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                                                                    EXHIBIT 10.4

                                                                       EXHIBIT C

                                 FORM OF WARRANT

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

                            GALAXY ENERGY CORPORATION

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.:________________                              Number of Shares: ____
Date of Issuance: ______, 2004

Galaxy Energy Corporation, a Colorado corporation (the "COMPANY"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ____________________, the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant (if required by Section
2(f)), at any time or times on or after the date hereof, but not after 11:59
P.M. New York Time on the Expiration Date (as defined herein) ________________
(_______) [INSERT (INITIAL WARRANTS) QUOTIENT OF (I) 40% OF THE SUM OF (A) THE
ORIGINAL PRINCIPAL AMOUNT OF INITIAL NOTES PURCHASED BY THE HOLDER AT THE
INITIAL CLOSING PLUS (B) THE ORIGINAL PRINCIPAL AMOUNT OF THE ADDITIONAL NOTES
THE HOLDER HAS AGREED TO PURCHASE AT THE ADDITIONAL CLOSING (AS SET FORTH
OPPOSITE SUCH HOLDER'S NAME ON THE SCHEDULE OF BUYERS TO THE SECURITIES PURCHASE
AGREEMENT), DIVIDED BY (II) THE WARRANT EXERCISE PRICE AS OF THE INITIAL
CLOSING; (REPLACEMENT WARRANTS) THE NUMBER OF SHARES FOR WHICH THE WARRANT WHICH
THIS WARRANT IS REPLACING WAS EXERCISED PURSUANT TO SECTION 3(b) OF SUCH PRIOR
WARRANT] fully paid nonassessable shares of Common Stock (as defined herein) of
the Company (the "WARRANT SHARES") at the purchase price per share provided in
Section 1(b) below; provided, however, that in no event shall the holder be
entitled or required to exercise this Warrant for a number of Warrant Shares in
excess of that

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number of Warrant Shares that, upon giving effect to such exercise, would cause
the aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such exercise. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such proviso
is being made, but shall exclude shares of Common Stock that would be issuable
upon (i) exercise of the remaining, unexercised SPA Warrants (as defined below)
beneficially owned by the holder and its affiliates and (ii) exercise,
conversion or exchange of the unexercised, unconverted or unexchanged portion of
any other securities of the Company beneficially owned by the holder and its
affiliates (including the Notes (as defined below) and any other convertible
notes or preferred stock) subject to a limitation on conversion, exercise or
exchange analogous to the limitation contained herein. Except as set forth in
the preceding sentence, for purposes of this paragraph, beneficial ownership
shall be calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended. For purposes of this Warrant, in determining the number
of outstanding shares of Common Stock a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than one (1) Business Day following the receipt of such notice,
confirm in writing to any such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion, exercise or exchange of
securities of the Company, including the Notes, and the SPA Warrants by such
holder and its affiliates, since the date as of which such number of outstanding
shares of Common Stock was reported.

      Section 1.

            (a)   Securities Purchase Agreement. This Warrant is one of the
warrants issued pursuant to Section 1 of that certain Securities Purchase
Agreement dated as of August 19, 2004, among the Company and the Persons (as
defined below) referred to therein (as such agreement may be amended from time
to time as provided in such agreement, the "SECURITIES PURCHASE AGREEMENT") or
of any warrants issued in exchange or substitution therefor or replacement
thereof (including any warrants issued pursuant to Section 3 of the warrants
issued pursuant to Section 1 of the Securities Purchase Agreement or any similar
provisions of any warrants issued in exchange or substitution therefor or
replacement thereof) (all such warrants being collectively referred to as the
"SPA WARRANTS"). Each capitalized term used, and not otherwise defined herein,
shall have the meaning ascribed thereto in the Securities Purchase Agreement.

            (b)   Definitions. The following words and terms as used in this
Warrant shall have the following meanings:

                  (i)   "APPROVED STOCK PLAN" means any employee benefit plan
that has been approved by the Board of Directors and shareholders of the Company
prior to the date of

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the Securities Purchase Agreement, pursuant to which the Company's securities
may be issued to any consultant, employee, officer or director for services
provided to the Company.

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

                  (iii)  "COMMON STOCK" means (i) the Company's common stock,
$0.001 par value per share, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.

                  (iv)   "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable or
exercisable for Common Stock.

                  (v)    "EARLY EXERCISE" means the first exercise of this
Warrant within any 20 consecutive Trading Day period that occurs on an
Replacement Warrant Exercise Eligibility Date.

                  (vi)   "EXPIRATION DATE" means the date that is the later of
(A) the date that is three (3) years after the Warrant Date (as defined in
Section 14) or, if such date does not fall on a Business Day, then the next
Business Day, and (B) if this Warrant was issued in replacement of another
Warrant pursuant to Section 3(b) of such other Warrant, then the date which is
20 Trading Days after the date on which a Registration Statement (as defined in
the Registration Rights Agreement) covering the resale of all of the Warrant
Shares has been declared effective by the Securities and Exchange Commission in
accordance with the terms of the Registration Rights Agreement.

                  (vii)  "MANDATORY EXERCISE PERIOD" means any period of twenty
(20) consecutive Trading Days commencing after the date on which a Registration
Statement (as defined in the Registration Rights Agreement) covering the resale
of all of the Warrant Shares has been declared effective by the Securities and
Exchange Commission in accordance with the terms of the Registration Rights
Agreement and ending prior to June 19, 2007 during which the Weighted Average
Price of the Common Stock on each such Trading Day is equal to or greater than
the Mandatory Exercise Trigger Price.

                  (viii) "MANDATORY EXERCISE TRIGGER PRICE" means 150% of the
Warrant Exercise Price on the date of issuance of this Warrant (subject to
adjustment for stock splits, stock dividends and other similar transactions).

                  (ix)   "NOTES" means the convertible notes of the Company
issued pursuant to the Securities Purchase Agreement, and all convertible notes
issued in exchange therefor or replacement thereof pursuant to the terms of such
convertible notes.

                  (x)    "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.

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

                  (xii)  "PRINCIPAL MARKET" means the principal securities
exchange or trading market for a security.

                  (xiii) "REGISTRATION RIGHTS AGREEMENT" means that agreement
dated August 19, 2004 by and among the Company and the Persons referred to
therein, as such agreement may be amended from time to time as provided in such
agreement.

                  (xiv)  "REPLACEMENT WARRANT EXERCISE ELIGIBILITY DATE" means
any Trading Day occurring after the date on which a Registration Statement (as
defined in the Registration Rights Agreement) covering the resale of the shares
of Common Stock issuable upon exercise of this Warrant has been declared
effective by the Securities and Exchange Commission in accordance with the terms
of the Registration Rights Agreement, on which any share of Common Stock trades
on the Principal Market at a price greater than the or equal to the Mandatory
Exercise Trigger Price.

                  (xv)   "REPLACEMENT WARRANT EXERCISE PERIOD" means the period
consisting of (A) the consecutive Trading Days immediately preceding an Early
Exercise, up to a maximum of nineteen (19) Trading Days, on which the Weighted
Average Price of the Common Stock exceeded the Mandatory Exercise Trigger Price,
if any, (B) the date of the Early Exercise and (C) the consecutive Trading Days
following the date of the Early Exercise such that the period consists of a
total of 20 Trading Days.

                  (xvi)  "SECURITIES ACT" means the Securities Act of 1933, as
amended.

                  (xvii)  "TRADING DAY" means any day on which the Common Stock
is traded on the principal securities exchange or securities market on which the
Common Stock is then traded; provided that "Trading Day" shall not include any
day on which the Common Stock is scheduled to trade, or actually trades, on such
exchange or market for less than 4.5 hours.

                  (xviii) "WARRANT" means this Warrant and all Warrants issued
in exchange, transfer or replacement thereof pursuant to the terms of such
Warrants.

                  (xix)  "WARRANT EXERCISE PRICE" shall be equal to, with
respect to any Warrant Share, [INSERT (INITIAL WARRANTS) 115% OF THE ARITHMETIC
AVERAGE OF THE WEIGHTED AVERAGE PRICE OF THE COMMON STOCK ON EACH OF THE 20
CONSECUTIVE TRADING DAYS IMMEDIATELY PRECEDING THE INITIAL CLOSING DATE;
(REPLACEMENT WARRANTS) THE GREATER OF (A) 115% OF THE ARITHMETIC AVERAGE OF THE
WEIGHTED AVERAGE PRICE OF THE COMMON STOCK ON EACH TRADING DAY DURING THE
APPLICABLE REPLACEMENT WARRANT EXERCISE PERIOD AND (B) 172.5% OF THE WARRANT
EXERCISE PRICE OF THE WARRANT THIS WARRANT IS REPLACING PURSUANT TO SECTION 3(b)
OF SUCH PRIOR WARRANT ON THE DATE OF ISSUANCE OF SUCH PRIOR WARRANT], subject to
adjustment as hereinafter provided.

                  (xx)  "WEIGHTED AVERAGE PRICE" means, for any security as of
any date, the dollar volume-weighted average price for such security on its
Principal Market during the

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period beginning at 9:30 a.m., New York City Time (or such other time as the
Principal Market publicly announces is the official open of trading), and ending
at 4:00 p.m., New York City Time (or such other time as the Principal Market
publicly announces is the official close of trading), as reported by Bloomberg
Financial Markets ("BLOOMBERG") through its "Volume at Price" functions, or, if
the foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30 a.m., New York City Time (or
such other time as such over-the-counter market publicly announces is the
official open of trading), and ending at 4:00 p.m., New York City Time (or such
other time as such over-the-counter market publicly announces is the official
close of trading), as reported by Bloomberg, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg for such hours, the
average of the highest closing bid price and the lowest closing ask price of any
of the market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Weighted Average Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market
value as mutually determined by the Company and the holder of this Warrant. If
the Company and the holder of this Warrant are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved pursuant
to Section 2(a) below. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar transaction
during any period during which the Weighted Average Price is being determined.

      Section 2. Exercise of Warrant.

