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

PROPOSED FINANCING

OF

PETRONATIONAL CORP.

 

 

 

By reading the information contained within this document, the recipient agrees
with PetroNational Corp. (the "Company") to maintain in confidence such
information, together with any other non-public information regarding the
Company obtained from the Company or its agents during the course of the
proposed financing. The Company has caused these materials to be delivered to
you in reliance upon such agreement and upon Rules promulgated under Regulation
FD by the Securities and Exchange Commission.

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD, OFFERED TO SALE, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED
EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT RELATING TO THE SECURITIES WHICH
IS EFFECTIVE UNDER THE SECURITIES ACT, (ii) RULE 144 PROMULGATED UNDER THE
SECURITIES ACT OR (iii) AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO
THE COMPANY AND ITS COUNSEL THAT AN EXEMPTION FROM THE REGISTRATION REQUIRMENTS
OF THE SECURITIES ACT OR ANY APPLICABLE STATE LAWS IS AVAILABLE.

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

CONFIDENTIAL

SUMMARY OF OFFERING

          This Confidential Summary of Offering is not intended to be
contractually binding, other than the section entitled “Confidential
Information” and is subject in all respects (other than with respect to such
section) to the execution of the Securities Purchase Agreement.

Issuer:

PetroNational Corp., a Nevada corporation (the “Company”).

 

Securities Offered:

Up to 500,000 Units of the Company’s securities. Each Unit shall consist of one
(1) common share in the capital stock of the Company (the “Shares”), and one (1)
share purchase warrant in the form attached to the Securities Purchase Agreement
as Exhibit A (the “Warrants”). Each Warrant held will entitle the Investor to
purchase one additional common share in the capital stock of the Company for a
two-year period at an exercise price of $0.15 per share (the “Warrant Shares”)
in accordance with the terms set forth in the Warrants (the “Offering”).

 

The Offering, subject to authorization from the Board of Directors of the
Company, will be completed on a best efforts basis and subject to adjustment by
the Company.

 

Purchase Price:

$0.10 per Unit.

 

Closing Date:

The Company and each Investor shall execute a Securities Purchase Agreement in
substantially the form set forth herein. The closing of the Offering shall occur
continuously as subscriptions and proceeds are received, and certificates
representing the Shares shall be issued to the Investors and funds paid to the
Company (the “Closing Date”). However, the Closing Date shall be no later than
October 31, 2008, which may be extended by the Company at the sole discretion of
the Company for a period of sixty (60) days.

 

Investor Qualifications:

Each Investor must be an “accredited investor” as defined in Regulation D of the
Securities Act of 1933, as amended (the “Securities Act”), and must represent
and warrant to the Company that it is acquiring the Units for investment with no
present intention of distributing any of the Units. The Securities Purchase
Agreement contains other appropriate representations and warranties of the
Investor to the Company.

 

Securities Certificates:

Certificates evidencing the Shares which are delivered to each Investor within
seven days of each closing and will bear a restrictive legend stating that such
securities have been sold pursuant to the Securities Purchase Agreement and that
the shares may not be resold except as permitted under the Securities Act
pursuant to a Registration Statement that has been declared effective or an
exemption therefrom, and may be resold subject to certain limitations and
procedures agreed to in the Securities Purchase Agreement.

 

 

Warrants will be exercisable for a period of two (2) years after the

i

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

Warrants:

date of grant and will be issued in the form attached as Exhibit A to the
Securities Purchase Agreement and shall be delivered to each Investor within
seven days of each closing.

 

Indemnification:

By executing the Securities Purchase Agreement, each Investor will agree to
indemnify the Company against certain liabilities.

 

Risk Factors:

The securities offered hereby involve a high degree of risk. Each Investor must
read the disclosure relating to the risks affecting the Company as set forth in
Annex II of the Securities Purchase Agreement, in addition to, documents filed
by the Company with the SEC under the Securities Exchange Act of 1934, as
amended.

