8-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                    FORM 8-K

                                 CURRENT REPORT
                     PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934



       DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) April 5, 2004



                          CADENCE RESOURCES CORPORATION
                       (FORMERLY ROYAL SILVER MINES, INC.)
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                  UTAH                                   87-0306609
       (STATE OR OTHER JURISDICTION                    (IRS EMPLOYER
             OF INCORPORATION)                       IDENTIFICATION NO)

                        6 EAST ROSE STREET, P.O. BOX 2056
                          WALLA WALLA, WASHINGTON 99362
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE.)


                                  509-526-3491
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE.)


ITEM  9.  REGULATION  FD  DISCLOSURE.

ON APRIL 5, 2004, WE ISSUED A PRESS RELEASE ANNOUNCING THE COMPLETION OF A
PRIVATE PLACEMENT OF SECURED NOTES TOTALING $6,000,000, BEARING INTEREST AT THE
RATE OF 10%, AND DUE ON MARCH 31, 2006.

THE INVESTORS IN THE FINANCING WERE ISSUED 765,000 WARRANTS TO PURCHASE SHARES
OF COMMON STOCK FOR A PERIOD OF THREE YEARS. THE WARRANTS BEAR REGISTRATION
RIGHTS REQUIRING A REGISTRATION STATEMENT TO BE FILED WHICH WILL ALLOW THE
RESALE OF THE UNDERLYING SHARES UPON WARRANT EXERCISE.

THE PROCEEDS WILL BE USED TO FUND OUR WORKING INTEREST IN OUR NATURAL GAS
PROJECT LOCATED IN DE SOTO PARISH, LOUISIANA, TO REPAY LOANS MADE TO THE COMPANY
BY CERTAIN OF OUR SHAREHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS, AND FOR
WORKING CAPITAL. THE NATURAL GAS PROJECT IS A JOINT VENTURE WITH BRIDAS ENERGY
USA.

THE PRESS RELEASE IS FURNISHED HEREWITH AS EXHIBIT 99.1.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.


THE FOLLOWING EXHIBITS ARE HEREBY MADE PART OF THIS FORM 8-K:

EXHIBIT 99.1               PRESS RELEASE

EXHIBIT 99.2               SECURITY AGREEMENT

EXHIBIT 99.3               SECURITIES PURCHASE AGREEMENT

EXHIBIT 99.5               FORM OF PROMISSORY NOTE

EXHIBIT 99.6               FORM OF WARRANT


                                    SIGNATURE

      PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.


                                              CADENCE  RESOURCES  CORPORATION
                                              ----------------------------------
                                              (REGISTRANT)




DATE:  APRIL 5, 2004                            BY: /S/ JOHN P. RYAN
- ----------------------                         -----------------------------
                                                    JOHN P. RYAN
                                                    CHIEF FINANCIAL OFFICER

EX-99.1

FOR RELEASE ON APRIL 5, 2004

CADENCE  RESOURCES  COMPLETES  $6,000,000  PRIVATE PLACEMENT OF SECURED NOTES TO
ACCELERATE DRILLING

Walla Walla, WA: Cadence Resources Corporation (OTC BB: CDNR) announced today
that it has completed a private placement of $6,000,000 principal amount of
senior secured notes with a group of institutional and individual investors. The
senior secured notes accrue interest at the rate of 10% per year (subject to
increase under certain conditions), payable quarterly, with the principal due
and payable on March 31, 2006.

The Company is required to make mandatory prepayments on each of September 30th
and December 31st of 2005 equal to 10% of the principal amount of the senior
secured notes if the weighted average share price is not more than $5.00 per
share at such time. The notes are secured by all of the assets of Cadence. In
addition to the interest on the notes, the investors received, in the aggregate,
warrants to purchase 765,000 shares of common stock, exercisable at $4 per
share, expiring in three years.

Howard Crosby, President of Cadence, stated: "This private placement will allow
us to continue the rapid development of our natural gas and oil assets, building
our cash flow and reserves to take full advantage of the strong market for
energy assets."

Neither the notes nor the warrants have been registered under the Securities Act
of 1933, as amended, and may not be offered or sold in the United States absent
registration under the Securities Act and applicable state securities laws or an
applicable exemption from those registration requirements.

Certain statements contained herein may contain forward-looking statements that
involve risks and uncertainties. Therefore, actual results may differ materially
from those projected or implied. As a result, these forward-looking statements
represent the Company's best judgment as of the date of this news release.

Contacts: Howard Crosby (509) 526-3491 or John Ryan (843) 682-2023

EX-99.2

                                 EXECUTION COPY


                               SECURITY AGREEMENT

      SECURITY AGREEMENT (this "Agreement"), dated April 2, 2004 made by CADENCE
RESOURCES  Corporation,   a  Utah  corporation  (the  "GRANTOR"),  in  favor  of
SMITHFIELD  FIDUCIARY LLC, a Cayman Islands limited  liability  company,  in its
capacity as collateral agent (in such capacity,  the "COLLATERAL AGENT") for the
"Purchasers"  (as defined  below) party to the  Securities  Purchase  Agreement,
dated  as of even  date  herewith  (such  agreement,  as  amended,  restated  or
otherwise  modified  from time to time,  being  hereinafter  referred  to as the
"SECURITIES PURCHASE AGREEMENT").


                               W I T N E S S ET H:

      WHEREAS,  the  Grantor  and each  party  listed  as a  "Purchaser"  on the
signature  pages  to  the  Securities  Purchase  Agreement  (collectively,   the
"PURCHASERS")  are parties to the  Securities  Purchase  Agreement,  pursuant to
which the Grantor shall be required to sell, and the  Purchasers  shall purchase
or have the right to purchase, the "Securities",  including (without limitation)
the "Senior Secured Notes" (as defined therein);

      WHEREAS,  it is a condition  precedent to the Purchasers entering into the
Securities Purchase Agreement that the Grantor shall have executed and delivered
to the Collateral Agent this Security  Agreement  providing for the grant to the
Collateral Agent for the benefit of the Purchasers of a security interest in all
personal  property  of the  Grantor to secure all of the  Grantor's  obligations
under the  Securities  Purchase  Agreement  and the "Senior  Secured  Notes" (as
defined  therein) issued  pursuant  thereto (as such Senior Secured Notes may be
amended,  restated or otherwise  modified from time to time,  collectively,  the
"NOTES"); and

      NOW, THEREFORE, in consideration of the premises and the agreements herein
and in order to induce the Purchasers to perform under the  Securities  Purchase
Agreement,  the Grantor agrees with the Collateral Agent, for the benefit of the
Purchasers, as follows:

      SECTION 1. Definitions.

            (a) Reference is hereby made to the  Securities  Purchase  Agreement
and the  Notes for a  statement  of the terms  thereof.  All terms  used in this
Agreement and the recitals  hereto which are defined in the Securities  Purchase
Agreement, the Notes or in Article 9 of the Uniform Commercial Code (the "CODE")
as in  effect  from  time to time in the  State of New York  and  which  are not
otherwise  defined  herein  shall  have the same  meanings  herein  as set forth
therein;  provided  that terms used  herein  which are defined in the Code as in
effect in the State of New York on the date  hereof  shall  continue to have the
same meaning notwithstanding any replacement or amendment of such statute except
as the Collateral Agent may otherwise  determine.

            (b) The following terms shall have the respective  meanings provided
for in the Code: "Accounts", "Cash Proceeds",  "Chattel Paper", "Commercial Tort
Claim",   "Commodity  Account",   "Commodity   Contracts",   "Deposit  Account",
"Documents",    "Equipment",   "Fixtures",   "General   Intangibles",   "Goods",
"Instruments",  "Inventory",  "Investment Property",  "Letter-of-Credit Rights",
"Noncash  Proceeds",  "Payment  Intangibles",  "Proceeds",  "Promissory  Notes",
"Record", "Security Account",  "Software", and "Supporting Obligations".


                                       1


            (c) As used in this  Agreement,  the following  terms shall have the
respective  meanings  indicated below, such meanings to be applicable equally to
both the singular and plural forms of such terms:

      "COPYRIGHT  LICENSES" means all licenses,  contracts or other  agreements,
whether  written  or oral,  naming the  Grantor  as  licensee  or  licensor  and
providing  for the grant of any right to use or sell any  works  covered  by any
copyright  (including,  without limitation,  all Copyright Licenses set forth in
Schedule II hereto).

      "COPYRIGHTS" means all domestic and foreign copyrights, whether registered
or not,  including,  without  limitation,  all copyright  rights  throughout the
universe (whether now or hereafter arising) in any and all media (whether now or
hereafter  developed),  in and to all original works of authorship  fixed in any
tangible  medium of  expression,  acquired  or used by the  Grantor  (including,
without  limitation,  all  copyrights  described  in Schedule  II  hereto),  all
applications,   registrations  and  recordings   thereof   (including,   without
limitation,  applications,  registrations  and  recordings  in the United States
Copyright  Office or in any similar office or agency of the United States or any
other  country  or  any  political  subdivision  thereof),   and  all  reissues,
divisions,  continuations,  continuations  in part and  extensions  or  renewals
thereof.

      "DEFAULT" shall have the meaning set forth in the Notes.

      "INSOLVENCY  PROCEEDING" means any proceeding  commenced by or against any
Person under any provision of the Bankruptcy Code (Chapter 11 of Title 11 of the
United States Code) or under any other bankruptcy or insolvency law, assignments
for the benefit of creditors,  formal or informal  moratoria,  compositions,  or
extensions  generally with  creditors,  or proceedings  seeking  reorganization,
arrangement, or other similar relief.

      "INTELLECTUAL PROPERTY" means the Copyrights, Trademarks and Patents.

      "LICENSES" means the Copyright  Licenses,  the Trademark  Licenses and the
Patent Licenses.

      "LIEN" means any  mortgage,  deed of trust,  pledge,  lien  (statutory  or
otherwise),  security  interest,  charge or other  encumbrance  or  security  or
preferential  arrangement  of any nature,  including,  without  limitation,  any
conditional sale or title retention  arrangement,  any capitalized lease and any
assignment,  deposit  arrangement or financing  lease intended as, or having the
effect of, security.

      "PATENT  LICENSES"  means all  licenses,  contracts  or other  agreements,
whether  written  or oral,  naming the  Grantor  as  licensee  or  licensor  and
providing for the grant of any right to  manufacture,  use or sell any invention
covered by any Patent (including,  without  limitation,  all Patent Licenses set
forth in Schedule II hereto).

      "PATENTS" means all domestic and foreign  letters patent,  design patents,
utility patents, industrial designs, inventions, trade secrets, ideas, concepts,
methods, techniques,  processes, proprietary information,  technology, know-how,
formulae,  rights of publicity and other general intangibles of like nature, now
existing or hereafter acquired (including,  without limitation, all domestic and
foreign letters patent,  design patents,  utility patents,  industrial  designs,
inventions,  trade secrets,  ideas, concepts,  methods,  techniques,  processes,
proprietary information, technology, know-how and formulae described in Schedule
II hereto),  all applications,  registrations and recordings thereof (including,
without  limitation,  applications,  registrations  and recordings in the United
States Patent and Trademark  Office,  or in any similar  office or agency of the
United States or any other country or any political  subdivision  thereof),  and
all reissues, divisions, continuations,  continuations in part and extensions or
renewals thereof.


                                       2


      "TRADEMARK  LICENSES" means all licenses,  contracts or other  agreements,
whether  written  or oral,  naming the  Grantor  as  licensor  or  licensee  and
providing for the grant of any right concerning any Trademark, together with any
goodwill connected with and symbolized by any such trademark licenses, contracts
or  agreements  and the right to prepare for sale or lease and sell or lease any
and all  Inventory  now or  hereafter  owned by the Grantor and now or hereafter
covered by such licenses (including,  without limitation, all Trademark Licenses
described in Schedule II hereto).

      "TRADEMARKS"  means all domestic and foreign  trademarks,  service  marks,
collective marks,  certification  marks, trade names,  business names,  d/b/a's,
Internet domain names, trade styles, designs, logos and other source or business
identifiers and all general  intangibles of like nature, now or hereafter owned,
adopted,  acquired or used by the Grantor (including,  without  limitation,  all
domestic and foreign trademarks,  service marks, collective marks, certification
marks,  trade names,  business  names,  d/b/a's,  Internet  domain names,  trade
styles,  designs,  logos and other source or business  identifiers  described in
Schedule II hereto),  all  applications,  registrations  and recordings  thereof
(including,  without limitation,  applications,  registrations and recordings in
the United States Patent and Trademark Office or in any similar office or agency
of the United  States,  any state  thereof or any other country or any political
subdivision thereof), and all reissues, extensions or renewals thereof, together
with all  goodwill of the  business  symbolized  by such marks and all  customer
lists, formulae and other Records of the Grantor relating to the distribution of
products and services in connection with which any of such marks are used.

      SECTION 2. Grant of Security Interest.  As collateral  security for all of
the "Obligations"  (as defined in Section 3 hereof),  the Grantor hereby pledges
and  assigns to the  Collateral  Agent for the  benefit of the  Purchasers,  and
grants to the  Collateral  Agent for the benefit of the  Purchasers a continuing
security interest in, all personal property of the Grantor, wherever located and
whether now or hereafter  existing and whether now owned or hereafter  acquired,
of  every  kind and  description,  tangible  or  intangible  (collectively,  the
"COLLATERAL"), including, without limitation, the following:


      (a)   all Accounts;
      (b)   all Chattel Paper (whether tangible or electronic);
      (c)   the Commercial Tort Claims specified on Schedule VI hereto;


                                       3


      (d) all Deposit  Accounts,  all cash,  and all other property from time to
time  deposited  therein and the monies and property in the  possession or under
the control of any Agent or Purchaser or any affiliate, representative, agent or
correspondent of such Agent or Purchaser;

      (e)   all Documents;

      (f)   all Equipment;

      (g)   all Fixtures;

      (h)   all General Intangibles (including,  without limitation, all Payment
            Intangibles);

      (i)   all Goods;

      (j)   all Instruments (including, without limitation, Promissory Notes);

      (k)   all Inventory;

      (l)   all Investment Property;

      (m)   all Copyrights, Patents and Trademarks, and all Licenses;

      (n)   all Letter-of-Credit Rights;

      (o)   all Supporting Obligations;

      (p)   all other tangible and intangible  personal  property of the Grantor
(whether or not subject to the Code),  including,  without limitation,  all bank
and other  accounts  and all cash and all  investments  therein,  all  proceeds,
products, offspring, accessions, rents, profits, income, benefits, substitutions
and  replacements of and to any of the property of the Grantor  described in the
preceding clauses of this Section 2 (including, without limitation, any proceeds
of  insurance  thereon and all causes of action,  claims and  warranties  now or
hereafter held by the Grantor in respect of any of the items listed above),  and
all  books,   correspondence,   files  and  other  Records,  including,  without
limitation, all tapes, desks, cards, Software, data and computer programs in the
possession  or under the control of the Grantor or any other Person from time to
time acting for the  Grantor  that at any time  evidence or contain  information
relating  to any of the  property  described  in the  preceding  clauses of this
Section 2 or are otherwise necessary or helpful in the collection or realization
thereof; and

      (q) all Proceeds,  including all Cash Proceeds and Noncash  Proceeds,  and
products of any and all of the foregoing Collateral;

in each  case  howsoever  the  Grantor's  interest  therein  may arise or appear
(whether by ownership, security interest, claim or otherwise).


                                       4



      SECTION 3. Security for Obligations.  The security interest created hereby
in the  Collateral  constitutes  continuing  collateral  security for all of the
following obligations, whether now existing or hereafter incurred (collectively,
the "OBLIGATIONS"):

      (a) the payment by the Grantor,  as and when due and payable (by scheduled
maturity,  required  prepayment,  acceleration,  demand  or  otherwise),  of all
amounts  from time to time  owing by it in respect  of the  Securities  Purchase
Agreement,  the Notes and the other  "TRANSACTION  DOCUMENTS" (as defined in the
Securities Purchase Agreement), including, without limitation, (i) all principal
of and interest on the Notes (including,  without limitation,  all interest that
accrues  after the  commencement  of any  Insolvency  Proceeding of the Grantor,
whether or not the payment of such interest is unenforceable or is not allowable
due to  the  existence  of  such  Insolvency  Proceeding),  and  (i)  all  fees,
commissions, expense reimbursements,  indemnifications and all other amounts due
or to become due under any of the Transaction Documents; and

      (b) the due  performance and observance by the Grantor of all of its other
obligations  from time to time  existing  in respect  of any of the  Transaction
Documents for so long as the Notes are outstanding.

      SECTION 4.  Representations  and  Warranties.  The Grantor  represents and
warrants as follows:

      (a)  Schedule I hereto sets forth (i) the exact legal name of the Grantor,
and (ii) the organizational  identification number of the Grantor or states that
no such organizational identification number exists.

      (b) There is no pending or written notice  threatening  any action,  suit,
proceeding or claim affecting the Grantor before any  governmental  authority or
any arbitrator, or any order, judgment or award by any governmental authority or
arbitrator,  that  may  adversely  affect  the  grant  by  the  Grantor,  or the
perfection,  of the  security  interest  purported  to be created  hereby in the
Collateral,  or the  exercise  by the  Collateral  Agent of any of its rights or
remedies hereunder.

      (c) All Federal, state and local tax returns and other reports required by
applicable  law to be filed by the Grantor have been filed,  or extensions  have
been obtained, and all taxes, assessments and other governmental charges imposed
upon the Grantor or any property of the Grantor (including,  without limitation,
all federal income and social security taxes on employees' wages) and which have
become due and payable on or prior to the date hereof have been paid,  except to
the  extent  contested  in good  faith  by  proper  proceedings  which  stay the
imposition of any penalty,  fine or Lien resulting from the non-payment  thereof
and with respect to which adequate  reserves have been set aside for the payment
thereof in accordance with generally accepted accounting principles consistently
applied ("GAAP").

      (d) All Equipment, Fixtures, Goods and Inventory now existing are, and all
Equipment,  Fixtures,  Goods and Inventory  hereafter  existing will be, located
and/or based at the addresses specified therefor in Schedule III hereto,  except
that the Grantor will give the


                                       5


Collateral  Agent not less than 30 days' prior  written  notice of any change of
the  location  of any such  Collateral,  other  than to  locations  set forth on
Schedule III and with respect to which the Collateral  Agent has filed financing
statements and otherwise fully perfected its Liens thereon.  The Grantor's chief
place of business and chief executive office,  the place where the Grantor keeps
its Records  concerning  Accounts  and all  originals  of all Chattel  Paper are
located at the addresses  specified therefor in Schedule III hereto. None of the
Accounts is evidenced by  Promissory  Notes or other  Instruments.  Set forth in
Schedule  IV hereto is a  complete  and  accurate  list,  as of the date of this
Agreement,  of each Deposit Account,  Securities Account and Commodities Account
of the Grantor,  together with the name and address of each institution at which
each such Account is maintained,  the account number for each such Account and a
description of the purpose of each such Account. Set forth in Schedule II hereto
is a complete  and  correct  list of each trade name used by the Grantor and the
name of, and each trade name used by,  each  person  from which the  Grantor has
acquired any substantial part of the Collateral.

      (e) The Grantor has delivered to the Collateral Agent complete and correct
copies of each License described in Schedule II hereto,  including all schedules
and exhibits thereto,  which represents all of the Licenses existing on the date
of this  Agreement.  Each such  License  sets  forth the  entire  agreement  and
understanding of the parties thereto relating to the subject matter thereof, and
there are no other agreements, arrangements or understandings,  written or oral,
relating to the matters  covered  thereby or the rights of the Grantor or any of
its affiliates in respect  thereof.  Each material  License now existing is, and
any material  License  entered into in the future will be, the legal,  valid and
binding obligation of the parties thereto,  enforceable  against such parties in
accordance  with its terms.  No default  under any material  License by any such
party has  occurred,  nor does any defense,  offset,  deduction or  counterclaim
exist thereunder in favor of any such party.

      (f) The Grantor owns and controls,  or otherwise possesses adequate rights
to use, all Trademarks,  Patents and Copyrights,  which are the only trademarks,
patents,  copyrights,  inventions,  trade secrets,  proprietary  information and
technology,  know-how,  formulae,  rights of publicity  necessary to conduct its
business in  substantially  the same manner as  conducted as of the date hereof.
Schedule  II  hereto  sets  forth a true  and  complete  list of all  registered
copyrights,  issued patents,  Trademarks, and Licenses annually owned or used by
the Grantor as of the date hereof.  To the best  knowledge of Grantor,  all such
Intellectual  Property is subsisting and in full force and effect,  has not been
adjudged  invalid or  unenforceable,  is valid and  enforceable and has not been
abandoned  in whole or in part.  Except  as set  forth in  Schedule  II, no such
Intellectual Property is the subject of any licensing or franchising  agreement.
The Grantor has no knowledge  of any  conflict  with the rights of others to any
Intellectual  Property and, to the best knowledge of the Grantor, the Grantor is
not now infringing or in conflict with any such rights of others in any material
respect,  and to the best  knowledge  of the  Grantor,  no other  Person  is now
infringing  or in conflict in any  material  respect  with any such  properties,
assets and rights owned or used by the Grantor. The Grantor has not received any
notice that it is violating or has violated the trademarks, patents, copyrights,
inventions,  trade secrets,  proprietary  information and technology,  know-how,
formulae, rights of publicity or other intellectual property rights of any third
party.

      (g) The Grantor is and will be at all times the sole and  exclusive  owner
of, or otherwise has and will have adequate  rights in, the Collateral  free and
clear of any Lien except for (i) the Lien  created by this  Agreement,  and (ii)
purchase  money Liens on  Collateral  acquired with the proceeds of and securing
purchase money obligations in an aggregate amount not exceeding  $250,000 at any
time outstanding  (collectively,  the "PERMITTED LIENS"). No effective financing

                                       6


statement or other instrument  similar in effect covering all or any part of the
Collateral  is on file in any  recording or filing office except (A) such as may
have been filed in favor of the Collateral  Agent relating to this Agreement and
(B) such as may have been filed to perfect or protect any security  interests or
Liens permitted by the Securities Purchase Agreement.

      (h) The exercise by the Collateral Agent of any of its rights and remedies
hereunder will not contravene any law or any contractual  restriction binding on
or otherwise  affecting the Grantor or any of its properties and will not result
in or  require  the  creation  of any Lien,  upon or with  respect to any of its
properties.

      (i) No  authorization  or approval or other action by, and no notice to or
filing with, any  governmental  authority or other regulatory body, or any other
Person, is required for (i) the grant by the Grantor, or the perfection,  of the
security interest purported to be created hereby in the Collateral,  or (ii) the
exercise by the  Collateral  Agent of any of its rights and remedies  hereunder,
except (A) for the filing under the Uniform  Commercial Code as in effect in the
applicable  jurisdiction  of the financing  statements,  all of which  financing
statements,  have been duly  filed and are in full  force and  effect,  (B) with
respect  to the  perfection  of the  security  interest  created  hereby  in the
Intellectual  Property,  for the  recording of the  appropriate  Assignment  for
Security,  substantially in the form of Exhibit A hereto, as applicable,  in the
United States Patent and Trademark Office or the United States Copyright Office,
as applicable,  and (C) with respect to the perfection of the security  interest
created hereby in foreign Intellectual Property and Licenses,  for registrations
and filings in  jurisdictions  located outside of the United States and covering
rights in such jurisdictions relating to the Intellectual Property and Licenses.

      (j) This Agreement creates in favor of the Collateral Agent a legal, valid
and  enforceable  security  interest  in the  Collateral,  as  security  for the
Obligations.  The Collateral  Agent's having  possession of all  Instruments and
cash constituting Collateral from time to time, the recording of the appropriate
Assignment for Security executed pursuant hereto in the United States Patent and
Trademark Office and the United States Copyright Office, as applicable,  and the
filing of the  financing  statements  and the other filings and  recordings,  as
applicable, described in Schedule V hereto and, with respect to the Intellectual
Property  hereafter  existing and not covered by an  appropriate  Assignment for
Security,  the recording in the United States Patent and Trademark Office or the
United States Copyright  Office,  as applicable,  of appropriate  instruments of
assignment,  result in the perfection of such security interests.  Such security
interests are, or in the case of Collateral in which the Grantor  obtains rights
after the date hereof,  will be, perfected,  first priority security  interests,
subject only to the  Permitted  Liens and the recording of such  instruments  of
assignment.  Such  recordings  and filings  and all other  action  necessary  or
desirable to perfect and protect such  security  interest  have been duly taken,
except for the  Collateral  Agent's having  possession of  Instruments  and cash
constituting  Collateral  after  the  date  hereof  and the  other  filings  and
recordations described in Section 4(l) hereof.


                                        7


      (k) As of the date hereof,  the Grantor does not hold any Commercial  Tort
Claims nor is aware of any such pending claims, except for such claims described
in Schedule VI.

      SECTION  5.  Covenants  as to  the  Collateral.  So  long  as  any  of the
Obligations  shall  remain  outstanding,   unless  the  Collateral  Agent  shall
otherwise consent in writing:

      (a) Further  Assurances.  The Grantor will at its expense, at any time and
from time to time,  promptly  execute and deliver  all further  instruments  and
documents and take all further action that the  Collateral  Agent may reasonably
request in order to: (i) perfect and protect the security interest  purported to
be created hereby;  (ii) enable the Collateral Agent to exercise and enforce its
rights and remedies  hereunder in respect of the Collateral;  or (iii) otherwise
effect the  purposes  of this  Agreement,  including,  without  limitation:  (A)
marking  conspicuously all Chattel Paper and each License and, at the request of
the Collateral  Agent,  each of its Records  pertaining to the Collateral with a
legend, in form and substance  satisfactory to the Collateral Agent,  indicating
that such  Chattel  Paper,  License or  Collateral  is  subject to the  security
interest  created  hereby,  (B) if any Account  shall be evidenced by Promissory
Notes or other  Instruments  or Chattel  Paper,  delivering  and pledging to the
Collateral Agent hereunder such Promissory Notes,  Instruments or Chattel Paper,
duly endorsed and accompanied by executed instruments of transfer or assignment,
all in form and substance  satisfactory to the Collateral  Agent,  (C) executing
and filing (to the extent,  if any,  that the  Grantor's  signature  is required
thereon)  or  authenticating  the  filing of,  such  financing  or  continuation
statements,  or amendments thereto, as may be necessary or desirable or that the
Collateral  Agent may  request in order to perfect  and  preserve  the  security
interest  purported to be created hereby, (D) furnishing to the Collateral Agent
from time to time  statements and schedules  further  identifying and describing
the Collateral and such other reports in connection  with the Collateral in each
case as the Collateral Agent may reasonably  request,  all in reasonable detail,
(E) if any  Collateral  shall be in the  possession of a third party,  notifying
such Person of the  Collateral  Agent's  security  interest  created  hereby and
obtaining a written  acknowledgment  from such  Person  that such  Person  holds
possession of the Collateral for the benefit of the Collateral Agent, which such
written  acknowledgement  shall be in form  and  substance  satisfactory  to the
Collateral Agent, (F) if at any time after the date hereof, the Grantor acquires
or holds any Commercial Tort Claim, promptly notifying the Collateral Agent in a
writing  signed  by the  Grantor  setting  forth  a  brief  description  of such
Commercial Tort Claim and granting to the Collateral  Agent a security  interest
therein  and in the  proceeds  thereof,  which  writing  shall  incorporate  the
provisions  hereof  and  shall  be in form  and  substance  satisfactory  to the
Collateral  Agent, (G) upon the acquisition after the date hereof by the Grantor
of any motor vehicle or other  Equipment  subject to a  certificate  of title or
ownership (other than a Motor Vehicle or Equipment that is subject to a purchase
money  security  interest),  causing  the  Collateral  Agent to be listed as the
lienholder on such certificate of title or ownership and delivering  evidence of
the same to the  Collateral  Agent in accordance  with the  Securities  Purchase
Agreement;  and (H) taking all actions  required by any earlier  versions of the
Uniform Commercial Code or by other law, as applicable,  in any relevant Uniform
Commercial  Code  jurisdiction,  or by other law as  applicable  in any  foreign
jurisdiction.

      (b)  Location  of  Equipment  and  Inventory.  The  Grantor  will keep the
Equipment  and  Inventory at the  locations  specified  therefor in Section 4(g)
hereof or,  upon not less than thirty  (30) days'  prior  written  notice to the
Collateral  Agent  accompanied  by a new Schedule V hereto  indicating  each new
location of the Equipment and Inventory,  at such other  locations in the United
States.