            (a)   Subject to the terms and conditions hereof, this Warrant may
be exercised by the holder hereof then registered on the books of the Company,
in whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 11:59 P.M. New York Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription form attached as Exhibit A hereto (the "EXERCISE NOTICE"), of such
holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (the "AGGREGATE EXERCISE
PRICE") by wire transfer of immediately available funds (or by check if the
Company has not provided the holder of this Warrant with wire transfer
instructions for such payment) or (B) by notifying the Company that this Warrant
is being exercised pursuant to a Cashless Exercise (as defined in Section 2(e)),
and (iii) if required by Section 2(f) or unless the Holder has previously
delivered this Warrant to the Company and it or a new replacement Warrant has
not yet been delivered to the Holder, the surrender to a common carrier for
overnight delivery to the Company as soon as practicable following such date,
this Warrant (or an indemnification undertaking with respect to this Warrant in
the case of its loss, theft or destruction); provided, that if such Warrant
Shares are to be issued in any name other than that of the registered holder of
this Warrant, such issuance shall be deemed a transfer and the provisions of
Section 8 shall be applicable. In the event of any exercise of the rights
represented by this Warrant in compliance with this Section 2(a), the Company
shall on the second (2nd) Business Day (the "WARRANT SHARE DELIVERY DATE")
following the date of its receipt of the Exercise Notice, the Aggregate Exercise
Price (or notice of Cashless Exercise) and if required by Section 2(f) (or
unless the holder of this Warrant has previously delivered this Warrant to the
Company and it or a new replacement Warrant has not yet been delivered to the

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holder), this Warrant (or an indemnification undertaking with respect to this
Warrant in the case of its loss, theft or destruction) (the "EXERCISE DELIVERY
DOCUMENTS"), (A) provided that the transfer agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and
provided that the holder is eligible to receive shares through DTC, credit such
aggregate number of shares of Common Stock to which the holder shall be entitled
to the holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system or (B) issue and deliver to the address
specified in the Exercise Notice, a certificate, registered in the name of the
holder or its designee, for the number of shares of Common Stock to which the
holder shall be entitled. Upon (x) delivery of the Exercise Notice and (y) the
Aggregate Exercise Price referred to in clause (ii)(A) above or notification to
the Company of a Cashless Exercise referred to in Section 2(e), the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised (the date thereof being referred to as the "DEEMED ISSUANCE
DATE"), irrespective of the date of delivery of this Warrant as required by
clause (iii) above or the certificates evidencing such Warrant Shares. In the
case of a dispute as to the determination of the Warrant Exercise Price, the
Weighted Average Price of a security or the arithmetic calculation of the number
of Warrant Shares, the Company shall promptly issue to the holder the number of
shares of Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile within one
(1) Business Day of receipt of the holder's Exercise Notice. If the holder and
the Company are unable to agree upon the determination of the Warrant Exercise
Price, the Weighted Average Price or arithmetic calculation of the number of
Warrant Shares within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company shall
immediately submit via facsimile (i) the disputed determination of the Warrant
Exercise Price or the Weighted Average Price to an independent, reputable
investment banking firm agreed to by the Company and the holder of this Warrant
or (ii) the disputed arithmetic calculation of the number of Warrant Shares to
its independent, outside public accountant. The Company shall cause the
investment banking firm or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than two (2) Business Days after the time it receives the
disputed determinations or calculations. Such investment banking firm's or
accountant's determination or calculation, as the case may be, shall be deemed
conclusive absent error.

            (b)   If this Warrant is submitted for exercise, as may be required
by Section 2(f), and unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than three (3) Business Days after receipt of
this Warrant (the "WARRANT DELIVERY DATE") and at its own expense, issue a new
Warrant identical in all respects to this Warrant exercised except it shall
represent rights to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which such Warrant is exercised (together with,
in the case of a cashless exercise, the number of Warrant Shares surrendered in
lieu of payment of the Exercise Price).

            (c)   No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.

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            (d)   If the Company shall fail for any reason or for no reason (x)
to issue and deliver to the holder within three (3) Business Days of receipt of
the Exercise Delivery Documents a certificate for the number of shares of Common
Stock to which the holder is entitled or to credit the holder's balance account
with DTC for such number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant or (y) to issue and deliver
to the holder on the Warrant Delivery Date a new Warrant for the number of
shares of Common Stock to which such holder is entitled pursuant to Section 2(b)
hereof, if any, then the Company shall, in addition to any other remedies under
this Warrant or the Securities Purchase Agreement or otherwise available to such
holder, including any indemnification under Section 8 of the Securities Purchase
Agreement, pay as additional damages in cash to such holder on each day after
such third (3rd) Business Day that such shares of Common Stock are not issued
and delivered to the holder, in the case of clause (x) above, or such third
(3rd) Business Day that such Warrant is not delivered, in the case of clause (y)
above, in an amount equal to the sum of (i) 0.5% of the product of (A) the
number of shares of Common Stock not issued to the holder on or prior to the
Warrant Share Delivery Date and (B) the Weighted Average Price of the Common
Stock on the Warrant Share Delivery Date, in the case of the failure to deliver
Common Stock, and (ii) if the Company has failed to deliver a Warrant to the
holder on or prior to the Warrant Delivery Date, 0.5% of the product of (x) the
number of shares of Common Stock issuable upon exercise of the Warrant as of the
Warrant Delivery Date, and (y) the Weighted Average Price of the Common Stock on
the Warrant Delivery Date; provided that in no event shall cash damages accrue
pursuant to this Section 2(d) during the period, if any, in which any Warrant
Shares are the subject of a bona fide dispute that is subject to and being
resolved pursuant to, and in compliance with the time periods and other
provisions of, the dispute resolution provisions of Section 2(a). Alternatively,
subject to the dispute resolution provisions of Section 2(a), at the election of
the holder made in the holder's sole discretion, the Company shall pay to the
holder, in lieu of the additional damages referred to in the preceding sentence
(but in addition to all other available remedies that the holder may pursue
hereunder and under the Securities Purchase Agreement (including indemnification
pursuant to Section 8 thereof)), 110% of the amount by that (A) the holder's
total purchase price (including brokerage commissions, if any) for shares of
Common Stock purchased to make delivery in satisfaction of a sale by such holder
of the shares of Common Stock to which the holder is entitled but has not
received upon an exercise, exceeds (B) the net proceeds received by the holder
from the sale of the shares of Common Stock to which the holder is entitled but
has not received upon such exercise.

            (e)   If, despite the Company's obligations under the Securities
Purchase Agreement and the Registration Rights Agreement, the Warrant Shares to
be issued are not registered and available for resale pursuant to a registration
statement in accordance with the Registration Rights Agreement, including during
a Grace Period (as defined in the Registration Rights Agreement), then
notwithstanding anything contained herein to the contrary, the holder of this
Warrant may, at its election exercised in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the "Net
Number" of shares of Common Stock determined according to the following formula
(a "CASHLESS EXERCISE"):

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      Net Number = (A x B) - (A x C)
                   -----------------
                           B

            For purposes of the foregoing formula:

                  A= the total number of shares with respect to which this
                  Warrant is then being exercised;

                  B= the Weighted Average Price of the Common Stock on the
                  trading day immediately preceding the date of the delivery of
                  the Exercise Notice; and

                  C= the Warrant Exercise Price then in effect for the
                  applicable Warrant Shares at the time of such exercise.

            (f)   Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon exercise of this Warrant in accordance with the terms hereof, the
holder of this Warrant shall not be required to physically surrender this
Warrant to the Company unless it is being exercised for all of the Warrant
Shares represented by the Warrant. The holder and the Company shall maintain
records showing the number of Warrant Shares exercised and issued and the dates
of such exercises or shall use such other method, reasonably satisfactory to the
holder and the Company, so as not to require physical surrender of this Warrant
upon each such exercise. In the event of any dispute or discrepancy, such
records of the Company establishing the number of Warrant Shares to which the
holder is entitled shall be controlling and determinative in the absence of
error. Notwithstanding the foregoing, if this Warrant is exercised as aforesaid,
the holder may not transfer this Warrant unless the holder first physically
surrenders this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the holder a new Warrant of like tenor,
registered as the holder may request, representing in the aggregate the
remaining number of Warrant Shares represented by this Warrant. The holder and
any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following exercises of any portion
of this Warrant, the number of Warrant Shares represented by this Warrant may be
less than the number stated on the face hereof. Each Warrant shall bear the
following legend:

            ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF
            THIS WARRANT, INCLUDING SECTION 2(f) HEREOF. THE SECURITIES
            REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON
            THE FACE HEREOF PURSUANT TO SECTION 2(f) HEREOF.

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      Section 3. Mandatory Exercise of Warrants; Issuance Of Replacement
                 Warrants Upon Exercise Of Warrants.

            a.    Mandatory Exercise of Warrants. Within one Business Day of the
last day of the Mandatory Exercise Period, the Company shall deliver notice to
the holder of this Warrant confirming that the Mandatory Exercise Period has
occurred and certifying as to whether the Conditions to Mandatory Exercise are
satisfied (the "MANDATORY EXERCISE NOTICE"). Subject to satisfaction (or waiver
by the holder hereof) of the Conditions to Mandatory Exercise, within five (5)
Business Days after the receipt of the Mandatory Exercise Notice (the "MANDATORY
EXERCISE DEADLINE"), the holder of this Warrant, subject to the first paragraph
of this Warrant, shall submit an Exercise Notice in accordance with Section 2 (a
"MANDATORY EXERCISE NOTICE"), electing to exercise this Warrant, pursuant to a
Cash Exercise (a "MANDATORY EXERCISE"), for all of the then remaining Warrant
Shares which are not subject to an Exercise Notice delivered to the Company by
the holder on or prior to delivery of the Mandatory Exercise Notice, and shall
submit to the Company the Aggregate Exercise Price therefor by wire transfer of
immediately available funds (or by check if the Company has not provided the
holder of this Warrant with wire transfer instructions for such payment). This
Warrant shall be exercised in its entirety in accordance with Section 2 on the
date on which the Company receives the Aggregate Exercise Price pursuant to the
preceding sentence (the "MANDATORY EXERCISE DATE"). Upon the written request of
the holder of this Warrant, the Company shall promptly, but in no event later
than one (1) Business Day following the receipt of such request, confirm in
writing the status of the Company's compliance with each of the Conditions to
Mandatory Exercise.

            b.    Issuance of Replacement Warrants.

                  (i)   Upon the occurrence of a Mandatory Exercise, the Company
shall deliver to the holder hereof, within seven (7) Business Days of the
Mandatory Exercise Date, and at the Company's own expense, a new warrant, in the
same form as this Warrant, to purchase the same number of shares of Common Stock
issued pursuant to the Mandatory Exercise. The "Warrant Exercise Price" of such
new warrant, shall equal 115% of the arithmetic average of the Weighted Average
Price of the Common Stock on each Trading Day during the Mandatory Exercise
Period (subject to adjustment for stock splits, stock dividends and other
similar transactions).

                  (ii)  Within seven (7) Business Days of the last day of any
Replacement Warrant Exercise Period, the Company shall issue to the holder
hereof, and at the Company's own expense, a new warrant, in the same form as
this Warrant, to purchase a number of shares of Common Stock equal to the sum of
(A) the number of shares of Common Stock issued or issuable pursuant to the
Early Exercise occurring within such Replacement Warrant Exercise Period and (B)
the aggregate number of shares of Common Stock issued or issuable upon any other
exercises of this Warrant during such Replacement Warrant Exercise Period. The
"Warrant Exercise Price" of such new warrant shall equal the greater of (A) 115%
of the arithmetic average of the Weighted Average Price of the Common Stock on
each Trading Day during the Replacement Warrant Exercise Period and (B) 172.5%
of the Warrant Exercise Price on the date of issuance of this Warrant (subject
to adjustment for stock splits, stock dividends and other similar transactions).

