**Exhibit
      1.02**





**PLACEMENT
      AGENT AGREEMENT**





June
      28,
      2006





Board
      of
      Directors


Daybreak
      Oil & Gas, Inc.


601
      W.
      Main Avenue, Suite 1017


Spokane,
      WA  99201





Gentlemen:





Bathgate
      Capital Partners LLC (the
      "Placement Agent"), hereby confirms its agreement with you (the "Company")
      as
      follows:





SECTION
      1


Description
      of Securities





The
      Company proposes to offer and sell
      to qualified investors Units (“Units”) of the Company's securities at an
      offering price of $3.00 per Unit, and on terms as set forth
      herein.  Each Unit is comprised of the one share of the Company’s
      convertible preferred stock (“Preferred Stock”) and two warrants (“Warrant”) to
      purchase a share of Common Stock.  As used in this Agreement, the term
      "Memorandum" refers to a Private Placement Memorandum dated June 28,
      2006.





SECTION
      2


Representations
      and Warranties of the Company





In
      order to induce the Placement Agent
      to enter into this Agreement, the Company hereby represents and warrants to
      and
      agrees with the Placement Agent as follows:





2.01.           Private
      Placement Memorandum.  The Memorandum with respect to the Units
      and all exhibits thereto, copies of which have heretofore been delivered by
      the
      Company to the Placement Agent, has been carefully prepared by the Company
      in
      conformity with Regulation D ("Regulation D") promulgated pursuant to the
      Securities Act of 1933, as amended (the "Act"), and with comparable provisions
      of the securities laws of such states as may be reasonably requested by the
      Placement Agent.  The Memorandum refers to certain of the Company’s
      filing with the Securities and Exchange Commission (“SEC”) under the Securities
      and Exchange Act of 1934, as amended (the “Exchange Act”) (hereinafter referred
      to as the “SEC Filings”).  The Memorandum and the SEC Filings do not
      include any untrue statement of a material fact or omit to state a material
      fact
      required to be stated therein or necessary to make the statements therein,
      in
      light of the circumstances under which they were made, not misleading; provided,
      however, the Company does not make any representations or warranties as to
      information contained in or omitted from the Memorandum in reliance upon written
      information furnished on behalf of the Placement Agent specifically for use
      therein.  Any additional written information authorized by the Company
      to be provided to prospective purchasers shall not contain any untrue statement
      of a material fact or omit to state a material fact required to be stated
      therein or necessary to make the statements therein, in light of the
      circumstances under which they were made, not misleading.





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            Oil and Gas, Inc.
 June
            28,
            2006
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2.02.           Financial
      Statements.  DeCoria, Maichel & Teague, P.S.., who has audited
      and/or reviewed the financial statements in the SEC Filings, is an independent
      certified public accountant.  The financial statements of the Company,
      together with related Schedules and Notes as set forth in the
      SEC  Filings, present fairly the financial position and the results of
      operations of the Company at the represented dates and for the represented
      periods to which they apply; such financial statements have been prepared in
      accordance with generally accepted accounting principles which have been
      consistently applied throughout the periods concerned except as otherwise stated
      therein.





2.03.           No
      Material Adverse Change.  Except as may be reflected in or
      contemplated by the Memorandum, subsequent to the dates as of which information
      is given in the Memorandum, and prior to the Closing Date (as defined
      hereinafter), (i) there shall not be any material adverse change in the
      business, properties, options to lease, leases, financial condition, management,
      or otherwise of the Company or in the Company's business taken as a whole,
      (ii)
      there shall not have been any material transaction entered into by the Company
      other than transactions in the ordinary course of business; (iii) the Company
      shall not have incurred any material obligations, contingent or otherwise,
      which
      are not disclosed in the Memorandum; (iv) there shall not have been nor will
      there be any change in the capital stock or adverse change in the short-term
      or
      long-term debt (except current payments) of the Company; and (v) the Company
      has
      not and will not have paid or declared any dividends or other
      distributions.





2.04.           No
      Defaults.  The Company is not in default in the performance of any
      obligation, agreement or condition contained in any debenture, note or other
      evidence of indebtedness or any indenture or loan agreement of the Company,
      other than as set forth in the Memorandum.  The execution and delivery
      of this Agreement and the consummation of the transactions herein contemplated,
      and compliance with the terms of this Agreement will not conflict with or result
      in a breach of any of the terms, conditions or provisions of, or constitute
      a
      default under, the articles of incorporation or bylaws of the Company, or any
      note, indenture, mortgage, deed of trust, or other agreement or instrument
      to
      which the Company is a party or by which it or any of its property is bound,
      or
      any existing law, order, rule, regulation, writ, injunction, or decree or any
      government, governmental instrumentality, agency or body, arbitrator, tribunal
      or court, domestic or foreign, having jurisdiction over the Company or its
      property.  The consent, approval, authorization, or order of any court
      or governmental instrumentality, agency or body is not required for the
      consummation of the transactions herein contemplated except such as may be
      required under the Act or under the securities laws of any state or
      jurisdiction.





2.05.           Organization
      and Standing.  The Company is, and at the Closing Date will be,
      duly organized and validly existing in good standing as a corporation under
      the
      laws of its state of Washington and with full power and authority to own its
      property and conduct its business, present and proposed, as described or
      referred to in the Memorandum; the Company has full power and authority to
      enter
      into this Agreement and to issue the securities comprising the Unit; and the
      Company is duly qualified and in good standing as a foreign corporation in
      all
      jurisdictions in which the character of the property owned or leased or the
      nature of the business transacted by it makes such qualification
      necessary.  The Company has paid all fees required by the jurisdiction
      of organization and any jurisdiction in which it is qualified as a foreign
      corporation.





2.06.           Capitalization.  Prior
      to the Closing Date, the capitalization of the Company shall be as described
      in
      the Memorandum.


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2.07.           Legality
      of Units  The Units and the Shares have been duly and validly
      authorized and, when issued or sold and delivered against payment therefor
      as
      provided in this Agreement, will be validly issued, fully paid and
      nonassessable.  The Warrants, when paid for and issued, will be valid,
      binding and legally enforceable obligation of the Company.  The
      securities comprising the Units will conform in all material respects to all
      statements with regard thereto in the Memorandum.  A sufficient number
      of shares of Common Stock of the Company has been reserved for issuance upon
      exercise of the Warrants and the Placement Agent’s Warrants.





2.08.           Prior
      Sales.  No securities of the Company have been sold by the Company
      or by, or on behalf of, or for the benefit of, any person or persons
      controlling, controlled by, or under common control with the Company at any
      time
      prior to the date hereof, except as set out in the Memorandum.  No
      prior securities sales by the Company or any affiliate are required to be
      integrated with the proposed sale of the Units such that the availability of
      Regulation D or any other claimed exemption from the registration requirements
      of the Act would be made unavailable to the offer and sale of the
      Units.





