Document:

WARRANT NO.: PA [_________]

                                 FORM OF WARRANT

THE SECURITIES  REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED,  OR THE  SECURITIES  LAWS OF ANY STATE.  THE SECURITIES
REPRESENTED  HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT,  AND
WITHOUT  A VIEW  TO  RESALE  OR  DISTRIBUTION  THEREOF,  AND  MAY  NOT BE  SOLD,
TRANSFERRED  OR  DISPOSED OF WITHOUT AN OPINION OF COUNSEL  SATISFACTORY  TO THE
ISSUER THAT SUCH TRANSFER OR DISPOSITION  DOES NOT VIOLATE THE SECURITIES ACT OF
1933,  AS AMENDED,  THE RULES AND  REGULATIONS  THEREUNDER  OR OTHER  APPLICABLE
SECURITIES LAWS.

                               WARRANT TO PURCHASE
                                 COMMON STOCK OF
                         TOUCHSTONE RESOURCES USA, INC.

      This  warrant   ("Warrant")  is  to  verify  that,  FOR  VALUE   RECEIVED,
_________________________  ("Holder")  is entitled to  purchase,  subject to the
terms and conditions  hereof,  from  TOUCHSTONE  RESOURCES USA, INC., a Delaware
corporation (the "Company"), ___________ shares of common stock, $.001 par value
per share,  of the Company (the "Common  Stock"),  at any time during the period
commencing  at  9:00  a.m.,  Eastern  Standard  Time  on the  date  hereof  (the
"Commencement  Date") and ending at 5:00 p.m. Eastern Standard Time on the third
(3rd)  anniversary of the  Commencement  Date (the  "Termination  Date"),  at an
exercise  price (the "Exercise  Price") of $1.50 per share of Common Stock.  The
number of shares of Common Stock  purchasable  upon exercise of this Warrant and
the Exercise  Price per share shall be subject to  adjustment  from time to time
upon the occurrence of certain events as set forth below.

      The shares of Common  Stock or any other shares or other units of stock or
other securities or property,  or any combination thereof,  then receivable upon
exercise of this Warrant,  as adjusted from time to time, are sometimes referred
to hereinafter  as "Exercise  Shares." The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price."

1. Exercise of Warrant; Issuance of Exercise Shares.

      (a) Exercise of Warrant.  Subject to the terms hereof, the purchase rights
represented  by this Warrant are  exercisable by the Holder in whole or in part,
at any time,  or from time to time,  by the  surrender  of this  Warrant and the
Notice of Exercise  annexed  hereto duly completed and executed on behalf of the
Holder,  at the office of the  Company  (or such  other  office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company)  accompanied by payment of the
Exercise Price in full either: (i) in cash or by bank or certified check for the
Exercise  Shares  with  respect to which  this  Warrant  is  exercised;  (ii) by
delivery to the Company of shares of the  Company's  Common  Stock having a Fair
Market Value (as defined  below) equal to the  aggregate  Exercise  Price of the
Exercise Shares being  purchased that Holder is the record and beneficial  owner
of and that have  been held by the  Holder  for at least six (6)  months;  (iii)
provided  that the sale of the  Exercise  Shares  are  covered  by an  effective
registration  statement,  by  delivering  to the  Company a Notice  of  Exercise
together with an irrevocable  direction to a broker-dealer  registered under the
Securities  Exchange Act of 1934,  as amended (the  "Exchange  Act"),  to sell a
sufficient  portion  of the  Exercise  Shares  and  deliver  the sales  proceeds
directly to the Company to pay the Exercise Price; or (iv) by any combination of
the  procedures  set forth in  subsections  (i),  (ii) and (iii) of this Section
1(a).  For the purposes of this Section  1(a),  "Fair Market  Value" shall be an
amount equal to the average of the Current  Market Value (as defined  below) for
the ten (10) days preceding the Company's receipt of the duly executed Notice of
Exercise form attached hereto as Appendix A.

<PAGE>

      In the event that this  Warrant  shall be duly  exercised in part prior to
the Termination  Date, the Company shall issue a new Warrant or Warrants of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.

      (b)  Issuance of Exercise  Shares:  Delivery of Warrant  Certificate.  The
Company  shall,  within  ten  (10)  business  days or as soon  thereafter  as is
practicable  of the exercise of this Warrant,  issue in the name of and cause to
be delivered to the Holder one or more  certificates  representing  the Exercise
Shares to which the Holder shall be entitled upon such exercise  under the terms
hereof. Such certificate or certificates shall be deemed to have been issued and
the Holder  shall be deemed to have  become the  record  holder of the  Exercise
Shares as of the date of the due exercise of this Warrant.

      (c) Exercise Shares Fully Paid and Non-assessable.  The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Warrant
represented  by this Warrant  certificate  ("Warrant  Certificate")  will,  upon
issuance  and payment  therefor in  accordance  with the terms  hereof,  be duly
authorized,  validly issued, fully paid and non-assessable and free and clear of
all taxes  (other than taxes  which,  pursuant to Section 2 hereof,  the Company
shall not be obligated to pay) or liens, charges, and security interests created
by the Company with respect to the issuance thereof.