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            c.    Conditions to Mandatory Exercise. "CONDITIONS TO MANDATORY
EXERCISE" shall mean: (i) as of the date that is 30 days prior to the first day
of the Mandatory Exercise Period and on each day through and including the
applicable Mandatory Exercise Deadline, the Registration Statement (as defined
in the Registration Rights Agreement) covering the Warrant Shares shall be
effective and available for the sale of all of the Warrant Shares then
outstanding or issuable and no Grace Period (as defined in the Registration
Rights Agreement) shall have occurred; (ii) on each day during the period
beginning 90 days prior to the last day of the Mandatory Exercise Period and
ending on and including the applicable Mandatory Exercise Deadline, the Common
Stock is quoted on The NASDAQ Stock Market's OTC Bulletin Board or listed on a
national securities exchange or quoted on the NASDAQ National Market or NASDAQ
SmallCap Market, and if the Common Stock is listed on a national securities
exchange or quoted on the NASDAQ National Market or NASDAQ SmallCap Market, the
Common Stock has not been suspended from trading on such exchange or market nor
shall delisting or suspension by such exchange or market have been threatened
either (A) in writing by such exchange or market (B) by falling below the
minimum listing maintenance requirements of such exchange or market; (iii)
during the term of this Warrant, the Company shall have delivered shares upon
exercise of this Warrant on a timely basis as set forth in Section 2(a); (iv)
during the period beginning on the Warrant Date and ending on and including the
applicable Mandatory Exercise Deadline, there shall not have occurred (x) the
public announcement of a pending, proposed or intended Change of Control (as
defined in Section 4 of the Notes) that has not been abandoned, terminated or
consummated and publicly announced as such, (y) a Triggering Event (as defined
in Section 3 of the Notes) or (z) an Event of Default (as defined in Section 11
of the Notes); and (v) from and after the Warrant Date, the Company otherwise
shall have been in compliance with, and shall not have breached or been in
breach of, any provision, covenant or representation set forth in the
Transaction Documents.

      Section 4. Covenants as to Common Stock. The Company hereby covenants and
agrees as follows:

            (a)   This Warrant is, and any Warrants issued in substitution for
or replacement of this Warrant will upon issuance be, duly authorized and
validly issued.

            (b)   All Warrant Shares that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.

            (c)   During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 150% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant.

            (d)   If, and so long as, any shares of Common Stock shall be listed
on the NASDAQ National Market, the NASDAQ SmallCap Market or another securities
exchange or trading market, the shares of Common Stock issuable upon exercise of
this Warrant shall be so listed; and the Company shall so list on such exchange
or market, and shall maintain such listing

                                      -10-
<PAGE>

of, any other shares of capital stock of the Company issuable upon the exercise
of this Warrant if and so long as any shares of the same class shall be listed
on such securities exchange or market.

            (e)   The Company will not, by amendment of its 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 to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above $0.001 per share, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.

            (f)   This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.

      Section 5. Taxes. The Company shall pay any and all taxes that may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.

      Section 6. Warrant Holder Not Deemed a Shareholder. No holder, as such, of
this Warrant shall be entitled to vote or receive dividends or be deemed the
holder of shares of the Company for any purpose (other than to the extent that
the holder is deemed to be a beneficial holder of shares under applicable
securities laws after taking into account the limitation set forth in the first
paragraph of this Warrant), nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
Deemed Issuance Date of the Warrant Shares that such holder is then entitled to
receive upon the due exercise of this Warrant. In addition, nothing contained in
this Warrant shall be construed as imposing any liabilities on such holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
shareholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the Company will
provide the holder of this Warrant with copies of the same notices and other
information given to the shareholders of the Company generally,
contemporaneously with the giving thereof to the shareholders.

      Section 7. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant, and upon
exercise hereof (other than pursuant to a Cashless Exercise) will acquire the
Warrant Shares, for its own account and not with a view towards, or for resale
in connection with, the public sale or distribution of this Warrant or the
Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves

                                      -11-
<PAGE>

the right to dispose of this Warrant and the Warrant Shares at any time in
accordance with or pursuant to a registration statement or an exemption under
the Securities Act. The holder of this Warrant further represents, by acceptance
hereof, that, as of this date, such holder is an "accredited investor" as such
term is defined in Rule 501(a)(3) of Regulation D promulgated by the Securities
and Exchange Commission under the Securities Act (an "ACCREDITED INVESTOR").
Each delivery of an Exercise Notice, other than in connection with a Cashless
Exercise, shall constitute confirmation at such time by the holder of the
representations concerning the Warrant Shares set forth in the first two
sentences of this Section 7, unless contemporaneous with the delivery of such
Exercise Notice the holder notifies the Company in writing that it is not making
such representations (a "REPRESENTATION NOTICE"). If the holder delivers a
Representation Notice in connection with an exercise, it shall be a condition to
such holder's exercise of this Warrant and the Company's obligations set forth
in Section 2 in connection with such exercise, that the Company receive such
other representations as the Company considers reasonably necessary to assure
the Company that the issuance of its securities upon exercise of this Warrant
shall not violate any United States or state securities laws.

      Section 8. Ownership and Transfer.

            (a)   The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.

            (b)   This Warrant and the rights granted hereunder shall be
assignable by the holder hereof without the consent of the Company.

            (c)   The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.

      Section 9. Adjustment of Warrant Exercise Price and Number of Warrant
Shares. The Warrant Exercise Price and the number of shares of Common Stock
issuable upon exercise of this Warrant shall be adjusted from time to time as
follows:

            (a)   Adjustment of Warrant Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever on or after the Warrant Date, the
Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding Exempted Issuances (as
defined below)), for a consideration per share less than a price (the
"APPLICABLE PRICE") equal to the Warrant Exercise Price in effect immediately
prior to such issuance or sale, then immediately after such issue or sale the
Warrant Exercise Price then in effect shall be reduced to an amount equal to
such consideration per share. Upon each such adjustment of the Warrant Exercise
Price pursuant to the immediately preceding

                                      -12-
<PAGE>

sentence, the number of shares of Common Stock acquirable upon exercise of this
Warrant shall be adjusted to the number of shares determined by multiplying the
Warrant Exercise Price in effect immediately prior to such adjustment by the
number of shares of Common Stock acquirable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
Warrant Exercise Price resulting from such adjustment. For purposes of this
Warrant, "EXEMPTED ISSUANCES" shall mean: (I) shares of Common Stock issued or
deemed to be issued by the Company pursuant to an Approved Stock Plan; (II)
shares of Common Stock issued or deemed to be issued by the Company upon the
conversion, exchange or exercise of any right, option, obligation or security
outstanding on the date prior to the Warrant Date and set forth in Schedule 3(c)
of the Securities Purchase Agreement, provided that the terms of such option,
obligation or security are not amended on or after the date of the Securities
Purchase Agreement, or (III) shares of Common Stock issued or deemed to be
issued by the Company upon conversion of the Notes or exercise of the SPA
Warrants.

            (b)   Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Section 9(a)
above, the following shall be applicable:

                  (i)   Issuance of Options. If the Company in any manner grants
or sells any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 9(b)(i), the "lowest price per
share for which one share of Common Stock is issuable upon exercise of any such
Option or upon conversion, exchange or exercise of any Convertible Security
issuable upon exercise of any such Option" shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon conversion, exchange or exercise of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion,
exchange or exercise of such Convertible Securities.

                  (ii)  Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon such conversion,
exchange or exercise thereof is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this Section 9(b)(ii),
the "lowest price per share for which one share of Common Stock is issuable upon
such conversion, exchange or exercise" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exchange or exercise of such
Convertible Security. No further adjustment of the Warrant Exercise Price shall
be made upon the actual issuance of such Common Stock upon conversion, exchange
or exercise of such Convertible

                                      -13-
<PAGE>

Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustment of the Warrant Exercise Price
had been or are to be made pursuant to other provisions of this Section 9(b), no
further adjustment of the Warrant Exercise Price shall be made by reason of such
issue or sale.

                  (iii) Change in Option Price or Rate of Conversion. If the
purchase, exchange or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exchange or exercise
of any Convertible Securities, or the rate at which any Options or Convertible
Securities are convertible into or exchangeable or exercisable for Common Stock
changes at any time, the Warrant Exercise Price in effect at the time of such
change shall be adjusted to the Warrant Exercise Price that would have been in
effect at such time had such Options or Convertible Securities provided for such
changed purchase, exchange or exercise price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold and the number of shares of Common Stock acquirable hereunder
shall be correspondingly readjusted. For purposes of this Section 9(b)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
date of issuance of this Warrant are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change. No adjustment shall
be made if such adjustment would result in an increase of the Warrant Exercise
Price then in effect.

            (c)   Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Sections 9(a)
and 9(b), the following shall be applicable:

                  (i)   Calculation of Consideration Received. In case any
Options are issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction or series of related
transactions, (A) the Options will be deemed to have been issued for a
consideration equal to the greater of $0.01 and the specific aggregate
consideration, if any, allocated to such Options (in either case, the "OPTION
CONSIDERATION") and, for purposes of applying the provisions of this Section 9,
the Option Consideration shall be allocated pro rata among all the shares of
Common Stock issuable upon exercise of such Options to determine the
consideration per each such share of Common Stock and (B) the other securities
will be deemed to have been issued for an aggregate consideration equal to the
aggregate consideration received by the Company for the Options and other
securities (determined as provided below with respect to each share of Common
Stock represented thereby), less the sum of (1) the Black-Scholes Value (as
defined below) of such Options and (2) the Option Consideration. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
marketable securities, in which case the amount of consideration received by the
Company will be the Weighted Average Price of such securities on the date of
receipt of such securities. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with

                                      -14-
<PAGE>

any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the holder of this Warrant. If such parties are
unable to reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within five (5) Business Days after the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the holder of this Warrant. The
determination of such appraiser shall be final and binding upon all parties
absent error, and the fees and expenses of such appraiser shall be borne by the
Company.

                  (ii)  Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

                  (iii) Black-Scholes Value. The "BLACK-SCHOLES VALUE" of any
Options shall mean the sum of the amounts resulting from applying the
Black-Scholes pricing model to each such Option, which calculation is made with
the following inputs: (i) the "option striking price" being equal to the lowest
exercise price possible under the terms of such Option on the date of the
issuance of such Option (the "VALUATION DATE"), (ii) the "interest rate" being
equal to the interest rate on one-year United States Treasury Bills issued most
recently prior to the Valuation Date, (iii) the "time until option expiration"
being the time from the Valuation Date until the expiration date of such Option,
(iv) the "current stock price" being equal to the Weighted Average Price of the
Common Stock on the Valuation Date, (v) the "volatility" being the 100-day
historical volatility of the Common Stock as of the Valuation Date (as reported
by the Bloomberg "HVT" screen), and (vi) the "dividend rate" being equal to
zero. Within three (3) Business Days after the Company Valuation Date, each of
the Company and the holder of this Warrant shall deliver to the other a written
calculation of its determination of the Black-Scholes value of the Options. If
the holder and the Company are unable to agree upon the calculation of the
Black-Scholes Value of the Options within five (5) Business Days of the
Valuation Date, then the Company shall submit via facsimile the disputed
calculation to an investment banking firm (jointly selected by the Company and
the holder of this Warrant) within seven (7) Business Days of the Valuation
Date. The Company shall cause such investment banking firm to perform the
calculations and notify the company and the holder of the results no later than
ten (10) Business Days after the Valuation Date. Such investment banking firm's
calculation of the Black-Scholes Value of the Options shall be deemed conclusive
absent error. The Company shall bear the fees and expenses of such investment
banking firm for providing such calculation.