2.09.           Litigation.  There
      is and at the Closing Date there will be no action, suit or proceeding before
      any court or governmental agency, authority or body pending or to the knowledge
      of the Company threatened which might result in judgments against the Company,
      or its officers, directors, employees or agents which the Company is obligated
      to indemnify, not adequately covered by insurance and which collectively might
      result in any material adverse change in the condition (financial or otherwise),
      the business or the prospects of the Company or would materially affect the
      properties or assets of the Company.





2.10.           Finder.  No
      person has acted as a finder in connection with the transactions contemplated
      herein, and the Company will indemnify the Placement Agent with respect to
      any
      claim for finder's fees in connection herewith.  The Company further
      represents that it has no management or financial consulting or advisory
      agreement with anyone except as set forth in the Memorandum.  The
      Company additionally represents that no officer, director, or 5% or greater
      shareholder of the Company is, directly or indirectly, associated with a
      National Association of Securities Dealers, Inc. member broker-dealer, other
      than such persons as the Company has advised the Placement Agent in writing
      are
      so associated.





2.11.           Contracts.  Each
      contract to which the Company is a party and to which reference is made in
      the
      Memorandum and/or the SEC Filings has been duly and validly executed, is in
      full
      force and effect in all material respects in accordance with their respective
      terms, and none of such contracts has been assigned by the Company; and the
      Company knows of no present situation or condition or fact which would prevent
      compliance with the terms of such contracts, as amended to
      date.  Except for amendments or modifications of such contracts in the
      ordinary course of business, the Company has no intention of exercising any
      right which it may have to cancel any of its obligations under any of such
      contracts, and has no knowledge that any other party to any of such contracts
      has any intention not to render full performance under such
      contracts.





2.12.           Tax
      Returns.  The Company has filed all federal, state and municipal
      tax returns which are required to be filed, and has paid all taxes shown on
      such
      returns and on all assessments received by it to the extent such taxes have
      become due.  All other taxes with respect to which the Company is
      obligated have been paid or adequate accruals have been set up to cover any
      such
      unpaid taxes, including all federal and state withholding and FICA
      payments.


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2.13.           Property.  Except
      as otherwise set forth in the Memorandum and the SEC Filings, the Company has
      good title, free and clear of all liens, encumbrances and defects, except liens
      for current taxes not due and payable, to all property and assets that are
      described in the Memorandum and the SEC Filings as being owned by the Company,
      subject only to such exceptions as are not material and do not adversely affect
      the present or prospective business of the Company.  All of the
      claims, options to lease, leases and subleases material to the business of
      the
      Company under which the Company holds or uses any real or personal property,
      including those described or referred to in the Memorandum and the SEC Filings,
      are in full force and effect, and the Company is not in default in respect
      of
      any of the terms or provisions of any such claims, options to lease, leases
      or
      subleases, and no claim of any sort has been asserted by anyone adverse to
      the
      Company's rights under any such claims, options to lease, leases or subleases
      or
      affecting or questioning the Company's rights to the continued possession of
      the
      claimed, optioned, leased or subleased property covered by such claim, options
      to lease, lease or sublease.





2.14.           Authority.  The
      execution and delivery by the Company of this Agreement has been duly
      authorized, and this Agreement is the valid, binding and legally enforceable
      obligation of the Company.





2.15.           Use
      of Proceeds.  The Company will apply the proceeds from the sale of
      the Units to the purposes set forth in the Memorandum.  The Company
      will also establish procedures to ensure proper application and stewardship
      of
      such proceeds.





2.16.           No
      Limitations on Payment of Dividends.  Except as otherwise set
      forth in the Memorandum, there are no limitations, either contractual or
      otherwise, nor will the Company enter into any agreement with any other party,
      which prevents or limits the Company's ability to declare or pay dividends
      on
      its Common Stock.





SECTION
      3


Issue,
      Sale and Delivery of the Units





3.01.           Placement
      Agent Appointment.  The Company hereby appoints the Placement
      Agent as its exclusive agent until July 10, 2006, which period may be extended
      to July 18, 2006, by mutual consent of the Company and the Placement Agent
      (the
      "Escrow Date"), to solicit purchasers for 730,000 Units on a "best efforts,
      all-or-none" basis and thereafter to solicit purchasers for an additional
      1,2750,000 Units on a "best efforts" basis until the offering is terminated
      as
      provided herein; and the Placement Agent, on the basis of the representations
      and warranties herein contained, but subject to the terms and conditions herein
      set forth, accepts such appointment and agrees to use its best efforts to find
      purchasers for the Units at the price of $3.00 per Unit, provided that the
      Company reserves the right to reject in good faith any prospective investor
      ("Investor") and no commission shall be payable to the Placement Agent in
      respect of any proposed sale to any rejected Investor.  No other
      person will be or has been authorized to solicit purchasers for the Units,
      except those persons selected by the Placement Agent.  Each Investor
      must subscribe for at least 10,000 Units ($30,000), and must certify to the
      Company that such investor is an "Accredited Investor" as defined in Rule 501(a)
      of Regulation D.  Notwithstanding the above, the Company and the
      Placement Agent may mutually agree to accept a subscription for fewer than
      10,000 Units.





3.02.           Escrow
      Account.  It is hereby agreed between the Company and the
      Placement Agent that unless 730,000 Units ("Escrow Units") are sold and paid
      for
      by Investors by the Escrow Date, this Agreement shall automatically be
      terminated and the entire proceeds received from the sale of the Units shall
      be
      returned to the Investors, without deduction therefrom or interest
      thereon.


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If
      the
      Escrow Units are sold by the Escrow Date, the Company and the Placement Agent
      may continue the offering until all of the Units are sold or until they agree
      to
      terminate the offering.  The proceeds from the sale of at least the
      first 730,000 Units ($2,190,000) shall be promptly deposited in an escrow
      account ("Escrow Account") entitled “Daybreak Oil and Gas, Inc. Escrow Account"
      with AMG Guaranty Trust, N.A. (the "Escrow Agent").  The agreement
      establishing the Escrow Account ("Escrow Agreement") shall be in form and
      content satisfactory to counsel for the Placement Agent and the
      Company.  The proceeds from any sale of Units after the First Closing
      (hereinafter defined) may continue to be deposited to the Escrow
      Account.  If the Escrow Account is not used for such purpose, the
      Company promptly shall pay the commission provided in Section 3.05 and the
      non-accountable expense allowance as provided in Section 3.07 to the Placement
      Agent.





3.03.           Subscription
      Agreement.  Each Investor desiring to purchase Units will be
      required to complete and execute a Subscription Agreement and, if applicable,
      other offering documents.  The Placement Agent shall have the right to
      review such documents for each Investor and to reject the tender of any Investor
      that it deems not acceptable.  All documents concerning any Investor
      the Placement Agent has not rejected will be promptly forwarded to the Company
      at the address set forth below.  The Company, upon receipt of the
      documents, will determine within three (3) business days whether it wishes
      to
      accept the Investor.  Payment for the Units subscribed for in the
      Subscription Agreements that have been accepted by the Company is to be
      delivered to the Company on the Closing Date (as hereinafter
      defined).





