange and Substitution. If at
     any time or from time to time after the  Original  Issue  Date,  the Common
     Stock issuable upon the exchange of the Series A Preferred Stock is changed
     into the same or a  different  number of shares of any class or  classes of
     stock,  whether by  recapitalization,  reclassification or otherwise (other
     than by an Exchange Common Stock Event or a stock dividend, reorganization,
     merger,  consolidation  or sale of assets  provided  for  elsewhere in this
     Section 3), then in any such event each holder of Series A Preferred  Stock
     shall have the right  thereafter to exchange such Series A Preferred  Stock
     into  the kind and  amount  of stock  and  other  securities  and  property
     receivable upon such recapitalization,  reclassification or other change by
     holders of the number of shares of  Exchange  Common  Stock into which such
     shares of Series A Preferred could have been exchanged immediately prior to
     such  recapitalization,  reclassification or change, all subject to further
     adjustment as provided  herein or with respect to such other  securities or
     property by the terms thereof.

          3.5   Certificate  of   Adjustment.   In  case  of  an  adjustment  or
     readjustment  of the  Exchange  Price for  Series A  Preferred  Stock,  the
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     Company, at its expense, shall cause its Chief Financial Officer to compute
     such adjustment or  readjustment  in accordance with the provisions  hereof
     and prepare a  certificate  showing such  adjustment or  readjustment,  and
     shall mail such certificate,  by first class mail, postage prepaid, to each
     registered  holder of the Series A Preferred Stock at the holder's  address
     as shown in the Company's books.

          3.6 Dilution or Impairments. Subject to the Subordination, the Company
     and the Parent will not, by  amendment  of the  certificate  or articles of
     incorporation   or  through   any   reorganization,   transfer  of  assets,
     consolidation,  merger,  dissolution,  issue or sale of  securities  or any
     other voluntary action, intentionally avoid or seek to avoid the observance
     or performance of any of the terms hereunder, but will at all times in good
     faith assist in the carrying out of all such terms and in the taking of all
     such action as may be necessary or appropriate hereunder.  Without limiting
     the generality of the foregoing, the Parent:

               (a) shall at all times  reserve  and keep  available,  solely for
          issuance  and  delivery  upon the  exchange  of the Series A Preferred
          Stock,  all shares of the Common Stock from time to time issuable upon
          such exchange; and

               (b) will take all such action as may be necessary or  appropriate
          in order that the Company may validly and legally issue fully paid and
          nonassesable  shares of Common Stock upon the exchange of the Series A
          Preferred Stock from time to time outstanding.

          3.7 Fractional  Shares.  No fractional shares of Exchange Common Stock
     shall be  issued  upon  any  exchange  of  Series A  Preferred  Stock.  Any
     resulting fractional shares shall be rounded up to the next whole share.

     4. Registration of Registrable  Securities.  The Investor acknowledges that
the Exchange  Common  Stock,  the Penalty  Warrants (if any) and the  Underlying
Common Stock (if any) have not been registered  under the Act or under any state
securities  laws and  agrees  not to make any sale or other  disposition  of the
Registrable  Securities  except  pursuant to a  registration  statement that has
become  effective  under the Act, unless such sale or disposition is exempt from
registration under the Act.

          4.1  Required  Registration.  The  Parent  agrees  to  file  with  the
     Commission a shelf registration statement on Form S-1 for a public offering
     under  the Act (the  "Required  Registration  Statement")  to cover  public
     resales of the  Registrable  Securities  held by the Investors in each case
     who satisfy certain conditions  relating to the providing of information in
     connection  with  the  Required   Registration   Statement.   The  Required
     Registration Statement shall be a so-called "shelf" registration under Rule
     415 of the Act. The Parent shall file the Required  Registration  Statement
     with the  Commission as soon as reasonably  practicable  following the date
     hereof and shall be obligated to use its best efforts, including the filing
     of any  amendments  or  supplements  thereto,  to have  any  such  Required
     Registration  Statement  declared effective under the Act and the rules and
     regulations  promulgated thereunder as soon as practicable after the filing
     date thereof. The failure to file the Required Registration  Statement with
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     the Commission  and to have the Required  Registration  Statement  declared
     effective under the Act within certain time periods shall result in Penalty
     Warrants being issued by the Parent as provided in Section 4.5 hereof.  The
     Parent  shall also take such  action as may be  necessary  to keep any such
     Required Registration  Statement and accompanying  prospectus effective and
     current  under the Act at its expense  for a period of 24 months  after the
     effective  date  of  the  Required  Registration  Statement.  The  Parent's
     obligation  under  this  paragraph  shall be  limited  to one  registration
     statement and such amendments,  supplements and other filings thereafter as
     may be necessary to keep such registration  statement current thereafter as
     provided  herein for a period of 24 months after the effective date of such
     registration statement.

          4.2 Parent's  Obligations  in  Registration.  In  connection  with the
     Required Registration Statement, the Parent shall:

               (a)  notify the  Investor  as to the  filing  thereof  and of all
          amendments or supplements thereto filed prior to the effective date of
          such registration statement;

               (b)  comply  with all  applicable  rules and  regulations  of the
          Commission;

               (c) notify the  Investor  immediately,  and confirm the notice in
          writing, (1) when the registration statement becomes effective, (2) of
          the issuance by the Commission of any stop order or of the initiation,
          or the  threatening,  of any proceedings for that purpose,  (3) of the
          receipt  by  the  Parent  of  any  notification  with  respect  to the
          suspension  of  qualification  of the  Common  Stock  for  sale in any
          jurisdiction  or  of  the  initiation,  or  the  threatening,  of  any
          proceedings for that purpose,  and (4) of the receipt of any comments,
          or requests for  additional  information,  from the  Commission or any
          state  regulatory  authority;  and if  the  Commission  or  any  state
          regulatory authority shall enter such a stop order or order suspending
          qualification  at any time,  the  Parent  will  promptly  use its best
          efforts to obtain the lifting of such order;

               (d) during any time when a prospectus is required to be delivered
          under the Act during  the  period  required  for the  distribution  of
          Common  Stock,  use its best  efforts to comply with all  requirements
          imposed upon it by the Act, as hereafter amended, and by the rules and
          regulations promulgated thereunder,  so far as necessary to permit the
          continuance  of sales of the Common  Stock  pursuant  to a  prospectus
          complying with Section  10(a)(3) of the Act; and if at any time when a
          prospectus  relating to the Common  Stock is required to be  delivered
          under the Act and any event shall have  occurred as a result of which,
          in the  opinion of counsel for the Parent or the  Investor's  counsel,
          the  prospectus  relating  to the  Common  Stock  as then  amended  or
          supplemented  includes an untrue statement of a material fact or omits
          to state any material fact required to be stated  therein or necessary
          to make the  statements  therein,  in the  light of the  circumstances
          under which they were made, not  misleading,  or if it is necessary at
          any time to amend such prospectus to comply with the Act and the rules
          and regulations of the Commission,  promulgated thereunder, the Parent
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          will  promptly  prepare and file with the  Commission  an  appropriate
          amendment or supplement in form  satisfactory  to the Investor and the
          Investor's counsel;

               (e) use its best efforts, in cooperation with the Investor, at or
          prior to the time the registration  statement  becomes  effective,  to
          register or qualify the  Registrable  Securities for offering and sale
          under the  securities  laws  relating  to the  offering or sale of the
          Common Stock in such  jurisdictions  as the  Investor  may  reasonably
          designate  and to  continue  the  qualifications  in effect so long as
          required  for  purposes  of the sale of the  Common  Stock;  provided,
          however,   that  no  such  qualification  shall  be  required  in  any
          jurisdiction  where, as a result thereof,  the Parent would be subject
          to service of process for all  purposes;  in each  jurisdiction  where
          such  qualification  shall be effected,  the Parent  will,  unless the
          Investor  agree  that  such  action  is not at the time  necessary  or
          advisable,  file and make such  statements or reports at such times as
          are or may  reasonably  be required by the laws of such  jurisdiction;
          for the purposes of this paragraph,  "best efforts"  includes,  but is
          not limited to, the same  standard of care and degree of effort as the
          Parent will use to qualify its securities other than the Common Stock;

               (f) use its best  efforts  to  cause  the  independent  certified
          public  accountants  of the Parent to deliver to the  Investor  on the
          date that the registration statement becomes effective letters stating
          that they are  independent  certified  public  accountants  within the
          meaning  of the Act and the rules and  regulations  of the  Commission
          thereunder,  and that, in their opinion,  the financial statements and
          other  financial  data  of the  Parent  included  in the  registration
          statement  or  prospectus,  or any  amendment or  supplement  thereto,
          comply  as to  form  in all  material  respects  with  the  applicable
          accounting  requirements of the Act, and such other financial  matters
          as the underwriter, if any, or the Investor may reasonably request;

               (g)  after the  effective  date of such  registration  statement,
          prepare,  and promptly  notify the Investor of the proposed filing of,
          and promptly  file with the  Commission,  each and every  amendment or
          supplement  thereto or to any prospectus forming a part thereof as may
          be  necessary to make any  statements  therein not  misleading  in any
          material  respect;  provided,  however,  that  no  such  amendment  or
          supplement  shall be filed if the  Investor  shall  object  thereto in
          writing promptly after being furnished a copy thereof;

               (h) furnish to the Investor, as soon as available,  copies of any
          such registration  statement and each preliminary or final prospectus,
          or  supplement or amendment  prepared  pursuant  thereto,  all in such
          quantities as the Investor may from time to time reasonably request in
          order to facilitate the public sale or other disposition of the Common
          Stock;

               (i) pay all costs and expenses incident to the performance of the
          Parent's   obligations   under  this  Section  4,  including   without
          limitation  the fees and  disbursements  of the Parent's  auditors and
                                       9

          legal  counsel,  and of legal counsel  responsible  for qualifying the
          Registrable  Securities  under state  securities or blue sky laws, all
          filing fees and printing expenses, all expenses in connection with the
          transfer and delivery of the Registrable Securities,  and all fees and
          expenses  in  connection  with the  qualification  of the  Registrable
          Securities under state securities or blue sky laws; provided, however,
          that  the  Parent  shall  not  be  responsible  for  compensation  and
          reimbursement  of expenses to  underwriters  or selling agents for the
          included Registrable Securities.

          4.3  Agreements  by  Investors.  In  connection  with the  filing of a
     registration  statement  pursuant  to  this  Section  4,  if  the  Investor
     participates  in the offering of the Registrable  Securities,  the Investor
     shall:

               (a) furnish the Parent all material information  requested by the
          Parent  concerning the Investor and his affiliates and his affiliates'
          holdings of securities  of the Parent and the proposed  method of sale
          or other  disposition  of the  Registrable  Securities  and such other
          information  and  undertakings  as shall  be  reasonably  required  in
          connection with the  preparation  and filing of any such  registration
          statement  covering all or part of the  Registrable  Securities and in
          order  to  ensure  full  compliance  with  the Act and the  rules  and
          regulations of the Commission thereunder;

               (b) if the Parent is at the time  entering  into an  underwriting
          agreement  covering  its  Common  Stock,  enter  into an  underwriting
          agreement in customary form with the same  underwriter or underwriters
          who are  parties  to such  underwriting  agreement  with  the  Parent,
          provided  that the sales of Exchange  Common Stock by the Investor and
          the  Parent  thereunder  are at the same price and upon the same terms
          and conditions; and

               (c) cooperate in good faith with the Parent and its underwriters,
          if any, in connection with such registration, including placing shares
          of Exchange Common Stock to be included in such registration statement
          in escrow or custody to facilitate the sale and distribution thereof.

          4.4 Indemnification.

               (a) The Parent shall  indemnify  and hold the Investor  harmless,
          and each person, if any, who controls the Investor,  against any loss,
          liability,  claim,  damage and expense  whatsoever  (including but not
          limited  to  reasonable  attorneys'  fees  and  any  and  all  expense
          whatsoever   reasonably   incurred  in  investigating,   preparing  or
          defending  against any  litigation,  commenced or  threatened,  or any
          claim  whatsoever,  and any and all amounts paid in  settlement of any
          claim or litigation),  joint or several,  to which any of the Investor
          or such underwriter or such controlling person becomes subject,  under
          the Act or otherwise,  insofar as such loss, liability,  claim, damage
          and expense (or actions in respect  thereof) arise out of or are based
          upon any untrue  statement  of any  material  fact  contained in (1) a
          registration  statement  covering the Common Stock,  in the prospectus
                                       10

          contained therein,  or in an amendment or supplement thereto or (2) in
          any application or other document or  communication  executed by or on
          behalf of the Parent or based upon written information furnished by or
          on behalf of the Parent filed in any  jurisdiction in order to qualify
          the Common Stock under the state  securities  or blue sky laws thereof
          or filed  with the  Commission,  or arise out of or are based upon the
          omission  to state  therein  a  material  fact  required  to be stated
          therein or necessary to make the statements  therein,  in the light of
          the  circumstances   under  which  they  were  made,  not  misleading;
          provided, however, that the Parent shall not be obligated to indemnify
          the Investor in any such case to the extent that any such loss, claim,
          damage, expense or liability arises out of or is based upon any untrue
          statement or omission made in reliance upon,  and in conformity  with,
          written  information  duly  executed and  furnished by the Investor or
          such  underwriter or such controlling  person  specifically for use in
          the registration statement, or any amendment or supplement thereto, or
          any application, as the case may be.