            (d)   Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Warrant Exercise Price in effect

                                      -15-
<PAGE>

immediately prior to such subdivision will be proportionately reduced and the
number of shares of Common Stock obtainable upon exercise of this Warrant will
be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) its outstanding shares of Common Stock into a smaller number of
shares, the Warrant Exercise Price in effect immediately prior to such
combination will be proportionately increased and the number of shares of Common
Stock obtainable upon exercise of this Warrant will be proportionately
decreased. Any adjustment under this Section 9(d) shall become effective at the
close of business on the date the subdivision or combination becomes effective

            (e)   Distribution of Assets. If the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a "DISTRIBUTION"), at any time
after the issuance of this Warrant, then, in each such case:

                  (i)   the Warrant Exercise Price in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Warrant Exercise Price by a fraction of which (A) the
numerator shall be the Weighted Average Price of the Common Stock on the trading
day immediately preceding such record date minus the value of the Distribution
(as determined in good faith by the Company's Board of Directors) applicable to
one share of Common Stock, and (B) the denominator shall be the Weighted Average
Price of the Common Stock on the trading day immediately preceding such record
date; and

                  (ii)  either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant, the
terms of which shall be identical to those of this Warrant, except that such
warrant shall be exercisable for the amount of the assets that would have been
payable to the holder of this Warrant pursuant to the Distribution had the
holder exercised this Warrant immediately prior to such record date and with an
exercise price equal to the amount by which the exercise price of this Warrant
was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding clause (i).

            (f)   Certain Events. If any event occurs of the type contemplated
by the provisions of this Section 9 but not expressly provided for by such
provisions (including the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Company's Board of
Directors will make an appropriate adjustment in the Warrant Exercise Price and
the number of shares of Common Stock obtainable upon exercise of this Warrant so
as to protect the rights of the holders of the SPA Warrants; provided that no
such

                                      -16-
<PAGE>

adjustment will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 9.

            (g)   Notices.

                  (i)   Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.

                  (ii)  The Company will give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.

                  (iii) The Company will also give written notice to the holder
of this Warrant at least ten (10) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.

      Section 10. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale. (a) In addition to any adjustments pursuant to
Section 9 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of its capital stock
(the "PURCHASE RIGHTS"), then the holder of this Warrant will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights that such holder could have acquired if such holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

                  (b)   Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction that is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "ACQUIRING ENTITY") a written agreement (in form and substance
satisfactory to the holders of SPA Warrants representing at least two-thirds
(2/3) of the shares of Common Stock obtainable upon exercise of the SPA Warrants
then outstanding) to deliver to each holder of SPA Warrants in exchange for each
such SPA Warrant, a security of the Acquiring Entity evidenced by a written
instrument substantially similar in form and substance

                                      -17-
<PAGE>

to this Warrant and satisfactory to the holders of such SPA Warrant (including,
an adjusted warrant exercise price equal to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, and exercisable
for a corresponding number of shares of Common Stock acquirable and receivable
upon exercise of such SPA Warrant (without regard to any limitations on
exercises), if the value so reflected is less than the Warrant Exercise Price in
effect immediately prior to such consolidation, merger or sale). Prior to the
consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance satisfactory to the holders of such SPA
Warrants representing at least two-thirds (2/3) of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding) to ensure that
each of the holders of the SPA Warrants will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's SPA Warrants (without regard to any limitations on
exercises), such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock that would have been acquirable and receivable
upon the exercise of such holder's Warrant as of the date of such Organic Change
(without taking into account any limitations or restrictions on the
exerciseability of this Warrant).

      Section 11. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt
of an indemnification undertaking (or in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.

      Section 12. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:

            If to the Company:

                  Galaxy Energy Corporation
                  1331 17th Street, Suite 730
                  Denver, CO  80202
                  Telephone:   303-293-2300
                  Facsimile:   303-293-2417
                  Attention:   Chief Executive Officer

            With copy to:

                  Dill Dill Carr Stonbraker & Hutchings, P.C.
                  455 Sherman Street, Suite 300
                  Denver, Colorado  80203
                  Telephone:   303-777-3737
                  Facsimile:   303-777-3823

                                      -18-
<PAGE>

                  Attention:   Fay Matsukage, Esq.

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

      Section 13. Limitation on Number of Warrant Shares. Prior to the date on
which Shareholder Approval (as defined in Section 4(k) of the Securities
Purchase Agreement) has been obtained, the Company shall not be obligated to
issue any Warrant Shares upon exercise of the SPA Warrants if the issuance of
such shares of Common Stock would exceed that number of Warrant Shares which the
Company may issue upon exercise of the SPA Warrants (the "EXCHANGE CAP") without
breaching the Company's obligations under the rules or regulations of the
Principal Market, if at the time of any determination, the Common Stock is
listed on a national securities exchange or quoted on the NASDAQ National Market
or NASDAQ SmallCap Market, except that such limitation shall not apply in the
event that the Company obtains a written opinion from outside counsel to the
Company that approval of the Company's shareholders is not required under the
applicable rules of the Principal Market, which opinion shall be reasonably
satisfactory to the holders representing at least two-thirds (2/3) of the
Warrant Shares then issuable upon exercise of outstanding SPA Warrants. Until
Shareholder Approval or such written opinion is obtained, no holder of SPA
Warrants shall be issued, upon exercise of the SPA Warrants, Warrant Shares in
an amount greater than such holder's Cap Allocation Amount (as defined in the
Notes). In the event that any holder of SPA Warrants shall sell or otherwise
transfer any of such SPA Warrants, the transferee shall be allocated a pro rata
portion of such holder's Cap Allocation Amount. In the event that, after the
Initial Closing Date (as defined in the Securities Purchase Agreement), any
holder of the SPA Warrants shall convert all of such holder's Notes and exercise
all of such holder's SPA Warrants into a number of shares of Common Stock which,
in the aggregate, is less than such holder's Cap Allocation Amount, then the
difference between such holder's Cap Allocation Amount and the number of Warrant
Shares and Conversion Shares (as defined in the Securities Purchase Agreement)
actually issued to such holder shall be allocated to the respective Cap
Allocation Amounts of the remaining holders of SPA Warrants and Notes on a pro
rata basis in proportion to the Warrant Shares and Conversion Shares issuable
upon exercise and conversion of the SPA Warrants and the Notes, respectively,
then held by each such holder. In the event that upon the delivery of an
Exercise Notice the Company is prohibited from issuing Warrant Shares as a
result of the operation of this Section 13, the Company shall repurchase for
cash, within five (5) Business Days, the portion of this Warrant with respect to
which Warrant Shares cannot be issued as result of this Section 13, at a price
per Warrant Share equal to the difference between the Weighted

                                      -19-
<PAGE>

Average Price of the Common Stock and the Warrant Exercise Price of such Warrant
Shares as of the date of the attempted exercise.

      Section 14. Date. The date of this Warrant is August 19, 2004 (the
"WARRANT DATE"). This Warrant, in all events, shall be wholly void and of no
effect after 11:59 P.M., New York Time, on the Expiration Date, except that
notwithstanding any other provisions hereof, the provisions of Section 8 shall
continue in full force and effect after such date as to any Warrant Shares or
other securities issued upon the exercise of this Warrant.

      Section 15. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the SPA Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of SPA Warrants representing at least two-thirds (2/3) of the shares of
Common Stock obtainable upon exercise of the SPA Warrants then outstanding;
provided that no such action may increase the Warrant Exercise Price of any SPA
Warrant or decrease the number of shares or change the class of stock obtainable
upon exercise of any SPA Warrant without the written consent of the holder of
such SPA Warrant.

      Section 16. Descriptive Headings; Governing Law. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. All questions
concerning the construction, validity, enforcement and interpretation of this
Warrant shall be governed by the internal laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.

      Section 17. Rules of Construction. Unless the context otherwise requires,
(a) all references to Sections, Schedules or Exhibits are to Sections, Schedules
or Exhibits contained in or attached to this Warrant, (b) each accounting term
not otherwise defined in this Warrant has the meaning assigned to it in
accordance with GAAP, (c) words in the singular or plural include the singular
and plural and pronouns stated in either the masculine, the feminine or neuter
gender shall include the masculine, feminine and neuter and (d) the use of the
word "including" in this Warrant shall be by way of example rather than
limitation.

                                      -20-
<PAGE>

      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
Cecil D. Gritz, its Chief Operating Officer, as of the 19th day of August, 2004.

                                            GALAXY ENERGY CORPORATION

                                            By: ________________________________
                                            Name:  Cecil D. Gritz
                                            Title: Chief Operating Officer

                                      -21-
<PAGE>

                              EXHIBIT A TO WARRANT

                                 EXERCISE NOTICE

        TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

                            GALAXY ENERGY CORPORATION

      The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Galaxy
Energy Corporation, a Colorado corporation (the "COMPANY"), evidenced by the
attached Warrant (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

      1. Form of Warrant Exercise Price. The holder intends that payment of the
Warrant Exercise Price shall be made as:

          ____________     a "CASH EXERCISE" with respect to _________________
                           Warrant Shares; and/or

          ____________     a "CASHLESS  EXERCISE"  with  respect to  ___________
                           Warrant  Shares (to the extent permitted by the terms
                           of the Warrant).

      2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the
sum of $___________________ to the Company in accordance with the terms of the
Warrant.

      3. Delivery of Warrant Shares. The Company shall deliver __________
Warrant Shares in accordance with the terms of the Warrant in the following name
and to the following address:

Issue to:_______________________________________________________________________

      Facsimile Number: ________________________________________________________

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

      Account Number (if electronic book entry transfer):_______________________

Date: _______________ __, ______

  Name of Registered Holder

By: ____________________________
Name:
Title:

                                      -22-
<PAGE>

                                 ACKNOWLEDGMENT

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

                                                GALAXY ENERGY CORPORATION

                                                By: ____________________________
                                                Name: __________________________
                                                Title: _________________________

                                      -23-
<PAGE>

                              EXHIBIT B TO WARRANT

                              FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Galaxy Energy Corporation., a
Colorado corporation, represented by warrant certificate no. _____, standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint ______________, attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.

Dated: _________, 200_

                                                ________________________________

                                                Name:  _________________________
                                                Title: _________________________

                                      -24-<PAGE>

                                                                    EXHIBIT 10.5

                          REGISTRATION RIGHTS AGREEMENT

      REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of August 19,
2004, by and among Galaxy Energy Corporation, a Colorado corporation, with
headquarters located at 1331-17th Street, Suite 730, Denver, Colorado 80202 (the
"COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively, the
"BUYERS").