3.04.           Subscription
      Acceptance.  The acceptance of subscriptions for Units tendered by
      Investors will be conditional upon (i) the tendering of Subscriptions for at
      least 650,000 Units ("Minimum Subscriptions") by the Escrow Date, and (ii)
      the
      receipt, on the Closing Date, of the net proceeds from subscribers for the
      Minimum Subscriptions ("Minimum Payments") less commissions due the Placement
      Agent as provided hereinafter.  If subscriptions are received for more
      than 2,000,000 Units, the Company may (a) accept subscriptions for up to an
      additional 400,000 Units, and/or (b) accept one subscription over another and/or
      (c) allocate available Units among subscribers as it deems
      appropriate.





3.05.           Compensation
      of Placement Agent.  In consideration for the Placement Agent's
      execution of this Agreement, and for the performance of its obligations
      hereunder, the Company agrees to pay the Placement Agent a commission of ten
      percent (10%) of the gross proceeds received from the sale of the Units;
      provided, in the event Minimum Subscriptions are not received or Minimum
      Payments are not made and the offering is terminated, the Placement Agent shall
      not receive any commission.  Any commissions payable to the Placement
      Agent under this paragraph shall be payable on the Closing Date or as otherwise
      provided herein.





3.06.           Non-Accountable
      Expense Allowance.  The Placement Agent shall receive a
      non-accountable expense allowance equal three percent (3%) ($.09 per Unit)
      of
      the gross proceeds from Units sold and paid for, payable at each
      Closing.





3.07.           Payment.  Payment
      for Units sold shall be made by the Escrow Agent to the Company at such place
      as
      may be agreed on among the Company and the Placement Agent, at such a time
      and
      on such a date, as shall be fixed by agreement between the parties, which in
      no
      case shall be later than eight (8) days after the Sales Termination
      Date.  The delivery of the Units against payment therefore is defined
      as the "Closing" and the time and date thereof are defined as the "Closing
      Date."  The first Closing Date will be held when the Minimum Payments
      are received ("First Closing").


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It
      is
      anticipated that there may be additional Closings as additional funds are
      received, and the final Closing will be referred to as the "Final
      Closing."  The Final Closing could also be the First Closing in the
      event that no Units are sold after the First Closing.  As soon as
      practicable after each Closing Date, the Company shall deliver by mail to each
      Investor a certificate for the securities underlying the Units that have been
      purchased and which contains a legend conforming to the requirements of Rule
      502(d)(3) under the Act.





3.08.           Obligations
      of Placement Agent.  The Company agrees that the obligations of
      the Placement Agent under this Agreement: (i) shall not preclude the Placement
      Agent from contemporaneously participating in the offering or underwriting
      of
      securities of other issuers; (ii) shall not impose any obligation on the
      Placement Agent to require its registered representatives to offer or to sell
      the Units, (iii) shall require the Placement Agent to make an effort to find
      purchasers for the Units only to the extent the Placement Agent is motivated
      to
      do so by the compensation and other provisions of this Agreement, (iv) shall
      not
      otherwise limit or prevent the Placement Agent from carrying on its customary
      business as a securities broker-dealer, and (v) shall not require the Placement
      Agent to engage in any conduct which violates any law or industry standard
      of
      conduct applicable to the Placement Agent.





3.09.           Representations
      and Warranties.  The parties hereto each represent that as of each
      Closing Date the representations and warranties herein contained and the
      statements contained in all the certificates heretofore or simultaneously
      delivered by any party to another, pursuant to this Agreement, shall in all
      material respects be true and correct.





3.10.           Form
      D.  The Placement Agent agrees that it will timely supply the
      Company from time to time with all information required from the Placement
      Agent
      for the completion of Form D to be filed with the Securities and Exchange
      Commission and such additional information as the Company may reasonably request
      to be supplied to the securities authorities of such states in which the Units
      have been qualified for sale or are exempt from qualification or
      registration.  A copy of all such filings shall be delivered to the
      Placement Agent and counsel for the Placement Agent promptly prior to their
      being filed.





SECTION
      4


Offering
      of the Units on Behalf of the Company





4.01.           Agent.  In
      offering the Units for sale, the Placement Agent shall offer the Units solely
      as
      an agent for the Company, and such offer shall be made upon the terms and
      subject to the conditions set forth herein and in the Memorandum.  The
      Placement Agent shall commence making such offers as an agent for the Company
      as
      soon after the date of the Memorandum (the "Offering Date") as it in its sole
      discretion may deem advisable; provided, however, that if the Placement Agent
      does not commence such offering within ten (10) business days after the Offering
      Date, it shall promptly advise the Company.





4.02.           Selected
      Dealers.  The Placement Agent may offer and sell the Units for the
      account of the Company through registered broker-dealers selected by it
      ("Selected Dealers") and pursuant to a form of Selected Dealer Agreement between
      the Placement Agent and the Selected Dealers, pursuant to which the Placement
      Agent may allow such concession (out of its commissions) as it may
      determine.  Such Agreement shall provide that the Selected Dealers are
      acting as agents of the Company.  On such sale or allotment by the
      Placement Agent of any of the Units to Selected Dealers, the Placement Agent
      shall require the Selected Dealer selling any such Units to agree to offer
      and
      sell the same on the terms and conditions of offering set forth in the
      Memorandum and in this Agreement.


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SECTION
      5


Memorandum





5.01.           Delivery
      and Form of Memorandum.  The Company will procure, at its expense,
      as many copies of the Memorandum as the Placement Agent may reasonably require
      for the purposes contemplated by this Agreement and shall deliver said copies
      of
      the Memorandum within two (2) business days after execution of this Agreement
      at
      addresses, and in the quantity at each address, as specified by the Placement
      Agent.  Each Memorandum shall be of a size and format as determined by
      the Placement Agent and shall be suitable for mailing and other
      distribution.





5.02.           Amendment
      of Memorandum.  If during the offering any event occurs or any
      event known to the Company relating to or affecting the Company shall occur
      as a
      result of which the Memorandum as then amended or supplemented would include
      an
      untrue statement of a material fact, or omits to state any material fact
      necessary to make the statements therein, in light of the circumstances under
      which they were made, not misleading, or if it is necessary at any time after
      the Offering Date to amend or supplement the Memorandum to comply with the
      Act,
      the Company will immediately notify the Placement Agent thereof and the Company
      will prepare such further amendment to the Memorandum or supplemental or amended
      Memorandum or Memoranda as may be required and furnish and deliver to the
      Placement Agent, all at the cost of the Company, a reasonable number of copies
      of the supplemental or amended Memorandum which as so amended or supplemented
      will not contain any untrue statement of a material fact or omit to state any
      material fact necessary in order to make the Memorandum not misleading in the
      light of the circumstances existing at the time it is delivered.





5.03.           Use
      of Memorandum.  The Company authorizes the Placement Agent and the
      Selected Dealers, if any, in connection with the offer and sale of the Units
      and
      all dealers to whom any of the Units may be sold by the Placement Agent or
      by
      any Selected Dealer, to use the Memorandum as from time to time amended or
      supplemented, in connection with the offering and sale of the Units and in
      accordance with the provisions of the Act, the Rules and Regulations thereunder
      and applicable state securities laws.