                                       8


      (c)  Condition  of  Equipment.  The  Grantor  will  maintain  or cause the
Equipment  (necessary or useful to its business) to be maintained  and preserved
in good  condition,  repair and working order,  ordinary wear and tear excepted,
and will forthwith, or in the case of any loss or damage to any Equipment within
a commercially reasonable time after the occurrence thereof, make or cause to be
made all repairs,  replacements and other  improvements in connection  therewith
which are necessary or desirable,  consistent  with past practice,  or which the
Collateral  Agent may request to such end. The Grantor will promptly  furnish to
the  Collateral  Agent a statement  describing in reasonable  detail any loss or
damage in excess of $250,000 to any Equipment.

      (d) Taxes,  Etc. The Grantor  agrees to pay promptly when due all property
and other taxes,  assessments and  governmental  charges or levies imposed upon,
and all claims (including claims for labor, materials and supplies) against, the
Equipment  and  Inventory,  except to the extent the  validity  thereof is being
contested in good faith by proper  proceedings  which stay the imposition of any
penalty, fine or Lien resulting from the non-payment thereof and with respect to
which  adequate  reserves  in  accordance  with GAAP have been set aside for the
payment thereof.

      (e) Insurance.

            (i)  The  Grantor  will,  at its  own  expense,  maintain  insurance
(including,  without  limitation,  commercial  general  liability  and  property
insurance) with respect to the Equipment and Inventory in such amounts,  against
such risks, in such form and with responsible and reputable  insurance companies
or associations as is required by any governmental authority having jurisdiction
with  respect  thereto  or as is  carried  generally  in  accordance  with sound
business practice by companies in similar  businesses  similarly situated and in
any  event,  in  amount,  adequacy  and  scope  reasonably  satisfactory  to the
Collateral  Agent.  Each policy for  liability  insurance  shall provide for all
losses to be paid on behalf of the  Collateral  Agent and the  Grantor  as their
respective  interests may appear,  and each policy for property damage insurance
shall  provide for all losses to be adjusted  with,  and paid  directly  to, the
Collateral  Agent.  Each such policy shall in addition  (A) name the  Collateral
Agent as an additional  insured party thereunder  (without any representation or
warranty by or  obligation  upon the  Collateral  Agent) as their  interests may
appear,  (B) contain an agreement by the insurer that any loss thereunder  shall
be  payable  to the  Collateral  Agent on its own  account  notwithstanding  any
action,  inaction or breach of  representation  or warranty by the Grantor,  (C)
provide that there shall be no recourse against the Collateral Agent for payment
of premiums or other amounts with respect thereto, and (D) provide that at least
30 days'  prior  written  notice of  cancellation,  lapse,  expiration  or other
adverse  change  shall be  given to the  Collateral  Agent by the  insurer.  The
Grantor will, if so requested by the Collateral Agent, deliver to the Collateral
Agent  original or  duplicate  policies of such  insurance  and, as often as the
Collateral  Agent may  reasonably  request,  a report of a  reputable  insurance
broker with respect to such insurance.  The Grantor will also, at the request of
the  Collateral  Agent,  execute and deliver  instruments  of assignment of such
insurance  policies and cause the respective  insurers to acknowledge  notice of
such assignment.


                                        9


            (ii) Reimbursement under any liability  insurance  maintained by the
Grantor  pursuant to this  Section  5(e) may be paid  directly to the Person who
shall have incurred liability covered by such insurance. In the case of any loss
involving damage to Equipment or Inventory, any proceeds of insurance maintained
by a Grantor pursuant to this Section 5(e) shall be paid to the Collateral Agent
(except as to which paragraph (iii) of this Section 5(e) is not applicable), the
Grantor will make or cause to be made the necessary  repairs to or  replacements
of such Equipment or Inventory,  and any proceeds of insurance maintained by the
Grantor  pursuant to this Section 5(e) shall be paid by the Collateral  Agent to
the Grantor as reimbursement for the costs of such repairs or replacements.

            (iii)  All  insurance  payments  in  respect  of such  Equipment  or
Inventory  shall be paid to the  Collateral  Agent and applied as  specified  in
Section 7(b) hereof.

      (f) Provisions Concerning the Accounts and the Licenses.

            (i) The Grantor will (A) give the Collateral Agent at least 30 days'
prior  written  notice  of  any  change  in  the  Grantor's  name,  identity  or
organizational  structure, (B) maintain its jurisdiction of incorporation as set
forth in Section 4(b) hereto,  (C) immediately  notify the Collateral Agent upon
obtaining an  organizational  identification  number,  if on the date hereof the
Grantor did not have such  identification  number, and (D) keep adequate records
concerning  the Accounts  and Chattel  Paper and permit  representatives  of the
Collateral  Agent  during  normal  business  hours on  reasonable  notice to the
Grantor, to inspect and make abstracts from such Records and Chattel Paper.

            (ii)  The  Grantor  will,  except  as  otherwise  provided  in  this
subsection (f), continue to collect,  at its own expense,  all amounts due or to
become due under the Accounts. In connection with such collections,  the Grantor
may (and, at the  Collateral  Agent's  direction,  will) take such action as the
Grantor or the  Collateral  Agent may deem  necessary  or  advisable  to enforce
collection  or  performance  of  the  Accounts;   provided,  however,  that  the
Collateral  Agent  shall  have the right at any time,  upon the  occurrence  and
during the  continuance of a Default,  to notify the account debtors or obligors
under any Accounts of the  assignment of such Accounts to the  Collateral  Agent
and to direct such  account  debtors or obligors to make  payment of all amounts
due or to become due to the Grantor thereunder  directly to the Collateral Agent
or its designated  agent and, upon such  notification  and at the expense of the
Grantor and to the extent  permitted by law, to enforce  collection  of any such
Accounts and to adjust,  settle or compromise the amount or payment thereof,  in
the same  manner and to the same extent as the  Grantor  might have done.  After
receipt by the Grantor of a notice from the Collateral Agent that the Collateral
Agent has notified,  intends to notify,  or has enforced or intends to enforce a
Grantor's  rights against the account  debtors or obligors under any Accounts as
referred  to in the  proviso  to the  immediately  preceding  sentence,  (A) all
amounts and proceeds (including  Instruments) received by the Grantor in respect
of the  Accounts  shall be received  in trust for the benefit of the  Collateral
Agent  hereunder,  shall be segregated from other funds of the Grantor and shall
be forthwith paid over to the  Collateral  Agent in the same form as so received
(with any necessary  endorsement)  to be held as cash  collateral and either (i)
credited to the loan  account so long as no Default  shall have  occurred and be
continuing or (ii) if a Default shall have occurred and be  continuing,  applied
as specified in Section 7(b) hereof, and (B) the Grantor will not adjust, settle
or compromise the amount or payment of any Account or release


                                       10


wholly or partly any account debtor or obligor thereof or allow any credit or
discount thereon. In addition, upon the occurrence and during the continuance of
a Default, the Collateral Agent may (in its sole and absolute discretion) direct
any or all of the banks and financial institutions with which the Grantor either
maintains a Deposit Account or a lockbox or deposits the proceeds of any
Accounts to send immediately to the Collateral Agent by wire transfer (to such
account as the Collateral Agent shall specify, or in such other manner as the
Collateral Agent shall direct) all or a portion of such securities, cash,
investments and other items held by such institution. Any such securities, cash,
investments and other items so received by the Collateral Agent shall (in the
sole and absolute discretion of the Collateral Agent) be held as additional
Collateral for the Obligations or distributed in accordance with Section 7
hereof.

            (iii) Upon the occurrence  and during the  continuance of any breach
or default under any material  License  referred to in Schedule II hereto by any
party thereto other than the Grantor, the Grantor will, promptly after obtaining
knowledge  thereof,  give the Collateral  Agent written notice of the nature and
duration  thereof,  specifying what action, if any, it has taken and proposes to
take with respect thereto and thereafter  will take reasonable  steps to protect
and preserve  its rights and  remedies in respect of such breach or default,  or
will obtain or acquire an appropriate substitute License.

            (iv) The  Grantor  will,  at its  expense,  promptly  deliver to the
Collateral Agent a copy of each notice or other communication  received by it by
which any other party to any material  License referred to in Schedule II hereto
purports  to  exercise  any of  its  rights  or  affect  any of its  obligations
thereunder, together with a copy of any reply by the Grantor thereto.

            (v) The Grantor will exercise promptly and diligently each and every
right  which it may have under each  material  License  (other than any right of
termination)  and will duly  perform  and  observe  in all  respects  all of its
obligations  under each  material  License  and will take all action  reasonably
necessary to maintain such  Licenses in full force and effect.  The Grantor will
not,  without  the  prior  written  consent  of the  Collateral  Agent,  cancel,
terminate,  amend or otherwise modify in any respect, or waive any provision of,
any material License referred to in Schedule II hereto.

      (g) Transfers and Other Liens.

            (i) The  Grantor  will not  sell,  assign  (by  operation  of law or
otherwise),  lease, license, exchange or otherwise transfer or dispose of any of
the Collateral, except (A) Inventory in the ordinary course of business, and (B)
worn-out or obsolete assets not necessary to the business.

            (ii) The Grantor will not create,  suffer to exist or grant any Lien
upon or with respect to any Collateral other than a Permitted Lien.

         (h) Intellectual Property.

      (i) If  applicable,  the  Grantor  has duly  executed  and  delivered  the
applicable Assignment for Security in the form attached hereto as Exhibit A. The
Grantor (either itself or through  licensees) will, and will cause each licensee
thereof  to,  take all action  necessary  to  maintain  all of the  Intellectual
Property in full force and effect, including, without limitation, using


                                       11


the proper statutory notices and markings and using the Trademarks on each
applicable trademark class of goods in order to so maintain the Trademarks in
full force and free from any claim of abandonment for non-use, and the Grantor
will not (nor permit any licensee thereof to) do any act or knowingly omit to do
any act whereby any Intellectual Property may become invalidated; provided,
however, that so long as no Default has occurred and is continuing, the Grantor
shall not have an obligation to use or to maintain any Intellectual Property (A)
that relates solely to any product or work, that has been, or is in the process
of being, discontinued, abandoned or terminated, (B) that is being replaced with
Intellectual Property substantially similar to the Intellectual Property that
may be abandoned or otherwise become invalid, so long as the failure to use or
maintain such Intellectual Property does not materially adversely affect the
validity of such replacement Intellectual Property and so long as such
replacement Intellectual Property is subject to the Lien created by this
Agreement or (C) that is substantially the same as another Intellectual Property
that is in full force, so long the failure to use or maintain such Intellectual
Property does not materially adversely affect the validity of such replacement
Intellectual Property and so long as such other Intellectual Property is subject
to the Lien and security interest created by this Agreement. The Grantor will
cause to be taken all necessary steps in any proceeding before the United States
Patent and Trademark Office and the United States Copyright Office or any
similar office or agency in any other country or political subdivision thereof
to maintain each registration of the Intellectual Property (other than the
Intellectual Property described in the proviso to the immediately preceding
sentence), including, without limitation, filing of renewals, affidavits of use,
affidavits of incontestability and opposition, interference and cancellation
proceedings and payment of maintenance fees, filing fees, taxes or other
governmental fees. If any Intellectual Property (other than Intellectual
Property described in the proviso to the first sentence of subsection (i) of
this clause (h)) is infringed, misappropriated, diluted or otherwise violated in
any material respect by a third party, the Grantor shall (x) upon learning of
such infringement, misappropriation, dilution or other violation, promptly
notify the Collateral Agent and (y) to the extent the Grantor shall deem
appropriate under the circumstances, promptly sue for infringement,
misappropriation, dilution or other violation, seek injunctive relief where
appropriate and recover any and all damages for such infringement,
misappropriation, dilution or other violation, or take such other actions as the
Grantor shall deem appropriate under the circumstances to protect such
Intellectual Property. The Grantor shall furnish to the Collateral Agent from
time to time upon its request statements and schedules further identifying and
describing the Intellectual Property and Licenses and such other reports in
connection with the Intellectual Property and Licenses as the Collateral Agent
may reasonably request, all in reasonable detail and promptly upon request of
the Collateral Agent, following receipt by the Collateral Agent of any such
statements, schedules or reports, the Grantor shall modify this Agreement by
amending Schedule II hereto, as the case may be, to include any Intellectual
Property and License, as the case may be, which becomes part of the Collateral
under this Agreement and shall execute and authenticate such documents and do
such acts as shall be necessary or, in the judgment of the Collateral Agent,
desirable to subject such Intellectual Property and Licenses to the Lien and
security interest created by this Agreement. Notwithstanding anything herein to
the contrary, upon the occurrence and during the continuance of a Default, the
Grantor may not abandon or otherwise permit any Intellectual Property to become
invalid without the prior written consent of the Collateral Agent, and if any
Intellectual Property is infringed, misappropriated, diluted or otherwise
violated in any material respect by a third party, the Grantor will take such
action as the Collateral Agent shall deem appropriate under the circumstances to
protect such Intellectual Property.


                                       12


            (ii) In no event  shall the  Grantor,  either  itself or through any
agent, employee,  licensee or designee, file an application for the registration
of any  Trademark  or  Copyright  or the  issuance of any Patent with the United
States Patent and Trademark  Office or the United States  Copyright  Office,  as
applicable,  or in any  similar  office or agency  of the  United  States or any
country or any  political  subdivision  thereof  unless it gives the  Collateral
Agent prior written notice thereof.  Upon request of the Collateral  Agent,  the
Grantor  shall  execute,  authenticate  and  deliver  any and  all  assignments,
agreements,  instruments,  documents  and  papers  as the  Collateral  Agent may
reasonably   request  to  evidence  the  Collateral  Agent's  security  interest
hereunder  in such  Intellectual  Property  and the General  Intangibles  of the
Grantor relating thereto or represented thereby, and the Grantor hereby appoints
the Collateral  Agent its  attorney-in-fact  to execute and/or  authenticate and
file all such  writings for the  foregoing  purposes,  all acts of such attorney
being hereby  ratified  and  confirmed,  and such power  (being  coupled with an
interest) shall be irrevocable until the indefeasible payment in full in cash of
all of the  Obligations in full and the  termination of each of the  Transaction
Documents.

      (i) Deposit, Commodities and Securities Accounts. Prior to the issuance of
any Note, the Grantor shall cause each bank and other financial institution with
an account  referred  to in  Schedule  IV hereto to execute  and  deliver to the
Collateral  Agent  a  control  agreement,   in  form  and  substance  reasonably
satisfactory to the Collateral Agent, duly executed by the Grantor and such bank
or financial institution, or enter into other arrangements in form and substance
satisfactory to the Collateral  Agent,  pursuant to which such institution shall
irrevocably  agree,  inter  alia,  that (i) it will  comply at any time with the
instructions  originated  by the  Collateral  Agent  to such  bank or  financial
institution directing the disposition of cash, Commodity Contracts,  securities,
Investment  Property and other items from time to time credited to such account,
without further consent of the Grantor,  which instructions the Collateral Agent
will not give to such bank or other  financial  institution  in the absence of a
continuing Default, (ii) all cash, Commodity Contracts,  securities,  Investment
Property and other items of the Grantor deposited with such institution shall be
subject  to a  perfected,  first  priority  security  interest  in  favor of the
Collateral  Agent,  (iii) any right of set off,  banker's  Lien or other similar
Lien,  security  interest or  encumbrance  shall be fully  waived as against the
Collateral  Agent,  and (iv) upon receipt of written  notice from the Collateral
Agent during the  continuance of a Default,  such bank or financial  institution
shall immediately send to the Collateral Agent by wire transfer (to such account
as the Collateral Agent shall specify, or in such other manner as the Collateral
Agent  shall  direct)  all such  cash,  the  value of any  Commodity  Contracts,
securities,  Investment  Property and other items held by it.  Without the prior
written consent of the Collateral  Agent, the Grantor shall not make or maintain
any Deposit  Account,  Commodity  Account or Securities  Account  except for the
accounts set forth in Schedule IV hereto.  The provisions of this paragraph 5(i)
shall not apply to (i) Deposit  Accounts for which the  Collateral  Agent is the
depositary and (ii) Deposit Accounts specially and exclusively used for payroll,
payroll taxes and other employee wage and benefit payments to or for the benefit
of a Grantor's  salaried  employees.

      (j) Motor Vehicles.

            (i) The Grantor shall deliver to the Collateral  Agent  originals of
the  certificates  of title or ownership for all motor vehicles owned by it with
the Collateral  Agent listed as lienholder,  for the benefit of the  Purchasers.
(ii) The Grantor hereby appoints the Collateral  Agent as its  attorney-in-fact,
effective  the  date  hereof  and  terminating  upon  the  termination  of  this
Agreement,  for the purpose of (A)  executing on behalf of the Grantor  title or
ownership  applications  for filing with  appropriate  state  agencies to enable
motor vehicles now owned or hereafter acquired by the Grantor to be retitled and
the Collateral Agent listed as lienholder thereof,  (B) filing such applications
with such state agencies, and (C) executing such other documents and instruments
on behalf of, and taking  such other  action in the name of, the  Grantor as the
Collateral  Agent may deem  necessary or advisable  to  accomplish  the purposes
hereof (including,  without limitation,  for the purpose of creating in favor of
the  Collateral  Agent a perfected Lien on the motor vehicles and exercising the
rights and remedies of the  Collateral  Agent  hereunder).  This  appointment as
attorney-in-fact is coupled with an interest and is irrevocable until all of the
Obligations  are  indefeasibly  paid in full in cash and after  all  Transaction
Documents have been terminated.


                                       13


            (iii) Any certificates of title or ownership  delivered  pursuant to
the terms  hereof shall be  accompanied  by odometer  statements  for each motor
vehicle covered thereby.

            (iv) So long as no Default  shall have  occurred and be  continuing,
upon the request of the Grantor,  the Collateral Agent shall execute and deliver
to the Grantor  such  instruments  as the Grantor  shall  reasonably  request to
remove the notation of the Collateral  Agent as lienholder on any certificate of
title for any motor vehicle; provided,  however, that any such instruments shall
be delivered,  and the release  effective,  only upon receipt by the  Collateral
Agent of a certificate from the Grantor stating that such motor vehicle is to be
sold or has suffered a casualty loss (with title thereto passing to the casualty
insurance  company  therefor in  settlement  of the claim for such loss) and the
amount that the Grantor will receive as sale proceeds or insurance proceeds. Any
proceeds of such sale or  casualty  loss shall be paid to the  Collateral  Agent
hereunder  immediately  upon  receipt,  to be  applied to the  Obligations  then
outstanding.

     (k) Control. The Grantor hereby agrees to take any or all action that
may be necessary or desirable or that the Collateral Agent may request in order
for the Collateral Agent to obtain control in accordance with Sections 9-105 -
9-107 of the Code with respect to the following Collateral: (i) Electronic
Chattel Paper, (ii) Investment Property, and (iii) Letter-of-Credit Rights.

      (l)  Inspection  and  Reporting.  The Grantor shall permit the  Collateral
Agent, or any agent or  representatives  thereof or such  professionals or other
Persons as the Collateral Agent may designate,  not more than once a year in the
absence of a Default,  (i) to examine and make copies of and abstracts  from the
Grantor's  records  and  books  of  account,  (ii)  to  visit  and  inspect  its
properties, (iii) to verify materials, leases, Instruments,  Accounts, Inventory
and other  assets of the  Grantor  from time to time,  (iii) to conduct  audits,
physical counts, appraisals and/or valuations,  examinations at the locations of
the Grantor. The Grantor shall also permit the Collateral Agent, or any agent or
representatives thereof or such professionals or other Persons as the Collateral
Agent may designate to discuss the Grantor's affairs, finances and accounts with
any of its directors, officers, managerial employees, independent accountants or
any of its other representatives.


                                       14


      SECTION 6. Additional Provisions Concerning the Collateral.

      (a) The Grantor hereby (i) authorizes the Collateral  Agent to file one or
more financing or continuation statements,  and amendments thereto,  relating to
the  Collateral  and (ii)  ratifies  such  authorization  to the extent that the
Collateral  Agent has filed any such financing or  continuation  statements,  or
amendments thereto,  prior to the date hereof. A photocopy or other reproduction
of this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.

      (b) The Grantor hereby  irrevocably  appoints the Collateral  Agent as its
attorney-in-fact  and proxy,  with full  authority in the place and stead of the
Grantor  and in the name of the Grantor or  otherwise,  from time to time in the
Collateral Agent's  discretion,  so long as a Default shall have occurred and is
continuing,to take any action and to execute any instrument which the Collateral
Agent may deem  necessary  or  advisable  to  accomplish  the  purposes  of this
Agreement  (subject  to the  rights of the  Grantor  under  Section  5  hereof),
including, without limitation, (i) to obtain and adjust insurance required to be
paid to the  Collateral  Agent  pursuant to Section  5(e)  hereof,  (ii) to ask,
demand,  collect, sue for, recover,  compound,  receive and give acquittance and
receipts for moneys due and to become due under or in respect of any Collateral,
(iii) to  receive,  endorse,  and  collect  any  drafts  or  other  instruments,
documents and chattel paper in connection with clause (i) or (ii) above, (iv) to
file any  claims  or take any  action or  institute  any  proceedings  which the
Collateral  Agent may deem  necessary or  desirable  for the  collection  of any
Collateral  or otherwise to enforce the rights of the  Collateral  Agent and the
Purchasers  with  respect to any  Collateral,  and (v) to  execute  assignments,
licenses and other  documents to enforce the rights of the Collateral  Agent and
the  Purchasers  with respect to any  Collateral.  This power is coupled with an
interest and is irrevocable  until all of the Obligations are indefeasibly  paid
in full in cash.

      (c) For the purpose of enabling the  Collateral  Agent to exercise  rights
and remedies  hereunder,  at such time as the Collateral Agent shall be lawfully
entitled to exercise such rights and  remedies,  and for no other  purpose,  the
Grantor  hereby grants to the Collateral  Agent,  to the extent  assignable,  an
irrevocable,  non-exclusive  license  (exercisable without payment of royalty or
other  compensation  to the Grantor) to use,  assign,  license or sublicense any
Intellectual  Property now owned or hereafter acquired by the Grantor,  wherever
the same may be located,  including  in such  license  reasonable  access to all
media in which any of the  licensed  items may be  recorded or stored and to all
computer programs used for the compilation or printout thereof.  Notwithstanding
anything contained herein to the contrary,  but subject to the provisions of the
Securities  Purchase Agreement that limit the right of the Grantor to dispose of
its property and Section 5(h) hereof,  so long as no Default shall have occurred
and be  continuing,  the Grantor may  exploit,  use,  enjoy,  protect,  license,
sublicense,  assign,  sell, dispose of or take other actions with respect to the
Intellectual  Property in the ordinary course of its business. In furtherance of
the  foregoing,  unless a Default  shall have  occurred and be  continuing,  the
Collateral Agent shall from time to time, upon the request of a Grantor, execute
and deliver any  instruments,  certificates or other  documents,  in the form so
requested,  which the  Grantor  shall have  certified  are  appropriate  (in the
Grantor's  judgment) to allow it to take any action  permitted above  (including
relinquishment  of the  license  provided  pursuant to this clause (c) as to any
Intellectual  Property).  Further, upon the indefeasible payment in full in cash
of all of the  Obligations,  the  Collateral  Agent  (subject  to Section  10(e)
hereof) shall release and reassign to


                                       15


the Grantor all of the Collateral  Agent's  right,  title and interest in and to
the   Intellectual   Property,   and  the   Licenses,   all  without   recourse,
representation  or warranty  whatsoever.  The  exercise  of rights and  remedies
hereunder by the Collateral  Agent shall not terminate the rights of the holders
of any licenses or sublicenses  theretofore granted by the Grantor in accordance
with the second  sentence of this clause (c).  The Grantor  hereby  releases the
Collateral  Agent  from any  claims,  causes of action  and  demands at any time
arising out of or with  respect to any  actions  taken or omitted to be taken by
the  Collateral  Agent under the powers of attorney  granted  herein  other than
actions  taken or omitted  to be taken  through  the  Collateral  Agent's  gross
negligence or willful  misconduct,  as determined by a final  determination of a
court of competent jurisdiction.

      (d) If the Grantor fails to perform any agreement  contained  herein,  the
Collateral Agent may itself perform,  or cause performance of, such agreement or
obligation, in the name of the Grantor or the Collateral Agent, and the expenses
of the Collateral Agent incurred in connection therewith shall be payable by the
Grantor pursuant to Section 8 hereof and shall be secured by the Collateral.

      (e) The powers  conferred on the Collateral  Agent hereunder are solely to
protect its interest in the  Collateral and shall not impose any duty upon it to
exercise any such powers.  Except for the safe custody of any  Collateral in its
possession and the accounting for moneys actually received by it hereunder,  the
Collateral  Agent shall have no duty as to any Collateral or as to the taking of
any necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.

      (f) Anything herein to the contrary  notwithstanding (i) the Grantor shall
remain  liable  under the  Licenses  and  otherwise  with  respect to any of the
Collateral  to the extent set forth  therein to perform  all of its  obligations
thereunder to the same extent as if this Agreement had not been  executed,  (ii)
the exercise by the Collateral  Agent of any of its rights  hereunder  shall not
release the Grantor from any of its obligations  under the Licenses or otherwise
in respect of the Collateral,  and (iii) the Collateral Agent shall not have any
obligation or liability by reason of this  Agreement  under the Licenses or with
respect  to any of the  other  Collateral,  nor shall  the  Collateral  Agent be
obligated to perform any of the obligations or duties of the Grantor  thereunder
or to take any  action to  collect or  enforce  any claim for  payment  assigned
hereunder.

      SECTION 7. Remedies  Upon Default.  If any Default shall have occurred and
be continuing:

      (a) The  Collateral  Agent may exercise in respect of the  Collateral,  in
addition  to any other  rights and  remedies  provided  for herein or  otherwise
available to it, all of the rights and remedies of a secured  party upon default
under the Code (whether or not the Code applies to the affected Collateral), and
also  may (i)  take  absolute  control  of the  Collateral,  including,  without
limitation,  transfer into the  Collateral  Agent's name or into the name of its
nominee or nominees (to the extent the Collateral Agent has not theretofore done
so) and  thereafter  receive,  for the  benefit  of the  Collateral  Agent,  all
payments made thereon,  give all consents,  waivers and ratifications in respect
thereof and  otherwise  act with respect  thereto as though it were the outright
owner  thereof,  (ii) require the Grantor to, and the Grantor hereby agrees that
it will at its  expense  and upon  request of the  Collateral  Agent  forthwith,
assemble all or part of the Collateral as directed by the Collateral Agent and


                                       16


make it available to the Collateral  Agent at a place or places to be designated
by the Collateral Agent that is reasonably  convenient to both parties,  and the
Collateral  Agent may enter into and occupy any premises  owned or leased by the
Grantor  where the  Collateral or any part thereof is located or assembled for a
reasonable  period in order to  effectuate  the  Collateral  Agent's  rights and
remedies hereunder or under law, without obligation to the Grantor in respect of
such occupation,  and (iii) without notice except as specified below and without
any  obligation  to prepare or process  the  Collateral  for sale,  (A) sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Collateral  Agent's  offices or elsewhere,  for cash, on credit or
for future  delivery,  and at such price or prices and upon such other  terms as
the Collateral Agent may deem commercially  reasonable and/or (B) lease, license
or  dispose  of the  Collateral  or any  part  thereof  upon  such  terms as the
Collateral Agent may deem commercially  reasonable.  The Grantor agrees that, to
the extent notice of sale or any other  disposition of the  Collateral  shall be
required by law,  at least ten (10) days'  notice to the Grantor of the time and
place of any  public  sale or the time  after  which any  private  sale or other
disposition  of  the  Collateral  is  to be  made  shall  constitute  reasonable
notification.  The  Collateral  Agent shall not be obligated to make any sale or
other disposition of Collateral  regardless of notice of sale having been given.
The Collateral Agent may adjourn any public or private sale from time to time by
announcement  at the time and place fixed therefor,  and such sale may,  without
further notice, be made at the time and place to which it was so adjourned.  The
Grantor hereby waives any claims against the Collateral Agent and the Purchasers
arising  by reason of the fact that the price at which the  Collateral  may have
been  sold at a  private  sale was less than the  price  which  might  have been
obtained  at a  public  sale  or was  less  than  the  aggregate  amount  of the
Obligations,  even if the Collateral  Agent accepts the first offer received and
does not offer the  Collateral  to more than one offeree,  and waives all rights
that the Grantor may have to require that all or any part of the  Collateral  be
marshalled  upon any sale  (public  or  private)  thereof.  The  Grantor  hereby
acknowledges  that (i) any such sale of the Collateral by the  Collateral  Agent
shall be made  without  warranty,  (ii) the  Collateral  Agent may  specifically
disclaim any warranties of title,  possession,  quiet enjoyment or the like, and
(iii) such  actions set forth in clauses (i) and (ii) above shall not  adversely
effect the  commercial  reasonableness  of any such sale of the  Collateral.  In
addition to the  foregoing,  (1) upon  written  notice to the  Grantor  from the
Collateral  Agent, the Grantor shall cease any use of the Intellectual  Property
or any trademark,  patent or copyright similar thereto for any purpose described
in such notice; (2) the Collateral Agent may, at any time and from time to time,
upon 10 days' prior notice to the Grantor,  license, whether general, special or
otherwise,  and  whether on an  exclusive  or  non-exclusive  basis,  any of the
Intellectual  Property,  throughout the universe for such term or terms, on such
conditions,  and in such  manner,  as the  Collateral  Agent  shall  in its sole
discretion determine; and (3) the Collateral Agent may, at any time, pursuant to
the authority  granted in Section 6 hereof (such  authority being effective upon
the occurrence and during the continuance of a Default),  execute and deliver on
behalf of the Grantor, one or more instruments of assignment of the Intellectual
Property (or any  application  or  registration  thereof),  in form suitable for
filing, recording or registration in any country.