      WHEREAS:

      A.    In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell at the Initial Closing (as
defined in the Securities Purchase Agreement) to the Buyers (i) convertible
notes of the Company (including accrued and unpaid interest thereon, the
"INITIAL NOTES"), which will be convertible into shares of the Company's common
stock, $0.001 par value per share (the "COMMON STOCK") in accordance with the
terms of the Initial Notes (the shares of Common Stock issuable upon conversion
of the Initial Notes being referred to as the "INITIAL CONVERSION SHARES"), and
(ii) warrants to purchase shares of Common Stock (the "INITIAL WARRANTS"; and
the shares of Common Stock issuable upon exercise of the Initial Warrants being
referred to herein as the "INITIAL WARRANT SHARES");

      B.    In connection with the Securities Purchase Agreement, the Company
has agreed, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to issue and sell at the Conditional Closing (as defined in
the Securities Purchase Agreement) to the Buyers (i) convertible notes of the
Company (including accrued and unpaid interest thereon, the "CONDITIONAL NOTES"
and collectively with the Initial Notes, the "Notes"), which will be convertible
into shares of Common Stock in accordance with the terms of the Conditional
Notes (the shares of Common Stock issuable upon conversion of the Conditional
Notes being referred to as the "CONDITIONAL CONVERSION SHARES");

      C.    In connection with the transactions contemplated by the Securities
Purchase Agreement, the Company has agreed to issue to the Buyers additional
warrants to purchase shares of Common Stock upon the terms and subject to the
conditions in the Transaction Documents (any such additional warrants, the
"REPLACEMENT WARRANTS"; and the shares of Common Stock issuable upon exercise of
the Replacement Warrants being referred to herein as "REPLACEMENT WARRANT
SHARES); and

      D.    To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the Buyers
hereby agree as follows:

<PAGE>

      1.    DEFINITIONS.

            As used in this Agreement, the following terms shall have the
following meanings:

            a.    "CONDITIONAL REGISTRABLE SECURITIES" means (i) the Conditional
Conversion Shares issued or issuable upon conversion of the Conditional Notes
(including any principal thereof or interest thereon), and (ii) any shares of
capital stock issued or issuable with respect to the Conditional Conversion
Shares or the Conditional Notes as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitations on conversions of Conditional Notes; provided, however, that any
such Conditional Registrable Securities shall cease to be Conditional
Registrable Securities when a Registration Statement with respect to the sale of
such securities becomes effective under the 1933 Act and such securities are
disposed of in accordance with such Registration Statement, (b) such securities
are sold in accordance with Rule 144 or (c) such securities become transferable
without any restrictions in accordance with Rule 144(k) (or any successor
provision).

            b.    "CONDITIONAL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering the Conditional Registrable Securities.

            c.    "CONVERSION SHARES" means the Initial Conversion Shares and
the Conditional Conversion Shares.

            d.    "EFFECTIVENESS DEADLINE" means the Initial Effectiveness
Deadline, the Conditional Effectiveness Deadline, a Replacement Warrant
Effectiveness Deadline, an Additional Effectiveness Deadline, an Additional
Conditional Effectiveness Deadline or an Additional Replacement Warrant
Effectiveness Deadline (each as defined below), as applicable.

            e.    "FILING DEADLINE" means the Initial Filing Deadline, the
Conditional Filing Deadline, a Replacement Warrant Filing Deadline, an
Additional Filing Deadline, an Additional Conditional Filing Deadline or an
Additional Replacement Warrant Filing Deadline (each as defined below), as
applicable.

            f.    "INITIAL REGISTRABLE SECURITIES" means (i) the Initial
Conversion Shares issued or issuable upon conversion of the Initial Notes
(including any principal thereof or interest thereon), (ii) the Initial Warrant
Shares issued or issuable upon exercise of the Initial Warrants and (iii) any
shares of capital stock issued or issuable with respect to the Initial
Conversion Shares, the Initial Notes, the Initial Warrant Shares and the Initial
Warrants as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise, without regard to any limitations on
conversions of Initial Notes or exercises of Initial Warrants; provided,
however, that any such Initial Registrable Securities shall cease to be Initial
Registrable Securities when a Registration Statement with respect to the sale of
such securities becomes effective under the 1933 Act and such securities are
disposed of in accordance with such Registration Statement, (b) such securities
are sold in accordance with Rule 144 or (c) such securities become transferable
without any restrictions in accordance with Rule 144(k) (or any successor
provision).

                                       2
<PAGE>

            g.    "INITIAL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering the Initial Registrable Securities.

            h.    "INVESTOR" means a Buyer, any transferee or assignee thereof
to whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.

            i.    "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a governmental or any department or agency thereof.

            j.    "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis ("RULE 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").

            k.    "REGISTRABLE SECURITIES" means the Initial Registrable
Securities, the Conditional Registrable Securities and the Replacement Warrant
Registrable Securities, as applicable.

            l.    "REGISTRATION STATEMENT" means the Initial Registration
Statement, the Conditional Registration Statement and any Replacement Warrant
Registration Statement, as applicable.

            m.    "REPLACEMENT WARRANT REGISTRABLE SECURITIES" means all
Replacement Warrant Shares issued or issuable upon exercise of any Replacement
Warrants and (ii) any shares of capital stock issued or issuable with respect to
the Replacement Warrant Shares and the Replacement Warrants as a result of any
stock split, stock dividend, recapitalization, exchange or similar event or
otherwise, without regard to any limitations on the exercises of Replacement
Warrants; provided, however, that any such Replacement Warrant Registrable
Securities shall cease to be Replacement Warrant Registrable Securities when a
Registration Statement with respect to the sale of such securities becomes
effective under the 1933 Act and such securities are disposed of in accordance
with such Registration Statement, (b) such securities are sold in accordance
with Rule 144 (as defined in Section 8) or (c) such securities become
transferable without any restrictions in accordance with Rule 144(k) (or any
successor provision).

            n.    "REPLACEMENT WARRANT REGISTRATION STATEMENT" means a
registration statement or registration statements of the Company filed under the
1933 Act covering Replacement Warrant Registrable Securities.

            o.    "TRADING DAY" means any day on which the Common Stock is
traded on the principal securities exchange or securities market on which the
Common Stock is then

                                       3
<PAGE>

traded; provided that "Trading Day" shall not include any day on which the
Common Stock is scheduled to trade, or actually trades, on such exchange or
market for less than 4.5 hours.

            p.    "WARRANTS" means the Initial Warrants and any Replacement
Warrants.

            q.    "WARRANT SHARES" means the Initial Warrant Shares and any
Replacement Warrant Shares.

Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.

      2.    REGISTRATION.

            a.    i.    Initial Mandatory Registration. The Company shall
prepare, and, as soon as practicable but in no event later than thirty (30) days
after the Initial Closing Date (the "INITIAL FILING DEADLINE"), file with the
SEC a Registration Statement on Form SB-2 (or on Form S-3, if Form S-3 is then
available for the registration of the resale of the Registrable Securities
hereunder), covering the resale of all of the Initial Registrable Securities.
The Initial Registration Statement prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to the sum of (x)
110% of the number of Initial Warrant Shares issuable upon exercise of all the
outstanding Initial Warrants as of the second Trading Day immediately preceding
the date the Initial Registration Statement is initially filed with the SEC and
(y) 175% of the greater of (A) $15,000,000 divided by the arithmetic average of
the Weighted Average Price (as defined in the Notes) of the Common Stock on each
of the five (5) consecutive Trading Days ending on the second Trading Day
immediately preceding the date the Initial Registration Statement is initially
filed with the SEC and (B) the number of Initial Conversion Shares issuable upon
conversion of all the outstanding Initial Notes as of the second Trading Day
immediately preceding the date the Initial Registration Statement is initially
filed with the SEC, subject to adjustment as provided in Section 2(e). The
calculations set forth in this paragraph shall be made without regard to any
limitations on the conversion of the Notes or exercise of the Warrants, and such
calculations shall assume that the Notes and Warrants are then convertible and
exercisable, respectively, into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Notes), except as provided above, and Warrant
Exercise Price (as defined in the Warrants), respectively. The Company shall use
its best efforts to have the Initial Registration Statement declared effective
by the SEC as soon as practicable, but in no event later than the date which is
one hundred twenty (120) days after the Initial Closing Date (the "INITIAL
EFFECTIVENESS DEADLINE").

                  ii.   Conditional Mandatory Registration. The Company shall
prepare, and, as soon as practicable but in no event later than ten (10) days
after the Conditional Closing Date (the "CONDITIONAL FILING DEADLINE"), file
with the SEC a Registration Statement on Form SB-2 (or on Form S-3, if Form S-3
is then available for the registration of the resale of the Registrable
Securities hereunder), covering the resale of all of the Conditional Registrable
Securities. The Conditional Registration Statement prepared pursuant hereto
shall register for resale at least that number of shares of Common Stock equal
to 175% of the greater of (A) $5,000,000 divided by the arithmetic average of
the Weighted Average Price of the Common Stock on each of the five (5)
consecutive Trading Days ending on the second Trading Day

                                       4
<PAGE>

immediately preceding the date the Conditional Registration Statement is
initially filed with the SEC and (B) the number of Conditional Conversion Shares
issuable upon conversion of all the outstanding Conditional Notes as of the
second Trading Day immediately preceding the date the Conditional Registration
Statement is initially filed with the SEC, subject to adjustment as provided in
Section 2(e). The calculations set forth in this paragraph shall be made without
regard to any limitations on the conversion of the Notes, and such calculations
shall assume that the Notes are then convertible into shares of Common Stock at
the then prevailing Conversion Rate, except as provided above. The Company shall
use its best efforts to have the Conditional Registration Statement declared
effective by the SEC as soon as practicable, but in no event later than the date
which is seventy-five (75) days after the Conditional Closing Date (the
"CONDITIONAL EFFECTIVENESS DEADLINE").

                  iii.  Replacement Warrant Mandatory Registration. The Company
shall prepare, and, as soon as practicable but in no event later than ten (10)
days after the issuance of each Replacement Warrant (each, a "REPLACEMENT
WARRANT FILING DEADLINE"), file with the SEC a Registration Statement on Form
SB-2 (or on Form S-3, if Form S-3 is then available for the registration of the
resale of the Registrable Securities hereunder), covering the resale of all of
the Replacement Warrant Registrable Securities. Each Replacement Warrant
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to 110% of the number of
Replacement Warrant Shares issuable upon the exercise of such Replacement
Warrant as of the second Trading Day immediately proceeding the date the
Replacement Warrant Registration Statement is initially filed with the SEC,
subject to adjustment as provided in Section 2(e). The calculation set forth in
this paragraph shall be made without regard to any limitations on the exercise
of the Warrants, and such calculation shall assume that the Warrants are then
exercisable into shares of Common Stock at the then prevailing Warrant Exercise
Price. The Company shall use its best efforts to have such Replacement Warrant
Registration Statement declared effective by the SEC as soon as practicable, but
in no event later than the date which is seventy-five (75) days after the
issuance of such Replacement Warrant (each, a "REPLACEMENT WARRANT EFFECTIVENESS
DEADLINE").

            b.    Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of such Registrable Securities held
by each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Investor's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement. For purposes hereof, the number of Registrable
Securities held by an Investor includes all Registrable Securities issuable upon
the conversion of Notes and the exercise of Warrants held by such Investor,
without regard to any limitations on conversion of the Notes or exercise of the
Warrants.