SECTION
      6


Covenants
      of the Company





The
      Company covenants and agrees with
      the Placement Agent that:





6.01.           Notification
      of Changes.  After the date hereof, the Company will not at any
      time, whether before or after the date of the Memorandum, make any amendment
      or
      supplement to the Memorandum of which amendment or supplement the Placement
      Agent shall not have previously been advised and a copy of which shall not
      have
      previously been furnished to the Placement Agent a reasonable time period prior
      to the proposed date of such amendment or supplement, or which the Placement
      Agent or counsel for the Placement Agent shall have reasonably objected to
      in
      writing solely on the grounds that it is not in compliance with the Act or
      the
      Rules and Regulations or with other federal or state laws.





6.02.           Proceeding.  The
      Company will promptly advise the Placement Agent, and will confirm such advice
      in writing, upon the happening of any event which, in the judgment of the
      Company, makes any material statement in the Memorandum untrue or which requires
      the making of any changes in the Memorandum in order to make the statements
      therein not misleading, and upon the refusal of any state


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securities
      administrator or similar official to qualify, or the suspension of the
      qualification of the Units for offering or sale in any jurisdiction where the
      Units are not exempt from qualification or registration, or of the institution
      of any proceedings for the suspension of any exemption or for any other
      purposes.  The Company will use every reasonable effort to prevent any
      such refusal to qualify or any such suspension and to obtain as soon as possible
      the lifting of any such order, the reversal of any such refusal, and the
      termination of any such suspension.





6.03.           Blue
      Sky Filings.  As a condition of closing, the Company will take
      whatever action is necessary in connection with filing or maintaining any
      appropriate exemption from qualification or registration under the applicable
      laws of such states as may be selected by the Placement Agent and agreed to
      by
      the Company, and continue such qualifications and exemptions in effect so long
      as required for the purposes of the offer and sale of the Units.





6.04.           Agreement
      to Provide Information.  The Company, at its own expense, will
      prepare and give and will continue to give such financial statements and other
      information to and as may be required by the Commission or the governmental
      authorities of states in which the Units may be registered, qualified or exempt
      from qualification or registration.





6.05.           Costs
      of Offering.  The Company will pay, whether or not the
      transactions contemplated hereunder are consummated or this Agreement is
      terminated, all costs and expenses incident to the performance of its
      obligations under this Agreement, including all expenses incident to the
      authorization and issuance of the Units, any taxes incident to the initial sale
      of the Units hereunder, the fees and expenses of the Company's counsel and
      accountants, the costs and expenses incident to the preparation and printing
      of
      the Memorandum and any amendments or supplements thereto, the cost of preparing
      and printing all exhibits to the Memorandum, the cost of furnishing to the
      Placement Agent copies of the Memorandum as herein provided, and the cost of
      any
      filing with the Commission or pursuant to state securities laws, including
      all
      filing fees.





6.06.           Use
      of Proceeds.  The Company will apply the proceeds from the sale of
      the Units to the purposes set forth in the Memorandum.





6.07.           Due
      Diligence.  Prior to the First Closing, the Company will cooperate
      with the Placement Agent in such investigation as the Placement Agent may make
      or cause to be made of the properties, business, management and operations
      of
      the Company in connection with the offering of the Units, and the Company will
      make available to the Placement Agent in connection therewith such information
      in its possession as the Placement Agent may reasonably request.





6.08.           Documentation.  Prior
      to the First Closing, the Company will deliver to the Placement Agent true
      and
      correct copies of the articles and bylaws of the Company and of the minutes
      of
      all meetings of the directors and shareholders of the Company held since January
      1, 2002; true and correct copies of all material contracts to which the Company
      is a party; and such other documents and information as is reasonably requested
      by the Placement Agent.  To the extent such documents had previously
      been provided, only amendments or updates need be furnished.





6.09.           Management
      Cooperation.  The Company shall provide the Placement Agent, at
      any time, an opportunity to meet with and question management of the Company
      and
      authorize management of the Company to speak at such meetings as the Placement
      Agent reasonably requests.


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6.10.           Information
      to Investors.  The Company shall make available to each Investor
      at a reasonable time prior to his purchase of the Units the opportunity to
      ask
      questions and receive answers concerning the terms and conditions of the
      offering, and to obtain any additional information that the Company has or
      that
      it can acquire without unreasonable effort or expense that is necessary to
      verify the accuracy of information furnished to the Investors.





6.11.           Compliance
      with Conditions Precedent.  The Company will use all reasonable
      efforts to comply or cause to be complied with the conditions precedent to
      the
      several obligations of the Placement Agent specified in this
      Agreement.





6.12.           Reports.  The
      Company agrees to file with the Commission, and states where required, all
      reports on Form D in accordance with the provisions of Regulation D promulgated
      under the Act and to promptly provide copies of such reports to the Placement
      Agent and its counsel.





SECTION
      7


Indemnification





7.01.           Indemnification
      by Company.  The Company agrees to indemnify, defend and hold
      harmless the Placement Agent, its agents, managers, members, representatives,
      guarantors, sureties and each person who controls the Placement Agent within
      the
      meaning of either Section 15 of the Act or Section 20 of the Securities Exchange
      Act of 1934 ("Indemnified Persons") from and against any and all losses, claims,
      damages, liabilities or expenses, joint or several, (including reasonable legal
      or other expenses incurred by each such person in connection with defending
      or
      investigating any such claims or liabilities, whether or not resulting in any
      liability to such Indemnified Persons) which they or any of them may incur
      under
      the Act, or any state securities law and the Rules and Regulations or the rules
      and regulations under any state securities laws or any other statute or at
      common law or otherwise and to reimburse such Indemnified Persons for any legal
      or other expense (including the cost of any investigation and preparation)
      incurred by any of them in connection with any litigation, whether or not
      resulting in any liability, but only insofar as such losses, claims, damages,
      liabilities and expenses arise out of or are based upon any untrue statement
      or
      alleged untrue statement of a material fact contained in the Memorandum, the
      SEC
      Filings, or any amendment or supplement thereto, or any authorized sales
      literature or any application or other document filed with the Commission or
      in
      any state or other jurisdiction in order to obtain and exemption from the
      securities registration requirements for the Units under the securities laws
      thereof, or the omission or alleged omission to state therein a material fact
      required to be stated therein or necessary to make the statements therein not
      misleading, or the failure to comply with the security registration requirement
      of the Act or any applicable state law; provided, however, that the indemnity
      agreement contained in this Section 7.01 shall not apply to amounts paid in
      settlement of any such litigation if such settlements are effected without
      the
      consent of the Company, nor shall it apply to any Indemnified Persons in respect
      of any such losses, claims, damages, liabilities or actions arising out of
      or
      based upon any such untrue statement or alleged untrue statement, or any such
      omission or alleged omission, if such statement or omission was made in reliance
      upon information furnished in writing to the Company by such Indemnified Persons
      specifically for use in connection with the preparation of the Memorandum or
      any
      such amendment or supplement thereto.  This indemnity agreement is in
      addition to any other liability that the Company may otherwise have to the
      Indemnified Persons.