 

Nasdaq OTC Bulletin Board Symbol:

PTNL

 

Confidential Information:

The recipient of this Confidential Summary of Terms and Conditions and the
materials attached hereto agrees with the Company to maintain in confidence this
disclosed information, together with any other non- public information regarding
the Company obtained from the Company, or its agents during the course of the
proposed Offering. The Company has caused these materials to be delivered to you
in reliance upon such agreement and upon Rules promulgated by the SEC pursuant
to Regulation FD.

ii

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

INSTRUCTION SHEET FOR INVESTOR

(to be read in conjunction with the entire Securities Purchase Agreement)

A.      Complete the following items in the Securities Purchase Agreement:

          1.      Provide the information regarding the Investor requested on
the Signature Page to the Securities Purchase Agreement. Please submit a
separate Securities Purchase Agreement for each individual fund/entity that will
hold the Shares. The Securities Purchase Agreement must be executed by an
individual authorized to bind the Investor.

          2.      Return the signed Securities Purchase Agreement by fax and
send the original signed Securities Purchase Agreement by overnight mail to:

PetroNational Corp.
225 Marine Drive, Suite 210
Blaine, Washington, USA, 98230
Attn: G. Leigh Lyons
Phone:   (360) 332-0905
Fax:        (360) 332-2704

An executed original Securities Purchase Agreement or a fax thereof must be
received by 2:00 p.m. Pacific Daylight Time on a date to be determined and
distributed to the Investor.

B.      Funds for the purchase of Units should be sent via wire transfer to:

     Bank Account: _______________
                                 _______________
                                 Blaine, WA 98230
                                 Tel: (360) 332-5711

Account Name:      PetroNational Corp.
Account:                 ________________
ABA:                       ________________
Swift:                       ________________

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

SECURITIES PURCHASE AGREEMENT
(Signature Page)

PetroNational Corp.
225 Marine Drive, Suite 210
Blaine, Washington
USA, 98230

Ladies & Gentlemen:

          The undersigned (the “Investor”), hereby confirms its agreement with
you as follows:

1.      This Securities Purchase Agreement, including the Terms and Conditions
set forth in Annex I (the "Terms and Conditions"), the Risk Factors set forth in
Annex II (the "Risk Factors"), and exhibits, which are all attached hereto and
incorporated herein by reference as if fully set forth herein (the “Agreement”),
is made as of the date set forth below between PetroNational Corp., a Nevada
corporation (the “Company”), and the Investor.

2.      The Company has authorized the sale and issuance of up to 500,000 Units
of the Company securities to certain investors in a private placement (the
“Offering”). Each Unit consists of one (1) common share in the capital stock of
the company with a par value of $0.001 per share (the "Shares") and one (1)
share purchase warrant in the form attached to the Securities Purchase Agreement
as Exhibit A (the “Warrants”). Each Warrant held will entitle the Investor to
purchase one additional common share in the capital stock of the Company for a
two-year period at an exercise price of $0.15 per share (the “Warrant Shares”)
in accordance with the terms set forth in the Warrants (the “Offering”).

3.      Pursuant to the Terms and Conditions, the Company and the Investor agree
that the Investor will purchase from the Company and the Company will issue and
sell to the Investor ______________________ Units, for a purchase price of $0.10
per Unit, for an aggregate purchase price of $_____________________, consisting
of __________________ Shares and ___________________ Warrants to purchase shares
of common stock of the Company. Unless otherwise requested by the Investor,
certificates representing the Common Stock purchased by the Investor will be
registered in the Investor’s name and address as set forth below.

4.      The Investor represents that, except as set forth below, (a) it has had
no position, office or other material relationship within the past three years
with the Company or persons known to it to be affiliates of the Company, (b)
neither it, nor any group of which it is a member or to which it is related,
beneficially owns (including the right to acquire or vote) any securities of the
Company and (c) it has no direct or indirect affiliation or association with any
NASD member as of the date hereof. Exceptions:

____________________________________________________________________________________________.
(If no exceptions, write “none.” If left blank, response will be deemed to be
“none.”)

          Please confirm that the foregoing correctly sets forth the agreement
between us by signing in the space provided below for that purpose.

Date: ___________________ , 2008     Investor (if corporation)         Investor
Authorized Signature         Signatory Name – Please Print

1

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

      Signatory Title           Address           Address           Tax ID
Number           Contact Name           Contact Phone Number

AGREED AND ACCEPTED:

PETRONATIONAL CORP.