      (b) Any  cash  held by the  Collateral  Agent as  Collateral  and all Cash
Proceeds  received  by  the  Collateral  Agent  in  respect  of any  sale  of or
collection  from, or other  realization  upon, all or any part of the Collateral
may, in the discretion of the Collateral  Agent, be held by the Collateral Agent
as collateral for, and/or then or at any time thereafter  applied (after payment
of any amounts payable to the Collateral  Agent pursuant to Section 8 hereof) in
whole or in part


                                       17


         by the Collateral Agent against, all or any part of the Obligations in
such order as the Collateral Agent shall elect, consistent with the provisions
of the Securities Purchase Agreement. Any surplus of such cash or Cash Proceeds
held by the Collateral Agent and remaining after the indefeasible payment in
full in cash of all of the Obligations shall be paid over to whomsoever shall be
lawfully entitled to receive the same or as a court of competent jurisdiction
shall direct.

      (c) In the  event  that the  proceeds  of any  such  sale,  collection  or
realization are  insufficient  to pay all amounts to which the Collateral  Agent
and the  Purchasers  are legally  entitled,  the Grantor shall be liable for the
deficiency,  together with interest thereon at the highest rate specified in any
of the  applicable  Transaction  Documents  for  interest  on overdue  principal
thereof or such other rate as shall be fixed by  applicable  law,  together with
the costs of  collection  and the  reasonable  fees,  costs,  expenses and other
client charges of any attorneys employed by the Collateral Agent to collect such
deficiency.

      (d) The Grantor hereby  acknowledges that if the Collateral Agent complies
with any applicable state, provincial, or federal law requirements in connection
with a disposition of the Collateral,  such compliance will not adversely affect
the  commercial   reasonableness  of  any  sale  or  other  disposition  of  the
Collateral.

      (e) The  Collateral  Agent shall not be required to marshal any present or
future collateral  security  (including,  but not limited to, this Agreement and
the Collateral)  for, or other  assurances of payment of, the Obligations or any
of them or to resort to such collateral  security or other assurances of payment
in any particular order, and all of the Collateral  Agent's rights hereunder and
in respect of such collateral  security and other assurances of payment shall be
cumulative and in addition to all other rights,  however existing or arising. To
the extent that the Grantor lawfully may, the Grantor hereby agrees that it will
not invoke any law relating to the  marshalling of collateral  which might cause
delay in or impede the  enforcement of the Collateral  Agent's rights under this
Agreement  or under any  other  instrument  creating  or  evidencing  any of the
Obligations or under which any of the Obligations is outstanding or by which any
of the Obligations is secured or payment thereof is otherwise  assured,  and, to
the extent  that it lawfully  may,  the Grantor  hereby  irrevocably  waives the
benefits of all such laws.

      SECTION 8. Indemnity and Expenses.

      (a) The  Grantor  agrees  to  defend,  protect,  indemnify  and  hold  the
Collateral  Agent and each of the  Purchasers,  jointly and severally,  harmless
from and against any and all claims, damages, losses, liabilities,  obligations,
penalties, fees, costs and expenses (including,  without limitation,  reasonable
legal fees, costs,  expenses, and disbursements of such Person's counsel) to the
extent  that  they  arise  out  of  or  otherwise  result  from  this  Agreement
(including,  without limitation,  enforcement of this Agreement), except claims,
losses or  liabilities  resulting  solely and directly from such Person's  gross
negligence or willful  misconduct,  as determined by a final judgment of a court
of competent jurisdiction.

      (b) The Grantor will upon demand pay to the Collateral Agent the amount of
any and all costs and expenses,  including the reasonable fees, costs,  expenses
and  disbursements  of counsel for the  Collateral  Agent and of any experts and
agents (including,  without limitation,  any collateral trustee which may act as
agent  of the  Collateral  Agent),  which  the  Collateral  Agent  may  incur in


                                       18


connection  with  (i)  the  preparation,   negotiation,   execution,   delivery,
recordation,   administration,   amendment,  waiver  or  other  modification  or
termination of this Agreement, (ii) the custody,  preservation, use or operation
of, or the sale of,  collection from, or other realization upon, any Collateral,
(iii) the exercise or enforcement  of any of the rights of the Collateral  Agent
hereunder,  or (iv) the  failure by the Grantor to perform or observe any of the
provisions hereof.

      SECTION 9. Notices, Etc. All notices and other communications provided for
hereunder  shall be in writing and shall be mailed (by certified  mail,  postage
prepaid  and return  receipt  requested),  telecopied  or  delivered,  if to the
Grantor at its address  specified below and if to the Collateral Agent to it, at
its address  specified below; or as to any such Person, at such other address as
shall be  designated  by such  Person in a written  notice to such other  Person
complying as to delivery  with the terms of this Section 9. All such notices and
other  communications  shall be effective (a) if sent by certified mail,  return
receipt  requested,  when  received or three days after  deposited in the mails,
whichever  occurs first,  (b) if  telecopied,  when  transmitted  (during normal
business  hours) and  confirmation  is  received,  otherwise,  the day after the
notice was transmitted if confirmation  is received,  or (c) if delivered,  upon
delivery.

      SECTION 10. Miscellaneous.

      (a) No amendment of any  provision  of this  Agreement  shall be effective
unless it is in writing and signed by the Grantor and the Collateral  Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by
the Grantor therefrom,  shall be effective unless it is in writing and signed by
the Collateral Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.

      (b) No failure on the part of the  Collateral  Agent to  exercise,  and no
delay in exercising,  any right hereunder or under any of the other  Transaction
Documents  shall  operate as a waiver  thereof;  nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right.  The rights and remedies of the Collateral Agent or
any  Purchaser  provided  herein  and in the  other  Transaction  Documents  are
cumulative  and are in addition to, and not exclusive of, any rights or remedies
provided by law. The rights of the Collateral  Agent or any Purchaser  under any
of the other Transaction Documents against any party thereto are not conditional
or  contingent on any attempt by such Person to exercise any of its rights under
any of the other  Transaction  Documents against such party or against any other
Person, including but not limited to, the Grantor.

      (c) Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or thereof or affecting the validity or  enforceability of such provision
in any other jurisdiction.

      (d) This  Agreement  shall  create a continuing  security  interest in the
Collateral and shall (i) remain in full force and effect until the  indefeasible
payment in full in cash of the  Obligations,  and (ii) be binding on the Grantor
and all other Persons who become bound as debtor to this Agreement in accordance
with Section 9-203(d) of the Code and shall inure,  together with all rights and
remedies of the Collateral Agent and the Purchasers hereunder, to the benefit of
the  Collateral  Agent  and  the  Purchasers  and  their  respective   permitted


                                       19


successors,  transferees and assigns.  Without limiting the generality of clause
(ii) of the immediately  preceding sentence,  without notice to the Grantor, the
Collateral  Agent and the  Purchasers  may assign or  otherwise  transfer  their
rights and  obligations  under this  Agreement and any of the other  Transaction
Documents,  to any other  Person and such other Person  shall  thereupon  become
vested with all of the  benefits in respect  thereof  granted to the  Collateral
Agent  and the  Purchasers  herein or  otherwise.  Upon any such  assignment  or
transfer,  all references in this Agreement to the Collateral  Agent or any such
Purchaser  shall mean the assignee of the  Collateral  Agent or such  Purchaser.
None of the rights or  obligations  of the Grantor  hereunder may be assigned or
otherwise transferred without the prior written consent of the Collateral Agent,
and any such assignment or transfer  without the consent of the Collateral Agent
shall be null and void.

      (e) Upon the indefeasible payment in full in cash of the Obligations,  (i)
this Agreement and the security interests created hereby shall terminate and all
rights to the  Collateral  shall  revert to the Grantor and (ii) the  Collateral
Agent will, upon the Grantor's request and at the Grantor's expense,  (A) return
to the Grantor such of the  Collateral  as shall not have been sold or otherwise
disposed of or applied pursuant to the terms hereof, and (B) execute and deliver
to the  Grantor  such  documents  as the  Grantor  shall  reasonably  request to
evidence such termination, all without any representation,  warranty or recourse
whatsoever.

      (f) THIS  AGREEMENT  SHALL BE GOVERNED BY,  CONSTRUED AND  INTERPRETED  IN
ACCORDANCE  WITH THE LAWS OF THE  STATE  OF NEW  YORK,  EXCEPT  AS  REQUIRED  BY
MANDATORY  PROVISIONS  OF LAW AND EXCEPT TO THE  EXTENT  THAT THE  VALIDITY  AND
PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR  NON-PERFECTION  OF
THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES  HEREUNDER,  IN RESPECT OF ANY
PARTICULAR  COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION  OTHER THAN THE
STATE OF NEW YORK.

      (g) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY  DOCUMENT  RELATED  THERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW
YORK IN THE COUNTY OF NEW YORK OR THE UNITED  STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK,  AND  APPELLATE  COURTS  THEREOF,  AND, BY  EXECUTION  AND
DELIVERY OF THIS AGREEMENT, THE GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT
OF  ITS  PROPERTY,  GENERALLY  AND  UNCONDITIONALLY,  THE  JURISDICTION  OF  THE
AFORESAID  COURTS.  THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY  WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION,  INCLUDING,  WITHOUT LIMITATION,
ANY  OBJECTION  TO THE  LAYING  OF VENUE OR BASED ON THE  GROUNDS  OF FORUM  NON
CONVENIENS,  WHICH  IT MAY NOW OR  HEREAFTER  HAVE TO THE  BRINGING  OF ANY SUCH
ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE  JURISDICTIONS AND CONSENTS TO THE
GRANTING  OF SUCH  LEGAL OR  EQUITABLE  RELIEF AS IS DEEMED  APPROPRIATE  BY THE
COURT.


                                       20


      (h) EACH OF THE GRANTOR  AND (BY ITS  ACCEPTANCE  OF THE  BENEFITS OF THIS
AGREEMENT) THE COLLATERAL AGENT WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN
RESPECT OF ANY LITIGATION  BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS  AGREEMENT  OR ANY OF THE OTHER  TRANSACTION  DOCUMENTS,  OR ANY  COURSE OF
CONDUCT,  COURSE OF DEALING,  VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE
PARTIES HERETO.

      (i) The Grantor  irrevocably  consents to the service of process of any of
the  aforesaid  courts in any such action,  suit or proceeding by the mailing of
copies  thereof by registered or certified  mail (or any  substantially  similar
form of mail),  postage prepaid,  to the Grantor at its address provided herein,
such service to become effective 10 days after such mailing.

      (j) Nothing  contained  herein  shall  affect the right of the  Collateral
Agent to serve  process in any other manner  permitted by law or commence  legal
proceedings  or  otherwise  proceed  against the Grantor or any  property of the
Grantor in any other jurisdiction.

      (k) The Grantor  irrevocably and  unconditionally  waives any right it may
have to claim or recover in any legal action,  suit or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.

      (l) Section headings herein are included for convenience of reference only
and shall not constitute a part of this Agreement for any other purpose.

      (m) This  Agreement may be executed in any number of  counterparts  and by
different parties hereto in separate counterparts, each of which shall be deemed
to be an original,  but all of which taken  together  constitute one in the same
Agreement.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                       21



      IN WITNESS  WHEREOF,  the Grantor has caused this Agreement to be executed
and delivered by its officer  thereunto  duly  authorized,  as of the date first
above written.


                                       CADENCE RESOURCES CORPORATION


                                       By:__________________________
                                          Name:
                                          Title:


                                       Address


ACCEPTED BY:
- -----------

SMITHFIELD FIDUCIARY LLC,
as Collateral Agent


By:______________________________
Name: Adam J. Chill
Title: Authorized Signatory

Address:

                                       22


                                   SCHEDULE I

          LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OR
                          JURISDICTION OF ORGANIZATION




                                       23



                                   SCHEDULE II
                       INTELLECTUAL PROPERTY AND LICENSES









                                       24


                                  SCHEDULE III


                              LOCATIONS OF GRANTOR

 LOCATION                           Description of Location (State if Location
                                    (i) contains Rolling Stock, other Equipment,
                                    Fixtures, Goods or Inventory,
                                    (ii) is chief place of business and chief
                                    executive office, or
                                    (iii) contains Records concerning Accounts
                                    and originals of Chattel Paper)





                                       25


                                   SCHEDULE IV

    DEPOSIT ACCOUNTS, SECURITIES ACCOUNTS AND COMMODITIES ACCOUNTS

Name and Address
of Institution
Maintaining Account              Account Number                  Type of Account
- -------------------              --------------                  ---------------







                                       26


                                   SCHEDULE V

                           UCC-1 FINANCING STATEMENTS













                                       27


                                   SCHEDULE VI
                             COMMERCIAL TORT CLAIMS



                                       28


                                                                       EXHIBIT A


                            ASSIGNMENT FOR SECURITY

                      [TRADEMARKS] [PATENTS] [COPYRIGHTS]

      WHEREAS, CADENCE RESOURCES CORPORATION (the "Assignor") [has adopted, used
and is using, and holds all right,  title and interest in and to, the trademarks
and service  marks  listed on the annexed  Schedule  1A,  which  trademarks  and
service  marks are  registered  or applied for in the United  States  Patent and
Trademark Office (the "Trademarks")] [holds all right, title and interest in the
letter  patents,  design  patents  and  utility  patents  listed on the  annexed
Schedule 1A, which patents are issued or applied for in the United States Patent
and Trademark  Office (the "Patents")]  [holds all right,  title and interest in
the  copyrights  listed  on  the  annexed  Schedule  1A,  which  copyrights  are
registered in the United States Copyright Office (the "Copyrights")];

      WHEREAS,  the Assignor has entered into a Security Agreement,  dated as of
April 2, 2004 (the "Security Agreement"),  in favor of SMITHFIELD FIDUCIARY LLC,
as collateral agent for certain purchasers (the "Assignee");

      WHEREAS,  pursuant to the Security Agreement, the Assignor has assigned to
the Assignee and granted to the Assignee for the benefit of the  Purchasers  (as
defined in the Security  Agreement) a continuing security interest in all right,
title and interest of the Assignor  in, to and under the  [Trademarks,  together
with,  among other  things,  the  good-will  of the business  symbolized  by the
Trademarks]  [Patents]  [Copyrights]  and  the  applications  and  registrations
thereof, and all proceeds thereof,  including,  without limitation,  any and all
causes of action which may exist by reason of  infringement  thereof and any and
all damages  arising  from past,  present  and future  violations  thereof  (the
"Collateral"),  to  secure  the  payment,  performance  and  observance  of  the
Obligations (as defined in the Security Agreement);

      NOW,  THEREFORE,  for good and  valuable  consideration,  the  receipt and
sufficiency of which are hereby  acknowledged,  the Assignor does hereby pledge,
convey, sell, assign,  transfer and set over unto the Assignee and grants to the
Assignee for the benefit of the Purchasers a continuing security interest in the
Collateral to secure the prompt payment,  performance and for the benefit of the
Purchasers observance of the Obligations.

      The Assignor does hereby  further  acknowledge  and affirm that the rights
and remedies of the Assignee with respect to the  Collateral  are more fully set
forth in the Security  Agreement,  the terms and  provisions of which are hereby
incorporated  herein  by  reference  as if fully set forth  herein.


                                       29


      IN WITNESS  WHEREOF,  the Assignor has caused this  Assignment  to be duly
executed by its officer thereunto duly authorized as of April 2, 2004.


                                                CADENCE RESOURCES CORPORATION.


                                                By:____________________________
                                                   Name:
                                                   Title:


                                       30




STATE OF  __________
                        ss.:
COUNTY OF __________


      On this  ____ day of  _______________,  20__,  before me  personally  came
________________,  to me known  to be the  person  who  executed  the  foregoing
instrument, and who, being duly sworn by me, did depose and say that s/he is the
________________       of       _______________________________________,       a
____________________,  and that s/he  executed the  foregoing  instrument in the
firm  name  of   _______________________________________,   and  that  s/he  had
authority  to sign the same,  and s/he  acknowledged  to me that he executed the
same as the act  and  deed of said  firm  for  the  uses  and  purposes  therein
mentioned.



                                                ________________________________


                                       31




 SCHEDULE 1A TO ASSIGNMENT FOR SECURITY




[Trademarks and Trademark Applications]
[Patent and Patent Applications]
[Copyright and Copyright Applications]
Owned by ______________________________



                                       32

EX-99.3

                                                                  EXECUTION COPY

                          SECURITIES PURCHASE AGREEMENT


      This Securities Purchase Agreement (this "AGREEMENT") is dated as of April
2, 2004 by and among Cadence  Resources  Corporation,  a Utah  corporation  (the
"COMPANY"), and each purchaser identified on the signature pages hereto (each, a
"PURCHASER" and collectively, the "PURCHASERS").

      WHEREAS,  subject to the terms and  conditions set forth in this Agreement
and  pursuant to Section 4(2) of the  Securities  Act of 1933,  as amended,  the
Company  desires  to issue  and  sell to each  Purchaser,  and  each  Purchaser,
severally  and not  jointly,  desires  to  purchase  from the  Company,  certain
securities of the Company as more fully described in this Agreement.

      NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement,  and for  other  good and  valuable  consideration  the  receipt  and
adequacy  of  which  are  hereby  acknowledged,  the  Company  and  each  of the
Purchasers agree as follows:

                              ARTICLE I DEFINITIONS

      1.1  Definitions.  In  addition  to the terms  defined  elsewhere  in this
Agreement, the following terms have the meanings indicated:

      "AFFILIATE" means any Person that,  directly or indirectly  through one or
more  intermediaries,  controls or is controlled  by or is under common  control
with a Person, as such terms are used in and construed under Rule 144.

      "ANNUAL  REPORT" means the  Company's  Annual Report (Form 10-KSB) for the
fiscal year ended September 30, 2003.

      "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.

      "CLOSING" means the closing of the purchase and sale of the Senior Secured
Notes and Warrants pursuant to Section 2.1.

      "CLOSING DATE" means the date of the Closing.

      "COLLATERAL  AGENT" has the meaning  ascribed to such term in the Security
Agreement.

      "COMMISSION" means the Securities and Exchange Commission.

      "COMMON STOCK" means the common stock of the Company,  par value $0.01 per
share.

      "COMMON STOCK EQUIVALENTS"  means,  collectively,  Options and Convertible
Securities. "COMPANY COUNSEL" means Jenkens & Gilchrist Parker Chapin LLP.


                                       1


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

      "EFFECTIVE DATE" means the date that the  Registration  Statement is first
declared effective by the Commission.

      "ELIGIBLE  MARKET"  means any of The New York Stock  Exchange,  Inc.,  the
American Stock Exchange,  the Nasdaq National Market, The Nasdaq SmallCap Market
or the OTC Bulletin Board.

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

      "FILING DATE" means June 1, 2004.

      "HYDROCARBONS"  means oil, gas, coal seam gas, casinghead gas, condensate,
distillate,  liquid hydrocarbons,  gaseous  hydrocarbons,  all products refined,
separated,  settled and dehydrated therefrom and all products refined therefrom,
including,  without  limitation,  kerosene,  liquefied  petroleum  gas,  refined
lubricating oils, diesel fuel, drip gasoline,  natural gasoline,  helium, sulfur
and all other gaseous or liquid minerals.

      "HYDROCARBON  INTERESTS" means all rights,  titles,  interests and estates
now owned or  hereafter  acquired by the Company in and to  Hydrocarbon  leases,
Hydrocarbon or mineral fee or lease interests,  farm-ins, overriding royalty and
royalty  interests,  net profit  interests,  oil  payments,  production  payment
interests  and similar  mineral  interests,  including  any reserved or residual
interest of whatever nature.

      "LEAD PURCHASER" means Smithfield Fiduciary LLC.

      "LIEN" means any lien, charge, claim, tax, security interest, encumbrance,
right of first refusal or other restriction.

      "LOSSES"  means  any  and  all  losses,  claims,   damages,   liabilities,
settlement  costs  and  expenses,   including,   without  limitation,  costs  of
preparation and reasonable attorneys' fees.

      "OIL  AND  GAS  PROPERTIES"  means  Hydrocarbon  Interests;  the  personal
property  and/or  real  property  now  or  hereafter  pooled  or  unitized  with
Hydrocarbon  Interests;  all presently existing or future  unitization,  pooling
agreements  and  declarations  of pooled  units and the  units  created  thereby
(including  without  limitation all units created under orders,  regulations and
rules of any governmental authority having jurisdiction) which may affect all or
any portion of the  Hydrocarbon  Interests;  all  Hydrocarbons  in and under and
which may be produced,  saved,  processed  or  attributable  to the  Hydrocarbon
Interests,  the  lands  covered  thereby  and  all  Hydrocarbons  in  pipelines,
gathering lines,  tanks and processing  plants and all rents,  issues,  profits,
proceeds,  products,  revenues  and other  incomes from or  attributable  to the
Hydrocarbon Interests; all tenements, hereditaments,  appurtenances and personal
property  and/or real property in any way  appertaining,  belonging,  affixed or
incidental to the Hydrocarbon Interests,  and all rights, titles,  interests and
estates described or referred to above, including any and all real property, now


                                       2


owned  or  hereafter  acquired,  used or held  for use in  connection  with  the
operating,  working  or  development  of any of such  Hydrocarbon  Interests  or
personal  property  and/or real property and  including  any and all  pipelines,
gathering lines,  compression  facilities,  tanks and processing plants, all oil
wells,  gas wells,  water  wells,  injection  wells,  platforms,  spars or other
offshore facilities, casings, rods, tubing, pumping units and engines, Christmas
trees,  derricks,   separators,  gun  barrels,  flow  lines,  gas  systems  (for
gathering, treating and compression),  and water systems (for treating, disposal
and injection); surface leases, rights-of-way,  easements and servitude together
with all additions, substitutions,  replacements,  accessions and attachments to
any and all of the foregoing.

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

      "PERMITTED LIENS" means (i) royalties, overriding royalties,  reversionary
interests,  production  payments and similar  burdens which have been taken into
account  in the  ownership  interests  of the  Company in and to the Oil and Gas
Properties as set forth in the Annual Report or the Reserve Report,  as the case
may be; (ii) sales contracts or other arrangements for the sale of production of
Hydrocarbons  which  would not (when  considered  cumulatively  with the matters
discussed  in clause (i) above)  deprive  the Company of any  material  right in
respect of the Oil and Gas  Properties  (except for rights  customarily  granted
with respect to such  contracts and  arrangements);  (iii)  statutory  Liens for
taxes or other  assessments that are not yet delinquent (or that, if delinquent,
are being contested in good faith by appropriate proceedings, levy and execution
thereon  having been stayed and  continue to be stayed and for which the Company
has set aside on its books adequate  reserves);  (iv) easements,  rights of way,
servitudes,  permits,  surface  leases  and other  rights in  respect to surface
operations,  pipelines,  grazing,  logging,  canals, ditches,  reservoirs or the
like,  conditions,  covenants and other restrictions,  and easements of streets,
alleys,  highways,  pipelines,  telephone lines, power lines, railways and other
easements and rights of way on, over or in respect of the Oil and Gas Properties
and that do not individually or in the aggregate, have a material adverse effect
on the  Oil  and  Gas  Properties;  (v)  rights  reserved  to or  vested  in any
municipality,  governmental,  statutory or other public  authority to control or
regulate the Oil and Gas  Properties  in any manner,  and all  applicable  laws,
rules  and  orders  from  any  governmental  authority;  (vi)  Liens in favor of
operators and non-operators  under joint operating  agreements to secure amounts
owing,  which  amounts are not yet due or are being  contested  in good faith by
appropriate  proceedings,  if adequate  reserves  shall have been made therefor;
(vii)  such  imperfections  of title  which do not in the  aggregate  materially
detract from the value of the Oil and Gas Properties, or the use thereof, in the
business of the Company;  and (vii) Liens incurred  pursuant to the  Transaction
Documents.

         "PERSON" means any individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or any court or other federal, state, local or other governmental authority or
other entity of any kind.


                                       3


      "POST-EFFECTIVE   AMENDMENT"  means  a  post-effective  amendment  to  the
Registration Statement.

      "POST-EFFECTIVE  AMENDMENT  FILING  DEADLINE"  means the tenth Trading Day
after the Registration  Statement ceases to be effective  pursuant to applicable
securities  laws  due to the  passage  of time  or the  occurrence  of an  event
requiring the Company to file a  Post-Effective  Amendment;  provided,  however,
that  such  number  of  Trading   Days  does  not  include  any  days  that  the
Post-Effective  Amendment cannot be filed because one or more Purchasers has not
provided  the  Company  with  information   required  to  be  contained  in  the
Post-Effective Amendment, but only to the extent one or more Purchasers fails to
deliver  such  information  within five (5) Trading Days after the date that the
Company  reasonably  requests,  in  writing,  the  Purchasers  to  provide  such
information.

      "PROCEEDING"  means an action,  claim,  suit,  investigation or proceeding
(including,  without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

      "PROSPECTUS" means the prospectus  included in the Registration  Statement
(including,  without  limitation,  a prospectus  that  includes any  information
previously omitted from a prospectus filed as part of an effective  registration
statement in reliance upon Rule 430A  promulgated  under the Securities Act), as
amended or supplemented by any prospectus supplement,  with respect to the terms
of the  offering of any  portion of the  Registrable  Securities  covered by the
Registration  Statement,  and  all  other  amendments  and  supplements  to  the
Prospectus,  including post-effective  amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

      "REGISTRABLE  SECURITIES"  means  any  Common  Stock  issued  or  issuable
pursuant to the Transaction  Documents,  together with any securities  issued or
issuable upon any stock split, dividend or other distribution,  recapitalization
or similar event with respect to the foregoing.

      "REGISTRATION  STATEMENT" means each registration statement required to be
filed under Article VI, including (in each case) the Prospectus,  amendments and
supplements to such  registration  statement or  Prospectus,  including pre- and
post-effective  amendments,  all exhibits thereto, and all material incorporated
by reference  or deemed to be  incorporated  by  reference in such  registration
statement.

      "REQUIRED EFFECTIVENESS DATE" means September 1, 2004, provided,  however,
that such date shall be extended by such number of days as the Company is unable
to file the Registration  Statement or an amendment  thereto because one or more
Purchasers has not provided the Company with information required to be included
in the Registration  Statement or an amendment  thereto,  but only to the extent
one or more Purchasers fails to deliver such information within five (5) Trading
Days after the date that the Company reasonably requests,  in writing,  that the
Purchasers to provide such information.


                                       4


      "RESERVE  REPORT"  means that certain  Reserve  Report from Ralph E. Davis
Associations, Inc., dated January 9, 2004 relating to certain of the Oil and Gas
Properties located in the State of Texas as more fully described therein.

      "RULE 144,"  "RULE 415," and "RULE 424" means Rule 144,  Rule 415 and Rule
424, respectively, promulgated by the Commission pursuant to the Securities Act,
as  such  Rules  may be  amended  from  time to  time,  or any  similar  rule or
regulation  hereafter  adopted by the Commission  having  substantially the same
effect as such Rule.

      "SECURITIES" means,  collectively,  the Senior Secured Notes, the Warrants
and the Warrant Shares.

      "SECURITY  AGREEMENT"  means the  security  agreement  attached  hereto as
Exhibit C.

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

      "SENIOR  SECURED  NOTES" means the senior  secured notes of the Company in
the form attached  hereto as Exhibit A (together  with any senior  secured notes
issued in replacement thereof in accordance with the terms thereof).