               If any  action is  brought  against a person in  respect of which
          indemnity may be sought  against the Parent  pursuant to the foregoing
          paragraph,  such person shall promptly notify the Parent in writing of
          the institution of such action and the Parent shall assume the defense
          of the action,  including the employment of counsel  (satisfactory  to
          the indemnified person in its or his reasonable  judgment) and payment
          of expenses. The indemnified person shall have the right to employ its
          or his own counsel in any such case, but the fees and expenses of such
          counsel shall be at the expense of such indemnified  person unless the
          employment  of such counsel  shall have been  authorized in writing by
          the Parent in connection with the defense of the action, or unless the
          Parent shall not have promptly  employed counsel to have charge of the
          defense  of the  action or unless the  indemnified  person  shall have
          reasonably  concluded  that there may be defenses  available  to it or
          them which are different from or additional to those  available to the
          Parent (in which  case the  Parent  shall not have the right to direct
          the defense of the action on behalf of the indemnified person), in any
          of which events these fees and expenses  shall be borne by the Parent.
          Anything in this paragraph to the contrary notwithstanding, the Parent
          shall not be liable for any settlement of any claim or action effected
          without its written consent, which shall not be unreasonably withheld.

               The Parent's  indemnity  agreements  contained in this Subsection
          shall remain in full force and effect  regardless of any investigation
          made by or on behalf of any  indemnified  person and shall survive any
          termination of this  Agreement.  The Parent agrees  promptly to notify
          each  holder of the  commencement  of any  litigation  or  proceedings
          against the Parent or any of its officers or  directors in  connection
          with any registration statement pursuant to this Section 4.
                                11

               The Parent  further  agrees that, if the indemnity  provisions of
          the foregoing  paragraphs are held to be unenforceable,  any holder or
          controlling  person of such holder may recover  contribution  from the
          Parent in an amount which, when added to contributions  such holder or
          controlling person has theretofore  received or concurrently  receives
          from  officers and directors of the Parent or  controlling  persons of
          the Parent,  will reimburse such holder or controlling  person for all
          losses,  claims,  damages or liabilities  and legal or other expenses;
          provided,  however,  that  if the  full  amount  of  the  contribution
          specified in this  Subsection  3(a) is not permitted by law, then such
          holder or controlling  person shall be entitled to  contribution  from
          the Parent to the full extent permitted by law.

               (b) If the  Investor  chooses  to  include  all or a part  of the
          Common  Stock  the  Investor  holds  in a  public  offering,  then the
          Investor  agree to indemnify  and hold harmless the Parent and each of
          its  directors  and  officers  who have  signed any such  registration
          statement  and each person,  if any,  who controls the Parent,  to the
          same extent as the  indemnity by the Parent in this  Subsection  4(a),
          but only with respect to untrue statements or omissions,  if any, made
          in such  registration  statement,  prospectus  contained  therein,  or
          amendment or supplement  thereto,  or in any application,  in reliance
          upon, and in conformity  with,  written  information duly executed and
          furnished  by the Investor to the Parent  specifically  for use in the
          registration  statement,  in the prospectus  contained therein, or any
          amendment or supplement thereto,  or any application,  as the case may
          be. In case any action shall be brought in respect of which  indemnity
          may be sought against the Investor, the Investor shall have the rights
          and duties given to the Parent,  and the persons so indemnified  shall
          have the rights and duties given to the Investor, by the provisions of
          the first paragraph of Subsection 4(a).

          4.5 Penalty Warrants.  The Parent shall issue to the Investor warrants
     to purchase shares of Common Stock to be evidenced by a Warrant Certificate
     ("Penalty Warrants") in accordance with the following provisions:

               (a) If the Required Registration  Statement is not filed with the
          Commission by June 4, 2004,  then the Parent shall  promptly  issue to
          the  Investor  Penalty  Warrants to purchase an  aggregate  of 250,000
          shares of Common Stock.

               (b) If  the  Required  Registration  Statement  is  not  declared
          effective  under  the Act by July  15,  2004,  then the  Parent  shall
          promptly  issue  to the  Investor  Penalty  Warrants  to  purchase  an
          aggregate of 350,000 shares of Common Stock.

               (c) At the end of each month  following July 31, 2004, (i) if the
          Required  Registration  Statement is not declared  effective under the
          Act during such month,  then the Parent  shall  promptly  issue to the
          Investor  Penalty  Warrants to purchase an aggregate of 350,000 shares
          of Common  Stock,  or (b) if the  Required  Registration  Statement is
          declared  effective  under the Act during such month,  then the Parent
          shall promptly issue to the Investor  Penalty  Warrants to purchase an
          aggregate  number of shares of Common Stock  calculated by multiplying
          350,000 by a fraction the numerator of which is the numerical  date in
                                       12

          such  month  that the  Required  Registration  Statement  is  declared
          effective  under  the Act and the  denominator  of which is the  total
          number of days in such month.

               (d)  Notwithstanding  anything else herein to the  contrary,  the
          maximum number of Penalty Warrants issuable hereunder shall be limited
          to Penalty  Warrants to purchase an aggregate  of 1,500,000  shares of
          Common Stock.

               (e) The  Penalty  Warrants  shall  be  issued  on the  terms  and
          conditions in Section 4.6 below. -

          4.6 Exercise of Warrants.

               (a)  Exercise  in  Full.  The  Penalty  Warrants  (if any) may be
          exercised in full by the Warrantholder  from the date hereof until the
          fifth  anniversary of the date hereof (the "Final  Exercise  Date") by
          surrender of Penalty Warrant,  with the Notice of Exercise Form at the
          end  thereof  duly  completed  and  executed  by  such  Warrantholder,
          accompanied  by payment (if so  elected),  in cash or by  certified or
          bank  cashiers  check  payable  to the  order  of the  Parent,  in the
          respective  amount obtained by multiplying the number of shares of the
          Underlying  Common Stock designated by the Warrantholder in the Notice
          of Exercise Form by the Exercise  Price per share (after giving effect
          to any adjustments as provided in Section4.8  (below) to the Parent at
          its  principal  office  at480 N. Sam Houston  Parkway  E.,  Suite 300,
          Houston, Texas 77060.

               (b)  Partial  Exercise.  The  Penalty  Warrants  (if  any) may be
          exercised in part by the Warrantholder  from the date hereof until the
          Final  Exercise Date by surrender of the Warrants,  with the Notice of
          Exercise Form at the end thereof duly executed by such  Warrantholder,
          accompanied  by payment (if so  elected),  in cash or by  certified or
          bank  cashiers  check  payable  to the  order  of the  Parent,  in the
          respective  amount obtained by multiplying the number of shares of the
          Underlying  Common Stock designated by the Warrantholder in the Notice
          of Exercise Form by the Exercise  Price per share (after giving effect
          to any  adjustments  as provided in Section 4.8 below).  Upon any such
          partial  exercise,  the Parent at its expense will forthwith issue and
          deliver  to or upon  the  order  of the  Warrantholder  a new  Warrant
          Certificate of like tenor, in the name of the Warrantholder thereof or
          as the  Warrantholder  (upon  payment  by  such  Warrantholder  of any
          applicable  transfer taxes) may request,  calling in the aggregate for
          the  purchase of the number of shares of the  Underlying  Common Stock
          equal  to the  number  of such  shares  called  for on the face of the
          respective Warrant  Certificate (after giving effect to any adjustment
          herein as provided  in Section  4.8  (below)  minus the number of such
          shares   designated   -----------   by   the   Warrantholder   in  the
          aforementioned Notice of Exercise.

               (c) Required  Exercise.  The  Warrantholder and the Parent hereby
          mutually agree that, if at anytime following the date hereof and until
          the fifth  anniversary  of the date of issuance  (the "Final  Exercise
          Date"),  the average of the daily high bid and low asked prices of the
          Common 13

          Stock is $1.25 or higher for each of 20  consecutive  trading  days as
          reported on the  Over-the-Counter  (OTC) trading system, all remaining
          unexercised  Penalty  Warrants (if any) shall be exercised and payment
          will be made as outlined above within  forty-five  (45) days after the
          Parent delivers notice of the foregoing to the  Warrantholder.  In the
          event that a  Warrantholder  fails to exercise  any of the Warrants as
          required  under  this  Section  4.6(c),  the  Parent  may  (but is not
          obligated to), upon written notice to such Warrantholder (a) cancel on
          its books the Warrant  Certificates  subject to the Penalty  Warrants,
          (b) effect the exercise of any such  unexercised  Penalty Warrants (if
          any) in accordance  with the Cashless  Exercise  procedures  set forth
          below and (c) deliver any proceeds  from the Cashless  Exercise to the
          Warrantholder(s) at the address specified by the Warrantholder(s).

               (d) Payment of Exercise  Price.  The Exercise Price shall be paid
          either by (i) delivering to the Parent,  by check or by wire transfer,
          an amount equal to the Exercise  Price per share of Underlying  Common
          Stock  multiplied by the number of shares of  Underlying  Common Stock
          then being  purchased or (ii)  through a special  sale and  remittance
          procedure (a "Cashless  Exercise") pursuant to which the holder of the
          Penalty Warrant shall concurrently  provide  irrevocable  instructions
          (A) to a Parent-designated brokerage firm to effect the immediate sale
          of the shares of Underlying Common Stock and remit to the Parent,  out
          of the sale  proceeds  available on the  settlement  date,  sufficient
          funds to cover the  aggregate  Exercise  Price payable for such shares
          plus all  applicable  Federal,  state and local income and  employment
          taxes required to be withheld by the Parent by reason of such exercise
          and (B) to the Parent to deliver  the  certificates  for the shares of
          Underlying  Common Stock  directly to such  brokerage firm to complete
          the sale.

               (e) Parent to Reaffirm Obligations.  The Parent will, at the time
          of any  exercise  of any  Penalty  Warrants,  upon the  request of the
          Warrantholder,  acknowledge  in writing its  continuing  obligation to
          afford to such  Warrantholder  any rights to which such  Warrantholder
          shall continue to be entitled  after such exercise in accordance  with
          the  provisions  of this  Agreement;  provided,  however,  that if the
          Warrantholder shall fail to make any such request,  such failure shall
          not affect the  continuing  obligation of the Parent to afford to such
          Warrantholder any such rights.

          4.7 Delivery of Stock Certificates, etc., on Exercise.

               (a) Any exercise of the Penalty  Warrants shall be deemed to have
          been effected  immediately  prior to the close of business on the date
          on which the Penalty Warrants with the Notice of Exercise Form and the
          payment (if elected) for the aggregate  Exercise Price shall have been
          received by the Parent.  At such time,  the person or persons in whose
          name or names any certificate or certificates for shares of Underlying
          Common Stock shall be issuable upon such  exercise  shall be deemed to
          have  become  the  holder  or  holders  of  record  of the  shares  of
          Underlying Common Stock so purchased. As soon as practicable after the
                                       14

          exercise of any Penalty  Warrants in full or in part, and in any event
          within ten days thereafter,  the Parent at its expense  (including the
          payment by it of any  applicable  issue taxes) will cause to be issued
          in the name of,  and  delivered  to the  purchasing  Warrantholder,  a
          certificate  or  certificates   for  the  number  of  fully  paid  and
          nonassessable  shares of the  Underlying  Common  Stock to which  such
          Warrantholder shall be entitled upon such exercise.

               (b) Unless the Underlying  Common Stock has been registered under
          the Act,  such  securities,  when issued,  shall have the  appropriate
          legend.

          4.8 Anti-dilution  Provisions.  Subject to Subordination,  the Penalty
     Warrants are subject to the following terms and conditions  during the term
     thereof:

               (a) Adjustments. In case (i) the outstanding shares of the Common
          Stock  shall be  subdivided  into a greater  number of shares,  (ii) a
          dividend in Common Stock shall be paid in respect of Common Stock,  or
          (iii) the outstanding  shares of Common Stock shall be combined into a
          smaller  number of shares  thereof,  the  Exercise  Price per share in
          effect  immediately prior to such subdivision or combination or at the
          record date of such dividend or distribution shall simultaneously with
          the  effectiveness  of such  subdivision or combination or immediately
          after  the  record   date  of  such   dividend  or   distribution   be
          proportionately  adjusted to equal the product obtained by multiplying
          the Exercise Price by a fraction, the numerator of which is the number
          of  outstanding  shares of  Common  Stock  prior to such  combination,
          subdivision or dividend,  and the  denominator of which is that number
          of  outstanding  shares of Common  Stock after  giving  effect to such
          combination, subdivision or dividend. Any dividend paid or distributed
          on the Common Stock in stock or any other securities  convertible into
          shares of Common  Stock shall be treated as a dividend  paid in Common
          Stock to the extent that shares of Common Stock are issuable  upon the
          conversion thereof.