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7.02.           Notification
      to Company.  The Indemnified Persons agree to notify the Company
      promptly of the commencement of any litigation or proceeding against the
      Indemnified Persons, of which it may be advised, in connection with the offer
      and sale of any of the Units of the Company, and to furnish to the Company
      at
      its request copies of all pleadings therein and permit the Company to be an
      observer therein and apprise it of all the developments therein.  In
      case of commencement of any action in which indemnity may be sought from the
      Company on account of the indemnity agreement contained in Section 7.01, the
      Indemnified Persons within ten (10) days after the receipt of written notice
      of
      the commencement of any action against the Indemnified Persons shall notify
      the
      Company in writing of the commencement thereof.  The failure to notify
      the indemnifying party shall not relieve it of any liability that it may have
      to
      an Indemnified Party, except to the extent that the indemnifying party did
      not
      otherwise have knowledge of the commencement of the action and the indemnifying
      party’s ability to defend against the action was prejudiced by such
      failure.  Such failure shall not relieve the indemnifying party from
      any other liability that it may have to the Indemnified Party.  In
      case any such action shall be brought against the Indemnified Persons of which
      the Indemnified Persons shall have notified the Company of the commencement
      thereof, the Company shall be entitled to participate in (and to the extent
      that
      it shall wish, to direct) the defense thereto at its own expense, but such
      defense shall be conducted by counsel of recognized standing and reasonably
      satisfactory to the Indemnified Persons in such litigation.  After
      notice that the Company elects to direct the defense, the Company will not
      be
      liable for any legal or other expenses incurred by the Indemnified Persons
      without the prior written consent of the Company.  The Company shall
      not be liable for amounts paid in settlement of any litigation if such
      settlement was effected without its consent.





7.03.           Indemnification
      by Placement Agent.  The Placement Agent agrees to indemnify and
      hold harmless the Company, its agents, officers, directors, representatives,
      guarantors, sureties and each person who controls the Company within the meaning
      of either Section 15 of the Act or Section 20 of the Securities Exchange Act
      of
      1934 from and against any and all losses, claims, damages, liabilities or
      expenses, joint or several, (including reasonable legal or other expenses
      incurred by each such person in connection with defending or investigating
      any
      such claims or liabilities, whether or not resulting in any liability to such
      person) which they or any of them may incur under the Act, or any state
      securities law and the Rules and Regulations or the rules and regulations under
      any state securities laws or any other statute or at common law or otherwise
      and
      to reimburse persons indemnified as above for any legal or other expense
      (including the cost of any investigation and preparation) incurred by any of
      them in connection with any litigation, whether or not resulting in any
      liability, but only insofar as such losses, claims, damages, liabilities and
      litigation arise out of or are based upon any statement in or omission from
      the
      Memorandum or any amendment or supplement thereto, or any application or other
      document filed with the Commission or in any state or other jurisdiction in
      order to qualify the Units under the securities laws thereof, or any information
      furnished pursuant to Section 3.10 hereof, if such statements or omissions
      were
      made in reliance upon information furnished in writing to the Company by the
      Placement Agent or on its behalf specifically for use in connection with the
      preparation of the Memorandum or amendment or supplement thereto or application
      or document filed.  This indemnity agreement is in addition to any
      other liability which the Placement Agent may otherwise have to the Company
      and
      other indemnified persons.





7.04.           Notification
      to Placement Agent.  The Company and other Indemnified Persons
      agree to notify the Placement Agent promptly of commencement of any litigation
      or proceedings against the Placement Agent or other Indemnified Persons, in
      connection with the offer and sale of any of the Units and to furnish to the
      Placement Agent, at its request, copies of all pleadings therein and permit
      the
      Placement Agent to be an observer therein and apprise the Placement Agent of
      all
      developments therein, all at the Company's expense.  In case of
      commencement of any action in which indemnity may be sought from the Placement
      Agent on account of the indemnity agreement contained in Section 7.03,


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the
      Company or other Indemnified Persons shall notify the Placement Agent of the
      commencement thereof in writing within ten (10) days after the receipt of
      written notice of the commencement of any action against the Company or against
      any other person indemnified, shall notify the Placement Agent in writing of
      such notification.  The failure to notify the indemnifying party shall
      not relieve it of any liability that it may have to an Indemnified Party, except
      to the extent that the indemnifying party did not otherwise have knowledge
      of
      the commencement of the action and the indemnifying party’s ability to defend
      against the action was prejudiced by such failure.  Such failure shall
      not relieve the indemnifying party from any other liability that it may have
      to
      the Indemnified Party.  .  In case any such action shall be
      brought against the Company or any other person indemnified of which the Company
      shall have notified the Placement Agent of the commencement thereof, the
      Placement Agent shall be entitled to participate in (and to the extent that
      it
      shall wish, to direct) the defense thereto at its own expense, but such defense
      shall be conducted by counsel of recognized standing and reasonably satisfactory
      to the Company or other persons indemnified in such litigation.  After
      notice that the Placement Agent elects to direct the defense, the Placement
      Agent will not be liable for any legal or other expenses incurred by the
      indemnified party without the prior written consent of the Placement
      Agent.  The Placement Agent shall not be liable for amounts paid in
      settlement of any litigation if such settlement was effected without its
      consent.





7.05.           Indemnification
      of Selected Dealers.  The Company agrees to indemnify Selected
      Dealers, if any, and its agents, officers, directors, representatives,
      guarantors and sureties on substantially the same terms and conditions as it
      indemnifies the Placement Agent and Indemnified Persons pursuant to Section
      7.01
      provided that each such Selected Dealer agrees in writing with the Placement
      Agent to indemnify the Company and its agents, officers, directors,
      representatives, guarantors and sureties on substantially the same terms and
      conditions as the Placement Agent indemnifies the Company in Section
      7.03.  The Company hereby authorizes the Placement Agent to enter into
      agreements with Selected Dealers providing for such indemnity by the
      Company.