      "SUBSIDIARY"   means  any  Person  in  which  the  Company,   directly  or
indirectly, owns capital stock or holds an equity or similar interest.

      "TRADING  DAY"  means (a) any day on which the  Common  Stock is listed or
quoted and traded on its primary Trading Market,  (b) if the Common Stock is not
then  listed or quoted and traded on any  Eligible  Market,  then a day on which
trading occurs on The Nasdaq SmallCap Market (or any successor thereto),  or (c)
if  trading  does not occur on The  Nasdaq  SmallCap  Market  (or any  successor
thereto), any Business Day.

      "TRADING MARKET" means the OTC Bulletin Board or any other Eligible Market
on which the Common Stock is then listed or quoted.

      "TRANSACTION  DOCUMENTS"  means this Agreement,  the Senior Secured Notes,
the Warrants,  the Security  Agreement,  the Transfer Agent Instructions and any
other  documents or  agreements  executed in  connection  with the  transactions
contemplated hereunder.

      "TRANSFER AGENT" means OTC Stock Transfer Company of Salt Lake City, Utah,
or any other transfer agent selected by the Company

      "TRANSFER  AGENT  INSTRUCTIONS"  means  the  Irrevocable   Transfer  Agent
Instructions, in the form of Exhibit D, executed by the Company and delivered to
and acknowledged in writing by the Transfer Agent.

      "WARRANTS" means the warrants,  in substantially  the form attached hereto
as Exhibit B.

                                       5


      "WARRANT SHARES" means the shares of Common Stock issued and issuable upon
exercise of the Warrants.

                          ARTICLE II PURCHASE AND SALE

      2.1  Closing.  Subject  to the  terms  and  conditions  set  forth in this
Agreement,  at the Closing the Company  shall issue and sell to each  Purchaser,
and each Purchaser shall, severally and not jointly,  purchase from the Company,
that aggregate  principal amount of Senior Secured Notes as indicated below such
Purchaser's name on the signature page of this Agreement along with the Warrants
to acquire  6,375  Warrant  Shares for each $50,000  principal  amount of Senior
Secured Notes purchased.  The Closing shall take place at the offices of Schulte
Roth & Zabel LLP immediately  following the execution  hereof,  or at such other
location or time as the parties may agree.

      2.2 Closing Deliveries.

            (a) At the  Closing,  the  Company  shall  deliver  or  cause  to be
delivered to each Purchaser the following:

                  (i) each of the Transaction  Documents to which the Company is
a party duly executed by the Company;

                  (ii) a Senior  Secured Note in such  principal  amount as such
Purchaser is purchasing  hereunder and the related  Warrants (in such amounts as
such Purchaser  shall request) being  purchased by such Purchaser at the Closing
pursuant to this Agreement.

                  (iii) a legal  opinion  of  Company  Counsel,  in the  form of
Exhibit E, executed by such counsel and delivered to the Purchasers; and

                  (iv) duly executed Transfer Agent Instructions acknowledged by
the Transfer Agent.

            (b) At the  Closing,  each  Purchaser  shall  deliver or cause to be
delivered to the Company (i) each  Transaction  Document to which such Purchaser
is a party duly executed by such Purchaser and (ii) the purchase price indicated
below such Purchaser's  name on the signature page of this Agreement,  in United
States  dollars  and in  immediately  available  funds,  by wire  transfer to an
account designated in writing by the Company for such purpose.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

      3.1  Representations  and  Warranties of the Company.  The Company  hereby
represents and warrants to each of the Purchasers as follows:

            (a) Subsidiaries. The Company has no direct or indirect Subsidiaries
other than those  listed in Schedule  3.1(a).  Except as  disclosed  in Schedule
3.1(a),  the Company owns,  directly or indirectly,  all of the capital stock or
comparable  equity  interests of each Subsidiary free and clear of any Lien, and
all the issued and  outstanding  shares of capital  stock or  comparable  equity
interests  of  each   Subsidiary   are  validly   issued  and  are  fully  paid,
non-assessable and free of preemptive and similar rights.

                                       6



            (b) Organization and Qualification.  Except as disclosed in Schedule
3.1(b)  each of the Company and the  Subsidiaries  is an entity duly  organized,
validly  existing and in good standing under the laws of the jurisdiction of its
incorporation  or  organization  (as  applicable),  with the requisite power and
authority to own and use its  properties and assets and to carry on its business
as currently  conducted.  Neither the Company nor any Subsidiary is in violation
of  any  of  the  provisions  of  its  respective  certificate  or  articles  of
incorporation,  bylaws or other  organizational  or  charter  documents.  To the
knowledge  of the  Company,  each of the  Company and the  Subsidiaries  is duly
qualified to do business  and is in good  standing as a foreign  corporation  or
other entity in each jurisdiction in which the nature of the business  conducted
or property  owned by it makes such  qualification  necessary,  except where the
failure to be so qualified or in good  standing,  as the case may be, could not,
individually or in the aggregate, (i) adversely affect the legality, validity or
enforceability  of any Transaction  Document,  (ii) have or result in a material
adverse  effect on the results of  operations,  assets,  prospects,  business or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (iii) impair the Company's ability to materially perform on a timely
basis its obligations  under any of the Transaction  Documents (any of (i), (ii)
or (iii), a "MATERIAL ADVERSE EFFECT").

            (c)  Authorization;  Enforcement.  The  Company  has  the  requisite
corporate  power and authority to enter into and to consummate the  transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder.  The execution and delivery of each of the
Transaction  Documents  by  the  Company  and  the  consummation  by it  of  the
transactions  contemplated  hereby and  thereby  (including  the  granting  of a
security interest in the Collateral (as defined in the Security Agreement)) have
been duly  authorized by all necessary  action on the part of the Company and no
further consent or action is required by the Company,  its Board of Directors or
its stockholders.  Each of the Transaction  Documents has been (or upon delivery
will be) duly  executed by the Company and is, or when  delivered in  accordance
with the terms hereof, will constitute,  the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.

            (d) No Conflicts.  The  execution,  delivery and  performance of the
Transaction  Documents by the Company and the consummation by the Company of the
transactions  contemplated  hereby and thereby do not and will not (i)  conflict
with or violate any provision of the Company's or any  Subsidiary's  certificate
or  articles  of  incorporation,  bylaws  or  other  organizational  or  charter
documents,  (ii)  conflict  with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination,  amendment,  acceleration  or  cancellation  (with or
without notice, lapse of time or both) of, any agreement,  credit facility, debt
or other  instrument  (evidencing a Company or Subsidiary  debt or otherwise) or
other  understanding  to which the  Company or any  Subsidiary  is a party or by
which  any  property  or  asset of the  Company  or any  Subsidiary  is bound or
affected, except to the extent that such conflict,  default or termination right
could not reasonably be expected to have a Material Adverse Effect, or (iii), to


                                       7


the  knowledge  of  the  Company,  result  in a  violation  of  any  law,  rule,
regulation,  order,  judgment,  injunction,  decree or other  restriction of any
court or governmental  authority to which the Company or a Subsidiary is subject
(including  federal and state  securities laws and regulations and the rules and
regulations  of any  self-regulatory  organization  to which the  Company or its
securities  are subject),  or by which any property or asset of the Company or a
Subsidiary is bound or affected.

            (e) Issuance of the  Securities.  The Senior  Secured  Notes and the
Warrants are duly  authorized  and, when issued and paid for in accordance  with
the Transaction  Documents,  shall be free and clear from all Liens with respect
to the issue  thereof and shall not be subject to  preemptive  rights or similar
rights of  stockholders.  As of the Closing  Date,  a number of shares of Common
Stock shall have been duly  authorized  and reserved  for issuance  which equals
125% of the  number of shares of Common  Stock  issuable  upon  exercise  of the
Warrants to be issued at such  Closing.  Upon exercise or issuance in accordance
the  Warrants,  the  Warrant  Shares  shall be  validly  issued,  fully paid and
nonassessable  and free from all Liens with respect to the issue  thereof,  with
the holders being  entitled to all rights  accorded to a holder of Common Stock.
Assuming  the  accuracy of each of the  representations  and  warranties  of the
Purchasers  contained  in  Section  3.2,  the  issuance  by the  Company  of the
Securities is exempt from registration under the Securities Act.

            (f) Capitalization. The number of shares and type of all authorized,
issued and  outstanding  capital  stock,  options  and other  securities  of the
Company   (whether  or  not  presently   convertible   into  or  exercisable  or
exchangeable  for  shares  of  capital  stock of the  Company)  is set  forth in
Schedule  3.1(f).  All outstanding  shares of capital stock are duly authorized,
validly issued,  fully paid and nonassessable and have been issued in compliance
with  all  applicable  securities  laws,  except  where  the  failure  to  be so
authorized,  issued or in compliance  could not reasonably be expected to result
in a Material Adverse Effect (as defined below). Except as disclosed in Schedule
3.1(f), there are no outstanding options,  warrants,  script rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations  convertible  into or exercisable or exchangeable  for, or
giving any Person any right to  subscribe  for or acquire,  any shares of Common
Stock, or contracts,  commitments,  understandings  or arrangements by which the
Company or any Subsidiary is or may become bound to issue  additional  shares of
Common Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. Except as set forth in Schedule 3.1(f), there are no anti-dilution
or price adjustment  provisions  contained in any security issued by the Company
(or in any  agreement  providing  rights to security  holders) and the issue and
sale of the  Securities  will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company  securities  to adjust the  exercise,
conversion,  exchange or reset price under such securities.  To the knowledge of
the Company,  except as specifically  disclosed in Schedule 3.1(f), no Person or
group of related Persons beneficially owns (as determined pursuant to Rule 13d-3
under the Exchange  Act), or has the right to acquire,  by agreement  with or by
obligation binding upon the Company,  beneficial ownership of in excess of 5% of
the outstanding  Common Stock,  ignoring for such purposes any limitation on the
number of shares of Common Stock that may be owned at any single time.


                                       8


         (g) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively referred
to herein as the "SEC REPORTS" and, together with this Agreement and the
Schedules to this Agreement, the "DISCLOSURE MATERIALS") on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. The Company has delivered
to the Purchasers true, correct and complete copies of all SEC Reports filed
within the ten (10) days preceding the date hereof. As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. All material
agreements to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any Subsidiary are subject are included as
part of or specifically identified in the SEC Reports.

            (h) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports,  except as specifically disclosed in
the SEC Reports,  (i) there has been no event,  occurrence or development  that,
individually  or in the  aggregate,  has had or that could  result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise)  other than (A) trade payables and accrued  expenses  incurred in the
ordinary  course of business  consistent  with past practice and (B) liabilities
not required to be reflected in the Company's  financial  statements pursuant to
GAAP or required to be disclosed in filings made with the Commission,  (iii) the
Company  has not  altered  its  method  of  accounting  or the  identity  of its
auditors, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any
agreements  to purchase or redeem any shares of its capital  stock,  and (v) the
Company  has not  issued any  equity  securities  to any  officer,  director  or
Affiliate,  except  pursuant to existing  Company  stock  option plans or as set
forth in Schedule 3.1(h). No event,  liability,  development or circumstance has
occurred or exists,  or is  contemplated to occur with respect to the Company or
its Subsidiaries or their respective business, properties, prospects, operations
or  financial  condition,  that would be required to be disclosed by the Company
under applicable  securities laws on a registration  statement on Form S-1 filed
with the SEC relating to an issuance and sale by the Company of its Common Stock
and which has not been publicly announced.


                                       9


            (i) Absence of Litigation.  Except as set forth in Schedule  3.1(i),
there is no action, suit, claim, proceeding,  inquiry or investigation before or
by any court, public board, government agency,  self-regulatory  organization or
body  pending  or,  to the  knowledge  of the  Company,  threatened  against  or
affecting the Company or any of its Subsidiaries that could,  individually or in
the  aggregate,  have a Material  Adverse  Effect.  Schedule  3.1(i)  contains a
complete list and summary description of any pending or, to the knowledge of the
Company,  threatened  proceeding  against or affecting the Company or any of its
Subsidiaries  that  could  individually  or in the  aggregate,  have a  Material
Adverse Effect.

            (j)  Compliance.  Neither the Company nor any  Subsidiary  (i) is in
default  under or in violation  of (and no event has occurred  that has not been
waived that, with notice or lapse of time or both,  would result in a default by
the Company or any  Subsidiary  under),  nor has the  Company or any  Subsidiary
received  notice  of a  claim  that  it is in  default  under  or  that it is in
violation of, any indenture,  loan or credit agreement or any other agreement or
instrument  to which it is a party  or by which it or any of its  properties  is
bound  (whether or not such default or violation  has been  waived),  (ii) is in
violation of any order of any court,  arbitrator or governmental  body, or (iii)
to the  knowledge  of the  Company,  is or has been in violation of any statute,
rule or regulation of any governmental  authority,  including without limitation
all  foreign,  federal,  state and local laws  relating to taxes,  environmental
protection,  occupational  health and  safety,  product  quality  and safety and
employment and labor matters,  except in each case as could not, individually or
in the aggregate, have or result in a Material Adverse Effect.

            (k) Title to Assets.  The Company and the Subsidiaries have good and
marketable title in all personal  property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens,  except for Liens as do not materially  affect the value of such property
and do not  materially  interfere  with the use made and  proposed to be made of
such  property by the  Company and the  Subsidiaries.  To the  knowledge  of the
Company,  any real property and  facilities  held under lease by the Company and
the Subsidiaries are held by them under valid, subsisting and enforceable leases
of which the Company and the Subsidiaries are in compliance.

            (l)  Certain  Fees.  Except  as set  forth on  Schedule  3.1(l),  no
brokerage or finder's fees or commissions  are or will be payable by the Company
to any  broker,  financial  advisor  or  consultant,  finder,  placement  agent,
investment  banker,  bank or  other  Person  with  respect  to the  transactions
contemplated by this Agreement.  The Company has not taken any action that would
cause any Purchaser to be liable for any such fees or commissions.

            (m) Private Placement.  Neither the Company nor any Person acting on
the  Company's  behalf has sold or offered to sell or solicited any offer to buy
the Securities by means of any form of general  solicitation or advertising.  To
the knowledge of the Company,  neither the Company nor any of its Affiliates nor
any Person acting on the Company's  behalf has,  directly or indirectly,  at any
time  within  the past six  months,  made any offer or sale of any  security  or
solicitation of any offer to buy any security under circumstances that would (i)
eliminate the availability of the exemption from registration under Regulation D
under the Securities Act in connection with the offer and sale of the Securities
as contemplated  hereby or (ii) cause the offering of the Securities pursuant to
the  Transaction  Documents to be integrated with prior offerings by the Company
for  purposes  of  any  applicable  law,  regulation  or  stockholder   approval
provisions,  including,  without limitation,  under the rules and regulations of
any  Trading  Market.  The  Company  is  not,  and is not an  Affiliate  of,  an
"investment  company" within the meaning of the Investment  Company Act of 1940,
as amended. The Company is not a United States real property holding corporation
within the meaning of the Foreign Investment in Real Property Tax Act of 1980.


                                       10


            (n) Form SB-2  Eligibility.  The Company is eligible to register its
Common Stock for resale by the Purchasers using Form SB-2 promulgated  under the
Securities Act.

            (o)  Listing  and  Maintenance  Requirements.   The  Company  is  in
compliance  with the listing or maintenance  requirements  of its Trading Market
and will take all steps necessary to have its shares of Common Stock continue to
be traded and listed on its Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.

            (p) Registration Rights. Except as described in Schedule 3.1(p), the
Company has not  granted or agreed to grant to any Person any rights  (including
"piggy-back"  registration  rights)  to  have  any  securities  of  the  Company
registered with the Commission or any other governmental authority that have not
been satisfied.

            (q) Application of Takeover  Protections.  There is no control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
charter  documents  or the laws of its state of  incorporation  that is or could
become applicable to any of the Purchasers as a result of the Purchasers and the
Company  fulfilling  their  obligations  or  exercising  their  rights under the
Transaction  Documents,  including,  without  limitation,  as a  result  of  the
Company's  issuance  of the  Securities  and the  Purchasers'  ownership  of the
Securities.  The foregoing  notwithstanding,  the Company has  authorized in its
articles of incorporation blank check preferred stock.

            (r) Disclosure.  The Company  confirms that neither it nor any other
Person  acting on its behalf has provided any of the  Purchasers or their agents
or counsel with any information that  constitutes or might constitute  material,
nonpublic  information.  The Company  understands  and confirms that each of the
Purchasers will rely on the foregoing  representations in effecting transactions
in  securities  of the  Company.  All  disclosure  provided  to  the  Purchasers
regarding the Company,  its business and the transactions  contemplated  hereby,
including  the  Schedules  to this  Agreement,  furnished by or on behalf of the
Company  are true and  correct  and do not  contain  any untrue  statement  of a
material fact or omit to state any material fact  necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made,  not  misleading.  No event or  circumstance  has occurred or  information
exists with  respect to the Company or any of its  Subsidiaries  or its or their
business,  properties,  prospects,  operations or financial  conditions,  which,
under  applicable  law,  rule  or  regulation,  requires  public  disclosure  or
announcement  by the  Company but which has not been so  publicly  announced  or
disclosed.  The Company  acknowledges  and agrees that no Purchaser makes or has
made  any  representations  or  warranties  with  respect  to  the  transactions
contemplated hereby other than those specifically set forth in Section 3.2.


                                       11


            (s) Acknowledgment Regarding Purchasers' Purchase of Securities. The
Company  acknowledges and agrees that each of the Purchasers is acting solely in
the capacity of an arm's length purchaser with respect to this Agreement and the
transactions  contemplated  hereby.  The Company  further  acknowledges  that no
Purchaser  is acting as a financial  advisor or  fiduciary of the Company or any
other Purchaser (or in any similar  capacity) with respect to this Agreement and
the  transactions  contemplated  hereby and any advice given by any Purchaser or
any of their  respective  representatives  or  agents  in  connection  with this
Agreement and the transactions  contemplated hereby is merely incidental to such
Purchaser's  purchase of the Securities.  The Company further represents to each
Purchaser  that the  Company's  decision to enter into this  Agreement  has been
based solely on the  independent  evaluation  of the  transactions  contemplated
hereby by the Company and its representatives.

            (t) Patents and Trademarks.  The Company and the Subsidiaries  have,
or have rights to use, all patents, patent applications,  trademarks,  trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights  that  are  necessary  or  material  for  use in  connection  with  their
respective  businesses  as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect  (collectively,  the  "INTELLECTUAL
PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has received a written
notice  that  the  Intellectual  Property  Rights  used  by the  Company  or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual  Property Rights are enforceable and there
is no  existing  infringement  by  another  Person  of any  of the  Intellectual
Property Rights.

            (u) Regulatory Permits. To the knowledge of the Company, the Company
and the Subsidiaries possess all certificates, authorizations and permits issued
by the  appropriate  federal,  state,  local or foreign  regulatory  authorities
necessary  to  conduct  their  respective  businesses  as  described  in the SEC
Reports,   except  where  the  failure  to  possess  such  permits   could  not,
individually  or in the aggregate,  have or result in a Material  Adverse Effect
("MATERIAL  PERMITS"),  and neither the Company nor any  Subsidiary has received
any notice of  proceedings  relating to the  revocation or  modification  of any
Material Permit.

            (v) Transactions With Affiliates and Employees.  Except as set forth
below or in SEC Reports  filed at least ten days prior to the date hereof,  none
of the  officers or  directors  of the  Company  and,  to the  knowledge  of the
Company,  none of the  employees  of the  Company  is  presently  a party to any
transaction  with the  Company or any  Subsidiary  (other  than for  services as
employees,  officers and directors),  including any contract, agreement or other
arrangement  providing for the  furnishing  of services to or by,  providing for
rental of real or personal property to or from, or otherwise  requiring payments
to or from any officer,  director or such  employee or, to the  knowledge of the
Company, any entity in which any officer,  director,  or any such employee has a
substantial interest or is an officer, director, trustee or partner.


                                       12


            (w)  Indebtedness.  Except as disclosed in Schedule 3.1(w),  neither
the Company nor any of its  Subsidiaries  has any outstanding  Indebtedness  (as
defined below).  Schedule 3.1(w) provides a detailed description of the material
terms of any such  outstanding  Indebtedness.  Except as  disclosed  in Schedule
3.1(w), no Indebtedness of the Company is senior to or ranks pari passu with the
Senior  Secured  Notes in right of payment,  whether  with respect of payment of
redemptions,  interest, damages or upon liquidation or dissolution or otherwise.
For purposes of this Agreement:  (i) "INDEBTEDNESS" of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations issued,
undertaken  or assumed as the  deferred  purchase  price of property or services
(other than trade payables entered into in the ordinary course of business), (C)
all  reimbursement  or payment  obligations  with  respect to letters of credit,
surety bonds and other similar  instruments,  (D) all  obligations  evidenced by
notes,  bonds,  debentures  or similar  instruments,  including  obligations  so
evidenced  incurred in connection  with the  acquisition of property,  assets or
businesses,  (E) all indebtedness  created or arising under any conditional sale
or other title  retention  agreement,  or incurred as financing,  in either case
with  respect to any  property  or assets  acquired  with the  proceeds  of such
indebtedness  (even  though the rights and  remedies of the seller or bank under
such  agreement in the event of default are limited to  repossession  or sale of
such  property),  (F) all  monetary  obligations  under any  leasing  or similar
arrangement  which,  in accordance  with GAAP, is classified as a capital lease,
(G) all indebtedness referred to in clauses (A) through (F) above secured by (or
for which the holder of such  Indebtedness has an existing right,  contingent or
otherwise,  to be  secured  by) any  Lien  upon  or in any  property  or  assets
(including  accounts and contract  rights) owned by any Person,  even though the
Person which owns such assets or property  has not assumed or become  liable for
the payment of such indebtedness,  and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; and (ii)"CONTINGENT  OBLIGATION" means, as to any Person, any
direct or  indirect  liability,  contingent  or  otherwise,  of that Person with
respect to any  indebtedness,  lease,  dividend or other  obligation  of another
Person if the primary purpose or intent of the Person  incurring such liability,
or the primary effect  thereof,  is to provide  assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating  thereto will be complied  with, or that the holders of such  liability
will be protected (in whole or in part) against loss with respect thereto.

            (x) Solvency.  Based on the financial condition of the Company as of
the Closing Date,  and including the proceeds  received from the offering of not
more than $6,000,000  aggregate  principal amount of Senior Secured Notes to the
Purchasers listed in Schedule 3.1(w) or their Affiliates (the  "OFFERING"):  (i)
the Company's  fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company's  existing  debts and other
liabilities  (including known contingent  liabilities) as they mature;  (ii) the
Company's  assets do not constitute  unreasonably  small capital to carry on its
business  for the  current  fiscal year as now  conducted  and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements  of the business  conducted by the Company,  and projected  capital
requirements and capital  availability  thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets,  after taking into account all anticipated  uses of
the cash,  would be  sufficient  to pay all amounts on or in respect of its debt
when such amounts are required to be paid.  The Company does not intend to incur
debts  beyond its ability to pay such debts as they mature  (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).


                                       13


            (y) Internal Accounting  Controls.  To the knowledge of the Company.
the  Company  and the  Subsidiaries  maintain  a system of  internal  accounting
controls  sufficient to provide  reasonable  assurance that (i) transactions are
executed in accordance  with  management's  general or specific  authorizations,
(ii)  transactions are recorded as necessary to permit  preparation of financial
statements in conformity with generally  accepted  accounting  principles and to
maintain  asset  accountability,  (iii)  access to assets is  permitted  only in
accordance with  management's  general or specific  authorization,  and (iv) the
recorded  accountability  for assets is  compared  with the  existing  assets at
reasonable  intervals  and  appropriate  action  is taken  with  respect  to any
differences.

            (z)  Sarbanes-Oxley  Act. The Company is in compliance  with any and
all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the  date  hereof,  and any  and  all  applicable  rules  and  regulations
promulgated  by the SEC  thereunder  that are  effective  as of the date hereof,
except  where  such  noncompliance  would  not  have,  individually  or  in  the
aggregate, a Material Adverse Effect.

            (aa) Oil and Gas Title.  Subject to Permitted Liens, the Company has
good and  defensible  title  to all Oil and Gas  Properties,  including  without
limitation the Oil and Gas  Properties  referred to in the Annual Report and the
Reserve Report, free and clear of Liens.

            (bb) Present Value.  The present  discounted  value of the Company's
interests in the Oil and Gas Properties  located in the State of Texas is as set
forth in the Reserve Report.

            (cc) Reserve  Report.  The quantum and nature of the interest of the
Company  in and to the Oil and Gas  Properties  is as set  forth  in the  Annual
Report  or the  Reserve  Report,  as the case may be,  to the  extent  set forth
therein,  and there are no "back-in" or  "reversionary"  interests held by third
parties  which could  materially  reduce the interest of the Company in such Oil
and Gas  Properties  except as expressly  set forth in the Annual  Report or the
Reserve Report,  as the case may be. The ownership of the Oil and Gas Properties
by the Company  shall not in any material  respect  obligate the Company to bear
the costs and expenses relating to the maintenance, development or operations of
each such Oil and Gas Property in an amount in excess of the working interest of
the Company in each Oil and Gas  Property  as set forth in the Annual  Report or
the Reserve Report, as the case may be (unless there is a corresponding increase
in the net revenue interest of the Company in such Oil and Gas Property).

            3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, as to itself only and for no other Purchaser, represents and warrants to
the Company as follows:

            (a)  Organization;  Authority.  Such  Purchaser  is an  entity  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
jurisdiction of its organization with the requisite  corporate or partnership or
other  applicable  power  and  authority  to enter  into and to  consummate  the
transactions  contemplated by the  Transaction  Documents and otherwise to carry
out its obligations hereunder and thereunder.  The purchase by such Purchaser of
the Securities hereunder has been duly authorized by all necessary action on the
part of such Purchaser.  This Agreement and the Security Agreement has been duly
executed and delivered by such Purchaser and  constitutes  the valid and binding
obligation of such  Purchaser,  enforceable  against it in  accordance  with its
terms.


                                       14


            (b)  Investment  Intent.  Such Purchaser is (i) acquiring the Senior
Secured  Notes and Warrants and (ii) upon  exercise of the Warrants will acquire
the Warrant  Shares  issuable  upon  exercise of the  Warrants,  in the ordinary
course of  business  for its own  account  and not with a view  towards,  or for
resale in  connection  with,  the public sale or  distribution  thereof,  except
pursuant to sales  registered or exempted  under the Securities  Act;  provided,
however,  that by making the  representations  herein,  such  Purchaser does not
agree to hold any of the  Securities  for any minimum or other specific term and
reserves the right to dispose of the  Securities at any time in accordance  with
or pursuant to a  registration  statement or an exemption  under the  Securities
Act. Such  Purchaser does not have any agreement or  understanding,  directly or
indirectly, with any Person to distribute any of the Securities.

            (c)  Purchaser  Status.  At the time such  Purchaser was offered the
Securities  it was,  and at the date hereof it is, an  "accredited  investor" as
defined in Rule 501(a) under the Securities Act.

            (d) Experience of such Purchaser.  Such  Purchaser,  either alone or
together  with its  representatives,  has  such  knowledge,  sophistication  and
experience in business and  financial  matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated  the merits and risks of such  investment.  Such  Purchaser is able to
bear the economic risk of an investment  in the  Securities  and, at the present
time, is able to afford a complete loss of such investment.

            (e) Access to Information.  Such Purchaser  acknowledges that it has
reviewed the Disclosure  Materials and has been afforded (i) the  opportunity to
ask such questions as it has deemed  necessary of, and to receive  answers from,
representatives  of the  Company  concerning  the  terms and  conditions  of the
offering  of the  Securities  and the  merits  and  risks  of  investing  in the
Securities;  (ii) access to information  about the Company and the  Subsidiaries
and their  respective  financial  condition,  results of  operations,  business,
properties,  management  and  prospects  sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or canacquire without  unreasonable effort or expense that
is  necessary  to make an  informed  investment  decision  with  respect  to the
investment.  Neither such inquiries nor any other investigation  conducted by or
on behalf of such  Purchaser or its  representatives  or counsel  shall  modify,
amend or  affect  such  Purchaser's  right to rely on the  truth,  accuracy  and
completeness of the Disclosure  Materials and the Company's  representations and
warranties contained in the Transaction Documents.