               Whenever the Exercise  Price per share is adjusted as provided in
          the  immediately  preceding  paragraph,  the  number  of shares of the
          Underlying  Common  Stock  purchasable  upon  exercise  of the Penalty
          Warrant (if any)  immediately  prior to such Exercise Price adjustment
          shall be adjusted,  effective  simultaneously with such Exercise Price
          adjustment,  to equal the product obtained  (calculated to the nearest
          full share) by  multiplying  such  number of shares of the  Underlying
          Common  Stock by a fraction,  the  numerator  of which is the Exercise
          Price per share in effect  immediately  prior to such  Exercise  Price
          adjustment  and the  denominator  of which is the  Exercise  Price per
          share in effect upon such Exercise  Price  adjustment,  which adjusted
          number of shares of the Underlying Common Stock shall thereupon be the
          number of shares  of the  Underlying  Common  Stock  purchasable  upon
          exercise of the Warrant or the Penalty  Warrant (if any) until further
          adjusted as provided herein.
                                       15

               (b) No Adjustment for Small  Amounts.  Anything in this Section 4
          to the contrary  notwithstanding,  the Parent shall not be required to
          give effect to any  adjustment in the Exercise  Price unless and until
          the  net  effect  of one or  more  adjustments,  determined  as  above
          provided,  shall have  required a change of the  Exercise  Price by at
          least ten cents,  but when the  cumulative net effect of more than one
          adjustment so determined  shall be to change the actual Exercise Price
          by at least  ten  cents,  such  change  in the  Exercise  Price  shall
          thereupon be given effect.

          4.9 Further Covenants of the Parent.

               (a) Dilution or Impairments. The Parent will not, by amendment of
          its   certificate  or  articles  of   incorporation   or  through  any
          reorganization,    transfer   of   assets,   consolidation,    merger,
          dissolution,  issue  or  sale of  securities  or any  other  voluntary
          action, avoid or seek to avoid the observance or performance of any of
          the terms of the Penalty  Warrants or of this  Agreement,  but will at
          all times in good faith  assist in the  carrying out of all such terms
          and  in the  taking  of  all  such  action  as  may  be  necessary  or
          appropriate  in order  to  protect  the  rights  of the  Warrantholder
          against dilution or other impairment.  Without limiting the generality
          of the foregoing, the Parent:

                    (i) shall at all times  reserve and keep  available,  solely
               for  issuance  and  delivery  upon the  exercise  of the  Penalty
               Warrants,  all shares of the Underlying Common Stock from time to
               time  issuable  upon the  exercise of the Warrants and shall take
               all necessary  actions to ensure that the par value per share, if
               any, of the  Underlying  Common Stock is at all times equal to or
               less than the Exercise Price per share; and

                    (ii)  will  take  all such  action  as may be  necessary  or
               appropriate  in order  that the Parent may  validly  and  legally
               issue fully paid and  nonassessable  shares of Common  Stock upon
               the  exercise of the Penalty  Warrants (if any) from time to time
               outstanding.

     4.10  Transfer  to  Comply  with the  Securities  Act of 1933.  None of the
Penalty Warrants (if any) or the Underlying Common Stock issued or issuable upon
exercise of the Penalty Warrants may be sold,  transferred or otherwise disposed
of except to a person who, in the opinion of counsel for the Parent, is a person
to whom  such  Penalty  Warrants  or  Underlying  Common  Stock may  legally  be
transferred  without   registration  and  without  the  delivery  of  a  current
prospectus  under the Act with respect  thereto and then only against receipt of
an agreement of such person to comply with the provisions of this Section 4 with
respect to any resale or other disposition of such securities. ---------

     4.11 Warrant  Certificate Legend. The Parent may cause the following legend
to be set forth on each  certificate  representing  the Penalty  Warrants or the
Underlying Common Stock issued or issuable upon exercise of the Penalty Warrants
                                       16

not  theretofore   distributed  to  the  public  or  sold  to  underwriters  for
distribution to the public pursuant to Section 4 hereof,  unless counsel for the
Parent  is of the  opinion  as to any  such  certificate  that  such  legend  is
unnecessary:

     "The  securities  evidenced  hereby  have not  been  registered  under  the
     Securities  Act of 1933,  as amended or qualified  under  applicable  state
     securities  laws.  Such  warrant  and other  securities  may not be sold or
     otherwise  transferred  except in a  transaction  which in the  opinion  of
     securities  counsel  reasonably  satisfactory  to the Parent is exempt from
     registration  under applicable federal or state securities laws or pursuant
     to an effective registration statement thereunder."

     4.12  Indemnification.  To the extent  permitted  by law, an Investor  will
indemnify and hold harmless the Parent and its officers,  directors,  agents and
employees,  and  each  underwriter  of the  Parent  selling  securities  in such
registration statement,  and any person who controls any of the foregoing within
the  meaning of the  Securities  Act or the  Exchange  Act,  against  any actual
expenses (including legal fees and costs),  losses,  claims,  damages (including
settlement amounts) or liabilities (collectively,  "Losses") to which the Parent
or such officer, director, agent, employee, or underwriter or controlling person
may become subject under the  Securities  Act, the Exchange Act or other federal
or state law,  insofar as such Losses  arise out of or are based solely upon any
Violation  that  occurs  in  reliance  upon  and  in  conformity   with  written
information  furnished by, or on behalf of, such  Investor  expressly for use in
connection  with  such  registration;  and  such  Investor  will  reimburse  (as
incurred)  any  Losses  reasonably  incurred  by the  Parent  or  its  officers,
directors,   agents,  employees,  or  underwriters  or  controlling  persons  in
connection with  investigating or defending any Violations;  provided,  however,
that the indemnity  agreement contained in this paragraph (a) shall not apply to
amounts paid in  settlement of any claims for  Violations if such  settlement is
made  without  the  consent  of  such  Investor,  which  consent  shall  not  be
unreasonably  withheld. As used herein the term "Violation" refers to any of the
following  statements,  omissions or violations:  (i) any untrue  statement of a
material  fact  contained  in  such   registration   statement,   including  any
preliminary  prospectus or final prospectus contained therein, or any amendments
or  supplements  thereto,  or (ii) the omission to state therein a material fact
required to be stated therein,  or necessary to make the statements  therein, in
light of the  circumstances  under which they were made,  not  misleading.

     4.13 Notice.  Promptly after receipt of notice of the  commencement  of any
action  (including any  governmental  action),  an indemnified  party will, if a
claim is to be made against any indemnifying party under this Section 4, deliver
to the  indemnifying  party  a  written  notice  of the  commencement,  and  the
indemnifying  party shall have the right to  participate  in, and, to the extent
the indemnifying  party so desires,  jointly with any other  indemnifying  party
                                       17

similarly   notified  to  assume  the  defense  thereof  with  counsel  mutually
satisfactory to the parties; provided,  however, that an indemnified party shall
have the right to retain its own counsel,  with the fees and expenses to be paid
by the  indemnifying  party,  if, in the opinion of counsel for the indemnifying
party,  representation  of such indemnified party by the counsel retained by the
indemnifying  party would be inappropriate due to actual or potential  differing
interests between such indemnified party and any other party represented by such
counsel  in the  proceeding.  The  failure  to  deliver  written  notice  to the
indemnifying  party  within a  reasonable  period  of time  after  notice of the
commencement  of any such action shall  relieve such  indemnifying  party of any
liability  to the  indemnified  party  under this  Section 4 to the extent  such
failure is prejudicial to its ability to defend such action, but the omission to
deliver  written  notice to the  indemnifying  party will not  relieve it of any
liability that it may have to any  indemnified  party  otherwise than under this

          Section 4. 4.14  Indemnification  Unavailable.  If the indemnification
     provided for in this Section 4 is held by a court of competent jurisdiction
     to be unavailable to an indemnified party with respect to any Losses,  then
     the indemnifying  party, in lieu of indemnifying  such  indemnified  party,
     shall contribute to the amount paid or payable by such indemnified party as
     a result of such Losses in such proportion as is appropriate to reflect the
     relative  fault  of the  indemnifying  party  on the  one  hand  and of the
     indemnified  party on the  other in  connection  with the  Violations  that
     resulted  in  such  Losses  as  well  as  any  other   relevant   equitable
     considerations.  The relative  fault of the  indemnifying  party and of the
     indemnified  party shall be determined by reference to, among other things,
     whether  the  Violation  resulting  in such Losses  relates to  information
     supplied by the  indemnifying  party or by the  indemnifying  party and the
     parties' relative intent, knowledge, access to information, and opportunity
     to correct or prevent such  Violation.  4.15  Investors'  Obligations.  The
     obligations  of the  Investors  under  this  Section  4 shall  survive  the
     completion of any offering of Registrable Securities and the termination of
     registration  rights  pursuant  to Section  7.5. No  Assignment  of Rights.
     Neither of this  Agreement  nor the rights to cause the Parent to  register
     Registrable  Securities  pursuant to this  Agreement may be assigned in any
     manner by the Investors.

     6. Delivery of Stock Certificates on Exchange.  Any exchange of the Initial
Shares shall be deemed to have been effected  immediately  prior to the close of
business on the date on which the Parent issues the Common Stock.  At such time,
the person or persons in whose name or names any certificate or certificates for
shares of Common  Stock  shall be issued upon such  exchange  shall be deemed to
have  become the holder or holders of record of the shares of Common  Stock.  As
soon as  practicable  after the  Parent  receives  a notice  from the  holder of
Preferred  Stock to  exchange  it  Initial  Shares in full or in part for Common
Stock,  and in any event within ten days  thereafter,  the Parent at its expense
(including  the payment by it of any  applicable  issue  taxes) will cause to be
issued in the name of, and delivered to the exchanging  holder, a certificate or
certificates for the number of fully paid and nonassessable shares of the Common
Stock to which such holder  shall be  entitled  upon such  exchange.  Unless the
Common Stock has been registered  under the Act, such  securities,  when issued,
shall have the appropriate legend.
                                       18

     7.  Termination of Registration  Rights.  The  registration  rights granted
hereunder this Agreement  shall  terminate as to each Investor on the earlier of
(i) the time at which the Investor no longer holds any of the Initial  Shares or
Registrable Securities and (ii) the fifth (5th) anniversary of this Agreement.

     8. Notices.  Any notice,  consent or other  communication to be given under
this  Agreement by any party to any other party shall be in writing and shall be
either (a)  personally  delivered,  (b) mailed by registered or certified  mail,
postage  prepaid  with return  receipt  requested,  (c)  delivered  by overnight
express delivery service or same-day local courier service,  or (d) delivered by
telex or facsimile transmission, as follows:

         If to the Parent or Company       GulfWest Energy Inc. or
                                           GulfWest Oil & Gas Company
                                           480 N. Sam Houston Parkway East
                                           Suite 300
                                           Houston, Texas 77060
                                           Attn: President
                                           Fax: (281) 260-8488

         If to the Investors:              To their respective addresses set
                                           forth on the signature page hereto,

or at such other  address as may be  designated by the parties from time to time
in accordance with this Section 8. Notices  delivered  personally,  by overnight
express delivery service or by local courier service shall be deemed given as of
actual  receipt.  Mailed  notices shall be deemed given five business days after
mailing.  Notices delivered by telex or facsimile  transmission  shall be deemed
given upon receipt by the sender of the  answerback  (in the case of a telex) or
transmission confirmation (in the case of a facsimile transmission).

     9. Amendments and Waivers. This Agreement may be amended and the observance
of any term may be waived  (either  generally  or in a  particular  instance and
either  retroactively or prospectively) only by written agreement of the Parent,
the Company and the Investors.

     10. Governing Law; Jurisdiction;  Venue.This Agreement shall be governed by
and construed  under the laws of the State of Texas without regard to principles
of conflict of laws. The parties  irrevocably  consent to the  jurisdiction  and
venue of the state and federal  courts  located in Houston,  Texas in connection
with any action relating to this Agreement.

     11.  Severability.  If one or more provisions of this Agreement are held to
be  unenforceable  under  applicable  law, such provision shall be excluded from
this  Agreement,  and the balance of this  Agreement  shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance  with its
terms. 19

     12. Entire Agreement;  Counterparts.  This Agreement constitutes the entire
agreement  between  the  parties  about its  subject  and  supersedes  all prior
agreements.  This Agreement may be executed in two or more  counterparts,  which
together shall constitute one instrument.

     13.  Captions;   References.   The  captions  in  this  Agreement  are  for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions  hereof.  Wherever the context  shall so require,  all words
herein  in the male  gender  shall be  deemed to  include  the  female or neuter
gender,  all singular words shall include the plural, and all plural words shall
include the singular.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                                  PARENT:

                                  GULFWEST ENERGY INC.