 

 

_______________________________________________
Per: Gregory Leigh Lyons, President

2

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

ANNEX I

TERMS AND CONDITIONS FOR PURCHASE OF SHARES

Investment in the Company involves a high degree of risk. Each Investor should
carefully consider the risk factors set forth in Annex II in addition to the
other information set forth in this Annex I before purchasing shares of the
Company's Common Stock.

          1.      Authorization and Sale of the Shares. Subject to these Terms
and Conditions, the Company has authorized the sale of up to 500,000 units of
the Company’s securities at $0.10 per share of common stock (the "Offering").
Each Unit shall consist of one (1) common share in the capital stock of the
Company (the “Shares”), and one (1) share purchase warrant (the “Warrants”).
Each Warrant held will entitle the Investor to purchase one additional common
share in the capital stock of the Company for a two-year period at an exercise
price of $0.15 per share (the “Warrant Shares”) in accordance with the terms set
forth in the Warrants. The Company reserves the right to increase or decrease
this number.

          2.      Agreement to Sell and Purchase the Units.

                    2.1      At each Closing (as defined in Section 3 of this
Annex I), the Company will sell to the Investor, and the Investor will purchase
from the Company, upon the terms and conditions hereinafter set forth, the
number of Units, if applicable, set forth in Section 3 of the Signature Page to
the Securities Purchase Agreement at the purchase price set forth thereon.

                    2.2      The Company may enter into the same form of
Securities Purchase Agreement ("Agreements"), including these Terms and
Conditions, with certain other investors (the “Other Investors”) and expects to
complete sales of Units to them. The Investor and the Other Investors are
hereinafter sometimes collectively referred to as the “Investors.”

          3.      Delivery of the Shares at Closing. The completion of the
purchase and sale of the Units (the “Closing”) shall occur at the offices of the
Company counsel upon receipt of cleared funds and fully executed documents for
the purchase of the Units on each date set by the Company, provided that a
closing shall occur no later than October 31, 2008, which date may be extended
by the Company at the sole discretion of the Company for a period of sixty (60)
days. Within seven (7) days after each Closing, the Company shall deliver to the
Investor one or more stock certificates representing the number of Shares and a
Warrant representing the number of shares of common stock as set forth in
Section 3 of the Signature Page to the Securities Purchase Agreement, each such
certificate, certificates or warrant to be registered in the name of the
Investor, as set forth in Section 3 of the Signature Page to the Securities
Purchase Agreement.

          The Company’s obligation to issue the Shares and Warrants to the
Investor shall be subject to the following conditions, any one or more of which
may be waived by the Company: (a) receipt by the Company of a certified or
official bank check or wire transfer of funds in the full amount of the purchase
price for the Units being purchased hereunder as set forth in Section 3 of
Signature Page to the Securities Purchase Agreement; and (b) the accuracy of the
representations and warranties made by the Investors and the fulfillment of
those undertakings of the Investors to be fulfilled prior to the Closing.

          The Investor’s obligation to purchase the Units shall be subject to
the following conditions, any one or more of which may be waived by the
Investor: (1) the representations and warranties of the Company set forth herein
shall be true and correct as of the Closing Date in all material respects and
(2) the Investor shall have received such documents as such Investor shall
reasonably have requested in connection with its due diligence.

          4.      Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants to, and covenants with, the Investor, as
follows:

                    4.1      Organization. The Company is duly organized and
validly existing in good standing under the laws of the jurisdiction of its
organization. The Company has full power and authority to own, operate

3

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

and occupy its properties and to conduct its business as presently contemplated
and is registered or qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it or the location
of the properties owned or leased by it requires such qualification and where
the failure to be so qualified would have a material adverse effect upon the
condition (financial or otherwise), earnings, business or business prospects,
properties or operations of the Company (a “Material Adverse Effect”), and no
proceeding has been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification.