                                       15


                   ARTICLE IV OTHER AGREEMENTS OF THE PARTIES

      4.1 Transfer Restrictions.

            (a) The  Securities may only be disposed of pursuant to an effective
registration  statement  under the  Securities  Act or pursuant to an  available
exemption  from the  registration  requirements  of the  Securities  Act, and in
compliance  with any applicable  state  securities  laws. In connection with any
transfer  of  Securities  other  than  pursuant  to  an  effective  registration
statement or to the Company or pursuant to Rule 144(k),  except as otherwise set
forth herein,  the Company may require the  transferor to provide to the Company
an opinion of counsel  selected by the  transferor,  the form and  substance  of
which  opinion shall be reasonably  satisfactory  to the Company,  to the effect
that such  transfer  does not require  registration  under the  Securities  Act.
Notwithstanding  the  foregoing,  the Company  hereby  consents to and agrees to
register on the books of the Company and with its  Transfer  Agent,  without any
such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of
such Purchaser, provided that the transferee certifies to the Company that it is
an "accredited investor" as defined in Rule 501(a) under the Securities Act.

            (b) The Purchasers  agree to the imprinting,  so long as is required
by this Section 4.1(b),  of a legend  substantially in the following form on any
certificate evidencing Securities:

         THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
         EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
         RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
         OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
         BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
         STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
         EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
         REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
         STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES
         MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
         LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) while a Registration Statement covering the resale of
such Securities is effective under the Securities Act; provided, that the
Company's counsel shall have delivered a legal opinion relating to the removal
of legends upon a sale or transfer of such Securities, or (ii) following any
sale of such Securities pursuant to Rule 144, or (iii) if such Securities are
eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission). The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Transfer Agent on the Effective Date and to
deliver any required legal opinions with respect to the removal of legends upon
the sale or transfer of Securities. Following the Effective Date or at such
earlier time as a legend is no longer required for certain Securities, the
Company will no later than five Trading Days following the delivery by a
Purchaser to the Company of a legended certificate representing such Securities,
use its reasonable best efforts to deliver or cause to be delivered to such
Purchaser a certificate representing such Securities that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section. For so long as any
Purchaser owns Securities, the Company will not effect or publicly announce its
intention to effect any exchange, recapitalization or other transaction that
effectively requires or rewards physical delivery of certificates evidencing the
Common Stock.


                                       16


            (c) The Company  acknowledges  and agrees that a Purchaser  may from
time  to  time  pledge  or  grant  a  security  interest  in  some or all of the
Securities  in  connection  with a bona fide margin  agreement  or other loan or
financing arrangement secured by the Securities and, if required under the terms
of such agreement,  loan or arrangement,  such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to  approval  of the  Company  and no legal  opinion of the
pledgee,  secured party or pledgor  shall be required in  connection  therewith.
Further, no notice shall be required of a pledge. At the appropriate Purchaser's
expense, the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in connection with
a pledge or transfer of the Securities,  including the preparation and filing of
any required prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of selling stockholders thereunder.

      4.2 Furnishing of Information.  As long as any Purchaser owns  Securities,
the  Company  covenants  to use its best  efforts  to  timely  file  (or  obtain
extensions in respect  thereof and file within the applicable  grace period) all
reports  required to be filed by the Company  after the date hereof  pursuant to
the Exchange Act. Upon the request of any  Purchaser,  the Company shall deliver
to such Purchaser a written  certification  of a duly  authorized  officer as to
whether it has complied  with the preceding  sentence.  As long as any Purchaser
owns any Securities,  if the Company is not required to file reports pursuant to
such laws,  it will  prepare and  furnish to the  Purchasers  and make  publicly
available in accordance  with  paragraph (c) of Rule 144 such  information as is
required for the Purchasers to sell the  Securities  under Rule 144. The Company
further  covenants  that it will take such  further  action as any  Purchaser or
subsequent holder of Securities may reasonably request to satisfy the provisions
of Rule 144 applicable to the issuer of securities  relating to transactions for
the sale of  securities  pursuant  to Rule 144,  but only to the extent that the
Company,  or counsel of the Company  agree,  that the  Purchaser  or  subsequent
holder is able to avail  themselves of the exemption  created by Rule 144.

      4.3 Integration.  The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall,  sell,  offer for sale or solicit
offers to buy or  otherwise  negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the  Securities  in a manner that would  require the  registration  under the
Securities Act of the sale of the Securities to the Purchasers, or that would be
integrated  with the offer or sale of the  Securities  for purposes of the rules
and regulations of any Trading Market.

4.4 Reservation and Listing of Common Stock.


                                       17


            (a) The Company  shall  maintain a reserve from its duly  authorized
shares of Common Stock for  issuance  pursuant to the  Transaction  Documents in
such  amount as may be required  to fulfill  its  obligations  in full under the
Transaction Documents.  In the event that at any time the then authorized shares
of Common Stock are  insufficient  for the Company to satisfy its obligations in
full under the  Transaction  Documents,  the Company  shall  promptly  take such
actions as may be required to increase the number of authorized shares.

            (b) The Company  shall take all steps  necessary to cause its Common
Stock to be approved for listing on its Trading  Market and maintain the listing
of such Common  Stock on such Trading  Market or another  Eligible  Market.  The
Company  covenants  to  promptly  file any listing  application  required by its
Trading Market with respect to the Warrant Shares.

      4.5 [Intentionally Deleted.]

      4.6  Additional  Notes;  Variable  Securities;   Additional   Registration
Statement.  For so long as any Purchaser  beneficially owns any Securities,  the
Company will not issue any Senior  Secured Notes other than to the Purchasers as
contemplated  hereby and the Company shall not issue any other  securities  that
would cause a breach or default under the Senior Secured Notes.  For long as any
Warrants remain outstanding, the Company shall not, in any manner, issue or sell
any rights,  warrants or options to  subscribe  for or purchase  Common Stock or
directly or indirectly  convertible  into or  exchangeable  or  exercisable  for
Common  Stock at a price which  varies or may vary with the market  price of the
Common Stock, including by way of one or more reset(s) to any fixed price unless
the  conversion,  exchange or exercise price of any such security cannot be less
than the then  applicable  Exercise  Price (as  defined  in the  Warrants)  with
respect to the Common  Stock under any into which any  Warrant is  exerciseable.
Until the Effective  Time,  the Company will not file a  registration  statement
under the  Securities  Act relating to securities  that are not the  Securities,
other than a registration  statement on Form S-8, in order to register increases
in the shares  underlying  equity incentive plans in existence as of the date of
this Agreement.

      4.7 Securities Laws Disclosure; Publicity. The Company shall, on or before
8:30 a.m., New York City Time, on the day following execution of this Agreement,
issue a press  release,  not in violation  of any  applicable  securities  laws,
acceptable to the Purchasers  disclosing all material terms of the  transactions
contemplated  hereby.  On the Closing  Date,  the  Company  shall file a Current
Report on Form 8-K with the Commission  (the "8-K FILING")  describing the terms
of the transactions  contemplated by the Transaction  Documents and including as
exhibits to such Current Report on Form 8-K this  Agreement,  the form of Senior
Secured  Note,  the  form of  Warrant  and the  Security  Agreement  in the form
required by the  Exchange  Act.  Thereafter,  the Company  shall timely file any
filings and notices required by the Commission or applicable law with respect to
the  transactions   contemplated  hereby  and  provide  copies  thereof  to  the
Purchasers promptly after filing.  Except with respect to the 8-K Filing and the
press  release  referenced  above  (a copy of  which  will  be  provided  to the
Purchasers  for their review as early as practicable  prior to its filing),  the


                                       18


Company shall, at least two Trading Days prior to the filing or dissemination of
any  disclosure  required  by this  paragraph,  provide  a copy  thereof  to the
Purchasers for their review.  The Company and the Purchasers  shall consult with
each other in issuing any press releases or otherwise  making public  statements
or filings and other communications with the Commission or any regulatory agency
or Trading  Market with respect to the  transactions  contemplated  hereby,  and
neither  party shall  issue any such press  release or  otherwise  make any such
public statement, filing or other communication without the prior consent of the
other,  except  if such  disclosure  is  required  by law,  in  which  case  the
disclosing  party shall  promptly  provide the other party with prior  notice of
such  public  statement,  filing  or other  communication.  Notwithstanding  the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include  the name of any  Purchaser  in any filing  with the  Commission  or any
regulatory  agency or Trading Market,  without the prior written consent of such
Purchaser,  except to the extent such  disclosure  (but not any disclosure as to
the  controlling   Persons  thereof)  is  required  by  law  or  Trading  Market
regulations,  in which case the Company shall provide the Purchasers  with prior
notice of such  disclosure.  The Company  shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents not to, provide any Purchaser with any material nonpublic information
regarding  the Company or any of its  Subsidiaries  from and after the filing of
the 8-K Filing without the express  written  consent of such  Purchaser.  In the
event  of a  breach  of  the  foregoing  covenant  by  the  Company,  any of its
Subsidiaries, or any of its or their respective officers,  directors,  employees
and  agents,  in  addition  to  any  other  remedy  provided  herein  or in  the
Transaction  Documents,  a  Purchaser  shall  have  the  right  to make a public
disclosure,  in the form of a press release,  public advertisement or otherwise,
of such  material  nonpublic  information  without  the  prior  approval  by the
Company,  its  Subsidiaries,  or  any  of  its  or  their  respective  officers,
directors,  employees or agents.  No Purchaser  shall have any  liability to the
Company,  its  Subsidiaries,  or  any  of  its  or  their  respective  officers,
directors,  employees,  stockholders  or agents  for any such  disclosure.  Each
Purchaser  hereby  agrees not to  knowingly  request  any  information  from the
Company,  its  directors,  officers,  employees or agents  which such  purchaser
should  reasonably  know is  material  non-public  information.  Subject  to the
foregoing,  neither the Company nor any Purchaser shall issue any press releases
or any other public  statements  with respect to the  transactions  contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of any Purchaser,  to make any press release or other public disclosure
with respect to such  transactions  (i) in substantial  conformity  with the 8-K
Filing and contemporaneously therewith and (ii) as is required by applicable law
and  regulations  (provided  that in the case of clause  (i) the Lead  Purchaser
shall be consulted by the Company in  connection  with any such press release or
other public disclosure prior to its release).  Each press release  disseminated
during the 12 months preceding the date of this Agreement did not at the time of
release  contain  any untrue  statement  of a  material  fact or omit to state a
material  fact  required to be stated  therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading

      4.8 Use of Proceeds.  The Company shall use the net proceeds from the sale
of the Senior Secured Notes and Warrants  hereunder in the following  order: (i)
first,  pay any and all  expenses  incurred in  connection  with the sale of the
Securities  hereunder  and  the  filing  and  maintaining  of  any  registration
statement  required by this  Agreement,  (ii) second,  up to  $1,479,000  of net
proceeds  to  repay  existing  loans  made by a party  related  to  officers  or
directors of the Company, and (iii) third, any remaining proceeds to be used for
general working capital  requirements of the Company.

      4.9  Reimbursement.  If any  Purchaser  or any  of its  Affiliates  or any
officer, director, partner, controlling Person, employee or agent of a Purchaser
or any of its Affiliates (a "RELATED  PERSON")  becomes involved in any capacity
in any  Proceeding  brought by or against any Person in connection  with or as a
result of the transactions  contemplated by the Transaction Documents other than
one brought by the applicable Purchaser or a Related Person thereof, the Company


                                       19


will  indemnify  and hold  harmless  such  Purchaser  or Related  Person for its
reasonable legal and other expenses  (including the costs of any  investigation,
preparation and travel) and for any Losses incurred in connection therewith,  as
such expenses or Losses are incurred, excluding only Losses that result directly
from  such   Purchaser's  or  Related   Person's  gross  negligence  or  willful
misconduct.  In addition,  the Company  shall  indemnify  and hold harmless each
Purchaser and Related  Person from and against any and all Losses,  as incurred,
arising  out  of or  relating  to  any  breach  by  the  Company  of  any of the
representations,  warranties or covenants  made by the Company in this Agreement
or any other Transaction  Document,  or any allegation by a third party that, if
true, would  constitute such a breach.  The conduct of any Proceedings for which
indemnification  is available  under this paragraph shall be governed by Section
6.4(c)  below.  The  indemnification  obligations  of  the  Company  under  this
paragraph  shall be in addition to any liability  that the Company may otherwise
have and shall be  binding  upon and  inure to the  benefit  of any  successors,
assigns,  heirs and  personal  representatives  of the  Purchasers  and any such
Related  Persons.  The Company also agrees that neither the  Purchasers  nor any
Related Persons shall have any liability to the Company or any Person  asserting
claims on behalf of or in right of the Company in connection with or as a result
of the  transactions  contemplated by the Transaction  Documents,  except to the
extent that any Losses incurred by the Company result from the gross  negligence
or  willful  misconduct  of  the  applicable  Purchaser  or  Related  Person  in
connection with such transactions. If the Company breaches its obligations under
any Transaction Document, then, in addition to any other liabilities the Company
may have under any Transaction Document or applicable law, the Company shall pay
or  reimburse  the  Purchasers  on  demand  for  all  costs  of  collection  and
enforcement  (including reasonable attorneys fees and expenses).  Subject to the
foregoing, the Company specifically agrees to reimburse the Purchasers on demand
for all costs of enforcing the indemnification obligations in this paragraph.

      4.10  Incurrence  of  Liens.  So  long as any  Senior  Secured  Notes  are
outstanding,  the Company shall not, directly or indirectly,  allow or suffer to
exist any Lien,  other than Liens pursuant to the Security  Agreement,  upon any
property  or  assets  (including  accounts  and  contract  rights)  owned by the
Company.

      4.11 Corporate Existence.  So long as any Purchaser  beneficially owns any
Senior  Secured  Notes or Warrants,  the Company  shall  maintain its  corporate
existence and shall not sell all or substantially  all of the Company's  assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's  assets,  where the  surviving or successor  entity in such
transaction  (i)  assumes  the  Company's  obligations  hereunder  and under the
agreements  and  instruments  entered into in connection  herewith and (ii) is a
publicly  traded  corporation  whose  common  stock is quoted  on or listed  for
trading  on  an  Eligible  Market.

      4.12  Covenants  Regarding  Oil and Gas  Properties.  The  Company  hereby
covenants as follows:


                                       20


            (a) Within ten (10)  Business Days  following  the date hereof,  the
Company  shall  cause to be filed of record,  in the  applicable  real  property
records of each  jurisdiction in . which the Oil and Gas Properties are located,
a fee or leasehold  mortgage,  deed of trust or deed to secure debt, in form and
substance  satisfactory to the Purchasers,  in favor of the Collateral Agent for
the benefit of Purchasers, securing the Senior Secured Notes and covering all of
the Oil and Gas Properties (each, a "MORTGAGE") and the Company  represents that
each such Mortgage shall be valid and enforceable  first priority mortgage Liens
on such  Oil and Gas  Properties  free  and  clear  of all  Liens,  defects  and
encumbrances, other than Permitted Liens.

            (b) Within sixty (60) calendar days  following the date hereof,  the
Company shall  furnish,  at the Company's  expense,  title  opinions or reports,
dated as of a date no earlier than the date of filing of each Mortgage, based on
updated land records  and/or title  searches and abstracts and otherwise in form
and substance and issued by counsel reasonably satisfactory to Collateral Agent,
confirming to Collateral Agent's reasonable  satisfaction that . (i) the Company
has good and  defensible  title to the quantity of interest  represented  herein
inand  to all of the Oil and Gas  Properties,  and  (ii)  all of such  Company's
interest in all of the Oil and Gas  Properties is subject to a valid,  perfected
and  enforceable  first-priority  Mortgage  Lien in favor of  Collateral  Agent,
subject only to Permitted Liens.

            (c) Upon  request of any  Purchaser,  the Company  shall  provide to
Collateral Agent copies from its files of all contracts and documents  affecting
the Oil and Gas Properties, and at Collateral Agent's request, the Company shall
make its files and personnel  available in the  Company's  offices and otherwise
fully  cooperate  with  Collateral  Agent  in the  title  verification  and  due
diligence  program to be conducted by  Collateral  Agent,  which shall be at the
Company's  expense,  to  confirm  the  ownership  and  value  of the Oil and Gas
Properties.

                                    ARTICLE V
                                   CONDITIONS

      5.1  Conditions  Precedent  to  the  Obligations  of the  Purchasers.  The
obligation of each Purchaser to acquire the Senior Secured Notes and Warrants at
the Closing is subject to the  satisfaction or waiver by such  Purchaser,  at or
before the Closing, of each of the following conditions:

            (a)   Representations   and  Warranties.   The  representations  and
warranties  of the  Company  contained  herein  shall be true and correct in all
material  respects as of the date when made and as of the Closing as though made
on and as of such date.

            (b)  Performance.  The Company and each other  Purchaser  shall have
performed,  satisfied and complied in all material  respects with all covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by it at or prior to the Closing.

            (c)  Good  Standing.  The  Company  shall  have  delivered  to  such
Purchaser  a  certificate  evidencing  the  formation  and good  standing of the
Company and each of its Subsidiaries in such entity's  jurisdiction of formation
issued by the Secretary of State (or comparable office) of such jurisdiction, as
of a date within 10 days of the Closing Date.


                                       21


            (d)  Qualification.   The  Company  shall  have  delivered  to  such
Purchaser a  certificate  evidencing  the Company's  qualification  as a foreign
corporation  and good standing  issued by the Secretary of State (or  comparable
office) of each jurisdiction in which the Company is so qualified,  as of a date
within 10 days of the Closing Date.

            (e) Listing.  The Common Stock (I) shall be designated for quotation
or listed on the Trading  Market and (II) shall not have been  suspended,  as of
the Closing Date,  by the SEC or the Trading  Market from trading on the Trading
Market  nor  shall  suspension  by the  SEC  or the  Trading  Market  have  been
threatened,  as of the  Closing  Date,  either  (A) in writing by the SEC or the
Trading  Market  or  (B)  by  falling  below  the  minimum  listing  maintenance
requirements of the Trading Market.

            (f)  Liens.  The  Company  shall  have  delivered  or  caused  to be
delivered to each Purchaser (A) certified copies of UCC search results,  listing
all effective  financing  statements  which name as debtor the Company or any of
its  Subsidiaries  filed in the prior five years to perfect an  interest  in any
assets  thereof,  together  with copies of such  financing  statements,  none of
which, except as otherwise agreed in writing by the Purchasers,  shall cover any
of the  Collateral  (as defined in the  Security  Agreement)  and the results of
searches  for any tax lien and  judgment  lien filed  against such Person or its
property,  which  results,  except  as  otherwise  agreed to in  writing  by the
Purchasers,  shall not show any such Liens; and . (B) a perfection  certificate,
duly completed and executed by the Company and each of itsSubsidiaries,  in form
and substance satisfactory to the Purchasers.

            (g)  Security  Agreement.   The  Company  shall  have  executed  and
delivered the Security Agreement to the Lead Purchaser,  as collateral agent for
the  Purchasers  and the Company  shall have executed and delivered all security
documentation contained therein.

      5.2 Conditions Precedent to the Obligations of the Company. The obligation
of the Company to sell the Senior  Secured  Notes and Warrants at the Closing is
subject to the satisfaction or waiver by the Company,  at or before the Closing,
of each of the following conditions:

            (a)   Representations   and  Warranties.   The  representations  and
warranties of the Purchasers  contained  herein shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made on and as of such date; and

            (b) Performance. The Purchasers shall have performed,  satisfied and
complied in all material respects with all covenants,  agreements and conditions
required by the  Transaction  Documents to be  performed,  satisfied or complied
with by the Purchasers at or prior to the Closing.




                                       22


                                   ARTICLE VI
                              REGISTRATION RIGHTS

      6.1 Shelf Registration

            (a) As  promptly  as  possible,  and in any event on or prior to the
Filing Date,  the Company shall  prepare and file with the  Commission a "Shelf"
Registration  Statement covering the resale of all Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415. The Registration
Statement  shall be on Form SB-2 (except if the Company is not then  eligible to
register for resale the Registrable  Securities on Form SB-2, in which case such
registration shall be on another  appropriate form in accordance herewith as the
Purchasers  may  reasonably  consent)  and shall  contain  (except if  otherwise
directed  by the  Purchasers)  the  "Plan of  Distribution"  attached  hereto as
Exhibit G.

            (b) The Company  shall use its  commercially  reasonable  efforts to
cause the Registration  Statement to be declared  effective by the Commission as
promptly as  possible  after the filing  thereof,  but in any event prior to the
Required  Effectiveness  Date,  and  shall  use its  best  efforts  to keep  the
Registration Statement continuously effective under the Securities Act until the
third anniversary of the Effective Date or such earlier date when either (i) all
Registrable  Securities of the Purchaser covered by such Registration  Statement
have been sold (the "EFFECTIVENESS  PERIOD") or (ii) all Registrable  Securities
owned by the Purchaser may be sold pursuant to Rule 144(k).

            (c) The Company shall notify each Purchaser in writing promptly (and
in any event  within one  Trading  Day) after  receiving  notification  from the
Commission that the Registration Statement has been declared effective.

            (d) As  promptly  as  possible,  and in any event no later  than the
Post-Effective  Amendment  Filing  Deadline,  the Company shall prepare and file
with the Commission a Post-Effective  Amendment.  The Company shall use its best
efforts to cause the  Post-Effective  Amendment to be declared  effective by the
Commission as promptly as possible  after the filing  thereof,  but in any event
prior to the fifteenth  Trading Day after the  Post-Effective  Amendment  Filing
Deadline.  The Company shall notify each  Purchaser in writing  promptly (and in
any event  within  one  business  day)  after  receiving  notification  from the
Commission that the Post-Effective Amendment has been declared effective.

            (e) Upon the occurrence of any Event (as defined below) prior to the
24month  anniversary of the Closing,  and on every monthly  anniversary  thereof
occurring  no later  than the  24-month  anniversary  of the  Closing  until the
applicable Event is cured, as partial relief for the damages suffered  therefrom
by the  Purchasers  (which  remedy shall not be exclusive of any other  remedies
available under this Agreement,  at law or in equity),  the Company shall pay to
each  Purchaser an amount in cash, as  liquidated  damages and not as a penalty,
equal to 1% of the aggregate purchase price paid by such Purchaser. The payments
to which a Purchaser  shall be  entitled  pursuant  to this  Section  6.1(e) are
referred to herein as "EVENT  PAYMENTS".  Any Event Payments payable pursuant to
the terms  hereof  shall  apply on a pro-rata  basis for any  portion of a month
prior to the cure of an  Event.  In the event the  Company  fails to make  Event
Payments  within 10 Business Days of any demand  therefore,  such Event Payments
shall bear interest at the rate of 1.5% per month  (prorated for partial months)
until paid in full.


                                       23


For such purposes, each of the following shall constitute an "EVENT":

                  (i) the Registration Statement is not filed on or prior to the
Filing  Date  or  is  not  declared  effective  on  or  prior  to  the  Required
Effectiveness  Date;

                  (ii) a  Post-Effective  Amendment  is not filed on or prior to
the Post-Effective  Amendment Filing Deadline or is not declared effective on or
prior to the twenty-first Trading Day after the Post-Effective  Amendment Filing
Deadline;

                  (iii) after the  Effective  Date, a Purchaser is not permitted
to sell Registrable Securities under the Registration Statement (or a subsequent
Registration  Statement filed in replacement thereof) for any reason (other than
the requirement of the Company to file a  Post-Effective  Amendment and for such
Post-Effective  Amendment  to be declared  effective)  for either (A) 10 or more
consecutive Trading Days or (B) 30 Trading Days, whether or not consecutive,  in
any  365-day  period);  provided,  however,  that  none of the  foregoing  shall
constitute  an  "Event"  if the delay is  caused  by any act of war,  terrorism,
natural disaster or power failure.

            (f) The  Company  shall  not,  prior  to the  Effective  Date of the
Registration  Statement,  prepare and file with the  Commission  a  registration
statement  relating to an offering  for its own account or the account of others
under the Securities Act of any of its equity securities.

      6.2 Registration Procedures. In connection with the Company's registration
obligations hereunder, the

Company shall:

            (a) Not less  than  three  Trading  Days  prior to the  filing  of a
Registration  Statement or any related Prospectus or any amendment or supplement
thereto  (including  any  document  that would be  incorporated  or deemed to be
incorporated  therein  by  reference),  the  Company  shall (i)  furnish to each
Purchaser  and any counsel  designated  by any  Purchaser  (each,  a  "PURCHASER
COUNSEL",  and Smithfield  Fiduciary LLC has initially designated Schulte Roth &
Zabel LLP) copies of all such documents  proposed to be filed,  which  documents
(other than those  incorporated  or deemed to be incorporated by reference) will
be subject to the review of such Purchasers and each Purchaser Counsel, and (ii)
cause its officers  and  directors,  counsel and  independent  certified  public
accountants  to  respond  to  such  inquiries  as  shall  be  necessary,  in the
reasonable  opinion  of  each  Purchaser   Counsel,   to  conduct  a  reasonable
investigation  within the meaning of the  Securities  Act. The Company shall not
file a  Registration  Statement  or any such  Prospectus  or any  amendments  or
supplements  thereto to which  Purchasers  holding a majority of the Registrable
Securities shall reasonably object. However, any objection to the filing of such
registration  statement or other document  enumerated above,  shall suspend from
occurring  any of the "Events"  listed above in Section 6.1 ((e) i.-iv.) for the
period of time  during  which  the  objection  remains,  but in no case will the
period of suspension exceed ten Trading Days.


                                       24


            (b) (i)  Prepare  and file  with  the  Commission  such  amendments,
including  post-effective  amendments,  to each  Registration  Statement and the
Prospectus  used  in  connection  therewith  as may be  necessary  to  keep  the
Registration  Statement  continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such  additional  Registration  Statements in order to register for resale under
the Securities  Act all of the  Registrable  Securities;  (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus  supplement,
and as so  supplemented  or  amended  to be filed  pursuant  to Rule 424;  (iii)
respond as promptly as reasonably possible, and in any event within ten Business
Days,  to  any  comments  received  from  the  Commission  with  respect  to the
Registration  Statement or any  amendment  thereto and as promptly as reasonably
practicable   provide  the   Purchasers   true  and   complete   copies  of  all
correspondence   from  and  to  the  Commission  relating  to  the  Registration
Statement; and . (iv) comply in all material respects with the provisions of the
Securities  Act and the  Exchange  Act with  respect to the  disposition  of all
Registrable   Securities  covered  by  the  Registration  Statement  during  the
applicable  period in accordance with the intended methods of disposition by the
Purchasers  thereof set forth in the Registration  Statement as so amended or in
such Prospectus as so supplemented.

            (c) Notify the Purchasers of  Registrable  Securities to be sold and
each Purchaser Counsel as promptly as reasonably practicable,  and (if requested
by any such  Person)  confirm  such  notice in writing no later than two Trading
Days thereafter, of any of the following events: (i) the Commission notifies the
Company whether there will be a "review" of any Registration Statement; (ii) the
Commission comments in writing on any Registration  Statement (in which case the
Company  shall  deliver to each  Purchaser  a copy of such  comments  and of all
written   responses   thereto);   (iii)  any   Registration   Statement  or  any
post-effective amendment is declared effective; (iv) the Commission or any other
Federal or state governmental  authority requests any amendment or supplement to
any  Registration  Statement or  Prospectus or requests  additional  information
related  thereto;  (v) the  Commission  issues  any stop  order  suspending  the
effectiveness  of any  Registration  Statement or initiates any  Proceedings for
that  purpose;  (vi)  the  Company  receives  notice  of any  suspension  of the
qualification or exemption from qualification of any Registrable  Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for such
purpose;  or  (vii)  the  financial  statements  included  in  any  Registration
Statement become  ineligible for inclusion  therein or any statement made in any
Registration  Statement or Prospectus or any document  incorporated or deemed to
be  incorporated  therein by reference is untrue in any material  respect or any
revision to a Registration  Statement,  Prospectus or other document is required
so that it will not contain any untrue  statement of a material  fact or omit to
state any material fact  required to be stated  therein or necessary to make the
statements  therein,  in the light of the  circumstances  under  which they were
made, not misleading.

            (d) Use its  reasonable  efforts  to avoid  the  issuance  of or, if
issued,  obtain the withdrawal of (i) any order suspending the  effectiveness of
any Registration  Statement,  or . (ii) any suspension of the  qualification (or
exemption from  qualification) of any of  theRegistrable  Securities for sale in
any jurisdiction, at the earliest practicable moment.

            (e) Furnish to each  Purchaser and each Purchaser  Counsel,  without
charge,  at least one  conformed  copy of each  Registration  Statement and each
amendment thereto, . including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously  furnished or
incorporated  by reference) as promptly as practicable  after the filing of such
documents with the Commission.