                                  By:  /s/ Thomas R. Kaetzer
                                  Name:  Thomas R. Kaetzer
                                  Title:  President and Chief Executive Officer

                                  COMPANY:

                                  GULFWEST OIL & GAS COMPANY

                                  By: /s/ Thomas R. Kaetzer
                                  Name:  Thomas R. Kaetzer
                                  Title:  President

                                  INVESTORS:

                                  By: /s/ By Each InvestoExhibit 4.3

                                Warrant Agreement
                           Dated as of April 27, 2004

                      Warrants Exercisable for Common Stock

                                TABLE OF CONTENTS

Section 1. Issuance of Warrants; Execution and
            Delivery of Warrant Certificates..............................1
   1.1      Issuance of Warrants..........................................1
   1.2      Execution and Delivery of Warrant Certificates................1

Section 2. Warrant Price, Manner of Exercise..............................2
   2.1      Warrant Price, Term, Expiration and Notice....................2
   2.2      Manner of Exercise............................................2
   2.3      Cashless Exercise.............................................2
   2.4      When Exercise Deemed Effected.................................2
   2.5      Delivery of Stock Certificates, etc...........................3

Section 3. Adjustment of Shares of Common Stock Purchasable
             and Warrant Price............................................3
   3.1      Antidilution Provision........................................3
   3.2      Consolidation, Merger, Sale of Assets, Reorganization, etc....5
   3.3      Statements on Warrant Certificates............................6
   3.4      Accountants' Report as to Adjustments.........................6

Section 4. Notices of Corporate Action....................................6

Section 5. Legend on Warrant Stock........................................7

Section 6. Reservation of Stock...........................................7
   6.1      Reservation of Stock..........................................7

Section 7. Other Provisions Relating to Rights and Obligations
             of Holders of Warrant Certificates...........................7
   7.1      No Rights as Stockholder Conferred by Warrants or
             Warrant Certificates.........................................7
   7.2      Lost, Stolen, Mutilated or Destroyed Warrant Certificates.....7
   7.3      Warrantholder May Enforce Rights..............................8

Section 8. Registration Rights............................................8
   8.1      Requested Registration........................................8
   8.2      Company Registration.........................................10
   8.3      Expenses of Registration.....................................11
   8.4      Registration Procedures......................................12
   8.5      Related Registration Matters.................................13
   8.6      Indemnification and Contribution.............................13
   8.7      Information by Stockholders..................................15
   8.8      Sales Without Registration...................................15
   8.9      Rule 144.....................................................15
   8.10     Transfer of Registration Rights..............................15
   8.11     Post-Effective Amendments....................................15
   8.12     Cessation of Sale Activities.................................16
   8.13     Supplements..................................................16
                                       i

Section 9. Exchange and Transfer of Warrant Certificates.................16
   9.1      Exchange and Transfer of Warrant Certificates................16
   9.2      Treatment of Holders of Warrant Certificates.................17
   9.3      Cancellation of Warrant Certificates.........................17

Section 10. Notices......................................................17

Section 11. Representations and Warranties...............................18
   11.1     Capitalization...............................................18
   11.2     Authorization; Enforceability................................18
   11.3     Issuance of Shares...........................................18

Section 12. Miscellaneous................................................18
   12.1     Amendment....................................................18
   12.2     Parties in Interest..........................................18
   12.3     Applicable Law...............................................18
   12.4     Consent to Jurisdiction......................................19
   12.5     Waiver of Jury Trial.........................................19
   12.6     Counterparts.................................................19
   12.7     Inspection of Agreement......................................19
   12.8     Headings.....................................................19
   12.9     Observation Rights...........................................19
                                       ii

                                WARRANT AGREEMENT

     THIS WARRANT AGREEMENT  ("Agreement"),  dated as of April 27, 2004, is made
by and between  GULFWEST ENERGY,  INC., a Texas  corporation (the "Company") and
HIGHBRIDGE/ZWIRN SPECIAL OPPORTUNITIES FUND, L.P. ("Highbridge"), and DRAWBRIDGE
SPECIAL  OPPORTUNITIES FUND LP ("Drawbridge" and with Highbridge "Grantees" and,
together with any transferee of Warrants or Warrant Stock, the "Warrantholder").

                              W I T N E S S E T H:

Recitals:

     A.  Reference is made to that certain Credit  Agreement,  dated as of April
27, 2004, by and among GULFWEST OIL & GAS COMPANY,  a Texas corporation (the
"Borrower"), the lenders signatory thereto (the "Lenders"), and HIGHBRIDGE/ZWIRN
Special   Opportunities  Fund,  L.P.,  as  Administrative   Agent  (the  "Credit
Agreement").

     B. As a consequence of the contractual relationship among the Borrower, the
Lenders and the Administrative Agent under the Credit Agreement, the Company has
and will  continue  to receive  substantial  benefits  from the  Lenders and the
Administrative Agent making advances to Borrower.

     C. The Company proposes to issue to Grantees as partial  consideration  for
the Lenders' and the Administrative  Agent's entering into the Credit Agreement,
in the aggregate 5.25% total common stock purchase  warrants (the "Warrants") to
purchase shares the "Warrant  Shares") of the Company's  common stock, par value
$.001 per share (the "Common Stock"),  each Warrant entitling the holder thereof
to purchase one share of Common Stock.

     NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:

     Section 1.     Issuance of Warrants; Execution and Delivery of Warrant
Certificates.

     1.1 Issuance of  Warrants.  The Company will issue and deliver the Warrants
to  Grantee on the  Effective  Date as  defined  in the  Credit  Agreement  (the
"Closing Date").  The aggregate number of Warrants to be issued and delivered to
the Grantees shall be 2,035,621.  Such Warrants shall be evidenced
by a certificate  (the "Warrant  Certificate")  which the Company will issue and
deliver to Grantees on the Closing Date. The Warrants shall
vest on the Closing Date and shall be exercisable on or after the Closing Date.

     1.2 Execution and Delivery of Warrant  Certificates.  Each original Warrant
Certificate  issued shall be in  substantially  the form set forth in Appendix A
hereto and may have such letters,  numbers,  or other marks of identification or
designation and such legends or endorsements  printed thereon as the officers of
                                       1

the Company executing the same may approve  (execution  thereof to be conclusive
evidence of such approval) and as are not inconsistent  with this Agreement,  or
as may be required to comply  with any law or with any rule or  regulation  made
pursuant thereto.  The Warrant  Certificates  shall be executed on behalf of the
Company by its President or one of its Vice  Presidents  and by its Treasurer or
its Secretary.

     In case any  officer  of the  Company  who shall have  signed  any  Warrant
Certificate  shall  cease to be an officer  before the  Warrant  Certificate  so
signed shall have been delivered by the Company, such Warrant Certificate may be
delivered  notwithstanding  that  such  person  ceased to be an  officer  of the
Company,  and any Warrant  Certificate may be signed on behalf of the Company by
such person as, at the actual date of the execution of the Warrant  Certificate,
shall be the proper officer of the Company, even if at the date of the execution
of this Agreement such person was no such officer.

Section 2.     Warrant Price, Manner of Exercise.

     2.1 Warrant Price, Term,  Expiration and Notice.  Each Warrant  Certificate
shall entitle the  Warrantholder,  subject to the provisions thereof and of this
Agreement,  to purchase  from the Company one share of Common  Stock for each of
the  Warrants  evidenced  thereby at a price per share  equal to $.01 per share,
subject  to  adjustment  as  provided   herein  (the   "Warrant   Price").   The
Warrantholder may exercise any Warrants issued pursuant to this Agreement at any
time or from time to time,  from the date  hereof  and prior to 5:00  p.m.,  New
York,  New  York  time,  on April  28,  2009  (the  "Expiration  Date").  If the
Expiration Date is not a Business Day, then this Warrant may be exercised on the
next succeeding Business Day. For purposes hereof, the term "Business Day" shall
mean any day other  than a  Saturday  or a Sunday  or a day on which  commercial
banking  institutions in the Cities of New York, New York or Houston,  Texas are
authorized  or required by law to be closed,  and provided that any reference to
"days" (unless Business Days are specified) shall mean calendar days.

     2.2  Manner of  Exercise.  The  vested  Warrants  may be  exercised  by the
Warrantholder, in whole or in part, during normal business hours on any Business
Day by surrender of a Warrant Certificate, together with the form of Election to
Exercise included as Appendix B hereto (or a reasonable  facsimile thereof) duly
executed  by  such  Warrantholder,  to  the  Company  at its  principal  office,
accompanied by the required  payment of the Warrant Price as then in effect,  in
cash or other immediately  available funds, or as provided in Section 2.3 below,
or a combination thereof.

     2.3 Cashless Exercise. The Warrantholder shall have the right to pay all or
a portion of the Warrant Price by making a "Cashless  Exercise" pursuant to this
Section 2.3, in which case the Warrantholder  shall not pay the Warrant Price in
cash and the number of shares of Common Stock otherwise issuable pursuant to the
Election  to Exercise  shall be reduced by the total  number of shares of Common
Stock otherwise  issuable to the  Warrantholder  multiplied by the Warrant Price
and divided by the  Current  Market  Price per share of the Common  Stock on the
date of the Election to Exercise,  determined as provided in Section  3.1(d)(ii)
of this Agreement.

     2.4 When Exercise Deemed  Effected.  Each exercise of Warrants  pursuant to
this Agreement shall be deemed to have been effected  immediately upon surrender
of such  Warrants to the Company as provided in Section  2.2,  and at such time,
                                       2

the person or persons in whose name or names any certificate or certificates for
shares of Common  Stock  shall be  issuable  upon such  exercise  as provided in
Section 2.5 shall be deemed to have become the holder of record thereof.

     2.5 Delivery of Stock  Certificates,  etc. As soon as practicable after the
exercise  of  Warrants  pursuant  to this  Agreement,  in whole or in part,  the
Company at its expense will cause

          (a) a certificate or certificates  for the number of duly  authorized,
     validly  issued,  fully paid and  nonassessable  shares of Common  Stock to
     which the Warrantholder shall be entitled upon such exercise,  to be issued
     in the name of and  delivered to such  Warrantholder  or such other name as
     shall be designated by the Warrantholder in the Election of Exercise; and

          (b) in case  less  than  all the  Warrants  represented  by a  Warrant
     Certificate are exercised,  a new Warrant Certificate of the same tenor and
     for the number of Warrants not  exercised to be  registered in such name or
     names  as  may be  directed  in  writing  by  the  Warrantholder  and to be
     delivered to the person entitled to receive such new Warrant Certificate.

Section 3.Adjustment of Shares of Common Stock Purchasable and Warrant Price.

     3.1  Antidilution  Provision.  So long as any Warrants are  outstanding and
unexercised,  in whole or in part:

          (a) if the Company  shall pay a dividend  in Common  Stock or make any
     other  distribution in Common Stock on or with respect to its Common Stock,
     the number of shares of Common  Stock  purchasable  upon  exercise  of each
     Warrant  outstanding  and  unexercised  at such time shall be  increased by
     multiplying  such number of shares by a fraction,  the denominator of which
     shall be the number of shares of Common Stock  outstanding  at the close of
     business  on the day  immediately  preceding  the date of such  dividend or
     other  distribution  and the  numerator  of which  shall be the sum of such
     number  of  shares  and  the  total   number  of  shares  of  Common  Stock
     constituting such dividend or other  distribution,  such increase to become
     effective  immediately  after the  record  date of such  dividend  or other
     distribution;

          (b)  in  the  event  outstanding  shares  of  Common  Stock  shall  be
     subdivided  into a greater number of shares of Common Stock,  the number of
     shares of Common Stock  purchasable  upon exercise of each Warrant shall be
     proportionately  increased,  and conversely,  in case outstanding shares of
     Common  Stock shall be combined  into a smaller  number of shares of Common
     Stock,  the number of shares of Common Stock  purchasable  upon exercise of
     each Warrant shall be proportionately decreased, such increase or decrease,
     as the case may be, to become  effective  immediately  after the  effective
     date of such subdivision or combination;

          (c) if the  Company  issues or  distributes  to all  holders of Common
     Stock (i) rights or warrants  entitling  them to subscribe  for or purchase
     shares of any class of capital  stock of the Company or (ii)  evidences  of
     its  indebtedness,  cash or other  assets  (including  cash  dividends  but
     excluding stock dividends referred to in subsection (a) above), the Company
     shall issue or  distribute  to each  Warrantholder  such rights,  warrants,
     evidences of  indebtedness,  cash or other  assets that such  Warrantholder
     would have been entitled to receive as a stockholder if such  Warrantholder
     had exercised all of its Warrants immediately prior thereto; and
                                       3

          (d)

               (i) if the Company  shall sell or issue shares of Common Stock or
          securities  convertible or exchangeable into shares of Common Stock or
          rights,  options or warrants to purchase  shares of Common  Stock,  or
          securities  convertible or  exchangeable  into shares of Common Stock,
          including any such sale or issuance related to the Series A Cumulative
          Exchangeable  Preferred  Stock of GulfWest Oil &  Gas  Company,  a
          subsidiary  of the Company,  such  Preferred  Stock  exchangeable  for
          shares of Common Stock or the Letter  Agreement  related thereto dated
          as of April 22, 2004  (collectively,  the "Additional  Shares"),  at a
          price per share of Common  Stock lower than the Current  Market  Price
          per share of Common Stock  immediately prior to such sale or issuance,
          then the number of shares of Common Stock  issuable  upon  exercise of
          the Warrant shall be adjusted to that number determined by multiplying
          the number of shares of Common  Stock  issuable  upon  exercise of the
          Warrant  immediately  prior to such  adjustment  by a fraction (y) the
          numerator  of  which  shall  be  number  of  shares  of  Common  Stock
          outstanding  immediately  prior  to the  issuance  of such  Additional
          Shares plus the number of such Additional  Shares to be issued and (z)
          the denominator of which shall be the number of shares of Common Stock
          outstanding  immediately  prior  to the  issuance  of such  Additional
          Shares plus the number of shares of Common  Stock which the  aggregate
          consideration  for the total  number of such  Additional  Shares to be
          issued  would  purchase  at the  Warrant  Price.  Notwithstanding  the
          foregoing,  the  provisions of this Section  3.1(d) shall not apply to
          any  securities  issued (A) in any of the  transactions  described  in
          Sections 3.1(a), (b) or (c), or (B) upon exercise of this Warrant;