                    4.2      Due Authorization and Valid Issuance. The Company
has all requisite power and authority to execute, deliver and perform its
obligations under the Agreement, and the Agreement has been duly authorized and
validly executed and delivered by the Company and constitute legal, valid and
binding agreement of the Company enforceable against the Company in accordance
with their terms, except as rights to indemnity and contribution may be limited
by state or federal securities laws or the public policy underlying such laws,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law). No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for the
issuance and sale of the Units. The Shares and the shares of Common Stock of the
Company issuable upon exercise of the Warrants (the “Warrant Shares”) being
purchased by the Investor hereunder will, upon issuance and payment therefore
pursuant to the terms hereof, be duly authorized, validly issued, fully-paid and
non-assessable.

                    4.3      Non-Contravention. The execution and delivery of
the Agreement, the issuance and sale of the Units under the Agreement, the
fulfillment of the terms of the Agreement and the consummation of the
transactions contemplated thereby will not (A) conflict with or constitute a
violation of, or default under, (i) any material bond, debenture, note or other
evidence of indebtedness, lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument to which the
Company is a party or by which it or its properties are bound, (ii) the charter,
by-laws or other organizational documents of the Company, or (iii) any law,
administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company or its
properties, except in the case of clauses (i) and (iii) for any such conflicts,
violations or defaults which are not reasonably likely to have a Material
Adverse Effect or (B) result in the creation or imposition of any lien,
encumbrance, claim, security interest or restriction whatsoever upon any of the
material properties or assets of the Company or an acceleration of indebtedness
pursuant to any obligation, agreement or condition contained in any material
bond, debenture, note or any other evidence of indebtedness or any material
indenture, mortgage, deed of trust or any other agreement or instrument to which
the Company is a party or by which any of them is bound or to which any of the
material property or assets of the Company is subject.

                    4.4      Capitalization. As of June 30, 2008 there were
112,817,254 shares of the Company's common stock issued and outstanding. The
Company has no other securities outstanding and the Company has not issued any
capital stock since that date. Except as set forth herein or contemplated by
documents filed by the Company with the Securities and Exchange Commission (the
"SEC") under the Securities Exchange Act of 1934 (the "Exchange Act"), since the
end of its most recently completed fiscal year through the date hereof (the
Exchange Act Documents), there are no other outstanding rights (including,
without limitation, preemptive rights), warrants or options to acquire, or
instruments convertible into or exchangeable for, any unissued shares of capital
stock or other equity interest in the Company or any contract, commitment,
agreement, understanding or arrangement of any kind to which the Company is a
party or of which the Company has knowledge and relating to the issuance or sale
of any capital stock of the Company, any such convertible or exchangeable
securities or any such rights, warrants or options.

                    4.5      Legal Proceedings. There is no material legal or
governmental proceeding pending or, to the knowledge of the Company, threatened
to which the Company is or may be a party or of which the business or property
of the Company is subject that is not disclosed in the Exchange Act Documents.

                    4.6      No Violations. The Company is not in violation of
its charter, bylaws, or other organizational document, or in violation of any
law, administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company, which
violation, individually or in

4

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

the aggregate, would be reasonably likely to have a Material Adverse Effect, or
is in default (and there exists no condition which, with the passage of time or
otherwise, would constitute a default) in any material respect in the
performance of any bond, debenture, note or any other evidence of indebtedness
in any indenture, mortgage, deed of trust or any other material agreement or
instrument to which the Company is a party or by which the Company is bound or
by which the properties of the Company are bound, which would be reasonably
likely to have a Material Adverse Effect.