7.06.           Contribution.  If
      the indemnification provided for in Sections 7.01, 7.03 and 7.05 is unavailable
      to an indemnified party in respect of any losses, claims, damages or liabilities
      referred to therein, then each indemnifying party under either such paragraph,
      in lieu of indemnifying such indemnified party thereunder, shall contribute
      to
      the amount paid or payable by such indemnified party as a result of such losses,
      claims, damages or liabilities:  (i) in such proportion as is
      appropriate to reflect the relative benefits received by the Company on the
      one
      hand and by the Placement Agent or Selected Dealer on the other from the
      offering and sale of the Units, or (ii) if the allocation provided by clause
      (i)
      above is not permitted by applicable law, in such proportion as is appropriate
      to reflect not only the relative benefits referred to in clause (i) above but
      also the relative fault of the Company on the one hand and of the Placement
      Agent or Selected Dealer on the other in connection with the statements or
      omissions which resulted in such losses, claims, damages or liabilities, as
      well
      as any other relevant equitable considerations.  The relative benefits
      received by the Company on the one hand and the Placement Agent or Selected
      Dealer on the other shall be deemed to be in the same proportion as the total
      net proceeds from the offering (before deducting expenses) received by the
      Company bears to the total commissions received by the Placement Agent or
      Selected Dealer, as in each case set forth in the Memorandum.  The
      relative fault of the Company and of the Placement Agent or Selected Dealer
      shall be determined by reference to, among other things, whether the untrue
      or
      alleged untrue statement of a material fact or the omission to state a material
      fact relates to information supplied by the Company or by the Placement Agent
      or
      Selected Dealer and the parties' relative intent, knowledge, access to
      information and opportunity to correct or prevent such statement or
      omission.


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The
      Company and the Placement Agent
      agree that it would not be just and equitable if contribution pursuant to this
      Section 7 were determined by pro rata allocation or by any other method of
      allocation which does not take account of the equitable considerations referred
      to in the immediately preceding paragraph.  The amount paid or payable
      by an indemnified party as a result of the losses, claims, damages and
      liabilities referred to in the immediately preceding paragraph shall be deemed
      to include, subject to the limitations set forth above, any legal or other
      expenses reasonably incurred by such indemnified party in connection with
      investigating or defending any such action or claim.  Notwithstanding
      the provisions of this Section 7, the Placement Agent shall not be required
      to
      contribute any amount in excess of the amount by which the total price at which
      the Units sold by it and distributed exceeds the amount of any damages which
      such Placement Agent otherwise has been required to pay by reason of such untrue
      or alleged untrue statement or omission or alleged omission.  No
      person guilty of fraudulent misrepresentation (within the meaning of Section
      11(f) of the Act) shall be entitled to contribution hereunder from any person
      who was not guilty of such fraudulent misrepresentation.





7.07.           Limitation
      of Legal Expenses.  Notwithstanding anything herein to the
      contrary, the indemnification for legal expenses included in Sections 7.01,
      7.03
      And 7.05 shall be limited to the legal expenses of one law firm, except in
      the
      event of a bona fide conflict of interest, in which event such legal expenses
      shall be limited to the legal expenses of two law firms.





SECTION
      8


Effectiveness
      of Agreement





8.01.           This
      Agreement shall become effective upon execution by all parties
      hereto.





SECTION
      9


Conditions
      of the Placement Agent's Obligations





The
      Placement Agent's obligations to
      act as agent of the Company hereunder shall be subject to the accuracy of the
      representations and warranties on the part of the Company herein contained,
      to
      the performance by the Company of all its agreements herein contained, to the
      fulfillment of or compliance by the Company with all covenants and conditions
      hereof, and to the following additional conditions:





9.01.           No
      Material Changes.  Except as contemplated herein or as set forth
      in the Memorandum, during the period subsequent to the date of the last balance
      sheet included in the Memorandum the Company:  (a) shall have
      conducted its business in the usual and ordinary manner as the same was being
      conducted on the date of the last balance sheet included in the Memorandum,
      and
      (b) except in the ordinary course of its business, the Company shall not have
      incurred any material liabilities, claims or obligations (direct or contingent)
      or disposed of any material portion of its assets, or entered into any material
      transaction or suffered or experienced any materially adverse change in its
      condition, financial or otherwise.  The capitalization and short term
      debt of the Company shall be substantially the same as at the date of the latest
      balance sheet included in the Memorandum, without considering the proceeds
      from
      the sale of the Units, other than as may be set forth in the Memorandum, and
      except as the financial statements of the Company reflect the result of
      continued losses from operations consistent with prior periods.





9.02.           Authorization.  The
      authorization for the issuance of the securities comprising the Units and the
      use of the Memorandum and all corporate proceedings and other legal matters
      incident thereto and to this Agreement shall be reasonably satisfactory in
      all
      respects to counsel to the Placement Agent.


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9.03.           Opinion.  The
      Company shall have furnished to the Placement Agent the opinion, dated each
      Closing Date and addressed to the Placement Agent, from counsel to the Company,
      to the effect that based upon a review by them of the Memorandum, the Company's
      certificate of incorporation, bylaws, and relevant corporate proceedings and
      contracts, and examination of such statutes they deem necessary and such other
      investigation by such counsel as they deem necessary to express such
      opinion:





(a)           The
      Company has been duly incorporated and validly exists as a corporation in good
      standing under the laws of the State of Washington and has the corporate power
      and authority to own its properties and to carry on its business as described
      in
      the Memorandum.





(b)           The
      Company is duly qualified and in good standing as a foreign corporation
      authorized to do business in all jurisdictions in which the character of the
      properties owned or held under lease or the nature of the business conducted
      requires such qualification and in which the failure to qualify would have
      a
      materially adverse effect on the business of the Company.





(c)           On
      the basis of a review of the contents of the Memorandum and related matters,
      and
      based upon the advice of the Company, but without independent verification
      by
      such counsel of the accuracy, completeness or fairness of the statements
      contained in the Memorandum thereto, and without expressing any opinion as
      to
      the financial statements or other financial data contained
      therein:  (i) nothing has come to such counsel's attention which leads
      them to believe that the Memorandum, as amended or supplemented by any
      amendments or supplements thereto made by the Company prior to completion of
      the
      Offering, does not comply as to form in all material respects with the
      requirements of applicable laws; (ii) they do not know of any contract or other
      document required to be described in or filed as an exhibit to the Memorandum
      which is not so described or filed; and (iii) to the best of their knowledge,
      no
      order suspending the Offering has been issued and no proceedings for that
      purpose have been instituted or are pending or contemplated by any applicable
      regulatory authority.





(d)           The
      authorized and outstanding capital stock of the Company is as set forth in
      the
      Memorandum; the Units, Shares Warrants, and Placement Agent's Warrants conform
      in all material respects to the statements concerning them in the Memorandum;
      the outstanding common stock of the Company contains no preemptive rights;
      the
      Units, Shares, Warrants and Placement Agent's Warrants have been, and the shares
      of Common Stock issuable upon exercise of the Warrants and Placement Agent's
      Warrants, will be, duly and validly authorized and, upon issuance thereof and
      payment therefore in accordance with this Agreement, validly issued, fully
      paid
      and nonassessable, and will not be subject to the preemptive rights of any
      shareholder of the Company.





(e)           The
      Warrants and Placement Agent's Warrants have been duly and validly authorized
      and, when accepted and delivered by the Company, will be valid and binding
      obligations of the Company, enforceable in accordance with their respective
      terms.





(f)           A
      sufficient number of shares of Common Stock have been duly reserved for issuance
      upon the exercise of the Warrants and the Placement Agent's
      Warrants.