               (ii) for the  purposes of this  Agreement,  the  "Current  Market
          Price" shall mean the average price per share of the Company's  Common
          Stock sold on all securities exchanges located in the United States on
          which the Common Stock may at the time be listed or traded (including,
          for this  purpose,  the NASDAQ  National  Market  System or the NASDAQ
          SmallCap Market System),  during the twenty (20)  consecutive  trading
          days  immediately  preceding the date as of which the "Current  Market
          Price" is to be  determined,  or, if there shall have been no sales on
          any such  exchange on such day, the average of the highest bid and the
          lowest asked prices per share on all such exchanges at the end of such
          day, or if there is no such  exchange on which the Common  Stock is so
          listed or traded, the average of the high and low bid and asked prices
          per share of Common Stock on such twenty (20) consecutive trading days
          in the  domestic  over-the-counter  market as reported by the National
          Quotation Bureau Incorporated,  or any similar successor organization.
          If at any time the Common  Stock is not listed or traded on any United
          States securities exchange  (including,  for this purpose,  the NASDAQ
          National  Market  System or the NASDAQ  SmallCap  Market  System),  or
          quoted in the domestic  over-the-counter  market,  the "Current Market
          Price"  shall be the fair  market  value  per  share of the  Company's
          Common Stock as  determined in good faith by the Board of Directors of
          the Company. Notwithstanding the preceding, if the Common Stock is not
          then listed or traded on any United States  securities  exchange,  the
          NASDAQ National Market System or the NASDAQ SmallCap Market System, or
          quoted  in  the   domestic   over-the-counter   market,   and  if  the
          Warrantholder  shall disagree with the determination made by the Board
          of Directors of the Current Market Price, it may so notify the Company
          and a reputable investment bank or appraiser mutually  satisfactory to
                                       4

          the  Company and the  Warrantholder  shall be  appointed  to make such
          determination.  If the  Company  and the  Warrantholder  are unable to
          agree  within  thirty  (30)  days  regarding  the  investment  bank or
          appraiser to make such  determination,  then Petrie  Parkman & Co.
          shall be  appointed to make such  determination.  All expenses of such
          investment bank or appraiser or Petrie Parkman & Co. shall be paid
          by the Warrantholder, unless the determination of Current Market Price
          by such  investment  bank or appraiser or Petrie  Parkman & Co. is
          greater than 105% of the average  Closing Prices or the  determination
          thereof made by the Board of Directors as  applicable,  in which event
          the expenses of such investment bank or appraiser shall be paid by the
          Company.  In either event,  the  determination  made by the investment
          bank or appraiser  or Petrie  Parkman  &  Co. shall be the Current
          Market Price for all purposes of this Agreement;

               (iii)  if,  at any time  after any  adjustment  of the  number of
          shares of Common  Stock  purchasable  upon  exercise  of each  Warrant
          pursuant to this Section  3.1(d),  such rights,  options,  warrants or
          convertible or  exchangeable  securities  shall expire or no longer be
          outstanding  and shall not have been  exercised  for or  converted  or
          exchanged  into  Common  Stock,  such  previous  adjustment  shall  be
          rescinded and annulled and the  Additional  Shares which are deemed to
          have been issued by virtue of the computation  made in connection with
          the adjustment so rescinded and annulled, shall no longer be deemed to
          have  been  issued  by  virtue  of  such  computation.   Thereupon,  a
          recomputation  shall  be made  to give  effect  to the  expiration  or
          non-exercise of, or failure to convert, such rights, options, warrants
          or convertible or exchangeable securities.

     3.2 Consolidation, Merger, Sale of Assets, Reorganization, etc.

     (a) If the  stockholders  of  the  Company  shall  participate  in a  share
exchange  or if the  Company  shall  be a party to any  transaction  (including,
without limitation, a merger, consolidation, sale of all or substantially all of
the Company's assets,  liquidation or  recapitalization  of the Common Stock) in
which the previously outstanding Common Stock shall be changed into or exchanged
for different  securities of the Company or common stock or other  securities of
another  corporation,  or interests in a non-corporate  entity or other property
(including  cash), or any  combination of the foregoing  (each such  transaction
being  herein  called a  "Transaction"),  then the  Company,  in the case of the
recapitalization  or liquidation of the Common Stock, or such other  corporation
or entity, in the case of a share exchange, merger, consolidation or sale of all
or substantially all of the assets,  shall make lawful and adequate provision so
that, upon the exercise  thereof at any time on or after the consummation of the
Transaction,  each Warrantholder shall be entitled to receive,  and such Warrant
shall  represent  the  right  to  receive,  in lieu  of the  Common  Stock,  the
securities or other property  (including cash) to which the Warrantholder  would
have  been  entitled  upon  the   consummation   of  the   Transaction  if  such
Warrantholder had exercised such Warrant  immediately prior thereto,  subject to
adjustment from and after the consummation date as nearly equivalent as possible
to the adjustments provided for in Section 3.1.

     (b) The  provisions of this Section 3 shall  similarly  apply to successive
share exchanges,  consolidations,  mergers, sales of all or substantially all of
the  assets,  or  successive  recapitalizations  and changes of shares of Common
Stock.
                                       5

     3.3  Statements on Warrant  Certificates.  The form of Warrant  Certificate
need not be changed  because of any  adjustment  made pursuant to this Section 3
and Warrant Certificates issued after such adjustment may state the same Warrant
Price and the same number of shares of Common Stock as are stated in the Warrant
Certificates initially issued pursuant to this Agreement.

     3.4 Accountants'  Report as to Adjustments.  In each case of any adjustment
or  readjustment  in the shares of Common Stock (or other  securities)  issuable
upon the exercise of the Warrants, the chief financial officer of the Company at
the Company's  expense will promptly  compute such adjustment or readjustment in
accordance  with the terms of the  Warrants and prepare a report  setting  forth
such adjustment or readjustment  and showing in reasonable  detail the method of
calculation  thereof and the facts upon which such adjustment or readjustment is
based.  If the  Warrantholder  so elects,  Warrantholder  can  request  that the
Company cause  independent  public  accountants of recognized  national standing
selected by the Company to verify such computations.  The Company will forthwith
mail a copy of each such report to each  Warrantholder.  The  Company  will also
keep copies of all such reports at its principal  office and will cause the same
to be available for  inspection at such office during normal  business  hours by
any  Warrantholder or any prospective  purchaser of a Warrant  designated by the
Warrantholder.

     Section 4. Notices of Corporate Action. In the event of:

     (a) any offer to any holders of Common Stock of rights to subscribe  for or
to purchase any Additional Shares or other securities, or

     (b) any taking by the  Company  of a record of the  holders of any class of
securities for the purpose of determining  the holders  thereof who are entitled
to receive any dividend or other  distribution,  or any right to subscribe  for,
purchase  or  otherwise  acquire  any  shares of stock of any class or any other
securities or property, or to receive any other right, or

     (c) any capital  reorganization  of the Company,  any  reclassification  or
recapitalization  of the capital  stock of the Company or any  consolidation  or
merger involving the Company and any other person or entity,  any share exchange
involving  stockholders  of the Company or any transfer of all or  substantially
all the assets of the Company to any other person or entity, or

     (d) any voluntary or involuntary dissolution,  liquidation or winding up of
the Company,

the Company will mail to each known  Warrantholder  a notice  specifying (i) the
terms of such offer, and (ii) the date or expected date on which any such record
is to be taken for the purpose of such dividend,  distribution or right, and the
amount and character of such dividend, distribution or right, and (iii) the date
or   expected   date  on  which  any  such   reorganization,   reclassification,
recapitalization,  consolidation, merger, share exchange, transfer, dissolution,
                                       6

liquidation  or winding up is to take place and the time, if any such time is to
be fixed, as of which the holders of record of Common Stock shall be entitled to
exchange  their  shares of Common  Stock for the  securities  or other  property
deliverable  upon  such  reorganization,   reclassification,   recapitalization,
consolidation,  merger, share exchange,  transfer,  dissolution,  liquidation or
winding  up.  Such  notice  shall be mailed  at least 20 days  prior to the date
therein specified.

     Section 5. Legend on Warrant  Stock.  Each  certificate  for Warrant Shares
initially  issued upon exercise of this Warrant,  unless at the time of exercise
such Warrant Shares are registered  under the Securities Act of 1933, as amended
from time to time (the "Securities  Act"),  shall bear the following legend (and
any additional  legend(s)  required by any  securities  exchange upon which such
Warrant Stock may, at the time of such exercise, be listed) on the face thereof:

          "The shares  represented by this  certificate have not been registered
     under the  Securities  Act of 1933, as amended,  or registered or qualified
     under  applicable  state  securities  laws. Such shares may not be offered,
     sold,  transferred,  pledged or hypothecated in the absence of an effective
     registration  statement in effect with respect to the shares under such Act
     and  registration or  qualification  under any applicable  state securities
     laws or an opinion of counsel  reasonably  satisfactory to the Company that
     such registration or qualification is not required under applicable federal
     and state securities laws."

     Section 6. Reservation of Stock.

     6.1  Reservation  of Stock.  The Company will at all times reserve and keep
available,  solely for issuance and delivery upon exercise of the Warrants,  the
number of shares of Common Stock from time to time issuable upon exercise of all
Warrants  at the time  outstanding.  All  shares of Common  Stock  shall be duly
authorized and, when issued upon such exercise and payment of the Warrant Price,
shall be validly issued,  fully paid and nonassessable  with no liability on the
part of the holders thereof.

     Section 7. Other  Provisions  Relating to Rights and Obligations of Holders
of Warrant Certificates.

     7.1 No Rights as Stockholder Conferred by Warrants or Warrant Certificates.
No  Warrant   Certificate  or  Warrant   evidenced  thereby  shall  entitle  the
Warrantholder  to any of the  rights  of a holder of  Common  Stock,  including,
without  limitation,  any right to vote at, or to receive notice of, any meeting
of stockholders of the Company;  the consent of any  Warrantholder  shall not be
required with respect to any action or proceeding of the Company.

     7.2 Lost, Stolen, Mutilated or Destroyed Warrant Certificates. Upon receipt
by the Company of evidence reasonably satisfactory to it of the ownership of and
the loss, theft,  destruction or mutilation of any Warrant Certificate and of an
indemnity from the Warrantholder  reasonably satisfactory to the Company and, in
the case of mutilation, upon surrender of the Warrant Certificate to the Company
for  cancellation,  then,  in the  absence  of notice to the  Company  that such
Warrant  Certificate  has been  acquired by a bona fide  purchaser,  the Company
shall  execute  and  deliver,  in exchange  for or in lieu of the lost,  stolen,
destroyed or mutilated Warrant Certificate,  a substitute Warrant Certificate of
the same tenor and  evidencing a like number of  Warrants.  Upon the issuance of
any  substitute  Warrant  Certificate  under this  Section  7.2, the Company may
require the payment of a sum  sufficient to cover any tax or other  governmental
                                       7

charge  that may be  imposed  in  relation  thereto  and any other  expenses  in
connection   therewith.   Every  substitute  Warrant  Certificate  executed  and
delivered  pursuant to this Section 7.2 in lieu of any lost, stolen or destroyed
Warrant Certificate shall represent an additional  contractual obligation of the
Company,  whether or not the lost, stolen or destroyed Warrant Certificate shall
be at any time enforceable by anyone, and every holder thereof shall be entitled
to the benefits of this Warrant Agreement equally and  proportionately  with any
and all other Warrant Certificates duly executed and delivered hereunder.

     7.3 Warrantholder May Enforce Rights. Notwithstanding any of the provisions
of this Warrant Agreement, any Warrantholder,  without the consent of the holder
of any Common Stock or the holder of any other Warrant Certificate,  may, on its
own behalf and for its own benefit,  enforce, and may institute and maintain any
suit, action or proceeding against the Company suitable to enforce, or otherwise
in respect of, such Warrantholder's  right to exercise the Warrants evidenced by
such  Warrantholder's  Warrant Certificate in the manner provided in its Warrant
Certificate and in this Agreement.

     Section 8. Registration Rights.

     8.1 Requested Registration.

     (a) Request for Registration.  After the exercise of any Warrant for Common
Stock  during the period  from the date of exercise  of such  Warrant  until two
years thereafter, with respect to the Common Stock issued in connection with the
exercise of such Warrant each of Highbridge and Drawbridge (or their  assignees)
shall  have  the  right  upon  written  request  to  the  Company  (the  "Demand
Registration"),  on at least two  separate  occasions  to require the Company to
effect  a  registration  of  such  number  of  Registrable   Securities  as  the
Warrantholders may elect. Upon receipt of such notice, the Company will:

          (i) promptly give written notice of the proposed  registration  to all
     other holders of Registrable Securities, which written notice shall include
     the name or names of the underwriter or underwriters to be employed; and

          (ii)  use its  diligent  good  faith  efforts  to  effect,  as soon as
     practicable,  such registration (including,  without limitation, the filing
     of  post-effective   amendments,   appropriate   qualification   under  the
     applicable  blue  sky  or  other  state  securities  laws  and  appropriate
     compliance with the Securities Act and any other governmental  requirements
     or  regulations)  as  may be so  requested  by any  holder  of  Registrable
     Securities  within five days after  written  notice is given by the Company
     and as would permit or facilitate the sale and  distribution of all or such
     portion of the  Registrable  Securities so requested to be included in such
     registration;

provided  that the Company  shall not be  obligated to take any action to effect
any such  registration  pursuant to this Section  8.1.1:  (a) in any  particular
jurisdiction in which the Company would be required to execute a general consent
to service of process,  to register as a securities broker or dealer or to cause
any officer or  employee  of the Company to register as a salesman in  effecting
such  registration or (b) after the Company has effected two such  registrations
pursuant to this Section 8.1.1which have been declared or ordered effective.
                                       8

     Subject to the foregoing, the Company shall prepare and file a registration
statement  covering the Registrable  Securities so requested to be registered as
soon as  reasonably  practicable  and in any  event  within 45 days  after  such
request is received.