5.      Representations, Warranties and Covenants of the Investor.

                    5.1      The Investor represents and warrants to, and
covenants with, the Company that: (i) the Investor is an “accredited investor”
as defined in Rule 501 of Regulation D under the Securities Act and the Investor
is also knowledgeable, sophisticated and experienced in making, and is qualified
to make decisions with respect to investments in shares presenting an investment
decision like that involved in the purchase of the Units, including investments
in securities issued by the Company and investments in comparable companies, and
has requested, received, reviewed and considered all information it deemed
relevant in making an informed decision to purchase the Units; (ii) ) the
Investor has carefully read and fully understands the risks involved with an
investment in the Company including, without limitation, the risks identified on
Annex II, attached hereto, (iii) the Investor is acquiring the number of Units
set forth in Section 3 of the Signature Page to the Securities Purchase
Agreement in the ordinary course of its business and for its own account for
investment only and with no present intention of distributing any of such Units
or any arrangement or understanding with any other persons regarding the
distribution of such Units; (iv) the Investor will not, directly or indirectly,
offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to
buy, purchase or otherwise acquire or take a pledge of) any of the Units except
in compliance with the Securities Act, applicable state securities laws and the
respective rules and regulations promulgated thereunder; (v) all of the
representations made by the Investor are true, correct and complete as of the
date hereof and will be true, correct and complete as of the Closing Date; (vi)
the Investor will notify the Company immediately of any change in any of such
information until such time as the Investor has sold all of its Shares or
Warrant Shares or until the Company is no longer required to keep the
Registration Statement effective; and (vii) the Investor has, in connection with
its decision to purchase the number of Units set forth in Section 3 of the
Signature Page to the Securities Purchase Agreement, relied only upon the
Exchange Act Documents and the representations and warranties of the Company
contained herein. The Investor understands that its acquisition of the Units,
Shares and Warrant Shares has not been registered under the Securities Act or
registered or qualified under any state securities law in reliance on specific
exemptions therefrom, which exemptions may depend upon, among other things, the
bona fide nature of the Investor’s investment intent as expressed herein. There
are no suits, pending litigation, or claims against the undersigned that could
materially affect the net worth of the Investor.

                    5.2      The Investor acknowledges that it has had access to
the Exchange Act Documents and has carefully reviewed the same. The Investor
further acknowledges that the Company has made available to it the opportunity
to ask questions of and receive answers from the Company's officers and
directors concerning the terms and conditions of this Agreement and the business
and financial condition of the Company, and the Investor has received to its
satisfaction, such information about the business and financial condition of the
Company and the terms and conditions of the Agreement as it has requested. The
Investor has carefully considered the potential risks relating to the Company
and a purchase of the Units, and fully understands that the Units are
speculative investments, which involve a high degree of risk of loss of the
Investor’s entire investment. Among others, the undersigned has carefully
considered each of the risks identified under the caption “Risk Factors” in the
Exchange Act Documents and Annex II.

                    5.3      The Investor acknowledges, represents and agrees
that no action has been or will be taken in any jurisdiction outside the United
States by the Company that would permit an offering of the Units, or possession
or distribution of offering materials in connection with the issuance of the
Units, in any jurisdiction outside the United States where legal action by the
Company for that purpose is required. Each Investor outside the United States
will comply with all applicable laws and regulations in each foreign
jurisdiction in which it purchases, offers, sells or delivers Units, Shares,
Warrants or Warrant Shares or has in its possession or distributes any offering
material, in all cases at its own expense.

5

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

                    5.4      The Investor hereby covenants with the Company not
to make any sale of the Units, Shares, Warrants or Warrant Shares without
complying with the provisions of this Agreement and without causing the
prospectus delivery requirement under the Securities Act to be satisfied, and
the Investor acknowledges that the certificates evidencing the Shares will be
imprinted with a legend that prohibits their transfer except in accordance
therewith. The overall commitment of the Investor to investments, which are not
readily marketable, is not excessive in view of the Investor’s net worth and
financial circumstances, and any purchase of the Units will not cause such
commitment to become excessive. The Investor is able to bear the economic risk
of an investment in the Units.

                    5.5      The Investor further represents and warrants to,
and covenants with, the Company that (i) the Investor has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, and (ii) this
Agreement constitutes a valid and binding obligation of the Investor enforceable
against the Investor in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification agreements of the Investors
herein may be legally unenforceable.

                    5.6      Investor will not use any of the restricted Shares
or Warrant Shares acquired pursuant to this Agreement to cover any short
position in the Common Stock of the Company if doing so would be in violation of
applicable securities laws.

                    5.7      The Investor understands that nothing in the
Exchange Act Documents, this Agreement or any other materials presented to the
Investor in connection with the purchase and sale of the Units constitutes
legal, tax or investment advice. The Investor has consulted such legal, tax and
investment advisors, as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Units.