      (d) Reservation of Exercise Shares.  The Company covenants that during the
term that this  Warrant  is  exercisable,  the  Company  will  reserve  from its
authorized  and unissued  Common Stock a sufficient  number of shares to provide
for the issuance of the Exercise  Shares upon the exercise of this Warrant,  and
from  time to time  will  take all steps  necessary  to amend  its  articles  of
incorporation to provide sufficient  reserves of shares of Common Stock issuable
upon the exercise of the Warrant.

      (e)  Fractional  Shares.  The  Company  shall  not be  required  to  issue
fractional  shares of capital  stock  upon the  exercise  of this  Warrant or to
deliver Warrant  Certificates that evidence  fractional shares of capital stock.
In the event  that any  fraction  of an  Exercise  Share  would,  except for the
provisions  of this  subsection  (e),  be  issuable  upon the  exercise  of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount in
cash  equal to such  fraction  multiplied  by the  Current  Market  Value of the
Exercise  Share on the last business day prior to the date on which this Warrant
is exercised.  For purposes of this  subsection  (e), the "Current Market Value"
for any day shall be determined as follows:

<PAGE>

            (i) if the Exercise Shares are traded in the over-the-counter market
and not on any  national  securities  exchange  and not on the  NASDAQ  National
Market  System or NASDAQ  Small Cap  Market  (together,  the  "NASDAQ  Reporting
System"),  the  average of the mean  between  the last bid and asked  prices per
share,  as reported by the National  Quotation  Bureau,  Inc.,  or an equivalent
generally accepted reporting service, or if not so reported,  the average of the
closing bid and asked  prices for an Exercise  Share as furnished to the Company
by any member of the National Association of Securities Dealers,  Inc., selected
by the Company for that purpose; or

            (ii) if the  Exercise  Shares  are  listed or  traded on a  national
securities  exchange or the NASDAQ  Reporting  System,  the closing price on the
principal national securities exchange on which they are so listed or traded, on
the NASDAQ Reporting  System, as the case may be, on the last business day prior
to the date of the exercise of this Warrant.  The closing  price  referred to in
this  clause  (ii) shall be the last  reported  sales  price or, in case no such
reported  sale takes place on such day, the average of the reported  closing bid
and asked prices,  in either case on the national  securities  exchange on which
the Exercise Shares are then listed or in the NASDAQ Reporting System; or

            (iii) if no such  closing  price or closing bid and asked prices are
available,  as determined in any  reasonable  manner as may be prescribed by the
Board of Directors of the Company.

2. Payment of Taxes.

      (a) Stamp Taxes. The Company will pay all documentary stamp taxes, if any,
attributable  to the initial  issuance of Exercise  Shares upon the  exercise of
this Warrant;  provided,  however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant  Certificates or any  certificates for Exercise Shares in a
name other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such certificates  unless or until the person or persons requesting the issuance
thereof  shall  have paid to the  Company  the  amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.

      (b) Withholding. The Holder shall pay to the Company, or make arrangements
satisfactory  to the Company  regarding  payment of, any federal,  state,  local
and/or  payroll taxes of any kind required by law to be withheld with respect to
the grant of this Warrant or the issuance of the  Exercise  Shares.  The Company
may, to the extent  permitted by law,  deduct any such taxes from any payment of
any kind  otherwise  due to the Holder  whether or not pursuant to this Warrant.
The  Holder  may  elect,  with the  consent  of the  Company,  to have  such tax
withholding  obligation satisfied,  in whole or in part, by: (i) authorizing the
Company to withhold from the Exercise  Shares a number of shares of Common Stock
having an aggregate Fair Market Value that would satisfy the minimum withholding
amount due, or (ii) delivering to the Company a number of shares of Common Stock
of which the Holder is the record and  beneficial  owner and that have been held
by the Holder for at least six (6) months with an  aggregate  Fair Market  Value
that would satisfy the minimum  withholding  amount due. The Company may require
that any  fractional  share amount be settled in cash.  For the purposes of this
Section 2, Fair  Market  Value shall be  determined  as of the date on which the
amount of tax to be withheld is determined.

<PAGE>

3.  Mutilated  or Missing  Warrant  Certificates.  In case any Warrant  shall be
mutilated,  lost, stolen or destroyed,  the Company may in its discretion issue,
in exchange and substitution for and upon cancellation of the mutilated Warrant,
or in lieu of and in substitution for the Warrant lost,  stolen or destroyed,  a
new Warrant or Warrants  of like tenor and in the same  aggregate  denomination,
but only (i) in the case of loss, theft or destruction, upon receipt of evidence
satisfactory  to the Company of such loss,  theft or destruction of such Warrant
and indemnity or bond, if requested,  also  satisfactory to them and (ii) in the
case of mutilation, upon surrender of the mutilated Warrant. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Company or its counsel may prescribe.