                                       25


            (f) Promptly  deliver to each Purchaser and each Purchaser  Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request within two Business Days of such request.  The Company hereby
consents to the use of such Prospectus and each amendment or supplement  thereto
by each of the selling  Purchasers in  connection  with the offering and sale of
the  Registrable  Securities  covered by such  Prospectus  and any  amendment or
supplement thereto.

            (g) (i) In the time and  manner  required  by each  Trading  Market,
prepare  and  file  with  such  Trading  Market  an  additional  shares  listing
application  covering  all of the  Registrable  Securities;  (ii) take all steps
necessary  to cause such  Registrable  Securities  to be approved for listing on
each Trading  Market as soon as  practicable  thereafter;  (iii)  provide to the
Purchasers  evidence  of such  listing;  and (iv)  maintain  the listing of such
Registrable Securities on each such Trading Market or another Eligible Market.

            (h) Prior to any public offering of Registrable Securities,  use its
best efforts to register or qualify or cooperate with the selling Purchasers and
each  applicable  Purchaser  Counsel  in  connection  with the  registration  or
qualification  (or exemption from such  registration or  qualification)  of such
Registrable  Securities for offer and sale under the securities or blue sky laws
of such  jurisdictions  within the United  States as any  Purchaser  requests in
writing,   to  keep  each  such  registration  or  qualification  (or  exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or  things  necessary  or  advisable  to  enable  the  disposition  in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided,  however,  that the Company shall not be obligated to file any general
consent to service  of  process or to qualify as a foreign  corporation  or as a
dealer in securities in any  jurisdiction  in which it is not so qualified or to
subject itself to taxation in respect of doing business in any  jurisdiction  in
which it is not otherwise subject.

            (i)  Cooperate   with  the   Purchasers  to  facilitate  the  timely
preparation and delivery of certificates  representing Registrable Securities to
be  delivered  to a  transferee  pursuant  to a  Registration  Statement,  which
certificates  shall be free, to the extent  permitted by this Agreement,  of all
restrictive  legends,  and to enable such  Registrable  Securities to be in such
denominations and registered in such names as any such Purchasers may request.

            (j)  Upon  the   occurrence  of  any  event   described  in  Section
6.2(c)(vii),  as promptly as  reasonably  practicable,  prepare a supplement  or
amendment,  including a post-effective  amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that,  as  thereafter  delivered,  neither the  Registration  Statement nor such
Prospectus will contain an 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 the light of the  circumstances  under  which they were
made, not misleading.


                                       26


            (k)  Reasonably  cooperate  with  any  due  diligence  investigation
undertaken  by the  Purchasers  in  connection  with  the  sale  of  Registrable
Securities,  including without  limitation by making available any documents and
information; provided that the Company will not deliver or make available to any
Purchaser  material,  nonpublic  information unless such Purchaser  specifically
requests in advance to receive material, nonpublic information in writing.

            (l) If Holders of a majority  of the  Registrable  Securities  being
offered  pursuant  to a  Registration  Statement  select  underwriters  for  the
offering,  the Company  shall enter into and  perform its  obligations  under an
underwriting agreement, in usual and customary form reasonably acceptable to the
Company,  including,  without limitation, by providing customary legal opinions,
comfort letters and indemnification and contribution obligations; provided, that
no such  agreement  shall  obligate the Company to pay any amount not  otherwise
contemplated by this Article VI.

            (m)  Comply  with  all  applicable  rules  and  regulations  of  the
Commission.


         6.3 Registration Expenses. The Company shall pay (or reimburse the
Purchasers for) all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the Commission, any Trading Market and in
connection with applicable state securities or Blue Sky laws, (b) printing
expenses (including without limitation expenses of printing certificates for
Registrable Securities and of printing prospectuses requested by the
Purchasers), (c) messenger, telephone and delivery expenses incurred by the
Company, (d) fees and disbursements of counsel for the Company and up to $5,000
in the aggregate for the Purchaser Counsels (incurred in preparing the initial
filing of the registration statement for the Registrable Securities and all
amendments thereto prior to it being declared effective), (e) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement, and (f) all listing fees to
be paid by the Company to the Trading Market. In all events, the Purchasers
shall be solely responsible for paying all brokerage fees, underwriter
commissions or similar compensation relating to their sale of Registrable
Securities and any income taxes resulting from any such sale of Registrable
Securities.

      6.4 Indemnification

            (a)   Indemnification   by   the   Company.   The   Company   shall,
notwithstanding  any termination of this Agreement,  indemnify and hold harmless
each Purchaser,  the officers,  directors,  partners,  members,  agents, brokers
(including  brokers who offer and sell Registrable  Securities as principal as a
result of a pledge  or any  failure  to  perform  under a margin  call of Common
Stock),  investment  advisors  and  employees  of each of them,  each Person who
controls any such Purchaser  (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange  Act) and the officers,  directors,  partners,
members,  agents and employees of each such controlling  Person,  to the fullest
extent  permitted by  applicable  law,  from and against any and all Losses,  as
incurred,  arising out of or relating to any untrue or alleged untrue  statement
of a material fact contained in the  Registration  Statement,  any Prospectus or


                                       27


any form of  prospectus  or in any  amendment  or  supplement  thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact  required to be stated  therein or necessary to make
the  statements  therein (in the case of any Prospectus or form of prospectus or
supplement  thereto,  in the light of the  circumstances  under  which they were
made) not misleading,  except to the extent, but only to the extent,  that . (i)
such  untrue  statements,  alleged  untrue  statements,   omissions  or  alleged
omissions arebased solely upon information regarding such Purchaser furnished in
writing to the Company by such  Purchaser  expressly for use therein,  or to the
extent  that such  information  relates to such  Purchaser  or such  Purchaser's
proposed method of  distribution of Registrable  Securities and was reviewed and
expressly  approved  in  writing  by  such  Purchaser  expressly  for use in the
Registration  Statement,  such  Prospectus  or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section  6.2(c)(v)-(vii),  the use by such Purchaser of
an  outdated  or  defective  Prospectus  after the  Company  has  notified  such
Purchaser in writing that the  Prospectus  is outdated or defective and prior to
the receipt by such  Purchaser  of the Advice  contemplated  in Section 6.5. The
Company  shall  notify the  Purchasers  promptly of the  institution,  threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.

            (b) Indemnification by Purchasers.  Each Purchaser shall,  severally
and not  jointly,  indemnify  and hold  harmless  the  Company,  its  directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent  permitted by applicable law, from and against all Losses (as
determined by a court of competent  jurisdiction in a final judgment not subject
to appeal or review)  arising  solely out of any untrue  statement of a material
fact contained in the  Registration  Statement,  any Prospectus,  or any form of
prospectus,  or in any amendment or supplement thereto, or arising solely out of
any omission of a material  fact  required to be stated  therein or necessary to
make the statements therein (in the case of any Prospectus or form of prospectus
or supplement  thereto,  in the light of the circumstances under which they were
made) not  misleading  to the extent,  but only to the extent,  that such untrue
statement or omission is contained in any information so furnished in writing by
such Purchaser to the Company  specifically  for inclusion in such  Registration
Statement or such Prospectus or to the extent that (i) such untrue statements or
omissions are based solely upon information  regarding such Purchaser  furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent  that such  information  relates to such  Purchaser  or such  Purchaser's
proposed method of  distribution of Registrable  Securities and was reviewed and
expressly  approved  in  writing  by  such  Purchaser  expressly  for use in the
Registration  Statement,  such  Prospectus  or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section  6.2(c)(v)-(vii),  the use by such Purchaser of
an  outdated  or  defective  Prospectus  after the  Company  has  notified  such
Purchaser in writing that the  Prospectus  is outdated or defective and prior to
the receipt by such Purchaser of the Advice  contemplated  in Section 6.5. In no
event shall the  liability  of any  selling  Purchaser  hereunder  be greater in
amount than the dollar  amount of the net  proceeds  received by such  Purchaser
upon the sale of the Registrable  Securities giving rise to such indemnification
obligation.  . (c) Conduct of  Indemnification  Proceedings.  If any  Proceeding
shall be brought or asserted against any Person entitled to indemnity  hereunder
(an  "INDEMNIFIED  PARTY"),  such  Indemnified  Party shall promptly  notify the
Person from whom indemnity is sought (the "INDEMNIFYING  PARTY") in writing, and
the  Indemnifying  Party  shall  assume  the  defense  thereof,   including  the
employment of counsel  reasonably  satisfactory to the Indemnified Party and the
payment of all fees and expenses  incurred in connection  with defense  thereof;
provided,  that the failure of any  Indemnified  Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this  Agreement,  except  (and  only) to the  extent  that it  shall be  finally
determined  by a court of competent  jurisdiction  (which  determination  is not
subject to appeal or further  review) that such failure  shall have  proximately
and materially adversely prejudiced the Indemnifying Party.


                                       28


            An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense  thereof,  but the fees
and expenses of such counsel shall be at the expense of such  Indemnified  Party
or Parties unless:  (i) the Indemnifying Party has agreed in writing to pay such
fees and expenses;  or (ii) the Indemnifying Party shall have failed promptly to
assume  the  defense  of  such  Proceeding  and  to  employ  counsel  reasonably
satisfactory  to such  Indemnified  Party in any such  Proceeding;  or (iii) the
named parties to any such Proceeding  (including any impleaded  parties) include
both such  Indemnified  Party and the  Indemnifying  Party, and such Indemnified
Party shall have been  advised by counsel  that a conflict of interest is likely
to exist if the same counsel were to represent  such  Indemnified  Party and the
Indemnifying  Party (in which  case,  if such  Indemnified  Party  notifies  the
Indemnifying  Party in writing that it elects to employ separate  counsel at the
expense of the Indemnifying  Party,  the  Indemnifying  Party shall not have the
right to assume the defense  thereof and such counsel shall be at the expense of
the  Indemnifying  Party).  The  Indemnifying  Party shall not be liable for any
settlement of any such Proceeding  effected without its written  consent,  which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party,  unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.

            All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent  incurred in connection  with  investigating  or
preparing  to defend  such  Proceeding  in a manner not  inconsistent  with this
Section) shall be paid to the Indemnified Party, as incurred, within ten Trading
Days of written notice thereof to the Indemnifying  Party (regardless of whether
it is  ultimately  determined  that an  Indemnified  Party  is not  entitled  to
indemnification  hereunder;  provided,  that the Indemnifying  Party may require
such  Indemnified  Party to undertake to reimburse all such fees and expenses to
the extent it is finally  judicially  determined that such Indemnified  Party is
not entitled to indemnification hereunder).

            (d) Contribution.  Subject to the Limit set forth in Section 4.8, if
a claim for  indemnification  under Section  6.4(a) or (b) is  unavailable to an
Indemnified   Party  (by  reasons  other  than  the   specified   exclusions  to
indemnification),  then each  Indemnifying  Party, in lieu of indemnifying  such
Indemnified  Party,  shall  contribute  to the  amount  paid or  payable by such
Indemnified  Party  as a  result  of  such  Losses,  in  such  proportion  as is
appropriate  to  reflect  the  relative  fault  of the  Indemnifying  Party  and
Indemnified  Party in connection with the actions,  statements or omissions that
resulted in such Losses as well as any other relevant equitable  considerations.
The relative fault of such  Indemnifying  Party and  Indemnified  Party shall be
determined by reference to, among other things,  whether any action in question,
including any untrue or alleged untrue  statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to


                                       29


information  supplied by, such Indemnifying  Party or Indemnified Party, and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent  such  action,  statement  or  omission.  The amount  paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the  limitations set forth in Section  6.4(c),  any reasonable  attorneys' or
other reasonable fees or expenses  incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the  indemnification  provided for in this Section was  available to
such party in accordance with its terms.

            The parties  hereto agree that it would not be just and equitable if
contribution  pursuant  to this  Section  6.4(d)  were  determined  by pro  rata
allocation or by any other method of allocation  that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding  the provisions of this Section  6.4(d),  no Purchaser  shall be
required to contribute,  in the aggregate, any amount in excess of the amount by
which the  proceeds  actually  received by such  Purchaser  from the sale of the
Registrable  Securities  subject  to the  Proceeding  exceeds  the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue  statement or omission or alleged  omission.  No Person
guilty of fraudulent  misrepresentation  (within the meaning of Section 11(f) of
the Securities  Act) shall be entitled to  contribution  from any Person who was
not guilty of such fraudulent misrepresentation.

            The indemnity and contribution  agreements contained in this Section
are in addition to any liability that the  Indemnifying  Parties may have to the
Indemnified Parties.

      6.5  Dispositions.  Each  Purchaser  agrees  that it will  comply with the
prospectus  delivery  requirements  of the Securities Act as applicable to it in
connection  with sales of Registrable  Securities  pursuant to the  Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company  of the  occurrence  of any  event of the  kind  described  in  Sections
6.2(c)(v),  (vi) or (vii),  such Purchaser will discontinue  disposition of such
Registrable  Securities under the Registration  Statement until such Purchaser's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 6.2(j), or until it is advised in writing (the
"ADVICE")  by the  Company  that  the use of the  applicable  Prospectus  may be
resumed,  and,  in  either  case,  has  received  copies  of any  additional  or
supplemental  filings  that are  incorporated  or deemed to be  incorporated  by
reference in such Prospectus or Registration Statement.  The Company may provide
appropriate  stop orders to enforce the provisions of this paragraph.

      6.6  No Piggyback on  Registrations.  Except as set forth on Schedule 6.6,
neither the Company nor any of its security  holders  (other than the Purchasers
in such capacity  pursuant hereto) may include  securities of the Company in the
Registration Statement other than Common Stock issuable pursuant to the Offering
or the Registrable Securities. In addition, the Company shall not after the date
hereof enter into any agreement  providing any such right to any of its security
holders.


                                       30


            6.7   Piggy-Back   Registrations.   If  at  any  time   during   the
Effectiveness Period there is not an effective  Registration  Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the  Commission a registration  statement  relating to an offering for
its own account or the account of others under the  Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents  relating to equity  securities to
be issued solely in connection with any acquisition of any entity or business or
equity  securities  issuable in connection  with stock option or other  employee
benefit plans,  then the Company shall send to each Purchaser  written notice of
such determination and if, within fifteen days after receipt of such notice, any
such  Purchaser  shall so request in writing,  the Company shall include in such
registration  statement  all or any  part of such  Registrable  Securities  such
Purchaser   requests  to  be  registered.

                                    ARTICLE
                                VII MISCELLANEOUS

      7.1  Termination.  This  Agreement may be terminated by the Company or any
Purchaser,  by written notice to the other parties,  if the Closing has not been
consummated  by the third  Trading  Day  following  the date of this  Agreement;
provided that no such  termination will affect the right of any party to sue for
any breach by the other party (or parties).

      7.2 Fees and Expenses.  At the Closing, and only upon Closing, the Company
shall pay the  reasonable  fees and  expenses  of legal  counsel  to  Smithfield
Fiduciary LLC incurred in connection with the preparation and negotiation of the
Transaction  Documents.  In lieu of the foregoing payment,  Smithfield Fiduciary
LLC may retain  such  amount at the  Closing or require  the Company to pay such
amount  directly to Schulte Roth & Zabel LLP.  Except as expressly  set forth in
the  Transaction  Documents to the  contrary,  each party shall pay the fees and
expenses of its advisers,  counsel,  accountants and other experts,  if any, and
all  other  expenses  incurred  by  such  party  incident  to  the  negotiation,
preparation,  execution, delivery and performance of this Agreement. The Company
shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of the Securities.

      7.3  Entire  Agreement.  The  Transaction  Documents,  together  with  the
Exhibits and Schedules thereto,  contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents,  exhibits and schedules. At or
after the Closing, and without further  consideration,  the Company will execute
and  deliver to the  Purchasers  such  further  documents  as may be  reasonably
requested  in order to give  practical  effect to the  intention  of the parties
under  the  Transaction  Documents.  Notwithstanding  anything  to the  contrary
herein,  the Securities may be assigned to any Person in connection  with a bona
fide  margin  account or other  loan or  financing  arrangement  secured by such
Securities.


                                       31


      7.4 Notices.  Any and all notices or other  communications  or  deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication is delivered via facsimile at the facsimile number
specified in this Section  prior to 6:30 p.m.  (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission,  if such notice or
communication  is delivered via facsimile at the facsimile  number  specified in
this  Section on a day that is not a Trading  Day or later  than 6:30 p.m.  (New
York City time) on any Trading  Day, (c) the Trading Day  following  the date of
mailing, if sent by U.S. nationally  recognizedovernight courier service, or (d)
upon  actual  receipt by the party to whom such  notice is required to be given.
The  addresses  and facsimile  numbers for such notices and  communications  are
those  set  forth on the  signature  pages  hereof,  or such  other  address  or
facsimile number as may be designated in writing hereafter,  in the same manner,
by such Person.

      7.5 Amendments;  Waivers.  No provision of this Agreement may be waived or
amended except in a written instrument  signed, in the case of an amendment,  by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought.  No waiver of any default
with respect to any provision,  condition or requirement of this Agreement shall
be deemed to be a continuing  waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise  any right  hereunder in
any manner impair the exercise of any such right. Notwithstanding the foregoing,
a waiver or consent  to depart  from the  provisions  hereof  with  respect to a
matter that relates exclusively to the rights of Purchasers under Article VI and
that does not directly or indirectly  affect the rights of other  Purchasers may
be given by Purchasers holding at least a majority of the Registrable Securities
to which such  waiver or consent  relates.

      7.6  Construction.  The headings herein are for  convenience  only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof. 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.

      7.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their  successors and permitted  assigns.  The
Company may not assign this  Agreement  or any rights or  obligations  hereunder
without the prior written  consent of the  Purchasers.  Any Purchaser may assign
its  rights  (except  those of  indemnification  or  reimbursement)  under  this
Agreement  to any  Person  to whom  such  Purchaser  assigns  or  transfers  any
Securities, provided such transferee agrees in writing to be bound, with respect
to the  transferred  Securities,  by the  provisions  hereof  that  apply to the
"Purchasers." Notwithstanding anything to the contrary herein, Securities may be
assigned to any Person in  connection  with a bona fide margin  account or other
loan or financing arrangement secured by such Securities.

      7.8 No  Third-Party  Beneficiaries.  This  Agreement  is intended  for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.8 and each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Sections directly against the parties with obligations thereunder.


                                       32


      7.9 Governing Law; Venue;  Waiver Of Jury Trail. ALL QUESTIONS  CONCERNING
THE  CONSTRUCTION,  VALIDITY,  ENFORCEMENT AND  INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED  AND ENFORCED IN ACCORDANCE  WITH THE LAWS OF
THE STATE OF NEW YORK. THE COMPANY AND PURCHASERS HEREBY  IRREVOCABLY  SUBMIT TO
THE EXCLUSIVE  JURISDICTION  OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY
OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY
THE  COMPANY OR ANY  PURCHASER  HEREUNDER,  IN  CONNECTION  HEREWITH OR WITH ANY
TRANSACTION  CONTEMPLATED  HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE  TRANSACTION  DOCUMENTS),  AND HEREBY  IRREVOCABLY
WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING  BROUGHT BY THE
COMPANY OR ANY  PURCHASER,  ANY CLAIM THAT IT IS NOT  PERSONALLY  SUBJECT TO THE
JURISDICTION  OF ANY SUCH  COURT,  OR THAT SUCH SUIT,  ACTION OR  PROCEEDING  IS
IMPROPER.  EACH 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 VIA  REGISTERED OR CERTIFIED  MAIL OR OVERNIGHT  DELIVERY
(WITH  EVIDENCE OF  DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS  AGREEMENT AND AGREES THAT SUCH SERVICE SHALL  CONSTITUTE  GOOD
AND SUFFICIENT  SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN
SHALL BE  DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE  PROCESS  IN ANY  MANNER
PERMITTED BY LAW. THE COMPANY AND PURCHASERS  HEREBY WAIVE ALL RIGHTS TO A TRIAL
BY JURY.

      7.10 Survival. The representations,  warranties,  agreements and covenants
contained  herein shall survive the Closing and the delivery  and/or exercise of
the Securities, as applicable.

      7.11   Execution.   This   Agreement  may  be  executed  in  two  or  more
counterparts,  all of which when taken  together shall be considered one and the
same agreement and shall become effective when  counterparts have been signed by
each party and  delivered  to the other  party,  it being  understood  that both
parties need not sign the same  counterpart.  In the event that any signature is
delivered by facsimile  transmission,  such  signature  shall create a valid and
binding  obligation of the party executing (or on whose behalf such signature is
executed)  with the same force and effect as if such  facsimile  signature  page
were an original thereof.

      7.12  Severability.  If any  provision  of  this  Agreement  is held to be
invalid or unenforceable in any respect,  the validity and enforceability of the
remaining  terms  and  provisions  of  this  Agreement  shall  not in any way be
affected or impaired  thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor,  and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

      7.13  Rescission and  Withdrawal  Right.  Notwithstanding  anything to the
contrary  contained in (and  without  limiting  any similar  provisions  of) the
Transaction  Documents,  whenever  any  Purchaser  exercises a right,  election,
demand or option  under a  Transaction  Document and the Company does not timely
perform its related  obligations within the periods therein provided,  then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice,  demand or election in whole
or in part without prejudice to its future actions and rights.


                                       33


      7.14   Replacement  of  Securities.   If  any  certificate  or  instrument
evidencing any Securities is mutilated,  lost, stolen or destroyed,  the Company
shall  issue or cause to be issued in  exchange  and  substitution  for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument,  but only upon receipt of evidence reasonably satisfactory to the
Company  of such  loss,  theft  or  destruction  and  customary  and  reasonable
indemnity,  if requested.  The  applicants  for a new  certificate or instrument
under  such  circumstances  shall  also  pay any  reasonable  third-party  costs
associated  with the  issuance of such  replacement  Securities.  The  Purchaser
agrees that the loss, mutilation, theft, or destruction of any certificate shall
not trigger the  occurrence  of an Event as defined in Section 6.1 (e)  sections
i-iv, unless such loss, mutilation,  theft, or destruction is directly caused by
the negligence of the Company. The phrase "directly"  specifically  excludes any
persons or parties who are agents of the Company.

      7.15  Remedies.  In  addition to being  entitled  to  exercise  all rights
provided herein or granted by law,  including  recovery of damages,  each of the
Purchasers  and the Company will be entitled to specific  performance  under the
Transaction  Documents.  The  parties  agree that  monetary  damages  may not be
adequate  compensation  for  any  loss  incurred  by  reason  of any  breach  of
obligations  described in the  foregoing  sentence and hereby agrees to waive in
any action for specific  performance  of any such  obligation the defense that a
remedy at law would be adequate.

      7.16 Payment Set Aside.  To the extent that the Company makes a payment or
payments to any Purchaser  hereunder or any Purchaser  enforces or exercises its
rights hereunder or thereunder,  and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are  subsequently  invalidated,
declared to be fraudulent or preferential,  set aside, recovered from, disgorged
by or are required to be refunded,  repaid or otherwise  restored to the Company
by a trustee,  receiver or any other  Person under any law  (including,  without
limitation,  any bankruptcy  law, state or federal law,  common law or equitable
cause of action),  then to the extent of any such  restoration the obligation or
part thereof originally  intended to be satisfied shall be revived and continued
in  full  force  and  effect  as if  such  payment  had  not  been  made or such
enforcement or setoff had not occurred.

      7.17  Adjustments  in Share Numbers and Prices.  In the event of any stock
split,  subdivision,  dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock),  combination or other
similar  recapitalization  or  event  occurring  after  the  date  hereof,  each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to  appropriately  account for such event.

      7.18  Independent  Nature  of  Purchasers'  Obligations  and  Rights.  The
obligations of each Purchaser under any Transaction Document are several and not
joint with the  obligations of any other  Purchaser,  and no Purchaser  shall be
responsible  in any way for the  performance  of the  obligations  of any  other


                                       34


Purchaser  under any  Transaction  Document.  The decision of each  Purchaser to
purchase  the  Securities  pursuant  to this  Agreement  has  been  made by such
Purchaser  independently  of  any  other  Purchaser  and  independently  of  any
information,  materials,  statements  or opinions as to the  business,  affairs,
operations, assets, properties,  liabilities,  results of operations,  condition
(financial or otherwise) or prospects of the Company or of the Subsidiary  which
may have been made or given by any other  Purchaser  or by any agent or employee
of any other Purchaser, and no Purchaser or any of its agents or employees shall
have any liability to any other  Purchaser (or any other Person)  relating to or
arising from any such information,  materials,  statements or opinions.  Nothing
contained  herein or in any  Transaction  Document,  and no action  taken by any
Purchaser  pursuant  thereto,  shall be deemed to constitute the Purchasers as a
partnership,  an  association,  a joint venture or any other kind of entity,  or
create a presumption  that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction  Document.  Each Purchaser  acknowledges that no other Purchaser has
acted as agent for such  Purchaser  in  connection  with  making its  investment
hereunder and that no other  Purchaser will be acting as agent of such Purchaser
in connection with monitoring its investment hereunder.  Each Purchaser shall be
entitled to  independently  protect and  enforce its rights,  including  without
limitation  the  rights  arising  out of  this  Agreement  or  out of the  other
Transaction Documents,  and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.


                           [SIGNATURE PAGES TO FOLLOW]


                                       35


      IN  WITNESS  WHEREOF,  each  of  the  parties  hereto  have  caused  their
respective  signature  page to this  Securities  Purchase  Agreement  to be duly
executed  by  their  respective  authorized  signatories  as of the  date  first
indicated above.



                         CADENCE RESOURCES CORPORATION


                         By: __________________________
                         Name: John P. Ryan
                         Title: Vice President


                         Address for Notice:


                         6 East Rose Street
                         P.O. Box 2056
                         Walla Walla, WA 99362
                         Facsimile No.: (509) 526-3492
                         Telephone No.: (509) 526-3491
                         Attn: Howard Crosby


   With a copy to:       Jenkens & Gilchrist Parker Chapin LLP
                         The Chrysler Building
                         New York, New York 10174
                         Facsimile No.: (212) 704-6288
                         Telephone No.: (212)704-6000
                         Attn: Henry I Rothman, Esq.


                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES FOR PURCHASERS FOLLOW]


                                       36


      IN  WITNESS  WHEREOF,  each  of  the  parties  hereto  have  caused  their
respective  signature  page to this  Securities  Purchase  Agreement  to be duly
executed  by  their  respective  authorized  signatories  as of the  date  first
indicated above.


                         SMITHFIELD FIDUCIARY LLC


                         By: __________________________
                         Name: Adam J. Chill
                         Title: Authorized Signatory

                         Purchase Price:           $2,000,000

                         Principal Amount of Senior Secured Notes: $2,000,000

                         Number of Warrant Shares to be acquired: 255,000

                         Address for Notice:

                         Smithfield Fiduciary LLC
                         c/o Highbridge Capital Management, LLC
                         9 West 57th Street, 27th Floor
                         New York, New York 10019
                         Facsimile No.: (212) 751-0755
                         Telephone No.: (212) 287-4720
                         Attn: Ari J. Storch / Adam J. Chill


   With a copy to:       Schulte Roth & Zabel LLP
                         919 Third Avenue
                         New York, New York 10022
                         Facsimile No.: (212) 593-5955
                         Telephone No.: (212) 756-2000
                         Attention: Eleazer Klein, Esq.


                                       37


         IN WITNESS WHEREOF, each of the parties hereto have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.



                         OMICRON CAPITAL



                         By: __________________________
                         Name: Bruce Bernstein
                         Title: Managing Partner



                         Purchase Price: $1,000,000


                         Principal Amount of Senior Secured Notes: $1,000,000


                         Number of Warrant Shares to be acquired: 127,500




                         Address for Notice:


                         Omicron Capital
                         810 Seventh Avenue
                         39th Floor
                         New York, New York 10019
                         Facsimile No.: (212) 803-5263
                         Telephone No.: (212) 803-5269
                         Attn: Brian Daly


                                       38


      IN  WITNESS  WHEREOF,  each  of  the  parties  hereto  have  caused  their
respective  signature  page to this  Securities  Purchase  Agreement  to be duly
executed  by  their  respective  authorized  signatories  as of the  date  first
indicated above.