                     5.8      Information Available. A copy of the Company
Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB, Current
Reports on Form 8-K and Information Statements are available on the SEC's
website at www.sec.gov (the "SEC Filings").

          6.      Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed (A) if within the
United States by first-class registered or certified airmail, or nationally
recognized overnight express courier, postage prepaid, or by facsimile, or (B)
if delivered from outside the United States, by International Federal Express or
facsimile, and shall be deemed given (i) if delivered by first-class registered
or certified mail, three business days after so mailed, (ii) if delivered by
nationally recognized overnight carrier, one business day after so mailed, (iii)
if delivered by International Federal Express, two business days after so
mailed, (iv) if delivered by facsimile, upon electronic confirmation of receipt
and shall be delivered as addressed as follows:

  (a)  if to the Company, to:                              PetroNational Corp.  
                     225 Marine Drive, Suite 210                        Blaine,
Washington                        USA, 98230                        Attn: G.
Leigh Lyons, President                        Fax: (360) 332-2704      

(b)

if to the Investor, at its address on the signature page hereto, or at such
other address or addresses as may have been furnished to the Company in writing.

          7.      Changes. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Investor.

6

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

          8.      Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.

          9.      Severability. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.

          10.      Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Nevada, without
giving effect to the principles of conflicts of law.

          11.      Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.

          12.      Rule 144. The Company covenants that it will timely file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder (or, if the Company
is not required to file such reports, it will, upon the request of any Investor
holding Shares and Warrant Shares purchased hereunder made after the first
anniversary of the Closing Date, make publicly available such information as
necessary to permit sales pursuant to Rule 144 under the Securities Act), and it
will take such further action as any such Investor may reasonably request, all
to the extent required from time to time to enable such Investor to sell Shares
or Warrant Shares purchased hereunder without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of the
Investor, the Company will deliver to such holder a written statement as to
whether it has complied with such information and requirements.

          13.      Confidential Information. The Investor represents to the
Company that, at all times during the Company’s offering of the Units, the
Investor has maintained in confidence all non-public information regarding the
Company received by the Investor from the Company or its agents, and covenants
that it will continue to maintain in confidence such information and shall not
use such information for any purpose other than to evaluate the purchase of the
Units until such information (a) becomes generally publicly available other than
through a violation of this provision by the Investor or its agents or (b) is
required to be disclosed in legal proceedings (such as by deposition,
interrogatory, request for documents, subpoena, civil investigation demand,
filing with any governmental authority or similar process), provided, however,
that before making any use or disclosure in reliance on this subparagraph (b)
the Investor shall give the Company at least fifteen (15) days prior written
notice (or such shorter period as required by law) specifying the circumstances
giving rise thereto and will furnish only that portion of the non-public
information which is legally required and will exercise its best efforts to
obtain reliable assurance that confidential treatment will be accorded any
non-public information so furnished.

7

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

ANNEX II

RISK FACTORS

You should carefully consider the risks we describe below before deciding to
invest in the Units. Our business and financial condition could be affected
materially and adversely by any of the risks discussed below and any others not
foreseen. This discussion contains forward-looking statements.

          We are subject to complex laws and regulations relating to
environmental protection that can adversely affect the cost, manner and
feasibility of doing business. Oil and gas operations and properties are subject
to numerous federal, state and local laws and regulations relating to
environmental protection from the time oil and gas projects commence until
abandonment. These laws and regulations govern, among other things:

 * the amounts and types of substances and materials that may be released into
   the environment;

 * the issuance of permits in connection with exploration, drilling and
   production activities;

 * the release of emissions into the atmosphere;

 * the discharge and disposition of generated waste materials;

 * offshore oil and gas operations;

 * the reclamation and abandonment of wells and facility sites; and

 * the remediation of contaminated sites.

           In addition, these laws and regulations may impose substantial
liabilities for our failure to comply with them or for any contamination
resulting from our operations. Although we believe that our operations generally
comply with applicable laws and regulations, failure to comply could result in
the suspension or termination of our operations and subject us to
administrative, civil and criminal penalties. Further, these laws and
regulations could change in ways that substantially increase our costs. Any of
these liabilities, penalties, suspensions, terminations or regulatory changes
could make it more expensive for us to conduct our business or cause us to limit
or curtail some of our operations.