                                       5
<PAGE>

            c.    Legal Counsel. Subject to Section 5 hereof, the Buyers holding
securities representing at least two-thirds (2/3) of the Registrable Securities
shall have the right to select one legal counsel to review and oversee any
offering pursuant to this Section 2 ("LEGAL COUNSEL"), which shall be Katten
Muchin Zavis Rosenman or such other counsel as thereafter designated by the
holders of securities representing at least two-thirds (2/3) of the Registrable
Securities. The Company shall reasonably cooperate with Legal Counsel in
performing the Company's obligations under this Agreement.

            d.    Ineligibility for Form S-3. In the event that Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.

            e.    Sufficient Number of Shares Registered.

                  i.    In the event the number of shares available under the
Initial Registration Statement filed pursuant to Section 2(a)(i) is insufficient
to cover all of the Initial Registrable Securities required to be covered by the
Initial Registration Statement or an Investor's allocated portion of such
Initial Registrable Securities pursuant to Section 2(b), the Company shall, as
soon as practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises (the "ADDITIONAL FILING DEADLINE"), amend the Initial
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to register for resale at
least that number of shares of Common Stock equal to the sum of (x) 110% of the
number of Initial Warrant Shares issuable upon exercise of all the outstanding
Initial Warrants as of the second Trading Day immediately preceding the date of
the filing of such amendment or new Registration Statement with the SEC and (y)
175% of the greater of (A) the principal amount of the Initial Notes then
outstanding divided by the arithmetic average of the Weighted Average Price of
the Common Stock on each of the five (5) consecutive Trading Days immediately
preceding the date of the filing of such amendment or new Registration Statement
with the SEC and (B) the number of Initial Conversion Shares issuable upon
conversion of all the outstanding Initial Notes, as of the Trading Day
immediately preceding the date of the filing of such amendment or new
Registration Statement with the SEC. The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof, but in any event not later
than seventy-five (75) days following the filing thereof (the "ADDITIONAL
EFFECTIVENESS DEADLINE"). For purposes of the foregoing provision, the number of
shares available under the Initial Registration Statement shall be deemed
"insufficient to cover all of the Initial Registrable Securities" if as of any
date of determination the number of shares of Common Stock equal to the sum of
(x) 100% of the number of Initial Warrant Shares issuable as of such time upon
exercise of all the outstanding Initial Warrants and (y) 125% of the greater of
(A) the principal amount of the Initial Notes then outstanding divided by the
arithmetic average of the Weighted Average Price of the Common Stock on each of
the ten (10) consecutive Trading Days immediately preceding such date of
determination and (B) the number of Initial Conversion Shares issuable upon
conversion of all the outstanding Initial Notes as of the Trading Day
immediately preceding such date of determination is greater than the number of
shares of

                                       6
<PAGE>

Common Stock available for resale under such Registration Statement. The
calculations set forth in this paragraph shall be made without regard to any
limitations on the conversion of the Notes or exercise of the Warrants, and such
calculations shall assume that the Notes and the Warrants are then convertible
and exercisable, respectively, into shares of Common Stock at the then
prevailing Conversion Rate and Warrant Exercise Price, respectively.

                  ii.   In the event the number of shares available under the
Conditional Registration Statement filed pursuant to Section 2(a)(ii) is
insufficient to cover all of the Conditional Registrable Securities required to
be covered by the Conditional Registration Statement or an Investor's allocated
portion of such Conditional Registrable Securities pursuant to Section 2(b), the
Company shall, as soon as practicable, but in any event not later than fifteen
(15) days after the necessity therefor arises (the "ADDITIONAL CONDITIONAL
FILING DEADLINE"), amend the Conditional Registration Statement or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to register for resale at least that number of shares of Common
Stock equal to 175% of the greater of (A) the principal amount of the
Conditional Notes then outstanding divided by the arithmetic average of the
Weighted Average Price of the Common Stock on each of the five (5) consecutive
Trading Days immediately preceding the date of the filing of such amendment or
new Registration Statement with the SEC and (B) the number of Conditional
Conversion Shares issuable upon conversion of all the outstanding Conditional
Notes, as of the Trading Day immediately preceding the date of the filing of
such amendment or new Registration Statement with the SEC. The Company shall use
its best efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof, but in any
event not later than seventy-five (75) days following the filing thereof (the
"ADDITIONAL CONDITIONAL EFFECTIVENESS DEADLINE"). For purposes of the foregoing
provision, the number of shares available under the Conditional Registration
Statement shall be deemed "insufficient to cover all of the Conditional
Registrable Securities" if as of any date of determination the number of shares
of Common Stock equal to 125% of the greater of (A) the principal amount of the
Conditional Notes then outstanding divided by the arithmetic average of the
Weighted Average Price of the Common Stock on each of the ten (10) consecutive
Trading Days immediately preceding such date of determination and (B) the number
of Conditional Conversion Shares issuable upon conversion of all the outstanding
Conditional Notes as of the Trading Day immediately preceding such date of
determination is greater than the number of shares of Common Stock available for
resale under such Registration Statement. The calculations set forth in this
paragraph shall be made without regard to any limitations on the conversion of
the Notes, and such calculations shall assume that the Notes are then
convertible into shares of Common Stock at the then prevailing Conversion Rate.

                  iii.  In the event the number of shares available under an
Replacement Warrant Registration Statement filed pursuant to Section 2(a)(iii)
is insufficient to cover all of the Replacement Warrant Registrable Securities
required to be covered by the Replacement Warrant Registration Statement or an
Investor's allocated portion of such Replacement Warrant Registrable Securities
pursuant to Section 2(b), the Company shall, as soon as practicable, but in any
event not later than fifteen (15) days after the necessity therefor arises (an
"ADDITIONAL REPLACEMENT WARRANT FILING DEADLINE"), amend the Replacement Warrant
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to register for resale at
least that number of shares of Common Stock

                                       7
<PAGE>

equal to 110% of the number of Replacement Warrant Shares issuable upon exercise
of all the outstanding Replacement Warrants to which the Replacement Warrant
Registration Statement relates as of the second Trading Day immediately
preceding the date of the filing of such amendment or new Registration Statement
with the SEC. The Company shall use its best efforts to cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof, but in any event not later than seventy-five (75)
days following the filing thereof (an "ADDITIONAL REPLACEMENT WARRANT
EFFECTIVENESS DEADLINE"). For purposes of the foregoing provision, the number of
shares available under an Replacement Warrant Registration Statement shall be
deemed "insufficient to cover all of the Replacement Warrant Registrable
Securities" if as of any date of determination the number of shares of Common
Stock equal to 100% of the number of Replacement Warrant Shares issuable as of
such date of determination upon exercise of all the outstanding Replacement
Warrants to which the Replacement Warrant Registration Statement relates is
greater than the number of shares of Common Stock available for resale under
such Registration Statement. The calculations set forth in this paragraph shall
be made without regard to any limitations on the exercise of the Warrants, and
such calculations shall assume that the Warrants are then exercisable into
shares of Common Stock at the then prevailing Warrant Exercise Price.

            f.    Effect of Failure to File and Obtain and Maintain
Effectiveness of Registration Statement.

                  i.    If (i) a Registration Statement covering Initial
Registrable Securities and required to be filed by the Company pursuant to
Section 2(a)(i) or Section 2(e)(i) of this Agreement is not (A) filed with the
SEC on or before the applicable Filing Deadline or (B) declared effective by the
SEC on or before the applicable Effectiveness Deadline or (ii) on any day after
a Registration Statement has been declared effective by the SEC sales of all the
Initial Registrable Securities required to be included on such Registration
Statement cannot be made (other than during an Allowable Grace Period (as
defined in Section 3(t))) pursuant to such Registration Statement (including
because of a failure to keep the such Registration Statement effective, to
disclose such information as is necessary for sales to be made pursuant to such
Registration Statement or to register sufficient shares of Common Stock), then,
as partial relief for the damages to any holder of Initial Notes or Initial
Warrants by reason of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Company shall pay to such
holder an amount in cash equal to the product of (i) the sum of (A) the
principal amount of the Initial Notes held by such holder and (B) the total
Aggregate Exercise Price (as defined in the Initial Warrants) of all Initial
Warrants held by such holder and to which such Registration Statement relates,
multiplied by (ii) the sum of (A) 0.02, if such Registration Statement is not
filed by the applicable Filing Deadline, plus (B) 0.02, if such Registration
Statement is not declared effective by the applicable Effectiveness Deadline,
plus (C) the product of (I) 0.000667 multiplied by (II) the sum (without
duplication) of (x) the number of days after the applicable Filing Deadline that
such Registration Statement is not filed with the SEC, plus (y) the number of
days after the applicable Effectiveness Deadline that such Registration
Statement is not declared effective by the SEC, plus (z) the number of days
after such Registration Statement has been declared effective by the SEC that
such Registration Statement is not available (other than during an Allowable
Grace Period) for the sale of at least all the Initial Registrable Securities
required to be included on such Registration Statement pursuant to Section
2(e)(i).

                                       8
<PAGE>

                  ii.   If (i) a Registration Statement covering Conditional
Registrable Securities and required to be filed by the Company pursuant to
Section 2(a)(ii) or Section 2(e)(ii) of this Agreement is not (A) filed with the
SEC on or before the applicable Filing Deadline or (B) declared effective by the
SEC on or before the applicable Effectiveness Deadline or (ii) on any day after
such Registration Statement has been declared effective by the SEC sales of all
the Conditional Registrable Securities required to be included on such
Registration Statement cannot be made (other than during an Allowable Grace
Period) pursuant to such Registration Statement (including because of a failure
to keep such Registration Statement effective, to disclose such information as
is necessary for sales to be made pursuant to such Registration Statement or to
register sufficient shares of Common Stock), then, as partial relief for the
damages to any holder of Conditional Notes by reason of any such delay in or
reduction of its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to such holder an amount in cash equal to the
product of (i) the principal amount of the Conditional Notes held by such
holder, multiplied by (ii) the sum of (A) 0.02, if such Registration Statement
is not filed by the applicable Filing Deadline, plus (B) 0.02, if such
Registration Statement is not declared effective by the applicable Effectiveness
Deadline, plus (C) the product of (I) 0.000667 multiplied by (II) the sum
(without duplication) of (x) the number of days after the applicable Filing
Deadline that such Registration Statement is not filed with the SEC, plus (y)
the number of days after the applicable Effectiveness Deadline that such
Registration Statement is not declared effective by the SEC, plus (z) the number
of days after such Registration Statement has been declared effective by the SEC
that such Registration Statement is not available (other than during an
Allowable Grace Period) for the sale of at least all the Conditional Registrable
Securities required to be included on such Registration Statement pursuant to
Section 2(e)(ii).