                         PORTSIDE GROWTH AND OPPORTUNITY FUND



                         By: __________________________
                         Name:
                         Title:



                         Purchase Price: $1,000,000


                         Principal Amount of Senior Secured Notes: $1,000,000


                         Number of Warrant Shares to be acquired: 127,500




                         Address for Notice:


                         Portside Growth and Opportunity Fund
                         c/o Ramius Capital Group, LLC
                         666 Third Avenue
                         26th Floor
                         New York, New York 10006
                         Facsimile No.: (212) 845-7999
                         Telephone No.: (212) 845-7917
                         Attn: Roger Anscher
                               Jeffrey Smith


                                       39


      IN  WITNESS  WHEREOF,  each  of  the  parties  hereto  have  caused  their
respective  signature  page to this  Securities  Purchase  Agreement  to be duly
executed  by  their  respective  authorized  signatories  as of the  date  first
indicated above.


                         LISA LOW AS CUSTODIAN FOR GABRIEL S. LOW
                         UNYGMA



                         By: __________________________
                         Name:
                         Title:



                         Purchase Price: $450,000


                         Principal Amount of Senior Secured Notes: $450,000


                         Number of Warrant Shares to be acquired: 57,375




                         Address for Notice:


                         Lisa Low as Custodian for Gabriel S. Low UNYGMA
                         c/o Sunrise Securities Corp.
                         641 Lexington Avenue, 25th Floor
                         New York, NY 10024
                         Facsimile No.: (212) 750-7277
                         Phone No.: (212) 421-1616
                         Attn: Nathan Low


                                       40


      IN  WITNESS  WHEREOF,  each  of  the  parties  hereto  have  caused  their
respective  signature  page to this  Securities  Purchase  Agreement  to be duly
executed  by  their  respective  authorized  signatories  as of the  date  first
indicated above.



                         BEAR STEARNS AS CUSTODIAN FOR NATHAN A. LOW
                         ROTH IRA



                         By: __________________________
                         Name:
                         Title:



                         Purchase Price: $250,000


                         Principal Amount of Senior Secured Notes: $250,000


                         Number of Warrant Shares to be acquired: 31,875




                         Address for Notice:


                         Bear Stearns as Custodian for Nathan A. Low Roth IRA
                         c/o Sunrise Securities Corp.
                         641 Lexington Avenue
                         25th Floor
                         New York, NY 10024
                         Facsimile No.: (212) 750-7277
                         Phone No.: (212) 421-1616
                         Attn: Nathan Low


                                       41


      IN  WITNESS  WHEREOF,  each  of  the  parties  hereto  have  caused  their
respective  signature  page to this  Securities  Purchase  Agreement  to be duly
executed  by  their  respective  authorized  signatories  as of the  date  first
indicated above.



                         ________________________
                         RUTH LOW


                         Purchase Price: $300,000

                         Principal Amount of Senior Secured Notes: $300,000

                         Number of Warrant Shares to be acquired: 38,250



                         Address for Notice:

                         Ruth Low
                         614 Trenton Drive
                         Beverly Hills, CA 90210
                         Facsimile No.: (212) 750-7277
                         Telephone No.: (212) 421-1616
                         Attn: Nathan Low


                                       42


      IN  WITNESS  WHEREOF,  each  of  the  parties  hereto  have  caused  their
respective  signature  page to this  Securities  Purchase  Agreement  to be duly
executed  by  their  respective  authorized  signatories  as of the  date  first
indicated above.



                         ___________________________
                         MOSHE AZOULAY


                         Purchase Price: $1,000,000

                         Principal Amount of Senior Secured Notes: $1,000,000

                         Number of Warrant Shares to be acquired: 127,500



                         Address for Notice:

                         Moshe Azoulay
                         c/o Skyrise Properties
                         18111 Preston Road, Suite 1000
                         Dallas, TX
                         75252 Facsimile No.: (972) 733-3920
                         Attn: Peter Kaufman



                                       43



Exhibits:
A     Form of Senior Secured Note
B     Form of Warrant
C     Form of Security Agreement
D     Form of Transfer Agent Instructions
E     Form of Opinion of Company Counsel
F     Officer's Certificate
G     Plan of Distribution


                                       44

EX-99.5

                         [FORM OF SENIOR SECURED NOTE]

THESE  SECURITIES  HAVE NOT BEEN  REGISTERED  WITH THE  SECURITIES  AND EXCHANGE
COMMISSION  OR THE  SECURITIES  COMMISSION  OF ANY  STATE  IN  RELIANCE  UPON AN
EXEMPTION  FROM  REGISTRATION  UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY,  MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE  REGISTRATION  STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN  AVAILABLE   EXEMPTION  FROM,  OR  IN  A  TRANSACTION  NOT  SUBJECT  TO,  THE
REGISTRATION   REQUIREMENTS  OF  THE  SECURITIES  ACT  AND  IN  ACCORDANCE  WITH
APPLICABLE  STATE  SECURITIES  LAWS.   NOTWITHSTANDING   THE  FOREGOING,   THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES. SENIOR SECURED NOTE

$________________                                             New York, New York
                                                              April 2, 2004

      FOR VALUE RECEIVED, the undersigned, Cadence Resources Corporation, a Utah
corporation  (the   "Borrower"),   HEREBY  PROMISES  TO  PAY  to  the  order  of
____________________________   (the  "Lender"),  (i)  the  principal  amount  of
_______________  United States Dollars  ($___________)  (the "Original Principal
Amount",  as may be reduced from time to time as a result of prepayments made in
accordance with the terms of this Senior Secured Note, the "Principal  Amount"),
on March 31, 2006 (the  "Maturity  Date"),  and (ii)  interest on the  Principal
Amount  at the  Interest  Rate (as  defined  below)  from the date  hereof  (the
"Issuance  Date") through and including the Maturity  Date,  whether or not such
Principal Amount remains  outstanding on the Maturity Date, payable quarterly on
the last  day of each  Calendar  Quarter  during  the  period  beginning  on the
Issuance  Date and  ending  on, and  including,  the  Maturity  Date  (each,  an
"Interest  Date") with the first Interest Date being June 30, 2004. For purposes
of this  Senior  Secured  Note,  "Interest  Rate" shall mean the rate of 10% per
annum; provided, that so long as the Borrower is in breach of Section 4.12(b) of
the Securities  Purchase Agreement (as defined below), such rate shall equal 15%
per annum.  For purposes of this Senior Secured Note,  "Calendar  Quarter" shall
mean each of: the period beginning on and including  January 1 and ending on and
including March 31; the period  beginning on and including April 1 and ending on
and including  June 30; the period  beginning on and including July 1 and ending
on and including September 30; and the period beginning on and including October
1 and ending on and including December 31.

This Senior Secured Note (including all Senior Secured Notes issued in exchange,
transfer  or  replacement  hereof,  this  "Note")  is one of an issue of  senior
secured notes issued pursuant to the Securities  Purchase  Agreement (as defined
below)  (collectively,  the "Notes" and such other  senior  secured  notes,  the
"Other Notes").  Capitalized  terms not otherwise  defined herein shall have the
meanings ascribed to such term in the Securities Purchase Agreement by and among
the Borrower and the buyers  referred to therein  dated as of the Issuance  Date
(the "Securities Purchase Agreement").


                                       1


      Any  Principal  Amount  or  interest  hereunder  that is not paid when due
(whether upon an Interest Date, the Maturity Date, a Mandatory  Prepayment  Date
(as defined herein), prepayment,  acceleration or otherwise) shall bear interest
from the day when due until such amount is paid in full,  payable on demand,  at
the rate of 18% per annum (the "Default  Rate").  All interest shall be computed
on the basis of a year of 360 days for the actual number of days  (including the
first  day but  excluding  the last  day)  elapsed.  Notwithstanding  any  other
provision  of this Note,  interest  paid or becoming due  hereunder  shall in no
event exceed the maximum rate permitted by applicable law.

      All payments made to the Lender on account of any  Principal  Amount shall
be noted by the Lender on the schedule that is attached hereto and hereby made a
part hereof; provided, however, that any error or omission by the Lender in this
regard shall not affect the obligation of the Borrower to pay the full amount of
the Principal Amount and interest on this Note.

      If any  amount  payable  hereunder  shall  be due  on a day  other  than a
Business Day, such payment  shall be made on the next  succeeding  Business Day,
and such extension of time shall in such case be included in the  computation of
interest  payable hereon.

      Both the Principal  Amount and interest are payable in lawful money of the
United  States and in  immediately  available  funds at such place as the Lender
shall designate in writing to the Borrower.

      The Borrower may, at its option and upon not less than two Business  Days'
prior written  notice to the Lender,  prepay all or any portion of the Principal
Amount of this  Note  provided,  that,  (i) other  than in  connection  with the
required  prepayments  pursuant  to the  immediately  following  paragraph,  the
Borrower, in connection with such prepayment,  shall pay all amounts of interest
that would be due to the Lender on such  prepaid  Principal  Amount  through the
Maturity  Date had the  Borrower  not prepaid  this Note,  and (ii) the Borrower
makes the  prepayments in the same proportion and manner pursuant to each of the
Other Notes.

      On each of September  30, 2005 and  December 31, 2005 (each,  a "Mandatory
Prepayment  Date"),  the  Borrower  shall  prepay to the Lender (and the lenders
under the Other  Notes) ten percent  (10%) of the Original  Principal  Amount of
this Note plus accrued and unpaid  interest on such principal  amount (and takes
similar  action as to the Other Notes);  provided that the Borrower shall not be
required to make a prepayment on such Mandatory  Prepayment Date if the Weighted
Average Price (as defined below) of the Common Stock is more than $5.00 (subject
to appropriate adjustments for stock splits, stock dividends, stock combinations
and other similar  transactions  after the Issuance  Date) on each of the twenty
Trading Days  immediately  preceding  such the applicable  Mandatory  Prepayment
Date.


                                       2


      For purposes of this Note, "Weighted Average Price" means, as of any date,
the dollar  volume-weighted  average  price for the Common  Stock on the Trading
Market  (as  defined in the  Securities  Purchase  Agreement)  during the period
beginning at 9:30:01 a.m., New York City Time (or such other time as the Trading
Market  publicly  announces  is the  official  open of  trading),  and ending at
4:00:00  p.m.,  New York City Time (or such  other  time as the  Trading  Market
publicly  announces is the  official  close of trading) as reported by Bloomberg
through its "Volume at Price"  functions,  or, if the foregoing  does not apply,
the  dollar   volume-weighted   average   price  of  the  Common  Stock  in  the
over-the-counter  market on the  electronic  bulletin  board  for such  security
during the period  beginning at 9:30:01 a.m.,  New York City Time (or such other
time as the Trading Market publicly  announces is the official open of trading),
and  ending at  4:00:00  p.m.,  New York City  Time (or such  other  time as the
Trading 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 Pink  Sheets LLC  (formerly  the
National  Quotation  Bureau,  Inc.).  If the  Weighted  Average  Price cannot be
calculated  for the Common  Stock on a particular  date on any of the  foregoing
bases,  the Weighted Average Price of the Common Stock on such date shall be the
fair market  value as mutually  reasonably  determined  by the  Borrower and the
Lender.  All such  determinations  to be  appropriately  adjusted  for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.

      So long as any  Principal  Amount or interest  shall  remain  unpaid,  the
Borrower  shall not,  and shall not permit any of its  Subsidiaries,  unless the
Lender shall otherwise consent in writing, to:

            (a) Merge or consolidate with any Person.

            (b) Sell,  convey,  transfer,  lease or dispose of  (whether  in one
transaction  or in a series of  transactions)  all or  substantially  all of its
assets to any Person or, or abandon all or substantially all of its assets.

            (c) Directly or indirectly,  incur or guarantee, assume or suffer to
exist any  Indebtedness  not in  existence as of the date hereof as set forth on
Annex I hereto or permit any of its  Subsidiaries,  directly or  indirectly,  to
incur or guarantee,  assume or suffer to exist any Indebtedness not in existence
as of the date hereof as set forth on Annex I hereto.

      If any of the following shall occur (each, a "Default"):  (a) the Borrower
shall fail to pay any Principal  Amount of or interest on this Note or any Other
Note when due (whether  upon an Interest  Date, a Mandatory  Prepayment  Datethe
Maturity Date, prepayment, acceleration or otherwise); (b) any representation or
warranty made by Borrower in any Transaction  Document shall have been incorrect
when  made;  or (c) the  Borrower  shall be in breach of or fail to  perform  or
observe any term,  covenant or agreement  contained in any Transaction  Document
(other  than  a  failure  under  Section  4.12(b)  of  the  Securities  Purchase
Agreement);  (d) the Borrower is in breach of Section  4.12(b) of the Securities
Purchase  Agreement as of the 6 month  anniversary of the Issuance Date; (e) the
Borrower shall fail to pay any Indebtedness, or any interest or premium thereon,


                                       4


when due  (whether by scheduled  maturity,  required  prepayment,  acceleration,
demand or otherwise) and such failure shall continue after the applicable  grace
period,  if any,  specified  in the  agreement  or  instrument  relating to such
Indebtedness, or any other default under any agreement or instrument relating to
any such Indebtedness,  or any other event, shall occur and shall continue after
the applicable grace period, if any,  specified in such agreement or instrument,
if the  effect of such  default  or event is to  accelerate,  or to  permit  the
acceleration  of, the maturity of such  Indebtedness;  or any such  Indebtedness
shall be declared to be due and payable,  or required to be prepaid  (other than
by a regularly  scheduled  required  prepayment),  prior to the stated  maturity
thereof;  or (f) one or more  judgments  or  orders  for the  payment  of  money
exceeding  any  applicable  insurance  coverage  by more  than  $100,000  in the
aggregate shall be rendered against the Borrower or any of its subsidiaries, and
either (i)  enforcement  proceedings  shall have been  commenced by any creditor
upon any such  judgment  or  order,  or (ii)  there  shall be any  period  of 10
consecutive  days during  which a stay of  enforcement  of any such  judgment or
order,  by reason of a pending appeal or otherwise,  shall not be in effect;  or
(g) shall be  generally  not paying its debts as such debts become due, or shall
admit in  writing  its  inability  to pay its debts  generally,  or shall make a
general  assignment  for the benefit of creditors;  or any  proceeding  shall be
instituted  by or against any such person or entity  seeking to  adjudicate it a
bankrupt  or  insolvent,  or  seeking  dissolution,   liquidation,  winding  up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy,  insolvency or reorganization
or relief  of  debtors,  or  seeking  the  entry of an order  for  relief or the
appointment of a receiver, trustee, custodian or other similar official for such
person or entity or for any substantial part of its property; or the Borrower or
any of its subsidiaries  shall take any action to authorize or effect any of the
actions  set  forth  above  in this  clause  (g);  or (h) any  provision  of any
Transaction Document shall at any time for any reason be declared to be null and
void by a court of competent  jurisdiction,  or the  validity or  enforceability
thereof shall be contested by the Borrower,  or a proceeding  shall be commenced
by the Borrower seeking to establish the invalidity or unenforceability thereof,
or the Borrower shall deny that it has any liability or obligation  hereunder or
thereunder;  or (i) the Security Agreement shall for any reason fail or cease to
create a valid and perfected  and,  except to the extent  permitted by the terms
hereof or thereof,  first  priority  lien on or security  interest in any of the
collateral  purported to be covered thereby; or (i) a material adverse change in
the condition or operations,  financial or otherwise,  of the Borrower or any of
its  subsidiaries,  as  determined by the Lender in its sole  discretion,  shall
occur and written  notice  thereof  shall have been given to the Borrower by the
Lender;

then (i) in connection with a Default  pursuant to the foregoing clause (g), the
outstanding  Principal  Amount of this Note and all other amounts due hereunder,
including,  without  limitation,  any interest  owing through the Maturity Date,
shall be immediately due and payable,  without diligence,  presentment,  demand,
protest or other notice of any kind, all of which are hereby  expressly  waived,
(ii) the Lender may declare the  outstanding  Principal  Amount of this Note and
all other amounts due hereunder,  including,  without  limitation,  any interest
owing through the Maturity  Date, to be immediately  due and payable,  whereupon
the outstanding  principal  amount of this Note and all such other amounts shall
become and shall be forthwith due and payable,  without diligence,  presentment,
demand,  protest or other notice of any kind, all of which are hereby  expressly
waived,  and (iii) the Lender may exercise any and all of its other rights under
applicable law, hereunder and under the Security  Agreement.

      This Note shall be senior to all other Indebtedness of the Company and its
Subsidiaries.

      The  Borrower  hereby  indemnifies  and holds  harmless the Lender and its
members, officers, employees, partners, agents, affiliates and advisors and each
of their respective directors,  officers,  employees, agents and advisors (each,
an "Indemnified Party") from and against any and all actions,  claims,  damages,
losses,   liabilities,   fines,  penalties,  costs  and  expenses  of  any  kind
(including,  without  limitation,  counsel fees and  disbursements in connection
with any subpoena, investigative, administrative or judicial proceeding, whether
or not the  Indemnified  Party shall be designated a party thereto) which may be
incurred  by  the  Indemnified  Party  or  which  may  be  claimed  against  the
Indemnified  Party  by  any  Person  by  reason  of or in  connection  with  the
execution,  delivery or performance of, or any transaction  contemplated  by, or
action  taken or  omitted  to be taken  by the  Lender  under,  this  Note.  The
indemnification  required  hereunder  shall be made by periodic  payments to the
Lender of the amount thereof during the course of the  investigation or defense,
as and when bills are received or indemnified  damages are incurred.  Nothing in
this paragraph is intended to limit the Borrower's obligations contained in this
Note.  Without prejudice to the survival of any other obligation of the Borrower
hereunder,  the indemnities  and  obligations of the Borrower  contained in this
paragraph  shall  survive the payment in full of all  obligations.

      All payments made by the Borrower  hereunder will be made without  setoff,
counterclaim or other defense. All such payments shall be made free and clear of
and without  deduction for any present or future  income,  stamp or other taxes,
levies,  imposts,  deductions,  charges,  fees,  withholding,   restrictions  or
conditions of any nature now or hereafter imposed, levied,  collected,  withheld
or  assessed  by any  jurisdiction  or by any  political  subdivision  or taxing
authority   thereof  or  therein,   and  all  interest,   penalties  or  similar
liabilities,  excluding  taxes on the  overall  net income of the  Lender  (such
non-excluded taxes are hereinafter  collectively referred to as the "Taxes"). If
the Borrower shall be required by law to deduct or to withhold any Taxes from or
in respect of any amount payable  hereunder,  (i) the amount so payable shall be
increased to the extent  necessary so that after making all required  deductions
and  withholdings  (including Taxes on amounts payable to the Lender pursuant to
this  sentence)  the Lender  receives  an amount  equal to the sum it would have
received had no such  deductions or  withholdings  been made,  (ii) the Borrower
shall make such deductions or withholdings  and (iii) the Borrower shall pay the
full  amount  deducted  or  withheld  to  the  relevant  taxation  authority  in
accordance with applicable law. Whenever any Tax is payable by the Borrower,  as
promptly as possible  thereafter  the Borrower shall send the Lender an official
receipt showing payment. In addition,  the Borrower agrees to pay any present or
future  taxes,  charges or similar  levies  which  arise from any  payment  made
hereunder or from the execution,  delivery,  performance,  recordation or filing
of, or otherwise with respect to, this Agreement, the Note or any other Document
(hereinafter  referred to as "Other  Taxes").  The Borrower  will  indemnify the
Lender  for the full  amount of Taxes or Other  Taxes  (including,  any Taxes or
Other Taxes on amounts  payable to the Lender under this  paragraph) paid by the
Lender and any liability  (including  penalties,  interest and expenses) arising
therefrom or with respect  thereto,  upon written demand by the Lender therefor.

      Any  notices,  consents,  waivers  or  other  communications  required  or
permitted  to be given  under the terms of this Note 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  Business  Day after  deposit  with an  overnight  courier
service,  in each case  properly  addressed to the party to receive the same.


                                       5


      No  failure  on the  part of the  Lender  to  exercise,  and no  delay  in
exercising,  any right, power,  privilege or remedy hereunder shall operate as a
waiver thereof,  nor shall any single or partial  exercise thereof by the Lender
preclude  any other or further  exercise  thereof or the  exercise  of any other
right,  power,  privilege or remedy of the Lender. No amendment or waiver of any
provision of this Note, nor consent to any departure by the Borrower  therefrom,
shall in any event be  effective  unless the same shall be in writing and signed
by the Lender,  and then such waiver or consent  shall be effective  only in the
specific  instance and for the specific  purpose for which given.

      Any  provision   hereof  which  is  prohibited  or  unenforceable  in  any
jurisdiction  shall, as to such jurisdiction,  be ineffective only to the extent
of such  prohibition  or  unenforceability  without  invalidating  the remaining
provisions  hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

      The  Borrower  hereby  agrees  to pay on demand  all  costs  and  expenses
(including,  without limitation, all fees and expenses of counsel to the Lender)
incurred  by the  Lender  in  connection  with (i) the  preparation,  execution,
delivery,  administration  and amendment of this Note, and (iii) the enforcement
of the Lender's rights,  and the collection of all amounts due,  hereunder.

      The Borrower hereby (i) irrevocably submits to the jurisdiction of any New
York State or Federal court sitting in New York City in any action or proceeding
arising  out of or  relating  to this Note,  (ii)  waives any  defense  based on
doctrines of venue or forum non conveniens,  or similar rules or doctrines,  and
(iii)  irrevocably  agrees  that all  claims  in  respect  of such an  action or
proceeding  may be heard and determined in such New York State or Federal court.

      This Note is secured by, and  entitled to the  benefits  of, the  Security
Agreement.

      This Note shall be governed by, and construed in accordance with, the laws
of the State of New York.

      THE BORROWER AND THE LENDER (BY ITS ACCEPTANCE  HEREOF) MUTUALLY WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION,  PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS NOTE.


                                       6

                                          CADENCE  RESOURCES  CORPORATION

                                          By:_______________________
                                             Name:
                                             Title:

                                          Address:
                                             6 East Rose Street
                                             Walla Walla, Washington 99362

                                             Attention: Howard Crosby, President
                                             Telephone:  (509) 526-3491
                                             Facsimile:  (509) 526-3492

                                       7


                                    SCHEDULE
                                    ========

                         LOAN AND REPAYMENT OF PRINCIPAL
- --------------------------------------------------------------------------------
                        Principal
       Amount            Paid or          Principal         Notation
      of Loan            Prepaid           Balance           Made By      Date
- --------------------------------------------------------------------------------
                            -
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------


                                       8


                                     ANNEX I
                                     -------

The Company has the following indebtedness, which indebtedness shall be paid in
full within 5 business days of the Issuance Date.


Date        Maker           Relation       Amount       Interest   Due Date
                            to Company                  Rate
- --------------------------------------------------------------------------------
2-13-2004   H Crosby        President      $250,000     12%        12-31-2004
- --------------------------------------------------------------------------------
2-15-2004   G Dehekker      Director       $75,000      12%        12-31-2004
- --------------------------------------------------------------------------------
2-15-2004   K Stulp         Director       $20,000      12%        12-31-2004
- --------------------------------------------------------------------------------
3-01-2004   Dotson Ex.      Affiliate      $50,000      12%        12-31-2004
- --------------------------------------------------------------------------------
3-01-2004   W. Herron       None           $15,000      12%        12-31-2004
- --------------------------------------------------------------------------------
3-30-2004   Ruth Low        None           $300,000     0%         4-2-2004
- --------------------------------------------------------------------------------
3-30-2004   Nathan A. Low   Affiliate      $250,000     0%         4-2-2004
            Roth IRA
- --------------------------------------------------------------------------------
3-30-2004   Lisa Low as     None           $450,000     0%         4-2-2004
            Custodian for
            Gabriel S.
            Low UNYGMA
- --------------------------------------------------------------------------------


                                       9

EX-99.6

                               [FORM OF WARRANTS]

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.



                          CADENCE RESOURCES CORPORATION

                        WARRANT TO PURCHASE COMMON STOCK


Warrant No.:
Number of Shares:     _____________ (1)
Date of Issuance:  April 2, 2004 (the "ISSUANCE DATE")


Cadence Resources Corporation, a Utah corporation (the "COMPANY"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, ____________________, the registered holder
hereof or its permitted assigns (the "HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase Common
Stock (including all Warrants to Purchase Common Stock issued in exchange,
transfer or replacement hereof, the "WARRANT"), 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 below), ______________ (_____________)2 fully paid nonassessable
shares of Common Stock (as defined below) (the "WARRANT SHARES"). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 15. This Warrant is one of the Warrants to
Purchase Common Stock (the "SPA WARRANTS") issued pursuant to Section 1 of that
certain Securities Purchase Agreement, dated as of April 2, 2004 (the
"SUBSCRIPTION DATE"), among the Company and the buyers (the "BUYERS") referred
to therein (the "SECURITIES PURCHASE AGREEMENT").

1.    EXERCISE OF WARRANT.


                                       1


             (a) Mechanics of Exercise. Subject to the terms and conditions
hereof  (including,  without  limitation,  the  limitations set forth in Section
1(f)),  this  Warrant may be  exercised by the Holder on any day, in whole or in
part,  by (i)  delivery  of a written  notice,  in the form  attached  hereto as
Exhibit A (the  "EXERCISE  NOTICE"),  of the Holder's  election to exercise this
Warrant and (ii) (A) payment to the Company of an amount equal to the applicable
Exercise  Price  multiplied  by the  number of  Warrant  Shares as to which this
Warrant is being  exercised  (the  "AGGREGATE  EXERCISE  PRICE") in cash or wire
transfer of  immediately  available  funds or (B) by notifying  the Company that
this Warrant is being exercised  pursuant to a Cashless  Exercise (as defined in
Section 1(d)).  The Holder shall not be required to deliver the original Warrant
in order to effect an  exercise  hereunder;  provided  however,  that the Holder
shall covenant in the Exercise Notice, that it will deliver the original Warrant
to the Company  within five (5) Business  Days of such  exercise.  Execution and
delivery of the  Exercise  Notice  with  respect to less than all of the Warrant
Shares shall have the same effect as  cancellation  of the original  Warrant and
issuance of a new Warrant  evidencing the right to purchase the remaining number
of Warrant  Shares.  On or before the first  Business Day  following the date on
which the Company has  received  each of the Exercise  Notice and the  Aggregate
Exercise  Price (or  notice of a  Cashless  Exercise)  (the  "EXERCISE  DELIVERY
DOCUMENTS"),  the Company  shall  transmit by  facsimile  an  acknowledgment  of
confirmation of receipt of the Exercise Delivery Documents to the Holder and the
Company's transfer agent (the "TRANSFER AGENT"). On or before the third Business
Day  following  the date on which the Company has  received  all of the Exercise
Delivery  Documents (the "SHARE DELIVERY DATE"),  the Company shall (X) provided
that the Transfer Agent is participating in The Depository Trust Company ("DTC")
Fast  Automated  Securities  Transfer  Program,  upon the request of the Holder,
credit such  aggregate  number of shares of Common  Stock to which the Holder is
entitled  pursuant to such  exercise to the Holder's or its  designee's  balance
account with DTC through its Deposit  Withdrawal Agent Commission system, or (Y)
if the Transfer Agent is not participating in the DTC Fast Automated  Securities
Transfer  Program,  issue and  dispatch by  overnight  courier to the address as
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 is entitled  pursuant to such  exercise.  Upon  delivery of the  Exercise
Notice and  Aggregate  Exercise  Price  referred to in clause  (ii)(A)  above or
notification to the Company of a Cashless  Exercise referred to in Section 1(d),
the Holder 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,  irrespective of the date of delivery of the certificates  evidencing
such  Warrant  Shares.  If this  Warrant is  submitted  in  connection  with any
exercise  pursuant  to this  Section  1(a)  and the  number  of  Warrant  Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being  acquired upon an exercise,  then the Company shall as soon
as practicable and in no event later than three Business Days after any exercise
and at its own expense,  issue a new Warrant (in  accordance  with Section 7(d))
representing  the right 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 this Warrant is  exercised.  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 to be issued shall be rounded up to
the nearest  whole number.  The Company  shall pay any and all taxes,  including
without limitation,  all documentary stamp,  transfer or similar taxes, or other
incidental expense that may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant.


                                       2


            (b) Exercise Price.  For purposes of this Warrant,  "EXERCISE PRICE"
means $4.00, subject to adjustment as provided herein.

            (c) Company's Failure to Timely Deliver Securities.  (i) In addition
to any other rights  available to a Holder,  if the Company  fails to deliver or
cause to be delivered to the Holder a certificate representing Warrant Shares by
the  Business  Day  after  the date on which  delivery  of such  certificate  is
required  by this  Warrant,  and if on or after  such  Business  Day the  Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in  satisfaction  of a sale by the Holder of the Warrant Shares that the
Holder  anticipated  receiving  from the Company (a "BUY-IN"),  then the Company
shall, within three Business Days after the Holder's request and in the Holder's
discretion, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased  (the "BUY-IN  PRICE"),  at which point the  Company's
obligation  to deliver such  certificate  (and to issue such Common Stock) shall
terminate,  or (ii)  promptly  honor its  obligation  to deliver to the Holder a
certificate or certificates  representing  such Common Stock and pay cash to the
Holder in an amount  equal to the excess  (if any) of the Buy-In  Price over the
product  of (A) such  number of shares of Common  Stock,  times (B) the  Closing
Price on the Exercise Date.