(g)           The
      issuance and sale of the Units, the Shares, the Warrants, and the Placement
      Agent's Warrants, the consummation of the transactions herein contemplated,
      and
      the compliance


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with
      the
      terms of this Agreement will not conflict with or result in a breach of any
      of
      the terms, conditions, or provisions of or constitute a default under the
      certificate of incorporation or bylaws of the Company; nor, to their knowledge,
      will they conflict with or result in a breach of any of the terms, conditions,
      or provisions of any note, indenture, mortgage, deed of trust, or other
      agreement or instrument to which the Company is a party or by which the Company
      or any of its property is bound; or any existing law (provided this paragraph
      shall not relate to federal or state securities laws), order, rule, regulation,
      writ, injunction, or decree known to such counsel of any government,
      governmental instrumentality, agency, body, arbitration tribunal, or court,
      domestic or foreign, having jurisdiction over the Company or its
      property.





(h)           This
      Agreement has been duly authorized and executed by the Company and is a valid
      and binding agreement of the Company.





As
      to all factual matters, including
      without limitation the issuance of stock certificates and receipt of payment
      therefor, the states in which the Company transacts business and the adoption
      of
      resolutions reflected by the Company's minute book, such counsel may rely on
      the
      certificate of an appropriate officer of the Company.  Counsel's
      opinion as to the validity and enforceability of any and all contracts and
      agreements referenced herein may exclude any opinion as to the validity or
      enforceability of any indemnification or contribution provisions thereof, or
      as
      the validity or enforceability of any such contract or agreement may be limited
      by bankruptcy or other laws relating to or affecting creditors' rights generally
      and by equitable principles.





9.04.           Officers'
      Certificate.  The Company shall furnish to the Placement Agent a
      certificate signed by the President and Chief Financial Officer of the Company,
      dated as of each Closing Date, to the effect that:





(a)           The
      representations and warranties of the Company in this Agreement are true and
      correct in all material respects at and as of the date of the certificate,
      and
      the Company has complied in all material respects with all the agreements and
      has satisfied in all material respects all the conditions on its part to be
      performed or satisfied at or prior to the date of the certificate.





(b)           Each
      has carefully examined the Memorandum and any amendments and supplements thereto
      and the SEC Filings referred to in the Memorandum, and to the best of their
      knowledge the Memorandum and any amendments and supplements thereto, and/or
      the
      SEC Filings, contain all statements required to be stated therein, and all
      statements contained therein are true and correct, and neither the Memorandum
      nor any amendment or supplement thereto, nor the SEC Filings, include any untrue
      statement of a material fact or omits to state any material fact required to
      be
      stated therein or necessary to make the statements therein not misleading and,
      during the Offering, the Memorandum will be amended or supplemented to include
      all information necessary to be included in the Memorandum so that it does
      not
      become inaccurate or misleading.





(c)           No
      order prohibiting the offer or sale of the Units has been issued and, to the
      best of the knowledge of the respective signers, no proceeding for that purpose
      has been initiated or is threatened by the Commission or any applicable
      state.





(d)           Except
      as set forth in the Memorandum, since the respective dates of the periods for
      which information is given in the Memorandum and prior to the date of the
      certificate,


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(i)
      there
      has not been any materially adverse change, financial or otherwise, in the
      affairs or condition of the Company, and (ii) the Company has not incurred
      any
      material liabilities, direct or contingent, or entered into any material
      transactions, otherwise than in the ordinary course of business.





(e)           Subsequent
      to the date of the Memorandum, no dividends or distribution whatever have been
      declared and/or paid on or with respect to the Common Stock of the
      Company.





9.05.           State
      Qualification or Exemption.  The Company shall use its best
      efforts to secure an exemption from registration or qualification in those
      states in which the Units are sold, and the offer and sale of the Units shall
      not be subject to any stop order or other proceeding on the Closing
      Date.





9.06.           Satisfactory
      Form of Documents.  All opinions, letters, certificates and
      evidence mentioned above or elsewhere in this Agreement shall be deemed to
      be in
      compliance with the provisions hereof only if they are in form and substance
      satisfactory to counsel to the Placement Agent, whose approval shall not be
      unreasonably withheld.





9.07.           Adverse
      Events.  Between the date hereof and each Closing Date, the
      Company shall not have sustained any loss on account of fire, explosion, flood,
      accident, calamity or any other cause, of such character as materially adversely
      affects its business or property considered as an entity, whether or not such
      loss is covered by insurance.





9.08.           Litigation.  Between
      the date hereof and each Closing Date, there shall be no litigation instituted
      or threatened against the Company and there shall be no proceeding instituted
      or
      threatened against the Company before or by any federal or state commission,
      regulatory body or administrative agency or other governmental body, domestic
      or
      foreign, wherein an unfavorable ruling, decision or finding would materially
      adversely affect the business, franchises, licenses, operations or financial
      condition or income of the Company.





9.09.           Certificates.  Any
      certificate signed by an officer of the Company and delivered to the Placement
      Agent shall be deemed a representation and warranty by the Company to the
      Placement Agent as to the statements made therein.





SECTION
      10


Termination





10.01.                      Failure
      to Comply with Agreement.  This Agreement may be terminated by
      either party hereto by notice to the other party in the event that such party
      shall have failed or been unable to comply with any of the terms, conditions
      or
      provisions of this Agreement required by the Company or the Placement Agent
      to
      be performed, complied with or fulfilled by it within the respective times
      herein provided for, unless compliance therewith or performance or satisfaction
      thereof shall have been expressly waived by the non-defaulting party in
      writing.





10.02.                      Government
      Restrictions.  This Agreement may be terminated by either party by
      notice to the other party at any time if, in the judgment of either party,
      payment for and delivery of the Units are rendered impracticable or inadvisable
      because:  (i) additional material governmental restrictions not in
      force and effect on the date hereof shall have been imposed upon the trading
      in
      securities generally, or


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minimum
      or maximum prices shall have been generally established on the New York Stock
      Exchange, the Chicago Board of Trade or the Commodity Futures Trading
      Commission, or trading in securities generally on such Exchange, Board, or
      Commission shall have been suspended, or a general moratorium shall have been
      established by federal or state authorities; or (ii) a war or other national
      calamity shall have occurred; or (iii) the condition of any matter affecting
      the
      Company or any other circumstance is such that it would be undesirable,
      impracticable or inadvisable in the judgment of the Placement Agent to proceed
      with this Agreement or with the sale of the Units.





10.03.                      Liability
      on Termination.  Any termination of this Agreement pursuant to
      this Section 10 shall be without liability of any character (including, but
      not
      limited to, loss of anticipated profits or consequential damages on the part
      of
      any party thereto); except that the Company and the Placement Agent shall be
      obligated to pay, respectively, all losses, claims, damages or liabilities,
      joint or several, under Section 7.01 in the case of the Company, Section 7.03
      in
      the case of the Placement Agent and Section 7.06 as to all parties.