                  iii.  If (i) a Registration Statement covering all the
Replacement Warrant Registrable Securities and required to be filed by the
Company pursuant to Section 2(a)(iii) or Section 2(e)(iii) of this Agreement is
not (A) filed with the SEC on or before the applicable Filing Deadline or (B)
declared effective by the SEC on or before the applicable Effectiveness Deadline
or (ii) on any day after such Registration Statement has been declared effective
by the SEC sales of all the Replacement Warrant Registrable Securities required
to be included on such Registration Statement cannot be made (other than during
an Allowable Grace Period) pursuant to such Registration Statement (including
because of a failure to keep such Registration Statement effective, to disclose
such information as is necessary for sales to be made pursuant to such
Registration Statement or to register sufficient shares of Common Stock), then,
as partial relief for the damages to any holder of Replacement Warrants by
reason of any such delay in or reduction of its ability to sell the underlying
shares of Common Stock (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to such holder an
amount in cash equal to the product of (i) the total Aggregate Exercise Price of
all Replacement Warrants held by such holder and to which such Registration
Statement relates, multiplied by (ii) the sum of (A) 0.02, if such Registration
Statement is not filed by the applicable Filing Deadline, plus (B) 0.02, if such
Registration Statement is not declared effective by the applicable Effectiveness
Deadline, plus (C) the product of (I) 0.000667 multiplied by (II) the sum
(without duplication) of (x) the number of days after the applicable Filing
Deadline that such Registration Statement is not filed with the SEC, plus (y)
the number of days after the applicable Effectiveness Deadline that such
Registration Statement is not declared effective by the SEC, plus (z) the number
of days after such Registration Statement has

                                       9
<PAGE>

been declared effective by the SEC that such Registration Statement is not
available (other than during an Allowable Grace Period) for the sale of at least
all the Replacement Warrant Registrable Securities required to be included on
such Registration Statement pursuant to Section 2(e)(iii).

                  iv.   The payments to which a holder shall be entitled
pursuant to this Section 2(f) are referred to herein as "REGISTRATION DELAY
PAYMENTS." Registration Delay Payments shall be paid on the earlier of (I) the
last day of the calendar month during which such Registration Delay Payments are
incurred and (II) the third Business Day after the event or failure giving rise
to the Registration Delay Payments is cured. In the event the Company fails to
make Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of the lesser of 2.0% per month
(prorated for partial months) or the highest lawful maximum interest rate, in
each case, until paid in full.

      3.    RELATED OBLIGATIONS.

            At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a) or 2(e), the Company will use
its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:

            a.    The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the applicable Registrable Securities
(but in no event later than the applicable Filing Deadline) and use its best
efforts to cause such Registration Statement relating to the Registrable
Securities to become effective as soon as practicable after such filing (but in
no event later than the applicable Effectiveness Deadline). The Company shall
keep each Registration Statement effective pursuant to Rule 415 at all times
until the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or successor thereto) promulgated under the
1933 Act or (ii) the date on which the Investors shall have sold all the
Registrable Securities covered by such Registration Statement (the "REGISTRATION
PERIOD"). Such Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. The term "best efforts"
shall mean, among other things, that the Company shall submit to the SEC, within
two (2) Business Days after the Company learns that no review of a particular
Registration Statement will be made by the staff of the SEC or that the staff
has no further comments on the Registration Statement, as the case may be, a
request for acceleration of effectiveness of such Registration Statement to a
time and date not later than 48 hours after the submission of such request.

            b.    The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all

                                       10
<PAGE>

Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company filing a report on Form 10-KSB, Form 10-K, Form 10-QSB,
Form 10-Q or Form 8-K or any analogous report under the Securities Exchange Act
of 1934, as amended (the "1934 ACT"), the Company shall have incorporated such
report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend
or supplement the Registration Statement.

            c.    The Company shall (A) permit Legal Counsel to review and
comment upon (i) the Initial Registration Statement and the Conditional
Registration Statement at least five (5) Business Days prior to its filing with
the SEC, and (ii) all other Registration Statements and all amendments and
supplements to all Registration Statements (except for Annual Reports on Form
10-K or Form 10-KSB, Quarterly Reports on Form 10-Q or 10-QSB and Current
Reports on Form 8-K and any similar or successor reports) within a reasonable
number of days prior to their filing with the SEC, and (B) not file any
document, registration statement, amendment or supplement described in the
foregoing clause (A) in a form to which Legal Counsel reasonably objects. The
Company shall not submit a request for acceleration of the effectiveness of a
Registration Statement or any amendment or supplement thereto without providing
prior notice thereof to Legal Counsel and each Investor. The Company shall
furnish to Legal Counsel, without charge, (i) promptly after the same is
prepared and filed with the SEC, one copy of any Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, and all exhibits and (ii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto. The
Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations pursuant to this Section 3.

            d.    The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, all
exhibits and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.

            e.    The Company shall use its best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by the Investors of the Registrable Securities covered by a Registration
Statement under the securities or "blue sky" laws of all the states of the
United States, (ii) prepare and file in those jurisdictions, such amendments
(including post-effective amendments) and supplements to such registrations and

                                       11
<PAGE>

qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (x) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(e) or (y) subject itself to general taxation in any such jurisdiction.
The Company shall promptly notify Legal Counsel and each Investor who holds
Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or "blue sky" laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.

            f.    The Company shall notify Legal Counsel and each Investor in
writing of the happening of any event, as promptly as practicable after becoming
aware of such event, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state 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 (provided that in no event shall such
notice contain any material, nonpublic information), and promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request). The Company shall also
promptly notify Legal Counsel and each Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile on the same day of such effectiveness and
by overnight mail), (ii) of any request by the SEC for amendments or supplements
to a Registration Statement or related prospectus or related information, and
(iii) of the Company's reasonable determination that a post-effective amendment
to a Registration Statement would be appropriate.

            g.    The Company shall use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if such an order or suspension is
issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify Legal Counsel and each Investor who holds
Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.

            h.    At the reasonable request (in the context of the securities
laws) of any Investor, the Company shall furnish to such Investor, on the date
of the effectiveness of the Registration Statement and thereafter from time to
time on such dates as an Investor may reasonably request (i) a letter, dated
such date, from the Company's independent certified public accountants in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
Investors, and (ii) an opinion, dated as of such date, of counsel representing
the Company for purposes of such

                                       12
<PAGE>

Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the Investors.

            i.    At the reasonable request (in the context of the securities
laws) of any Investor, the Company shall make available for inspection during
regular business hours by (i) any Investor, (ii) Legal Counsel and (iii) one
firm of accountants or other agents retained by the Investors (collectively, the
"INSPECTORS"), all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the "RECORDS"),
as shall be reasonably deemed necessary by each Inspector, and cause the
Company's officers, directors and employees to supply all information which any
Inspector may reasonably request; provided, however, that each Inspector shall
agree to hold in strict confidence and shall not make any disclosure (except to
an Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge. Each Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Each Inspector which exercises its rights under this Section 3(i)
shall be obligated to execute a non-disclosure agreement containing such
reasonable terms as the Company may request. The fees and expenses of the
Inspectors shall be borne by the applicable Investor.

            j.    The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

            k.    The Company shall use its best efforts to (i) remain eligible
for quotation of its securities on The NASDAQ Stock Market's OTC Bulletin Board
and to cause all of the Registrable Securities covered by a Registration
Statement to be quoted thereon, so long as such Registrable Securities are not
listed on a registered national securities exchange, the NASDAQ National Market
or the NASDAQ SmallCap Market, (ii) cause all the Registrable Securities covered
by a Registration Statement to be listed on each securities exchange or trading
market on which securities of the same class or series issued by the Company are
listed, if any, and

                                       13
<PAGE>

(iii) without limiting the generality of the foregoing, arrange for at least two
market makers to register with the National Association of Securities Dealers,
Inc. ("NASD") as such with respect to such Registrable Securities. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 3(k).

            l.    The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in such denominations
or amounts, as the case may be, as the Investors may reasonably request and
registered in such names as the Investors may request.

            m.    The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of the
applicable Registration Statement.

            n.    If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor requests to be included therein relating to the
sale and distribution of Registrable Securities, including information with
respect to the number of Registrable Securities being offered or sold, the
purchase price being paid therefor and any other terms of the offering of the
Registrable Securities to be sold in such offering; (ii) as soon as practicable
make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) as soon as
practicable, supplement or make amendments to any Registration Statement if
reasonably requested by an Investor of such Registrable Securities.

            o.    The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
in the United States as may be necessary to consummate the disposition of such
Registrable Securities.

            p.    The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of a Registration Statement.

            q.    The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.

            r.    Within two (2) Business Days after a Registration Statement
which covers applicable Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in substantially the form attached hereto as Exhibit A,
provided that if the

                                       14
<PAGE>

Company changes its transfer agent, it shall immediately deliver any previously
delivered notices under this Section 3(r) and any subsequent notices to such new
transfer agent.

            s.    The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by Investors of Registrable Securities
pursuant to a Registration Statement.

            t.    Notwithstanding anything to the contrary in Section 3(f), at
any time after the applicable Registration Statement has been declared effective
by the SEC, the Company may delay the disclosure of material non-public
information concerning the Company the disclosure of which at the time is not,
in the good faith opinion of the Board of Directors of the Company and its
counsel, in the best interest of the Company and, in the opinion of counsel to
the Company, otherwise required (a "GRACE PERIOD"); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material
non-public information giving rise to a Grace Period (provided that in each
notice the Company shall not disclose the content of such material non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that no Grace Period shall exceed fifteen (15)
consecutive days and during any 365 day period such Grace Periods shall not
exceed an aggregate of thirty (30) days and the first day of any Grace Period
must be at least two (2) Trading Days after the last day of any prior Grace
Period (an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of
a Grace Period above, the Grace Period shall begin on and include the date the
holders receive the notice referred to in clause (i) and shall end on and
include the later of the date the holders receive the notice referred to in
clause (ii) and the date referred to in such notice. The provisions of Section
3(g) hereof shall not be applicable during the period of any Allowable Grace
Period. Upon expiration of the Grace Period, the Company shall again be bound by
the first sentence of Section 3(f) with respect to the information giving rise
thereto unless such material non-public information is no longer applicable.

      4.    OBLIGATIONS OF THE INVESTORS.

            a.    At least seven (7) Business Days prior to the first
anticipated filing date of a Registration Statement and at lease five (5)
Business Days prior to the filing of any amendment or supplement to a
Registration Statement, the Company shall notify each Investor in writing of the
information, if any, the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement or, with respect to an amendment or a supplement,
if such Investor's Registrable Securities are included in such Registration
Statement (each an "INFORMATION REQUEST"). Provided that the Company shall have
complied with its obligations set forth in the preceding sentence, it shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company, in response to an Information Request, such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.

                                       15
<PAGE>

            b.    Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.

            c.    Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f) or written notice from the Company of a Grace Period,
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to any Registration Statement(s) covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(g) or the first sentence of 3(f) or receipt
of notice that no supplement or amendment is required or that the Grace Period
has ended. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.

      5.    EXPENSES OF REGISTRATION.

            All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including all registration, listing
and qualifications fees, printers and accounting fees, and fees and
disbursements of counsel for the Company shall be paid by the Company. The
Company shall also reimburse the Investors for the reasonable fees and
disbursements of Legal Counsel in connection with registration, filing or
qualification pursuant to Sections 2 and 3 of this Agreement.