          We may not be insured against all of the operating risks to which our
business is exposed. Our business is subject to all of the operating risks
normally associated with the exploration for and production of oil and gas,
including blowouts, cratering and fire, any of which could result in damage to,
or destruction of, oil and gas wells or formations or production facilities and
other property and injury to persons. As protection against financial loss
resulting from these operating hazards, we maintain insurance coverage. However,
we are not fully insured against all risks in all aspects of our business, such
as political risk, business interruption risk and risk of major terrorist
attacks. The occurrence of a significant event against which we are not fully
insured could have a material adverse effect on our financial position.

          Our drilling activities may not be productive. Drilling for oil and
gas involves numerous risks, including the risk that we will not encounter
commercially productive oil or gas reservoirs. The costs of drilling, completing
and operating wells are often uncertain, and drilling operations may be
curtailed, delayed or canceled as a result of a variety of factors, including:

 * unexpected drilling conditions;

 * pressure or irregularities in formations;

8

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

 * equipment failures or accidents;

 * fires, explosions, blow-outs and surface cratering;

 * marine risks such as capsizing, collisions and hurricanes;

 * other adverse weather conditions; and

 * shortages or delays in the delivery of equipment.

          Certain of our future drilling activities may not be successful and,
if unsuccessful, this failure could have an adverse effect on our future results
of operations and financial condition. While all drilling, whether developmental
or exploratory, involves these risks, exploratory drilling involves greater
risks of dry holes or failure to find commercial quantities of hydrocarbons.

          Repercussions from terrorist activities or armed conflict could harm
our business. Terrorist activities, anti-terrorist efforts and other armed
conflict involving the United States or its interests abroad may adversely
affect the United States and global economies and could prevent us from meeting
our financial and other obligations. If events of this nature occur and persist,
the attendant political instability and societal disruption could reduce overall
demand for oil and natural gas, potentially putting downward pressure on
prevailing oil and natural gas prices and causing a reduction in our revenues.
Oil and natural gas production facilities, transportation systems and storage
facilities could be direct targets of terrorist attacks, and our operations
could be adversely impacted if infrastructure integral to our operations is
destroyed or damaged by such an attack. Costs for insurance and other security
may increase as a result of these threats, and some insurance coverage may
become more difficult to obtain, if available at all.

          The loss of key members of our management team, or difficulty
attracting and retaining experienced technical personnel, could reduce our
competitiveness and prospects for future success. The successful implementation
of our strategies and handling of other issues integral to our future success
will depend, in part, on our experienced management team. The loss of key
members of our management team could have an adverse effect on our business. We
do not carry key man insurance. Our exploratory drilling success and the success
of other activities integral to our operations will depend, in part, on our
ability to attract and retain experienced explorationists, engineers and other
professionals. Competition for such professionals is extremely intense. If we
cannot retain our technical personnel or attract additional experienced
technical personnel, our ability to compete could be harmed.

          Competition in the oil and natural gas industry is intense, and some
of our competitors have greater financial, technological and other resources
than we have. We operate in the highly competitive areas of oil and natural gas
acquisition, development, exploitation, exploration and production. The oil and
natural gas industry is characterized by rapid and significant technological
advancements and introductions of new products and services using new
technologies. We face intense competition from independent, technology-driven
companies as well as from both major and other independent oil and natural gas
companies in each of the following areas:

 * seeking to acquire desirable producing properties or new leases for future
   exploration;

 * marketing our oil and natural gas production;

 * integrating new technologies; and

 * seeking to acquire the equipment and expertise necessary to develop and
   operate our properties.

          Some of our competitors have financial, technological and other
resources substantially greater than ours, and some of them are fully integrated
oil companies. These companies may be able to pay more for development prospects
and productive oil and natural gas properties and may be able to define,
evaluate, bid for and purchase a greater number of properties and prospects than
our financial or human resources permit. Further, these companies may enjoy
technological advantages and may be able to implement new technologies more
rapidly than we can. Our

9

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

ability to acquire, develop and exploit oil and natural gas properties will
depend upon our ability to successfully conduct operations, implement advanced
technologies, evaluate and select suitable properties and consummate
transactions in this highly competitive environment.