     Notwithstanding the foregoing, the Company shall not be obligated to effect
a registration,  qualification or compliance under this Section 8.1.1 during any
period during which the Company is in the process of  negotiating  or preparing,
and ending on a date 180 days  following the effective  date of, a  registration
statement  pertaining to an  underwritten  or "best efforts"  public offering of
securities for the account of the Company, provided that the Company is actively
employing  in good  faith all  reasonable  efforts  to cause  such  registration
statement to become effective and such registration  statement becomes effective
within  three  months  from the date of  delivery  to the  Company  of a written
request to effect such registration, qualification or compliance.

     As used in this Agreement,  the term  "Registrable  Securities" shall mean,
collectively,  the shares of Common  Stock  acquired  or to be  acquired  by the
Warrantholder  upon exercise of the Warrants  pursuant to this Agreement and any
shares of Common  Stock or other  securities  issued with respect to such Common
Stock  by way of a  stock  dividend  or  stock  split  or in  connection  with a
combination of shares, recapitalization,  merger, consolidation, share exchange,
reorganization or otherwise;  provided,  however, that such Common Stock (or any
part thereof) or other securities shall cease to be Registrable  Securities when
(i) a  registration  statement  with respect to the  disposition  of such Common
Stock or other  securities  shall have become effective under the Securities Act
and such  securities  shall have been disposed of in accordance with the plan of
distribution set forth in such registration  statement,  (ii) and to the extent,
such Common  Stock or other  securities  may be sold,  without  restrictions  on
volume,  pursuant to Rule 144 (or any successor  provision) under the Securities
Act, (iii) an opinion of counsel, reasonably satisfactory to the Company and the
holders of Common Stock or other  securities to which the opinion  relates shall
have been  delivered  to the  Company  and such  holders to the effect  that the
subsequent  disposition  of such Common  Stock or other  securities  may be made
pursuant to Rule 144(k) (or any successor  provision)  under the Securities Act,
or (iv) such Common Stock or other securities shall cease to be outstanding.

     (b) Selection of Underwriter. If any Demand Registration is an underwritten
offering, the holders of a majority of the Registrable Securities to be included
in such registration will select a managing underwriter or managing underwriters
of nationally  recognized  standing which shall be reasonably  acceptable to the
Company.  The Company shall  (together with the holders  proposing to distribute
their  Registrable   Securities  through  such   underwriting)   enter  into  an
underwriting  agreement in customary form with the  underwriter or  underwriters
selected for such underwriting in the manner set forth above.

     The holders of Registrable Securities participating in a registration under
this Section 8.1 shall, to the extent  required by the managing  underwriter(s),
execute and deliver a custody  agreement  and power of attorney  with respect to
the Registrable Securities to be registered (a "Custody Agreement" and "Power of
Attorney,"  respectively).  The Custody  Agreement  and Power of  Attorney  will
provide,  among other  things,  that the holders  will deliver to and deposit in
custody  with  the  custodian   named  therein  a  certificate  or  certificates
representing  such  Registrable  Securities  (duly  endorsed  in  blank  by  the
                                       9

registered  owner or owners thereof or accompanied by duly executed stock powers
in blank) and irrevocably appoint said custodian and attorney-in-fact  with full
power and  authority to act under the Custody  Agreement  and Power of Attorney,
respectively, on such holder's behalf with respect to matters specified therein,
including the execution and delivery of an underwriting agreement.

     Notwithstanding  any of the other  provisions  of this  Section 8.1, if the
managing  underwriter  determines and advises the Company that marketing factors
require a  limitation  of the  number of  shares  to be  underwritten,  then all
holders of Registrable Securities that have previously elected to participate in
such  registration  shall be  advised  of the same,  and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all such holders in proportion, as nearly as practical,
to the  respective  amounts of Registrable  Securities  that were proposed to be
sold by such holders.  No Registrable  Securities excluded from the underwriting
by  reason  of  the  underwriter's   marketing   limitation  shall  be  in  such
registration.

     If any holder of  Registrable  Securities  disapproves  of the terms of the
underwriting,  such holder may elect to withdraw  therefrom by written notice to
the  Company  and the  managing  underwriter  and the  other  holders  who  have
previously   elected  to  participate  in  the  registration.   The  Registrable
Securities so withdrawn shall also be withdrawn from registration; provided that
if by the  withdrawal  of  such  Registrable  Securities  a  greater  number  of
Registrable   Securities   held  by  other  holders  may  be  included  in  such
registration  (up to a maximum of any limitation  imposed by the  underwriters),
then the  Company  shall  offer to all  holders  who have  included  Registrable
Securities in the  registration  the right to include  additional  shares in the
same  proportion  used in  effecting  the  limitation  referred to above in this
Section 8.1.2.

     8.2 Company Registration.

     (a) Right to  Inclusion.  If at any time (or from time to time) the Company
shall determine to register any of its securities in an  underwritten  offering,
either for its own account or the account of a holder of Registrable  Securities
or any other holder of securities of the Company,  other than (i) a registration
pursuant to Section 8.1 hereof, (ii) a registration  relating solely to employee
benefit  or stock  option  plans,  (iii) a  registration  relating  solely  to a
transaction  described in Rule145 under the  Securities  Act, (iv) a transaction
relating solely to an exchange offering, or (v) a transaction relating solely to
an acquisition of assets or property for securities, then the Company will:

          (i) promptly  give to each holder of  Registrable  Securities  written
     notice  thereof (which shall include a list of the  jurisdictions  in which
     the  Company  intends  to  attempt  to  qualify  the offer and sale of such
     securities under the applicable blue sky or other state  securities  laws);
     and

          (ii) include in such registration (and any related qualification under
     blue  sky  laws or  other  compliance),  and in any  underwriting  involved
     therein, all the Registrable Securities specified in any written request or
     requests by any holder  received  by the Company  within 15 days after such
     written notice is given.
                                       10

     (b)  Underwriting.  The right of any holder of  Registrable  Securities  to
registration  pursuant to Section 8.2.1 shall be conditioned  upon such holder's
participation in the underwriting and the inclusion of such holder's Registrable
Securities  in the  underwriting  to the extent  provided  herein.  All  holders
proposing to distribute their Registrable  Securities  through such underwriting
shall  enter  into  an  underwriting   agreement  in  customary  form  with  the
underwriter or underwriters  selected for such underwriting by the Company. Such
holders of Registrable  Securities shall also execute and deliver, to the extent
required by the managing underwriter,  a Custody Agreement and Power of Attorney
satisfactory  to the Company with respect to the  Registrable  Securities  to be
registered.  The Custody  Agreement and Power of Attorney  will  provide,  among
other things,  that such holders of Registrable  Securities  will deliver to and
deposit  in  custody  with  the  custodian   named  therein  a  certificate   or
certificates representing such Registrable Securities (duly endorsed in blank by
the  registered  owner or owners  thereof or  accompanied by duly executed stock
powers in blank) and  irrevocably  appoint said  custodian and  attorney-in-fact
with full power and  authority to act under the Custody  Agreement  and Power of
Attorney, respectively, on the holder's behalf with respect to matters specified
therein, including the execution and delivery of an underwriting agreement.

     Notwithstanding  any other  provisions of this Section 8.2, if the managing
underwriter  determines and advises the Company that marketing factors require a
limitation on the number of shares to be  underwritten,  the underwriter and the
Company may limit or exclude entirely the Registrable  Securities to be included
in any registration and underwriting. In such event, the Company shall so advise
all holders of  Registrable  Securities  that would  otherwise be registered and
underwritten  pursuant  hereto,  and  the  number  of  shares  of  Common  Stock
(including the Registrable  Securities) or other securities that may be included
in the  registration  and  underwriting  shall be allocated among all holders of
Registrable Securities and any other holders of Common Stock or other securities
requesting to be  registered in  proportion,  as nearly as  practicable,  to the
respective  amounts of Common Stock  (including the  Registrable  Securities) or
other  securities  that were  proposed to be sold by all holders of  Registrable
Securities  and  holders  of  Common  Stock  or  other  securities  entitled  to
participate therein. No Registrable Securities excluded from the underwriting by
reason of the  underwriter's  marketing  limitation  shall be  included  in such
registration.

     If any holder of  Registrable  Securities  disapproves  of the terms of the
underwriting,  such holder may elect to withdraw  therefrom by written notice to
the Company and the  managing  underwriter(s).  The  Registrable  Securities  so
withdrawn  shall also be withdrawn  from  registration;  provided that if by the
withdrawal  of such  Registrable  Securities  a greater  number  of  Registrable
Securities held by other holders may be included in such registration (up to the
maximum of any limitation imposed by the  underwriters),  then the Company shall
offer  to  all  holders  who  have  included   Registrable   Securities  in  the
registration the right to include  additional shares in the same proportion used
in  effecting  the  limitation  referred to above in this  Section  8.2.2.  With
respect to any  registration  withdrawal by the Company pursuant to this Section
8.2.2,  the Company  shall have the right to withdraw such  registration  at any
time at its sole discretion  without the consent or approval of any stockholder,
including the holders of Registrable Securities, in such registration.

     8.3 Expenses of Registration.  All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Section 8, including,
                                       11

without  limitation,  all registration,  filing and qualification fees, printing
expenses,  escrow fees,  fees and  disbursements  of counsel for the Company and
fees and expenses of accountants incidental to or required by such registration,
the fees and  disbursements  of one special  counsel  retained by the holders of
Registrable   Securities   covered   by  such   registration,   (but   excluding
underwriters'  fees,  discount  and  commissions  relating  to  the  Registrable
Securities sold), shall be borne by the Company.

     8.4   Registration   Procedures.   In  the   case  of  such   registration,
qualification or compliance  effected by the Company pursuant to this Section 8,
the  Company  will keep  each  holder of  Registrable  Securities  participating
therein  advised  in  writing  as to the  initial  filing of each  registration,
qualification and compliance and as to the completion  thereof.  At its expense,
the Company will:

     (a)  keep  such  registration,  qualification  or  compliance  pursuant  to
Sections 8.1 or 8.2  effective  for a period of 180 days or until the holders of
Registrable  Securities  participating  therein have completed the  distribution
described in the  registration  statement  relating  thereto,  whichever  occurs
first;

     (b)  furnish  such  number of  prospectuses  and other  documents  incident
thereto as a holder of Registrable Securities participating therein from time to
time may reasonably request;

     (c) make available,  upon reasonable  notice and during business hours, for
inspection  by  the  managing  underwriter  all  financial  and  other  records,
pertinent corporate documents, agreements and properties of the Company as shall
be reasonably  necessary to enable such managing underwriter to exercise its due
diligence  responsibilities,  and cause the  Company's  officers,  directors and
employees  to supply  all  information  reasonably  requested  by such  managing
underwriter in connection with the registration;

     (d) during the period when the  registration  is required to be  effective,
notify  the  holders  of  the  Registrable   Securities   participating  in  the
registration  of the happening of any event as a result of which the  prospectus
included  in the  registration  statement  contains  an  untrue  statement  of a
material fact or omits to state any material fact required to be stated  therein
or necessary to make the statements therein not misleading, and the Company will
forthwith  prepare a supplement  or amendment to such  prospectus  or take other
appropriate  action so that, as thereafter  delivered to the  purchasers of such
Registrable Securities,  such prospectus will not contain an untrue statement or
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading;

     (e) cause such  Registrable  Securities  included in the registration to be
listed or authorized for trading on each  securities  exchange  (including,  for
this purpose,  the NASDAQ National  Market System or NASDAQ SmallCap  System) on
which similar  securities  issued by the Company are then traded;  provided that
the Company is eligible to do so under applicable listing requirements; and

     (f) otherwise use its best efforts to comply with all applicable  rules and
regulations of the Securities and Exchange Commission (the "Commission") and all
of the terms and provisions of this Agreement.
                                       12

     8.5  Related  Registration   Matters.  The  Company  shall  enter  into  an
underwriting  agreement  in  connection  with any  registration  subject  to the
provisions of Sections 8.1 and 8.2 hereof,  which  agreement  shall contain such
terms,  provisions  and  agreements as are customary  and  appropriate  for such
registration. In connection with the registration, to the extent not provided in
the underwriting agreement related to such registration, the Company also shall:

     (a) engage a bank or other  company to act as transfer  agent and registrar
for the Registrable Securities;

     (b) cause customary opinions of counsel, comfort letters of accountants and
other appropriate  documents to be delivered by  representatives of the Company,
which  documents  shall be  addressed to the holders of  Registrable  Securities
participating  in the offering in addition to the  Underwriters or other parties
designated as addressees in such documents; and

     (c) as soon as  practicable  after the effective  date of the  registration
statement,  and,  in any event,  within 16 months  thereafter,  make  "generally
available  to its  stockholders"  within  the  meaning  of Rule  158  under  the
Securities Act) an earnings statement (which need not be audited) complying with
Section  11(a)  of the  Securities  Act and  covering  a  period  of at least 12
consecutive  months  beginning  after  the  effective  date of the  registration
statement.