SECTION
      11


Placement
      Agent's Representations and Warranties





The
      Placement Agent represents and
      warrants to and agrees with the Company that:





11.01.                      Registration.  The
      Placement Agent is registered as a broker-dealer with the Securities and
      Exchange Commission, and is a member in good standing of the National
      Association of Securities Dealers, Inc. ("NASD").  The Placement Agent
      is registered or otherwise qualified to sell the Units in each state in which
      the Placement Agent sells such Units or is exempt from such registration or
      qualification.





11.02.                      Ability
      to Act as Agent.  There is not now pending or, to the knowledge of
      the Placement Agent, threatened against the Placement Agent any action or
      proceeding of which the Placement Agent has been advised, either in any court
      of
      competent jurisdiction, before the NASD, the Securities and Exchange Commission
      or any state securities commission concerning the Placement Agent's activities
      as a broker or dealer, nor has the Placement Agent been named as a "cause"
      in
      any action or proceeding, any of which may be expected to have a material
      adverse effect upon the Placement Agent's ability to act as agent to the Company
      as contemplated herein.





11.03.                      Right
      to Terminate Agreement.  In the event any action or proceeding of
      the type referred to in Section 11.02 above (except for actions referred to
      in
      the Memorandum) shall be instituted or, to the knowledge of the Placement Agent,
      threatened against the Placement Agent at any time prior to the effective date
      hereunder, or in the event there shall be filed by or against the Placement
      Agent in any court pursuant to any federal, state, local or municipal statute,
      a
      petition in bankruptcy or insolvency or for reorganization or for the
      appointment of a receiver or trustee of its assets or if the Placement Agent
      makes an assignment for the benefit of creditors, the Company shall have the
      right on three (3) days' written notice to the Placement Agent to terminate
      this
      Agreement without any liability to the Placement Agent of any kind.


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SECTION
      12


Placement
      Agent's Warrants





12.01.                      Warrants.  If
      at least 650,000 Units are sold, the Company shall sell to the Placement Agent,
      for a total of $100, warrants to purchase shares of Common Stock ("Placement
      Agent's Warrants") on the basis of three warrants for each 10 Units sold in
      the
      Offering.  Each Placement Agent's Warrant will entitle the holder to
      purchase one share of Common Stock, exercisable at $1.00 per
      share.  The Placement Agent's Warrants will be exercisable for a
      period of seven (7) years after their issuance; and if the Placement Agent's
      Warrants are not exercised during this term, they shall, by their terms,
      automatically expire.  The Company shall set aside and at all times
      have available a sufficient number of shares of its Common Stock to be issued
      upon the exercise of the Placement Agent's Warrants.





12.02.                      Registration
      Rights.  The Company understands and agrees that if, at any time
      during the eight-year period commencing the Closing Date, it should file a
      Registration Statement with the Commission pursuant to the Act, for a public
      offering of securities, either for the account of the Company or for the account
      of any other person, the Company at its own expense, will offer to holders
      of
      Placement Agent's Warrants or shares of common stock previously issued upon
      the
      exercise thereof, the opportunity to register or qualify for public offering
      the
      Placement Agent's Warrants and shares of common stock underlying the Placement
      Agent's Warrants or the shares so issued.  This paragraph is not
      applicable to a Registration Statement filed with the Securities and Exchange
      Commission on Forms S-4 or S-8 or any other inappropriate forms; nor does it
      apply to the public offering contemplated in the Memorandum with regard to
      the
      registration of the Warrant Shares.





In
      addition to the rights above
      provided, the Placement Agent’s Warrant will be subject to the Registration
      Rights Agreement that is Exhibit B of the Memorandum.





12.03.                      Other
      Provisions.  The Placement Agent’s Warrant shall also contain
      customary anti-dilution provisions and a cashless exercise
      provision.





SECTION
      13


Notice





Except
      as otherwise expressly provided
      in this Agreement:





13.01.                      Notice
      to Company.  Whenever notice is required by the provisions of this
      Agreement to be given to the Company, such notice shall be in writing addressed
      to the Company as provided below:





Daybreak
      Oil and Gas, Inc.


601
      W.
      Main Ave., Suite 1017


Spokane,
      Washington 99201


Attn:  President





13.02.                      Notice
      to Placement Agent.  Whenever notice is required by the provisions
      of this Agreement to be given to the Placement Agent, such notice shall be
      given
      in writing addressed to the Placement Agent as follows:


Daybreak
              Oil and Gas, Inc.
 June
              28,
              2006
 Page
              18


Bathgate
      Capital Partners
      LLC


5350
      S. Roslyn Street, Suite
      400


Greenwood
      Village, CO
      80111


Attn:  Vicki
      D.  E.
      Barone, Senior Managing Partners








SECTION
      14


Miscellaneous





14.01.                      Benefits.  This
      Agreement is made solely for the benefit of the Placement Agent, the Company,
      their respective agents, officers, directors, managers, members,
      representatives, guarantors, sureties and any controlling person referred to
      in
      Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934,
      and
      their respective successors and assigns, and no other person shall acquire
      or
      have any right under or by virtue of this Agreement.  The term
      "successor" or the term "successors and assigns" as used in this Agreement
      shall
      not include any purchasers, as such, of any of the Units.





14.02.                      Survival.  The
      respective indemnities, agreements, representations, warranties, covenants
      and
      other statements of the Company or the Company's officers, as set forth in
      or
      made pursuant to this Agreement and the indemnity agreements of the Company
      and
      the Placement Agent contained in Section 7 hereof shall survive and remain
      in
      full force and effect, regardless of (i) any investigation made by or on behalf
      of the Company or the Placement Agent or any affiliated persons thereof or
      any
      controlling person of the Company or of the Placement Agent, (ii) delivery
      of or
      payment for the Units and (iii) the Closing Date, and any successor of the
      Company, the Placement Agent and Selected Dealers, or any controlling person,
      or
      other person indemnified by section 7, as the case may be, shall be entitled
      to
      the benefits hereof.





14.03.                      Governing
      Law.  The laws of the State of Colorado hereof will govern the
      validity, interpretation, and construction of this Agreement and of each
      part.  The parties agree that any dispute that arises between them
      relating to this Agreement or otherwise shall be submitted for resolution in
      conformity with the Securities Arbitration Rules of the American Arbitration
      Association.  The parties agree that the situs of an arbitration
      hearing before the arbitrators shall be in Denver, Colorado, and each party
      shall request such situs.





14.04.                      Counterparts.  This
      Agreement may be executed in any number of counterparts, each of which will
      constitute an original.





Please
      confirm that the foregoing
      correctly sets forth the Agreement between you and the Placement
      Agent.








Very
              truly yours,BATHGATE
              CAPITAL
              PARTNERS LLCBy:
            /s/ Vickie
              D.
              BaroneVickie
              D.  Barone, Senior Managing Partner


Daybreak
                Oil and Gas, Inc.
 June
                28,
                2006
 Page
                19


We
      hereby confirm as of the date hereof
      that the above letter sets forth the Agreement between the Placement Agent
      and
      us.




DAYBREAK
              OIL AND
              GAS, INC.July
              3,
              2007Date
            By:
            /s/ Eric
              L.
              MoeEric
              L. Moe,
              CEO