          We may need additional capital to achieve the objectives of our
current business strategy. There is no assurance that we will obtain the
additional capital required to successfully complete our business plan. Our
inability to obtain such financing may have such a material adverse effect on
our business or prospects, any of which could jeopardize an investment in our
securities.

          We have made no representations or recommendations to the Investor
concerning whether the purchase of the Units is a suitable investment for the
Investor. The Investor has the sole responsibility for determining whether this
investment is suitable for the Investor. We are not responsible to the Investor
for making any such determination.

          The offer and sale of the Units are not underwritten by or being
offered through investment bankers or underwriters. There has not been an
independent review of matters covered in the Securities Purchase Agreement by
any such professionals or other professionals. The Investor must rely solely
upon their own investigation and analysis of the risks in making this investment
decision.

          Following this Offering and subsequent registration for resale, a
significant number of shares of our common stock will become available for sale
and their sale could depress our common stock price. Further, no assurances can
be given that we will not issue additional securities which will have the effect
of diluting the equity interest of Investor. Moreover, sales of a substantial
number of shares of our common stock in the public market after the transaction
contemplated by the Securities Purchase Agreement could adversely affect the
market price of our common stock and make it more difficult for us to sell
shares of our common stock at times and prices that we determine to be
appropriate.

          There is a limited public market for our common stock, and trading
prices of our common stock may be volatile. Our common stock is currently traded
on the Nasdaq OTC Bulletin Board and trading volume has been low. We can give no
assurance that an active trading market for our common stock will develop, or if
one develops, that trading will continue.

          The price of the Shares and Warrant Shares has been determined by the
board of directors after considering the amount of capital to be raised, similar
transactions and the risk factors set forth herein, and does not directly
correlate to market price, our operations or other financial information. No
assurances can be given that in the future we will not offer equity or debt
instruments with purchase prices or conversion rates similar or less than the
price of the Shares or Warrant Shares contained herein.

          We may be subject to Penny Stock Rules. SEC rules require a
broker-dealer to provide certain information to purchasers of securities traded
at less than $5.00, which are not traded on a national securities exchange or
quoted on the Nasdaq Stock Market. Since the Nasdaq OTC Bulletin Board is not
considered an "exchange," if the trading price of our common stock remains less
than $5.00 per share, our common stock will be considered a "penny stock," and
trading in our common stock will be subject to the requirements of Rules
15g-9015g-9 under the Securities Exchange Act of 1934 (the "Penny Stock Rules").
The Penny Stock Rules require a broker-dealer to deliver a standardized risk
disclosure document prepared by the SEC that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer must also give bid and offer quotations and broker and salesperson
compensation information to the prospective investor orally or in writing before
or with the confirmation of the transaction. In addition, the Penny Stock Rules
require a broker-dealer to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction before a transaction in a penny stock.
These requirements may severely limit the liquidity of securities in the
secondary market because few broker-dealers may be likely to undertake these
compliance activities. Therefore, unless an exemption is available from the
Penny Stock Rules, the disclosure requirements under the Penny Stock Rules may
have the effect of reducing trading activity in our common stock, which may make
it more difficult for investors to sell.

10

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

          The Shares and Warrant Shares are not and will not be registered under
the Securities Act of 1933 (the "Securities Act") nor under any state securities
laws by reason of specific exemptions under the provisions of the Securities Act
and applicable state securities laws. The Shares and Warrant Shares are, and
will be, deemed "restricted Shares" and may not be sold, transferred or
otherwise disposed of without an effective registration statement under the
Securities Act or an exemption therefrom.

          We have never paid any cash dividends on our common stock and may not
pay cash dividends in the future. Instead, we intend to apply earnings to the
expansion, development and growth of our business. Thus, the liquidity of your
investment is dependent upon your ability to sell stock at an acceptable price.
The price may go down as well as up and may limit your ability to realize any
value from your investment, including the initial purchase price.

11

 

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

EXHIBIT A

 

 

 

12

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