     8.6 Indemnification and Contribution.

     (a) In the event of registration of any of the Registrable Securities under
the Securities  Act, the Company will indemnify and hold harmless each holder of
Registrable  Securities  included in such registration and each of its directors
and officers,  each underwriter of such  Registrable  Securities and each of its
directors  and  officers,  and each other person and each of its  directors  and
officers,  if any, who controls such seller or underwriter within the meaning of
the Securities Act or the Securities  Exchange Act of 1934, as amended from time
to time (the "Exchange Act"), or otherwise,  against any losses, claims, damages
or liabilities (or actions in respect thereof),  joint or several, to which such
seller,  underwriter or controlling  person (or their  respective  directors and
officers)  may become  subject  under the  Securities  Act,  the Exchange Act or
otherwise,  insofar as such losses,  claims, damages or liabilities (and each of
its  directors and officers or actions in respect  thereof)  arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in any registration  statement under which such Registrable Securities
were registered  under the Securities  Act, any preliminary  prospectus or final
prospectus  contained  in  the  registration  statement,  or  any  amendment  or
supplement to such registration statement, or arise out of or are based upon the
omission  or alleged  omission  to state a material  fact  required to be stated
therein or  necessary to make the  statements  therein not  misleading;  and the
Company will reimburse such seller, underwriter and each such controlling person
(and  their  respective  directors  and  officers)  for any  legal or any  other
expenses reasonably  incurred by such seller,  underwriter or controlling person
(and their respective  directors and officers) in connection with  investigating
or defending any such loss, claim,  damage,  liability or action;  provided that
the Company  will not have any  liability  (and shall not be required to provide
such  indemnity and hold harmless  obligation) to the extent that any such loss,
claim,  damage or liability  arises out of or is based upon any untrue statement
or omission  made in such  registration  statement,  preliminary  prospectus  or
prospectus,  or any  such  amendment  or  supplement,  in  reliance  upon and in
                                       13

conformity  with  written  information  furnished  to  the  Company  through  an
instrument  duly  executed  by  or on  behalf  of  such  holder  of  Registrable
Securities or underwriter specifically for use in preparation thereof.

     (b) In the event of any  registration of any of the Registrable  Securities
under the Securities Act, each holder of Registrable Securities included in such
registration,  severally and not jointly,  will  indemnify and hold harmless the
Company,  each of its directors and officers and each  underwriter  (if any) and
each of its directors and officers and each person and each of its directors and
officers,  if any, who controls the Company or any such  underwriter  within the
meaning of the  Securities  Act or the Exchange  Act,  against  losses,  claims,
damages or liabilities  (or actions in respect  thereof),  joint or several,  to
which the Company,  such  directors and  officers,  underwriter  or  controlling
person (or their respective directors and officers) may become subject under the
Securities  Act,  Exchange Act or  otherwise,  insofar as such  losses,  claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any  untrue  statement  or alleged  untrue  statement  of a  material  fact
contained in any registration  statement under which such Registrable Securities
were registered  under the Securities  Act, any preliminary  prospectus or final
prospectus  contained  in  the  registration  statement,  or  any  amendment  or
supplement to the registration  statement, or arise out of or are based upon any
omission  or alleged  omission  to state a material  fact  required to be stated
therein or  necessary  to make the  statements  therein not  misleading,  if the
statement  or  omission  was  made  in  reliance  upon  and in  conformity  with
information  furnished in writing to the Company by or on behalf of such holder,
specifically  for use in connection  with the  preparation of such  registration
statement,  prospectus,  amendment or supplement; provided the liability of each
holder of  Registrable  Securities  pursuant  to this  Section  8.6(b)  shall be
limited to the proceeds actually received by such holder from the disposition of
the  Registrable  Securities  disposed  of  by  such  holder  pursuant  to  such
registration.

     (c) Each party  entitled  to  indemnification  under this  Section 8.6 (the
"Indemnified  Party")  shall  give  notice  to the  party  required  to  provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the  Indemnifying  Party to assume  the  defense of any such claim or any
litigation  resulting  therefrom,  provided  that  counsel for the  Indemnifying
Party,  who shall  conduct  the  defense of such claim or  litigation,  shall be
approved by the  Indemnified  Party (whose  approval  shall not be  unreasonably
withheld, delayed or conditioned),  and the Indemnified Party may participate in
such defense at such party's expense, and provided, further, that the failure of
any  Indemnified  Party to give notice as provided  herein shall not relieve the
Indemnifying  Party of its obligations under this Section 8.6 (except and to the
extent the rights of the Indemnifying Party are materially  prejudiced thereby).
After  notice  from  the  Indemnifying  Party  to the  Indemnified  Party of its
election to assume the  defense of such claim or  litigation,  the  Indemnifying
Party  will not be  liable  to such  Indemnified  Party  for any  legal or other
expenses  subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable  costs of  investigation so long as and to
the extent the  Indemnifying  Party continues to defend the  Indemnified  Party,
unless the  Indemnifying  Party,  in the defense of any such claim or litigation
shall,  except with the consent of each Indemnified  Party,  consent to entry of
any  judgment  or enter  into  any  settlement  which  does  not  include  as an
unconditional  term  thereof  the giving by the  claimant or  plaintiff  to such
Indemnified  Party of a release  from all  liability in respect to such claim or
litigation.
                                       14

     (d) To the extent the Company  after the date hereof shall agree to provide
for contribution in any written  agreement entered into with the stockholders of
the Company if the indemnification  obligations are otherwise unavailable,  then
the Company  shall  provide such  similar  rights to the  Warrantholders  in the
registration of their shares.

     8.7  Information by  Stockholders.  Each holder of  Registrable  Securities
requesting to be included in any registration  shall furnish to the Company such
information  regarding such holder and the distribution  proposed by such holder
as the Company  may  request in writing  and as shall be required in  connection
with any registration,  qualification or compliance  referred to in this Section
8.

     8.8 Sales  Without  Registration.  If, at the time of any  transfer  of any
Registrable  Securities,  such  Registrable  Securities  shall not be registered
under the  Securities  Act, the Company may require,  as a condition of allowing
such transfer,  that the holder of Registrable  Securities or transferee furnish
to the Company an opinion of legal counsel satisfactory in form and substance to
the Company to the effect that such  transfer may be made  without  registration
under the Securities  Act;  provided that nothing  contained in this Section 8.8
shall  relieve the Company  from  complying  with any request for  registration,
qualification  or  compliance  made  pursuant  to the other  provisions  of this
Section 8.

     8.9 Rule 144. The Company  covenants that it will file the reports required
to be filed by it under  the 1933 Act and the  Exchange  Act and the  rules  and
regulations adopted by the Commission  thereunder so long as necessary to permit
sales of Registrable  Securities  under Rule 144 under the 1933 Act, and it will
take such other action as any holder of  Registrable  Securities  may reasonably
request,  all to the extent  required from time to time to enable such holder to
sell Registrable  Securities without  registration under the 1933 Act within the
limitation  of the  exemptions  provided  by (a) Rule 144 under the 1933 Act, as
such  Rule  may be  amended  from  time  to  time,  or (b) any  similar  rule or
regulation  hereafter adopted by the Commission.  Upon the request of any holder
of  Registrable  Securities,  the Company  will deliver to such holder a written
statement as to whether it has complied with such requirements.

     8.10 Transfer of  Registration  Rights.  The rights to cause the Company to
register Registrable Securities granted by the Company under Section 8.1 and the
right to participate in Company  registration  under Section 8.2 may be assigned
by any holder of  Registrable  Securities  to a  transferee  or  assignee of any
Registrable Securities (if such transfer or assignment of Registrable Securities
is permitted under Section 5), unless such transferee or assignee  acquires such
Registrable  Securities through a transaction or chain of transactions involving
a public  offering or a sale  effected  pursuant to Rule 144;  provided that the
holder shall give the Company  written  notice at the time of or within ten days
after said  transfer,  setting forth the name and address of said  transferee or
assignee and identifying  the Registrable  Securities with respect to which such
registration rights are being assigned.

     8.11  Post-Effective   Amendments.  In  connection  with  any  registration
statement  filed  pursuant  to this  Section  8,  the  Company  shall  file  any
post-effective  amendment or amendments to the registration  statement which may
be  required  under the  Securities  Act  during the period set forth in Section
8.4(a).
                                       15

     8.12  Cessation  of  Sale   Activities.   The  Company  shall  notify  each
participating   holder  of   Registrable   Securities   during  the  period  any
registration  statement  filed  pursuant to this Section 8 is required to remain
effective,  or at any time when a prospectus  relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such registration  statement or the prospectus  contained therein, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated  therein or necessary to make the statements
therein not misleading.  Each participating  holder agrees, upon receipt of such
notice,  forthwith to cease making offers and sales of such securities  pursuant
to such registration statement or deliveries of the prospectus contained therein
for any purpose and to return to the Company the copies of such  prospectus  not
theretofore delivered by such holder.

     8.13 Supplements.  At a participating  holder's request,  the Company shall
prepare and furnish to such  participating  holder a reasonable number of copies
of any  supplement to or amendment of such  prospectus  that may be necessary so
that,  as  thereafter  delivered to the  purchaser of any shares of  Registrable
Securities, such prospectus shall not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statement  therein not misleading in the light of the  circumstances
then existing.  The Company shall promptly notify each  participating  holder of
any stop order or similar  proceeding  initiated by state or Federal  regulatory
bodies and use reasonable  efforts to take all necessary steps  expeditiously to
remove such stop order or similar proceeding.

Section 9. Exchange and Transfer of Warrant Certificates.

     9.1  Exchange and  Transfer of Warrant  Certificates.  Subject to the terms
contained  in this  Agreement,  upon  surrender at the  principal  office of the
Company,  Warrant Certificates  evidencing Warrants may be exchanged for Warrant
Certificates  in other  denominations  evidencing  such Warrants or the transfer
thereof may be registered in whole or in part;  provided that such other Warrant
Certificates  evidence  the same  aggregate  number of  Warrants  as the Warrant
Certificates  so  surrendered.  The Company  shall keep the Warrant  register in
which,  subject to such  reasonable  regulations as it may  prescribe,  it shall
register Warrant Certificates upon surrender of such Warrant Certificates to the
Company at its  principal  office for  exchange  or  registration  of  transfer,
properly  endorsed or accompanied by appropriate  instruments of registration of
transfer and written instructions for transfer,  all in form satisfactory to the
Company.  No service  charge shall be made for any exchange or  registration  of
transfer of Warrant  Certificates,  but the Company may require payment of a sum
sufficient to cover any stamp or other tax or other governmental charge that may
be imposed in  connection  with any such exchange or  registration  of transfer.
Whenever  any  Warrant   Certificates   are  so  surrendered   for  exchange  or
registration of transfer,  the authorized  officers of the Company shall execute
and deliver to the person or persons entitled  thereto a Warrant  Certificate or
Warrant  Certificates  duly  authorized  and  executed  by  the  Company,  as so
requested.  All Warrant Certificates issued upon any exchange or registration of
transfer  of the  Warrant  Certificates  shall be the valid  obligations  of the
Company,  evidencing  the same  obligations,  and entitled to the same  benefits
under this Agreement,  as the Warrant Certificate  surrendered for such exchange
or registration of transfer.
                                       16

     9.2 Treatment of Holders of Warrant Certificates. Every holder of a Warrant
Certificate,  by  accepting  the same,  consents and agrees with the Company and
with every subsequent holder of such Warrant Certificate that until the transfer
of the Warrant  Certificate is registered on the Warrant  register,  before such
Warrant  Certificate is surrendered for transfer pursuant to Section 9.1 hereof,
the  Company may treat the  registered  holder of a Warrant  Certificate  as the
absolute  owner  thereof for any purpose and as the person  entitled to exercise
the rights  represented  by the Warrants  evidenced  thereby,  any notice to the
contrary notwithstanding.

     9.3  Cancellation  of  Warrant   Certificates.   Any  Warrant   Certificate
surrendered  for exchange,  registration  of transfer or transfer or exercise of
the Warrants  evidenced  thereby shall be  surrendered  to the Company,  and all
Warrant  Certificates  surrendered  and so  delivered  to the  Company  shall be
promptly  cancelled  by the  Company and shall not be  reissued  and,  except as
expressly  permitted by this Agreement,  no Warrant  Certificate shall be issued
hereunder in exchange or in lieu thereof.