      (ii)  Subject to Section  1(f) and if the  provisions  of clause (i) above
            shall not apply,  if the Company shall fail for any reason or for no
            reason to issue to the  Holder  within  seven  Business  Days of the
            Exercise  Date,  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, the Company shall pay as additional damages in cash to such
            Holder on each day after such tenth  Business  Day that the issuance
            of such Common Stock is not timely  effected an amount equal to 1.0%
            of the  product  of (A) the sum of the  number  of  shares of Common
            Stock not  issued to the  Holder on a timely  basis and to which the
            Holder is  entitled  and (B) the  Closing  Sale  Price of the Common
            Stock on the trading day  immediately  preceding  the last  possible
            date which the Company  could have  issued such Common  Stock to the
            Holder without violating Section 1(a).

            (d) Cashless Exercise.  Notwithstanding anything contained herein to
the contrary, if at any time during the period commencing ten (10) Business Days
prior to the  Holder's  delivery of an Exercise  Notice and ending on the day of
delivery of the Exercise  Notice,  a  Registration  Statement (as defined in the
Securities  Purchase Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the  "UNAVAILABLE  WARRANT SHARES") is not available for
the resale of such Unavailable Warrant Shares after the earlier of the Effective
Date and the Required  Effectiveness  Deadline (as such terms are defined in the
Securities Purchase Agreement), the Holder may, 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"):


                                       3



                  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 Closing Sale Price of the Common Stock (as
                           reported by Bloomberg) on the date immediately
                           preceding the date of the Exercise Notice.

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

            (e) Disputes.  In the case of a dispute as to the  determination  of
the Exercise Price or the  arithmetic  calculation  of the Warrant  Shares,  the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section 12.

            (f)  Limitations  on  Exercises.  The  Company  shall not effect the
exercise of this  Warrant,  and no Holder shall have the right to exercise  this
Warrant,  to the extent that after giving effect to such  exercise,  such Person
(together with such Person's  affiliates)  would  beneficially  own in excess of
4.99% (the "MAXIMUM  PERCENTAGE") of the shares of the Common Stock  outstanding
immediately after giving effect to such exercise.  For purposes of the foregoing
sentence,  the aggregate number of shares of Common Stock  beneficially owned by
such  Person 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 sentence is being made, but shall exclude shares of Common
Stock which would be issuable  upon (i) exercise of the  remaining,  unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the  unexercised  or  unconverted  portion of any
other  securities  of the  Company  beneficially  owned by such  Person  and its
affiliates (including, without limitation, any debentures,  convertible notes or
convertible  preferred stock or warrants)  subject to a limitation on conversion
or exercise 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,  the  Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-Q,  Form 10-K or other public  filing with the  Securities  and Exchange
Commission,  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.  For any reason at any
time,  upon the written or oral request of the Holder,  the Company shall within
one  Business  Day  confirm  orally  and in  writing to the 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
or exercise of securities of the Company,  including the SPA  Securities and the
SPA Warrants,  by the Holder and its affiliates  since the date as of which such
number of outstanding shares of Common Stock was reported.  By written notice to
the Company,  the Holder may increase or decrease the Maximum  Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided, that
any such increase will not be effective  until the 61st day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply only
to the Holder and not to any other holder of Warrants.


                                       4


      2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise
Price and the number of Warrant  Shares  shall be adjusted  from time to time as
follows:

            (a) Adjustment  upon Issuance of Common Stock. If and whenever on or
after the date of issuance of this  Warrant the Company  issues or sells,  or in
accordance  with this Section 2 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 Excluded Securities (as
defined below) for a consideration  per share less than a price (the "APPLICABLE
PRICE") equal to the Exercise Price in effect immediately prior to such issue or
sale or deemed issuance or sale (the  foregoing,  a "DILUTIVE  ISSUANCE"),  then
immediately after such Dilutive Issuance the Exercise Price then in effect shall
be reduced to an amount equal to the product of (x) the Exercise Price in effect
immediately prior to such Dilutive  Issuance and (y) the quotient  determined by
dividing  (1) the sum of the product of the  Applicable  Price and the number of
shares of Common Stock Deemed  Outstanding  immediately  prior to such  Dilutive
Issuance  and the  consideration,  if any,  received  by the  Company  upon such
Dilutive Issuance,  by (2) the product of the Applicable Price multiplied by the
number of shares of Common  Stock  Deemed  Outstanding  immediately  after  such
Dilutive  Issuance.  Upon each such adjustment of the Exercise Price  hereunder,
the number of Warrant Shares shall be adjusted to the number of shares of Common
Stock determined by multiplying the Exercise Price in effect  immediately  prior
to such  adjustment by the number of Warrant Shares  acquirable upon exercise of
this  Warrant  immediately  prior to such  adjustment  and  dividing the product
thereof by the Exercise Price  resulting from such  adjustment.  For purposes of
determining  the adjusted  Exercise Price under this Section 2(a), the following
shall be applicable:

      (i)   Issuance of Options. If the Company in any manner grants 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,
            exercise or exchange 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  2(a)(i),  the  "lowest  price per share for which one
            share of Common Stock is issuable  upon  exercise of such Options or
            upon   conversion,   exercise  or   exchange  of  such   Convertible
            Securities"  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,
            exercise or  exchange  of any  Convertible  Security  issuable  upon
            exercise of such Option. No further adjustment of the Exercise Price
            or number of Warrant  Shares 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,  exercise or  exchange  of such  Convertible
            Securities.


                                       5


      (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 the
            conversion, exercise or exchange 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  2(a)(ii),  the
            "lowest  price per  share  for  which  one share of Common  Stock is
            issuable upon the  conversion,  exercise or exchange" 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,  exercise or exchange of such Convertible  Security.  No
            further adjustment of the Exercise Price or number of Warrant Shares
            shall be made upon the actual  issuance  of such  Common  Stock upon
            conversion, exercise or exchange of such Convertible Securities, and
            if any such  issue or sale of such  Convertible  Securities  is made
            upon  exercise of any Options for which  adjustment  of this Warrant
            has  been or is to be made  pursuant  to  other  provisions  of this
            Section 2(a), no further  adjustment of the Exercise Price or number
            of Warrant Shares shall be made by reason of such issue or sale.

      (iii) Change in Option Price or Rate of Conversion.  If the purchase price
            provided for in any Options, the additional  consideration,  if any,
            payable  upon the issue,  conversion,  exercise  or  exchange of any
            Convertible  Securities,  or  the  rate  at  which  any  Convertible
            Securities are convertible  into or exercisable or exchangeable  for
            Common Stock  increases or decreases at any time, the Exercise Price
            and the  number  of  Warrant  Shares  in  effect at the time of such
            increase or decrease shall be adjusted to the Exercise Price and the
            number of  Warrant  Shares  which  would have been in effect at such
            time had such Options or  Convertible  Securities  provided for such
            increased or decreased purchase price,  additional  consideration or
            increased or decreased  conversion  rate, as the case may be, at the
            time initially granted, issued or sold. For purposes of this Section
            2(a)(iii),  if the terms of any Option or Convertible  Security that
            was  outstanding  as of the date of  issuance  of this  Warrant  are
            increased or decreased  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
            increase or decrease.  No  adjustment  pursuant to this Section 2(a)
            shall be made if such adjustment  would result in an increase of the
            Exercise Price then in effect or a decrease in the number of Warrant
            Shares.

      (iv)  Calculation of Consideration  Received. If case any Option is issued
            in  connection  with the  issue or sale of other  securities  of the
            Company,  together comprising one integrated transaction in which no
            specific  consideration  is allocated to such Options by the parties
            thereto,  the  Options  will be  deemed to have  been  issued  for a
            consideration of $0.01. 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
            securities,  in which case the amount of  consideration  received by
            the Company will be the Closing  Sale Price of such  security on the
            date  of  receipt.  If any  Common  Stock,  Options  or  Convertible
            Securities are issued to the owners of the  non-surviving  entity in
            connection  with 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

                                       6


            value of any  consideration  other than cash or  securities  will be
            determined  jointly by the Company  and the holders of SPA  Warrants
            representing  at least a  majority  of the  shares of  Common  Stock
            obtainable  upon exercise of the SPA Warrants then  outstanding.  If
            such parties are unable to reach agreement  within 10 days after the
            occurrence of an event requiring  valuation (the "VALUATION EVENT"),
            the  fair  value of such  consideration  will be  determined  within
            fifteen  Business  Days after the tenth day  following the Valuation
            Event by an independent, reputable appraiser jointly selected by the
            Company  and the  holders of SPA  Warrants  representing  at least a
            majority of the shares of Common Stock  obtainable  upon exercise of
            the  SPA  Warrants  then  outstanding.  The  determination  of  such
            appraiser  shall be  final  and  binding  upon  all  parties  absent
            manifest error and the fees and expenses of such appraiser  shall be
            borne by the Company.

      (v)   Record Date.  If the Company takes a record of the holders of Common
            Stock for the purpose of entitling them (A) to receive a dividend or
            other   distribution   payable  in  Common  Stock,   Options  or  in
            Convertible  Securities or (B) 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.


            (b) Adjustment  upon  Subdivision or Combination of Common Stock. If
the Company at any time after the  Subscription  Date  subdivides  (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price in effect  immediately  prior to such subdivision will be  proportionately
reduced and the number of Warrant Shares will be proportionately  increased.  If
the  Company  at any  time  on or  after  the  Subscription  Date  combines  (by
combination,  reverse  stock  split or  otherwise)  one or more  classes  of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect  immediately  prior to such combination will be  proportionately
increased and the number of Warrant  Shares will be  proportionately  decreased.
Any  adjustment  under this Section 2(b) shall become  effective at the close of
business on the date the subdivision or combination becomes effective.


                                       7


            (c) Other Events.  If any event occurs of the type  contemplated  by
the  provisions  of  this  Section  2 but  not  expressly  provided  for by such
provisions  (including,  without limitation,  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 Exercise
Price  and the  number of  Warrant  Shares so as to  protect  the  rights of the
Holder;  provided  that no such  adjustment  pursuant to this  Section 2(c) will
increase  the  Exercise  Price or  decrease  the  number  of  Warrant  Shares as
otherwise determined pursuant to this Section 2.

      3. RIGHTS UPON  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,  without  limitation,  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:

            (a) any 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
Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
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 (ii)
the  denominator  shall be the  Closing  Bid  Price of the  Common  Stock on the
trading day immediately preceding such record date; and

            (b) the number of Warrant  Shares  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 paragraph (a);
provided  that in the event that the  Distribution  is of common  stock  ("OTHER
COMMON  STOCK")  of a  company  whose  common  stock  is  traded  on a  national
securities  exchange or a national automated  quotation system,  then the Holder
may elect to  receive a warrant to  purchase  Other  Common  Stock in lieu of an
increase in the number of Warrant Shares,  the terms of which shall be identical
to those of this Warrant, except that such warrant shall be exercisable into the
number of shares of Other  Common  Stock  that  would  have been  payable to the
Holder  pursuant  to the  Distribution  had the Holder  exercised  this  Warrant
immediately prior to such record date and with an aggregate exercise price equal
to the  product of 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 paragraph (a) and the number of Warrant Shares calculated
in accordance with the first part of this paragraph (b).


                                       8


4.    PURCHASE RIGHTS; ORGANIC CHANGE.

            (a)  Purchase  Rights.  In addition to any  adjustments  pursuant to
Section 2 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 Common Stock (the
"PURCHASE RIGHTS"),  then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase  Rights,  the  aggregate  Purchase  Rights which the
Holder  could  have  acquired  if such  holder  had held the number of shares of
Common Stock  acquirable upon complete  exercise of this Warrant (without regard
to any limitations on the 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)   Organic   Change.   Any   recapitalization,    reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person or other  transaction,  in each case which is
effected  in such a way that  holders of Common  Stock are  entitled  to receive
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "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 Person issuing
the securities or providing the assets in such Organic Change (in each case, the
"ACQUIRING  ENTITY")  a  written  agreement  (in form and  substance  reasonably
satisfactory to the holders of SPA Warrants  representing at least a majority of
the shares of Common Stock  obtainable  upon  exercise of the SPA Warrants  then
outstanding)  to deliver to the Holder in exchange for this Warrant,  a security
of the Acquiring Entity evidenced by a written instrument  substantially similar
in form and substance to this Warrant and reasonably  satisfactory to the holder
of this Warrant (including an adjusted 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 this Warrant  (without regard to any limitations on
the  exercise  of this  Warrant),  if the  value so  reflected  is less than the
Exercise  Price in effect  immediately  prior to such  consolidation,  merger or
sale).  In the  event  that  an  Acquiring  Entity  is  directly  or  indirectly
controlled by a company or entity whose common stock or similar equity  interest
is listed,  designated or quoted on a securities exchange or trading market, the
Holder may elect to treat such Person as the  Acquiring  Entity for  purposes of
this Section 4(b).  Notwithstanding  the foregoing,  at the Holder's  option and
request,  the Acquiring Entity shall purchase the Warrant from such Holder for a
purchase  price,  payable in cash within five  Business  Days after such request
(or, if later, on the effective date of the Organic Change),  equal to the Black
Scholes value of the remaining  unexercised  portion of this Warrant on the date
of such request.  The terms of any agreement  pursuant to which a Organic Change
is effected shall include terms requiring any such successor or surviving entity
to  comply  with the  provisions  of this  Section  4(b) and  insuring  that the
Warrants (or any such replacement  security) will be similarly adjusted upon any
subsequent transaction analogous to an Organic Change. Prior to the consummation
of any other Organic Change,  the Company shall make  appropriate  provision (in
form and  substance  reasonably  satisfactory  to the  holders  of SPA  Warrants
representing  at least a majority of the shares of Common Stock  obtainable upon
exercise  of the SPA  Warrants  then  outstanding)  to  insure  that the  Holder
thereafter  will 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 this Warrant  (without regard to
any  limitations  on the  exercise  of this  Warrant),  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
which  would have been  acquirable  and  receivable  upon the  exercise  of this
Warrant as of the date of such Organic Change (without regard to any limitations
on the exercise of this Warrant).


                                       9


      5.  NONCIRCUMVENTION.  The Company  hereby  covenants  and agrees that the
Company will not, by amendment of its  Certificate of  Incorporation  or through
any  reorganization,  transfer of assets,  consolidation,  merger,  dissolution,
issue or sale of securities,  or any other  voluntary  action,  avoid or seek to
avoid the  observance or  performance  of any of the terms of this Warrant,  and
will at all times in good faith carry out all the provisions of this Warrant and
take all action as may be required to protect the rights of the Holder.  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 the Exercise Price then in effect, (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, and (iii) will, so long as any of the SPA Warrants are
outstanding,  take all action necessary to reserve and keep available out of its
authorized  and unissued  Common Stock,  solely for the purpose of effecting the
exercise of the SPA  Warrants,  125% of the number of shares of Common  Stock as
shall from time to time be  necessary to effect the exercise of the SPA Warrants
then outstanding (without regard to any limitations on exercise).

      6.  WARRANT  HOLDER  NOT  DEEMED  A   STOCKHOLDER.   Except  as  otherwise
specifically  provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of shares of the Company for any purpose,  nor shall  anything
contained in this Warrant be construed to confer upon the Holder, solely in such
Person's  capacity  as the  Holder,  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 issuance to
the Holder of the Warrant  Shares which such Person 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 the Holder to purchase
any securities  (upon exercise of this Warrant or otherwise) or as a stockholder
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 with copies of the same notices and other  information  given
to the stockholders of the Company generally,  contemporaneously with the giving
thereof to the stockholders.

      7. REISSUANCE OF WARRANTS.

            (a) Transfer of Warrant.  If this Warrant is to be transferred,  the
Holder shall  surrender this Warrant to the Company,  whereupon the Company will
forthwith  issue and  deliver  upon the order of the  Holder a new  Warrant  (in
accordance   with  Section   7(d)),   registered  as  the  Holder  may  request,
representing   the  right  to  purchase  the  number  of  Warrant  Shares  being
transferred  by the Holder and, if less then the total number of Warrant  Shares
then underlying this Warrant is being transferred,  a new Warrant (in accordance
with Section 7(d)) to the Holder  representing  the right to purchase the number
of Warrant Shares not being transferred.


                                       10


            (b) Lost, Stolen or Mutilated  Warrant.  Upon receipt by the Company
of  evidence  reasonably  satisfactory  to  the  Company  of  the  loss,  theft,
destruction  or mutilation of this Warrant,  and, in the case of loss,  theft or
destruction,  of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation,  upon surrender and  cancellation
of this  Warrant,  the  Company  shall  execute  and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.

            (c) Warrant  Exchangeable  for  Multiple  Warrants.  This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company,  for a new Warrant or Warrants (in  accordance  with Section  7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase  such portion of such Warrant  Shares as is designated by the Holder
at the  time  of  such  surrender;  provided,  however,  that  no  Warrants  for
fractional shares of Common Stock shall be given.

            (d)  Issuance of New  Warrants.  Whenever the Company is required to
issue a new Warrant pursuant to the terms of this Warrant,  such new Warrant (i)
shall be of like tenor with this Warrant, (ii) shall represent,  as indicated on
the face of such new  Warrant,  the right to purchase  the  Warrant  Shares then
underlying  this Warrant (or in the case of a new Warrant being issued  pursuant
to Section 7(a) or Section  7(c),  the Warrant  Shares  designated by the Holder
which,  when added to the number of shares of Common Stock  underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying  this Warrant),  (iii) except for new warrants
issued  pursuant to section 7(a),  shall have an issuance  date, as indicated on
the face of such new Warrant,  which is the same as the Issuance  Date, and (iv)
shall have the same rights and conditions as this Warrant.

      8.  NOTICES.  Whenever  notice is required to be given under this Warrant,
unless otherwise provided herein,  such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Warrant,
including  in  reasonable  detail a  description  of such  action and the reason
therefore.  Without  limiting the generality of the foregoing,  the Company will
give  written  notice to the  Holder (i)  promptly  upon any  adjustment  of the
Exercise  Price or number  of  Warrant  Shares  or number or kind of  securities
purchasable upon exercise of this Warrant,  setting forth in reasonable  detail,
and certifying,  the facts requiring such adjustment and the calculation of such
adjustment and (ii) at least fifteen 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 grants,  issues or
sales of any  Options,  Convertible  Securities  or  rights to  purchase  stock,
warrants,  securities  or other  property to holders of Common  Stock or (C) for
determining  rights to vote with respect to any Change of Control (as defined in
the SPA Securities), dissolution or liquidation, provided in each case that such
information  shall be made known to the public prior to or in  conjunction  with
such notice being provided to the Holder.


                                       11


      9.  AMENDMENT  AND  WAIVER.  Except  as  otherwise  provided  herein,  the
provisions  of this  Warrant  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 a  majority  of the  shares  of  Common  Stock
obtainable upon exercise of the SPA Warrants then outstanding;  provided that no
such action may increase  the exercise  price of any SPA Warrant or decrease the
number of shares or class of stock  obtainable  upon exercise of any SPA Warrant
without the written consent of the Holder.  No such amendment shall be effective
to the  extent  that it  applies  to less  than  all of the  holders  of the SPA
Warrants then outstanding.

      10.  GOVERNING  LAW.  This  Warrant  shall be  construed  and  enforced in
accordance  with,  and all  questions  concerning  the  construction,  validity,
interpretation  and  performance  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  jurisdictions)  that would cause the  application  of the laws of any
jurisdictions other than the State of New York.

      11.  CONSTRUCTION;  HEADINGS.  This Warrant  shall be deemed to be jointly
drafted by the  Company  and all the  holders of SPA  Warrants  and shall not be
construed against any person as the drafter hereof. The headings of this Warrant
are for  convenience  of  reference  and shall  not form part of, or affect  the
interpretation of, this Warrant.

      12. DISPUTE  RESOLUTION.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic  calculation of the Warrant Shares,  the
Company shall submit the disputed  determinations or arithmetic calculations via
facsimile within two Business Days of receipt of the Exercise Notice giving rise
to such  dispute,  as the case may be,  to the  Holder.  If the  Holder  and the
Company  are  unable to agree  upon such  determination  or  calculation  of the
Exercise Price or the Warrant Shares within three Business Days of such disputed
determination or arithmetic  calculation being submitted to the Holder, then the
Company  shall,  within two Business  Days submit via facsimile (a) the disputed
determination of the Exercise Price to an independent, reputable investment bank
selected  by the  Company  and  approved  by the  Holder  or  (b)  the  disputed
arithmetic  calculation  of the  Warrant  Shares to the  Company's  independent,
outside  accountant.  The Company shall use its reasonable best efforts to cause
the  investment  bank or the  accountant,  as the case may be,  to  perform  the
determinations  or  calculations  and notify the  Company  and the Holder of the
results no later than ten  Business  Days from the time it receives the disputed
determinations   or  calculations.   Such  investment   bank's  or  accountant's
determination  or  calculation,  as the case may be,  shall be binding  upon all
parties absent demonstrable error.

      13.  REMEDIES,  OTHER  OBLIGATIONS,  BREACHES AND INJUNCTIVE  RELIEF.  The
remedies  provided in this Warrant  shall be  cumulative  and in addition to all
other remedies available under this Warrant and the other Transaction  Documents
(as defined in the Securities Purchase Agreement) at law or in equity (including
a decree of specific  performance and/or other injunctive  relief),  and nothing
herein  shall limit the right of the Holder right to pursue  actual  damages for
any failure by the Company to comply with the terms of this Warrant. The Company
acknowledges  that  a  breach  by it of its  obligations  hereunder  will  cause
irreparable  harm to the holder of this  Warrant  and that the remedy at law for
any such breach may be  inadequate.  The Company  therefore  agrees that, in the
event of any such breach or threatened breach, the Holder shall be entitled,  in
addition to all other  available  remedies,  to an  injunction  restraining  any
breach,  without the necessity of showing  economic loss and without any bond or
other security being required.


                                       12


      14. TRANSFER.  This Warrant may be offered for sale, sold,  transferred or
assigned without the consent of the Company.

      15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms
shall have the following meanings:

            (a) "BLOOMBERG" means Bloomberg Financial Markets.

            (b)  "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.

            (c)  "CLOSING  BID PRICE" and "CLOSING  SALE PRICE"  means,  for any
security  as of any date,  the last  closing  bid price and last  closing  trade
price,  respectively,  for such security on the Principal Market, as reported by
Bloomberg,  or, if the Principal  Market begins to operate on an extended  hours
basis and does not  designate  the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade  price,  respectively,
of such  security  prior to 4:00 p.m.,  New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal  securities exchange or trading
market  for such  security,  the last  closing  bid price or last  trade  price,
respectively,  of such security on the principal  securities exchange or trading
market where such security is listed or traded as reported by  Bloomberg,  or if
the  foregoing  do not apply,  the last  closing bid price or last trade  price,
respectively,  of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade  price,  respectively,  is  reported  for such  security  by
Bloomberg,  the average of the bid prices, or the ask prices,  respectively,  of
any market  makers for such  security as  reported in the "pink  sheets" by Pink
Sheets LLC (formerly the National  Quotation  Bureau,  Inc.). If the Closing Bid
Price or the  Closing  Sale  Price  cannot be  calculated  for a  security  on a
particular  date on any of the  foregoing  bases,  the  Closing Bid Price or the
Closing Sale Price,  as the case may be, of such  security on such date shall be
the fair market value as mutually  determined by the Company and the Holder.  If
the  Company  and the Holder are unable to agree upon the fair  market  value of
such security,  then such dispute shall be resolved  pursuant to Section 12. All
such determinations to be appropriately  adjusted for any stock dividend,  stock
split,  stock  combination  or other similar  transaction  during the applicable
calculation period.

            (d) "COMMON STOCK" means (i) the Company's  common stock,  par value
$0.01 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.


                                       13


            (e) "COMMON STOCK DEEMED  OUTSTANDING" means, at any given time, the
number of shares of Common Stock  actually  outstanding  at such time,  plus the
number of shares of Common Stock deemed to be  outstanding  pursuant to Sections
2(a)(i) and 2(a)(ii)  hereof  regardless  of whether the Options or  Convertible
Securities  are actually  exercisable or convertible at such time, but excluding
any shares of Common Stock owned or held by or for the account of the Company or
issuable upon exercise of the SPA Warrants.

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

            (g)  "EXCLUDED  SECURITIES"  means  shares of Common Stock deemed to
have been  issued or sold by the  Company (i) in  connection  with any  employee
benefit  plan which has been  approved by the Board of Directors of the Company,
pursuant  to which the  Company's  securities  may be  issued  to any  employee,
officer or director for services  provided to the  Company,  (ii) in  connection
with any acquisition by the Company, whether through an acquisition for stock or
a merger,  of any business,  assets or technologies the primary purpose of which
is not to raise equity  capital,  (iii) pursuant to a bona fide firm  commitment
underwritten  public  offering with a nationally  recognized  underwriter  which
generates  net proceeds to the Company in excess of  $30,000,000  (other than an
"at-the-market  offering"  as defined in Rule  415(a)(4)  under the 1933 Act and
"equity  lines")  and  (iv)  upon  conversion  of  any  Options  or  Convertible
Securities  which are outstanding  under any stock option plan of the Company on
the day immediately  preceding the Subscription Date, provided that the terms of
such Options or Convertible  Securities are not amended,  modified or changed on
or after the Subscription Date.

            (h)  "EXPIRATION   DATE"  means  the  date  three  years  after  the
applicable  Closing Date (as defined in the  Securities  Purchase  Agreement) at
which the  Company's  obligation  to issue this  Warrant  arose or, if such date
falls on a day other than a Business Day or on which trading does not take place
on the Principal Market (a "HOLIDAY"), the next date that is not a Holiday.

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

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

            (k)  "PRINCIPAL  MARKET"  means any of The New York Stock  Exchange,
Inc.,  the American  Stock  Exchange,  the Nasdaq  National  Market,  The Nasdaq
SmallCap Market or the OTC Bulletin Board.

            (l) "SPA  SECURITIES"  means  the  senior  secured  notes  issued or
issuable pursuant to the Securities Purchase Agreement.


                            [SIGNATURE PAGE FOLLOWS]


                                       14


      IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.


                                                CADENCE RESOURCES CORPORATION


                                                By:
                                                   ----------------------------
                                                    Name: John Ryan
                                                    Title:   Vice President



                                       15


                                                                      EXHIBIT A

                                 EXERCISE NOTICE

            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                          CADENCE RESOURCES CORPORATION

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

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

      __________ a "Cash Exercise" with respect to ____________  Warrant Shares;
and/or

      __________  a "Cashless  Exercise"  with  respect to  ___________  Warrant
Shares.

      2. Payment of 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. Accredited Investor.  The holder is an "accredited investor" as defined
in Rule 501(c) under the Securities Act.

      4.  Delivery of Warrant  Shares.  The Company  shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

      5. Delivery of Warrant.  The Holder shall deliver the original  Warrant to
the Company within five (5) Business Days from the date hereof.

      [6. The Holder hereby represents that contemporaneous with the delivery of
this exercise  notice,  that the Holder has sold  __________  Warrant Shares and
hereby represents that it has complied with the prospectus delivery requirements
of the Securities Act as applicable in connection with such sale.]3

Date: _______________ __, ______

      __________________________
      Name of Registered Holder

By:
      __________________________
      Name:
     Title:


                                       16


                                 ACKNOWLEDGMENT

      The Company hereby  acknowledges  this Exercise  Notice and hereby directs
OTC Stock Transfer  Company of Salt Lake City, Utah to issue the above indicated
number  of  shares  of  Common  Stock  in  accordance  with the  Transfer  Agent
Instructions dated April 2, 2004 from the Company and acknowledged and agreed to
by OTC Stock Transfer Company of Salt Lake City, Utah.


                          CADENCE RESOURCES CORPORATION


                                                By:_____________________________
                                              Name:
                                             Title:

1     Insert  number of  shares  equal to the  product  of (A) 6,375 and (B) the
      quotient  determined  by  dividing  the  principal  amount of Notes  being
      purchased by the Holder at the Closing by $50,000.


2     Same as previous footnote.

3     Add only if a contemporaneous sale has occurred pursuant to a Registration
      Statement




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