      6.    INDEMNIFICATION.

            In the event any Registrable Securities are included in a
Registration Statement under this Agreement:

            a.    To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act or the 1934
Act (each, an "INDEMNIFIED PERSON"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys'
fees, amounts paid in settlement or expenses, joint or several, (collectively,
"CLAIMS") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged

                                       16
<PAGE>

untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under the securities or other "blue sky" laws of
any jurisdiction in which Registrable Securities are offered ("BLUE SKY
FILING"), or the omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any material violation
of this Agreement by the Company (the matters in the foregoing clauses (i)
through (iv) being, collectively, "VIOLATIONS"). Subject to Section 6(c), the
Company shall reimburse the Indemnified Persons, promptly as such expenses are
incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person for such Indemnified Person expressly
for use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto if such prospectus was timely made
available by the Company pursuant to Section 3(d); (ii) with respect to any
preliminary prospectus, shall not inure to the benefit of any such person from
whom the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(d), and the Indemnified Person was promptly advised in
writing not to use the incorrect preliminary prospectus prior to the use giving
rise to a violation and such Indemnified Person, notwithstanding such advice,
used it; (iii) shall not be available to the extent such Claim is based on a
failure of the Investor to deliver or to cause to be delivered the prospectus
made available by the Company, if such prospectus was timely made available by
the Company pursuant to Section 3(d); and (iv) shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.

            b.    In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each an "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which
any of them may

                                       17
<PAGE>

become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claim or Indemnified Damages arise out of or are based upon any Violation, in
each case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and, subject to Section 6(c), such Investor will reimburse any legal
or other expenses reasonably incurred by an Indemnified Party in connection with
investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6(b) and the agreement with respect to
contribution contained in Section 7 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld;
provided, further, however, that the aggregate liability of the Investor in
connection with any Violation shall not exceed the net proceeds to such Investor
as a result of the sale of Registrable Securities pursuant to the Registration
Statement giving rise to such Claim. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.

            c.    Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
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 similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be. In any such proceeding, any
Indemnified Person or Indemnified Party may retain its own counsel, but, except
as provided in the following sentence, the fees and expenses of that counsel
will be at the expense of that Indemnified Person or Indemnified Party, as the
case may be, unless (i) the indemnifying party and the Indemnified Person or
Indemnified Party, as applicable, shall have mutually agreed to the retention of
that counsel, (ii) the indemnifying party does not assume the defense of such
proceeding in a timely manner or (iii) in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel for the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The Company shall pay reasonable fees for up to one
separate legal counsel for the Investors, and such legal counsel shall be
selected by the Investors holding at least two-thirds (2/3) in interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates. The Indemnified Party or Indemnified Person shall cooperate fully with
the indemnifying party in connection with any negotiation or defense of any such
action or Claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or Claim. The indemnifying party
shall keep the Indemnified Party or

                                       18
<PAGE>

Indemnified Person fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto. No indemnifying party shall
be liable for any settlement of any action, claim or proceeding effected without
its prior written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise with respect to any pending or threatened action or claim in respect
of which indemnification or contribution may be or has been sought hereunder
(whether or not the Indemnified Party or Indemnified Person is an actual or
potential party to such action or claim) which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.

            d.    The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.

            e.    The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

      7.    CONTRIBUTION.

            To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no Person involved in the sale of Registrable Securities which Person is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale, shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited to an amount equal to the net amount of
proceeds received by such seller from the sale of such Registrable Securities
pursuant to the Registration Statement giving rise to such action or claim for
indemnification less the amount of any damages that such seller has otherwise
been required to pay in connection with such sale.

                                       19
<PAGE>

      8.    REPORTS UNDER THE 1934 ACT.

            With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:

            a.    make and keep public information available, as those terms are
understood and defined in Rule 144;

            b.    file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and

            c.    furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.

      9.    ASSIGNMENT OF REGISTRATION RIGHTS.

            The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such transfer or assignment; (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of (a) the name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being transferred
or assigned; (iii) immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is restricted under
the 1933 Act and applicable state securities laws; (iv) at or before the time
the Company receives the written notice contemplated by clause (ii) of this
sentence, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein; and (v) such transfer shall
have been made in accordance with the applicable requirements of the Securities
Purchase Agreement.

      10.   AMENDMENT OF REGISTRATION RIGHTS.

            Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities.

                                       20
<PAGE>

No consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.

      11.   MISCELLANEOUS.

            a.    A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.

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

            If to the Company:

                  Galaxy Energy Corporation
                  1331 17th Street, Suite 730
                  Denver, CO  80202
                  Telephone:   303-293-2300
                  Facsimile:   303-293-2417
                  Attention:   Chief Executive Officer

            With a copy to:

                  Dill Dill Carr Stonbraker & Hutchings, P.C.
                  455 Sherman Street, Suite 300
                  Denver, Colorado  80203
                  Telephone:   303-777-3737
                  Facsimile:   303-777-3823
                  Attention:   Fay Matsukage, Esq.

            If to Legal Counsel:

                  Katten Muchin Zavis Rosenman
                  525 West Monroe Street, Suite 1600
                  Chicago, Illinois 60661-3693
                  Telephone:  312-902-5200
                  Facsimile:  312-902-1061
                  Attention:  Mark D. Wood, Esq.

                                       21
<PAGE>

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or, in the case of a Buyer or other party named
above, to such other address and/or facsimile number and/or to the attention of
such other person as the recipient party has specified by written notice given
to each other party at least five (5) days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or deposit with a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively. Notwithstanding the foregoing, the Company or
its counsel may transmit versions of any Registration Statement (or any
amendments or supplements thereto) to Legal Counsel in satisfaction of its
obligations under Section 3(c) to permit Legal Counsel to review such
registration statement prior to filing (and solely for such purpose) by email to
mark.wood@kmzr.com and greg.jansen@kmzr.com, provided that delivery and receipt
of such transmission shall be confirmed by electronic, telephonic or other
means.

            c.    Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

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

                                       22
<PAGE>

            e.    This Agreement and the other Transaction Documents constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement and the other Transaction Documents supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.

            f.    Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.

            g.    The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

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

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

            j.    All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding at least two-thirds (2/3) of the
Registrable Securities, determined as if all of the Notes and the Warrants then
outstanding have been converted into or exercised for Registrable Securities
without regard to any limitations on conversion of the Notes or the exercise of
the Warrants. Any consent or other determination approved by Investors as
provided in the immediately preceding sentence shall be binding on all
Investors.

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

            l.    This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns and, to the extent
provided in Sections 6(a) and 6(b) hereof, each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act and the 1934
Act and each of the Company's directors, each of the Company's officers who
signs the Registration Statement, and each Person, if any, who controls the
Company within the meaning of the 1933 Act and the 1934 Act, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

                                       23
<PAGE>

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

                                   * * * * * *

                                       24
<PAGE>

      IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.

COMPANY:                                BUYERS:

GALAXY ENERGY CORPORATION               HFTP INVESTMENT L.L.C.
                                        By: Promethean Asset Management L.L.C.
                                            Its: Investment Manager

By: /s/ Marc E. Bruner
   ------------------------------
   Name:  Marc E. Bruner
   Title: Chief Executive Officer
                                        By: /s/ Robert J. Brantman
                                           ------------------------------
                                            Name:  Robert J. Brantman
                                            Title: Authorized Signatory

      JACQUELINE M. BROOKS              GAIA OFFSHORE MASTER FUND, LTD.
     MY COMMISSION # DD 127394          By: Promethean Asset Management L.L.C.
     EXPIRES: June 20, 2008                 Its: Investment Manager
Bonded Thru Notary Public Underwriters
  /s/ Jacqueline M. Brooks              By: /s/ Robert J. Brantman
 ---------------------------               ------------------------------
     August 19, 2004                        Name:  Robert J. Brantman
                                            Title: Authorized Signatory

                                        CAERUS FUND LTD.
                                        By: Promethean Asset Management L.L.C.
                                            Its: Investment Manager

                                        By: /s/ Robert J. Brantman
                                           ------------------------------
                                            Name:  Robert J. Brantman
                                            Title: Authorized Signatory

<PAGE>

                                        AG DOMESTIC CONVERTIBLES, L.P
                                        By: AG Domestic Convertibles, GP, L.L.C.
                                            Its: General Partner
                                        By: Angelo, Gordon & Co., L.P.
                                            Managing Member

                                        By: /s/ Joseph R. Wekselblatt
                                            -----------------------------------
                                            Name:  JOSEPH R. WEKSELBLATT
                                            Title: CHIEF FINANCIAL OFFICER

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

                                        By: /s/ Joseph R. Wekselblatt
                                            -----------------------------------
                                            Name:  JOSEPH R. WEKSELBLATT
                                            Title: CHIEF FINANCIAL OFFICER

<PAGE>

                               SCHEDULE OF BUYERS

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

Gaia Offshore Master Fund, Ltd.     c/o Promethean Asset Management L.L.C.     Katten Muchin Zavis Rosenman
                                    750 Lexington Avenue, 22nd Floor           525 W. Monroe Street
                                    New York, New York 10022                   Chicago, Illinois 60661-3693
                                    Attention: Robert J. Brantman              Attention: Mark D. Wood, Esq.
                                    Telephone: 212-702-5200                    Telephone: (312) 902-5200
                                    Facsimile: (212) 758-9620                  Facsimile: (312) 902-1061

Caerus Fund Ltd.                    c/o Promethean Asset Management L.L.C.     Katten Muchin Zavis Rosenman
                                    750 Lexington Avenue, 22nd Floor           525 W. Monroe Street
                                    New York, New York 10022                   Chicago, Illinois 60661-3693
                                    Attention: Robert J. Brantman              Attention: Mark D. Wood, Esq.
                                    Telephone: 212-702-5200                    Telephone: (312) 902-5200
                                    Facsimile: (212) 758-9620                  Facsimile: (312) 902-1061

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

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

<PAGE>

                                                                       EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[TRANSFER AGENT]
ATTN:

            RE:   GALAXY ENERGY CORPORATION

Ladies and Gentlemen:

      We are counsel to Galaxy Energy Corporation, a Colorado corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by and
among the Company and the buyers named therein (collectively, the "HOLDERS")
pursuant to which the Company issued to the Holders convertible notes (the
"NOTES"), convertible into shares of the Company's common stock, $0.001 par
value per share (the "COMMON STOCK"), and warrants to purchase shares of Common
Stock, subject to adjustment (the "WARRANTS"). Pursuant to the Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the
Company agreed, among other things, to register the Registrable Securities (as
defined in the Registration Rights Agreement), including the shares of Common
Stock issuable upon conversion of the Notes and exercise of the Warrants, under
the Securities Act of 1933, as amended (the "1933 ACT"). In connection with the
Company's obligations under the Registration Rights Agreement, on ____________
___, 200_, the Company filed a Registration Statement on Form [S-__] (File No.
333-_____________) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.

      In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.

                                           Very truly yours,

                                           [ISSUER'S COUNSEL]

                                           By:_____________________________

cc:   [LIST NAMES OF HOLDERS]

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