     Section 10. Notices.  Any notice or other document required or permitted to
be given or  delivered  to the  Warrantholders  prior to the  transfer  or other
disposition  of any Warrant by the original  recipient of this Warrant  shall be
delivered at or sent by certified or registered mail to the following address or
such  other  address as shall have been  furnished  in writing by such  original
recipient to the Company:

     Highbridge/Zwirn  Special  Opportunities  Fund,  L.P.
     745 5th Avenue,  18th Floor
     New York, New York 10151
     Attention:  Morris Macleod
     Telefax:  (646)344-4676)

     Drawbridge Special Opportunities Fund LP
     1251 Avenue of the Americas, Suite 1600
     New York, New York  10020
     Attention: Marc K. Furstein
     Telefax: (212) 798-6056

Thereafter,  any notice or other  document  required or permitted to be given or
delivered to the  Warrantholders  shall be delivered at, or sent by certified or
registered  mail to, each such holder at the last address  shown on the books of
the  Company  maintained  at  the  principal  office  of  the  Company  for  the
registration  of transfer of the Warrants or at any more recent address of which
any  Warrantholder  shall have  notified  the Company in writing.  Any notice or
other  document  required or  permitted  to be given or  delivered to holders of
record of outstanding  Registrable  Securities shall be delivered at, or sent by
certified or registered  mail to, each such holder at such  holder's  address as
the same appears on the stock records of the Company.

     Any notice or other document required or permitted to be given or delivered
to the Company shall be delivered  at, or sent by certified or  registered  mail
to, the addresses set forth below or such other address within the United States
of America as shall have been furnished by the Company to the Warrantholders and
the holders of record of Registrable Securities:
                                       17

         Gulfwest Energy, Inc.
         480 Sam Houston Pkwy. E., Suite 300
         Houston, Texas  77060
         Attn:  Thomas R. Kaetzer
         Fax: 281-260-8488

     Section 11.  Representations  and  Warranties.  The Company  represents and
warrants as follows:

     11.1  Capitalization.  The authorized capital stock of the Company consists
of 40,000,000 shares of Common Stock, of which 18,492,541 shares were issued and
outstanding as of April 23, 2004 and 10,000,000  shares of preferred  stock,  of
which 19,000 shares were issued and outstanding as of March 29, 2004. All of the
shares of Common  Stock are duly  authorized,  validly  issued,  fully  paid and
nonassessable.   The  only  rights,   options  or  other  agreements  which  are
outstanding  which  authorize the  acquisition  of newly issued shares of Common
Stock are set forth on Schedule 11.1 attached hereto.

     11.2 Authorization; Enforceability. The Company has the corporate power and
authority to enter into and perform its obligations  under this  Agreement.  The
execution  and delivery by the Company of this  Agreement  have been approved by
all requisite corporate action and no other corporate proceeding on its part are
necessary to authorize this Agreement and the transactions  contemplated hereby.
This  Agreement  constitutes  the valid and binding  obligation  of the Company,
except  as  it  may  be  affected   by   bankruptcy,   insolvency,   moratorium,
reorganization  or other laws and  judicial  decisions  affecting  the rights of
creditors generally and general principles of equity.

     11.3 Issuance of Shares. The issuance of the shares of Common Stock subject
to the Warrants has been duly  authorized  and, when issued upon exercise of the
Warrants,  such shares will have been validly  issued and will be fully paid and
nonassessable.

     Section 12. Miscellaneous.

     12.1 Amendment.  This Warrant Agreement may be amended by the Company, with
the  consent  of  the  Warrantholders   representing  a  majority  of  the  then
outstanding  Warrants,  for the purpose of curing any  ambiguity,  or of curing,
correcting or supplementing any defective  provision contained herein, or making
any other  provisions  with respect to matters or questions  arising  under this
Agreement as the Company may deem  necessary or  desirable,  provided  that such
action shall not affect  adversely  the  interests of the  Warrantholders.  This
Agreement  may otherwise be amended only with the consent of the Company and all
of the Warrantholders.

     12.2 Parties in Interest.  The agreements of the Company  contained herein,
other  than  those  applicable  solely to the  Warrants  and the  Warrantholders
thereof,  shall continue to inure to the benefit of, and be enforceable  by, any
Warrantholder(s) subsequent to the time Common Stock is issued upon the exercise
of Warrants, whether so expressed or not.

     12.3 Applicable Law. THE VALIDITY,  INTERPRETATION  AND PERFORMANCE OF THIS
AGREEMENT AND EACH WARRANT  CERTIFICATE  ISSUED  HEREUNDER AND OF THE RESPECTIVE
TERMS AND  PROVISIONS  THEREOF SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
                                       18

WITH,  THE LAWS OF THE STATE OF NEW YORK WITHOUT  REGARD TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.

     12.4 Consent to Jurisdiction.  The Company hereby  irrevocably  consents to
the personal jurisdiction of the federal courts located in the Southern District
of New  York,  Manhattan  Division,  in any  action,  claim or other  proceeding
arising  out of any dispute in  connection  with this  Agreement,  any rights or
obligations  hereunder,  or the performance of such rights and obligations.  The
Company  hereby  irrevocably  consents to the service of a summons and complaint
and  other  process  in  any  action,   claim  or  proceeding   brought  by  the
Warrantholder  in  connection  with this  Agreement,  any rights or  obligations
hereunder, or the performance of such rights and obligations.

     12.5 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE
LAW, THE COMPANY AND THE WARRANTHOLDER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL WITH  RESPECT TO ANY  ACTION,  CLAIM OR OTHER  PROCEEDING
ARISING  OUT OF ANY DISPUTE IN  CONNECTION  WITH THIS  AGREEMENT,  ANY RIGHTS OR
OBLIGATIONS HEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.

     12.6  Counterparts.  This  Agreement  may  be  executed  in any  number  of
counterparts,  each of which as so executed  shall be deemed to be an  original,
but such counterparts shall together constitute but one and the same instrument.

     12.7  Inspection of Agreement.  A copy of this Agreement shall be available
at all reasonable times at the principal office of the Company for inspection by
the holder of any Warrant  Certificate.  The Company may require  such holder to
submit his Warrant Certificate for inspection by it.

     12.8 Headings.  The section headings in this Agreement are for the purposes
of convenience only and shall not constitute a part hereof.

     12.9 Observation  Rights. Each Warrantholder shall have the right to attend
and observe any meeting  whether  regular or  special,  including  any  meetings
conducted  by  teleconference,   of  the  board  of  directors  of  the  Company
("Meetings").  The Company shall provide each  Warrantholder  with copies of any
resolutions  or consents to be passed by the directors of the Company by written
consent  or  undertaken  by means in lieu of a meeting of the  directors  of the
Company  ("Consents").  The Company shall provide each Warrantholder with notice
of any such Meeting  contemporaneously  with providing notice to other directors
of the Company and will provide each  Warrantholder with copies of any materials
provided to any director in connection with such Meetings (except such materials
protected by Company's exercise of its right to attorney-client  privilege). The
Company  shall  provide each  Warrantholder  with drafts of any  resolutions  or
consents  that  are to be  passed  by any  method  in lieu of a  meeting  of the
partners at a  reasonable  time prior to the date the Company  anticipates  that
such matters will be approved by the directors of the Company. The Company shall
provide  to  each  Warrantholder  copies  of  all  information  provided  to the
directors of the Company from time to time (except such information protected by
                                       19

Company's exercise of its right to attorney-client privilege).

      [Remainder of page intentionally left blank. Signature Pages follow.]
                                       20

     IN WITNESS  WHEREOF,  the Company and the  Warrantholder  have caused their
respective duly authorized officers to sign this Agreement.

                                        GULFWEST ENERGY INC.
                                        /s/  Thomas R. Kaetzer
                                        Thomas R. Kaetzer
                                        President and Chief Executive Officer

                     Signature Page to the Warrant Agreement
                                       S-1

                                         WARRANTHOLDER:

                                         HIGHBRIDGE/ZWIRN SPECIAL
                                         OPPORTUNITIES FUND, L.P.

                                         By:  D.B. Zwirn &Co., L.P.
                                         Name:
                                         Title:

                    Signature Page to the Warrant Agreement
                                      S-2

                                        WARRANTHOLDER:

                                        Drawbridge Special Opportunities Fund LP

                                        By: Drawbridge Special Opportunities
                                            GP LLC
                                        Name:
                                        Title:

                    Signature Page to the Warrant Agreement

Appendices:

Appendix A  Form of Warrant Certificate
Appendix B  Election to Exercise

Schedules:

Schedule 11.1  Outstanding Options, Etc.

Appendix A-2

                    Signature Page to the Warrant Agreement
                                       S3

                                       15

                                                                    Appendix A-1

                                                                                                                           APPENDIX A
                          [FORM OF WARRANT CERTIFICATE]

Warrant No. ______                                                 ____ Warrants

                       WARRANT TO PURCHASE COMMON STOCK OF
                              GULFWEST ENERGY INC.

                     THIS WARRANT IS SUBJECT TO RESTRICTIONS
                          ON TRANSFER SET FORTH IN THE
                           AGREEMENT REFERENCED BELOW.

     This certificate  certifies that  _________________ is the registered owner
of the above indicated number of Warrants,  each Warrant entitling such owner to
purchase  initially one share of Common Stock, $.001 par value ("Common Stock"),
of  GulfWest  Energy  Inc.,  a  Texas  corporation,   (hereinafter   called  the
"Company"),  at the price per share (the "Warrant Price") set forth in Section 2
of the  Warrant  Agreement,  subject  to the  terms  of that  Warrant  Agreement
hereafter referred to.

     The holder may exercise the Warrant  evidenced hereby by surrender,  to the
Company at its principal office in Houston,  Texas, of this Warrant  Certificate
and the form of Election to Exercise  attached  hereto,  both duly filled in and
signed,  along with payment in full to the Company of the Warrant  Price in cash
or  immediately  available  funds or  pursuant  to a Cashless  Exercise,  all as
provided in the Warrant  Agreement and upon  compliance  with and subject to the
conditions set forth herein and in the Warrant Agreement. According to the terms
of the Warrant  Agreement,  the Warrants  shall cease to be  exercisable at 5:00
p.m., Houston, Texas time, on April 27, 2009.

     The Warrant  Certificate is issued under and in accordance with the Warrant
Agreement dated as of April 27, 2004 (the "Warrant  Agreement"),  by and between
the Company and the Warrantholders  Parties thereto, and is subject to the terms
and provisions of the Warrant  Agreement,  which terms and provisions are hereby
incorporated  by reference  herein and made a part  hereof.  Each holder of this
Warrant  Certificate  consents  to all of the  terms  contained  in the  Warrant
Agreement by acceptance hereof. A copy of the Warrant Agreement is available for
inspection  by the  registered  holder  hereof  at the  principal  office of the
Company in Houston, Texas.

     THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN  REGISTERED
     UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED,
     TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH SUCH ACT AND
     THE RULES AND  REGULATIONS  THEREUNDER  AND IN ACCORDANCE  WITH  APPLICABLE
                                  Appendix A-1

                                       16

     STATE SECURITIES LAWS. THE COMPANY WILL NOT TRANSFER SUCH SECURITIES EXCEPT
     UPON RECEIPT OF A FAVORABLE OPINION OF COUNSEL AND/OR EVIDENCE SATISFACTORY
     TO THE  COMPANY  THAT THE  REGISTRATION  PROVISIONS  OF SUCH ACT HAVE  BEEN
     COMPLIED  WITH OR THAT  SUCH  REGISTRATION  IS NOT  REQUIRED  AND THAT SUCH
     TRANSFER WILL NOT VIOLATE ANY APPLICABLE STATE SECURITIES LAWS.

     The Warrant Agreement and each Warrant Certificate,  including this Warrant
Certificate,  shall be deemed a contract made under the laws of the State of New
York and for all purposes shall be construed in accordance  with the laws of the
State of New York.

                                   GULFWEST ENERGY INC.

                                   By:
                                   Name:
                                   Title:

                                  Appendix A-2

                                                                      APPENDIX B

                              ELECTION TO EXERCISE

                 (To be executed only upon exercise of warrant)

To _____________________

     The  undersigned   registered   holder  of  the  attached   warrant  hereby
irrevocably  exercises  and  surrenders  to the Company  such  warrant  for, and
purchases thereunder,  ________* shares of Common Stock of GulfWest Energy Inc.,
and herewith  makes  payment of  $__________  therefor,  in cash or  immediately
available  funds or pursuant  to a Cashless  Exercise as  requested  below,  and
requests  that the  certificates  for such  shares  (less  any  shares,  if any,
utilized  pursuant  to a  Cashless  Exercise)  be  issued  in the name  of,  and
delivered  to  ________________  __________________________,  whose  address  is
_____________________________________

     Check  one of the  following  boxes:

                                           | |  Payment  in cash or  immediately
                                                available funds

                                           | |      Cashless Exercise

Dated:  _________________

                                   ------------------------------------
                                   (Signature must conform in all respects to
                                   name of holder as specified on the face of
                                   this warrant)

                                   ------------------------------------
                                   (Street Address)

                                   ------------------------------------
                                   (City)              (State)        (Zip Code)

--------

* Insert here the number of shares  called for on the face of this  warrant (or,
in the case of a partial exercise,  the portion thereof as to which this warrant
is being exercised), in either case without making any adjustment for additional
shares of common  stock or any other  stock or other  securities  or property or
cash which,  pursuant  to the  adjustment  provisions  of this  warrant,  may be
delivered upon  exercise.  In the case of a partial  exercise,  a new warrant or
warrants will be issued and delivered,  representing the unexercised  portion of
this  warrant,  to the holder  surrendering  the same. In the case of a Cashless
Exercise,  the  number of shares to be issued  shall be  reduced as set forth in
Section 2.3 of the Warrant Agreement.

                                  Appendix B-1

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