Filed by sedaredgar.com - Petro-National Corp. - Exhibit 10.4






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 



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	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
  


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



AGREED AND ACCEPTED: 

PETRONATIONAL CORP. 

 

 

_______________________________________________
Per: Gregory
Leigh Lyons, President 

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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 

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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. 

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                    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. 

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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 

 

 

 

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