SALES OF UNREGISTERED SECURITIES

     On February 20, 2002, the Company consummated the transactions (the "2002 Financing") contemplated by a Securities Purchase Agreement dated February 20, 2002 (the "2002 Securities Purchase Agreement") among the Company, Mellon Ventures, L.P. ("Mellon") and Steven A. Webster (excluding the Company, the "2002 Investors"). Such transactions included (i) the payment by the 2002 Investors of an aggregate purchase price of $6,000,000, (ii) the sale of 60,000 shares of Series B Convertible Participating Preferred Stock (the "Series B Preferred Stock") the terms of which are set forth in the Statement of Resolution Establishing a Series of Shares designated Series B Convertible Participating Preferred Stock (the "Statement of Resolution") and which include the right to convert such shares into Common Stock, par value $0.01 (the "Common Stock") of the Company (the "Underlying Shares") at a price of $5.70 per share, subject to adjustments, to the 2002 Investors pursuant to the terms of the 2002 Securities Purchase Agreement and (iii) the sale of warrants (the "2002 Warrants") to purchase up to 252,632 shares of the Company's Common Stock (the "2002 Warrant Shares") at the exercise price of $5.94 per share, subject to adjustments, to the 2002 Investors pursuant to the terms of the Warrant Agreement dated February 20, 2002 (the "2002 Warrant Agreement") among the Company, Mellon and Steven A. Webster, (iv) the execution of the Shareholders Agreement dated February 20, 2002 (the "2002 Shareholders Agreement") among the Company, Mellon, Paul B. Loyd, Jr., Douglas A.P. Hamilton, Steven A. Webster, S.P. Johnson IV, Frank A. Wojtek and DAPHAM Partnership, L.P., (v) the execution of the Registration Rights Agreement dated February 20, 2002 ("2002 Registration Rights Agreement") among the
Company, Mellon and Steven A. Webster and (vi) the execution of a Compliance Sideletter dated as of February 20, 2002 by and between the Company and Mellon (the "2002 Compliance Sideletter").

     The holders of the Series B Preferred Stock have the right, at each holders' option, to convert all or a portion of such Series B Preferred Stock into the number of fully paid and nonassessable shares of Common Stock convertible at any time prior to the fourth business day preceding the Redemption Date (as defined in the Statement of Resolutions) obtained by dividing (i) the product of (A) $100 plus all cumulative and accrued dividends (whether or not earned or declared) accumulated and unpaid on such share through the date of surrender of such share of Series B Preferred Stock multiplied by (B) each share of Series B Preferred Stock to be converted by (ii) the Conversion Price (as defined below). "Conversion Price" is defined to mean the conversion price per share of the Common Stock into which the Series B Preferred Stock is convertible, as such Conversion Price may be adjusted pursuant to the Statement of Resolution. The initial Conversion Price is $5.70.

The Conversion Price is subject to adjustment in certain circumstances, including (a) if the Company pays a dividend in Common Stock or grants certain rights to purchase securities, (b) if the Company subdivides, splits or reclassifies its outstanding shares of Common Stock into a larger number of shares of Common Stock or combines its outstanding shares of Common Stock into a smaller number of shares of Common Stock, (c) if the Company pays certain dividends or makes certain distributions to all holders of its Common Stock of any shares of capital stock of the Company or its subsidiaries (other than Common Stock) or evidences of its indebtedness or assets, including all equity and debt, subject to certain exceptions, and (d) if, subject to certain exclusions, the Company sells or issues Common Stock, options or convertible securities without consideration or with a consideration per share of Common Stock less than the Conversion Price, including in the first year a "full ratchet" adjustment for issuances in excess of $5 million; provided, however, that the Conversion Price as adjusted according to this subsection (d) will not be less than $4.75, appropriately adjusted for stock splits, reverse stock splits and similar recapitalizations (the "Floor Price").

The 2002 Warrants are exercisable at any time prior to the expiration date on February 20, 2007 for the purchase of an aggregate of 252,632 shares of Common Stock at an exercise price of $5.94 per share, subject to certain adjustments. Each Warrant may be exercised by cash payment or on a "cashless basis" by utilizing the average market price during the 4-day trading period preceding the date of exercise.

The number and kind of 2002 Warrant Shares issued and the exercise price are subject to adjustment in certain circumstances, including (a) if the Company pays a dividend in Common Stock or distributes shares of its Common Stock, subdivides, splits or reclassifies its outstanding shares of Common Stock into a larger number of shares of Common Stock, or combines its outstanding shares of Common Stock into a smaller number of shares of Common Stock, (b) if the Company issues shares of Common Stock or securities exercisable or exchangeable for or convertible into shares of Common Stock for no consideration or for less than the market value (as specified in the 2002 Warrant Agreement) of the Common Stock, subject to certain exceptions, provided that adjustments under this clause may not result in the exercise price falling below the Floor Price, (c) if the Company distributes any of its equity securities (other than Common Stock or options) to the holders of the Common Stock on a pro rata basis, (d) if the Company engages in a consolidation, merger or business combination, sells all of its assets to another person or entity, or enters into certain capital reorganizations or reclassifications of the capital stock of the Company or (e) the Company takes certain other actions affecting its Common Stock.

The sale of the shares of Series B Preferred Stock and the 2002 Warrants pursuant to the Securities Purchase Agreement is exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof as a transaction not involving a public offering.

For additional information regarding the Series B Preferred Stock and the 2002 Financing, including the 2002 Securities Purchase Agreement, the Statement of Resolution, the 2002 Shareholders Agreement, the 2002 Warrants, the 2002 Warrant Agreement, the 2002 Registration Rights Agreement and the 2002 Compliance Sideletter, see the Company's Current Report on Form 8-K dated February 20, 2002, which is incorporated herein by reference. The rights of the holders of Common Stock may be deemed to be limited by the securities issued and agreements entered into in connection with the 2002 Financing.

The approximately $5,800,000 net proceeds of this financing are expected to be used primarily to fund the Company's ongoing exploration and development program.