4. Rights of Holder.  The Holder  shall not, by virtue of anything  contained in
this Warrant or otherwise, be entitled to any right whatsoever, either in law or
equity, of a stockholder of the Company, including without limitation, the right
to  receive  dividends  or to vote  or to  consent  or to  receive  notice  as a
shareholder  in respect of the  meetings  of  shareholders  or the  election  of
directors of the Company or any other matter.

5.  Registration of Transfers and Exchanges.  The Warrant shall be transferable,
subject  to the  provisions  of  Section  7  hereof,  only upon the books of the
Company, if any, to be maintained by it for that purpose,  upon surrender of the
Warrant  Certificate to the Company at its principal  office  accompanied (if so
required by the Company) by a written  instrument or  instruments of transfer in
form  satisfactory  to the Company and duly executed by the Holder thereof or by
the duly appointed legal representative thereof or by a duly authorized attorney
and upon  payment of any  necessary  transfer tax or other  governmental  charge
imposed  upon  such  transfer.  In all cases of  transfer  by an  attorney,  the
original letter of attorney,  duly approved,  or an official copy thereof,  duly
certified,  shall be deposited and remain with the Company.  In case of transfer
by executors,  administrators,  guardians or other legal  representatives,  duly
authenticated evidence of their authority shall be produced, and may be required
to be  deposited  and remain with the Company in its  discretion.  Upon any such
registration of transfer,  a new Warrant shall be issued to the transferee named
in such instrument of transfer, and the surrendered Warrant shall be canceled by
the Company.

      Any  Warrant  may be  exchanged,  at the option of the Holder  thereof and
without change,  when surrendered to the Company at its principal  office, or at
the office of its transfer  agent, if any, for another Warrant or other Warrants
of like tenor and  representing  in the aggregate the right to purchase from the
Company a like number and kind of Exercise Shares as the Warrant surrendered for
exchange or transfer,  and the Warrant so  surrendered  shall be canceled by the
Company or transfer agent, as the case may be.

<PAGE>

6. Adjustment of Exercise Shares and Exercise Price.  The Exercise Price and the
number and kind of Exercise Shares purchasable upon the exercise of this Warrant
shall be subject to  adjustment  from time to time upon the happening of certain
events as hereinafter provided. The Exercise Price in effect at any time and the
number and kind of securities purchasable upon exercise of each Warrant shall be
subject to adjustment as follows:

      (a) In case of any  consolidation  or merger of the Company  with  another
corporation  (other than a merger with another  corporation in which the Company
is the surviving  corporation and which does not result in any  reclassification
or  change  -- other  than a change  in par  value,  or from par value to no par
value,  or from no par value to par value,  or as a result of a  subdivision  or
combination -- of outstanding  Common Stock  issuable upon such  exercise),  the
rights of the Holder of this Warrant  shall be adjusted in the manner  described
below:

            (i) In the event that the Company is the surviving corporation or is
merged  into a wholly  owned  subsidiary  for the purpose of  incorporating  the
Company in a different  jurisdiction,  this Warrant  shall,  without  payment of
additional  consideration therefor, be deemed modified so as to provide that the
Holder of this Warrant,  upon the exercise  thereof,  shall procure,  in lieu of
each share of Common Stock theretofore issuable upon such exercise, the kind and
amount of shares of stock, other securities,  money and property receivable upon
such  reclassification,  change,  consolidation  or merger by the holder of each
share of Common Stock, had exercise of this Warrant occurred  immediately  prior
to such  reclassification,  change,  consolidation  or merger.  This Warrant (as
adjusted)  shall be deemed to provide for further  adjustments  that shall be as
nearly equivalent as may be practicable to the adjustments  provided for in this
Section 6. The provisions of this clause (i) shall similarly apply to successive
reclassifications, changes, consolidations and mergers.

            (ii) In the event that the Company is not the surviving  corporation
(except in the case of a merger of the Company  into a wholly  owned  subsidiary
for the  purpose of  incorporating  the  Company in a  different  jurisdiction),
Holder shall be given at least  fifteen (15) days prior  written  notice of such
transaction and shall be permitted to exercise this Warrant, to the extent it is
exercisable as of the date of such notice,  during this fifteen (15) day period.
Upon  expiration  of such  fifteen  (15) day  period,  this  Warrant  and all of
Holder's rights hereunder shall terminate.

      (b) If the  Company,  at any  time  while  this  Warrant,  or any  portion
thereof, remains outstanding and unexpired, by reclassification of securities or
otherwise,  shall change any of the securities as to which purchase rights under
this  Warrant  exist into the same or a different  number of  securities  of any
other class or classes,  this Warrant  shall  thereafter  represent the right to
acquire such number and kind of  securities  as would have been  issuable as the
result of such change with  respect to the  securities  that were subject to the
purchase rights under this Warrant immediately prior to such reclassification or
other change and the Exercise Price therefor  shall be  appropriately  adjusted,
all subject to further adjustment as provided in this Section 6.

      (c) In case the Company shall (i) pay a dividend or make a distribution on
its shares of Common Stock in shares of Common Stock, (ii) subdivide or classify
its outstanding  Common Stock into a greater number of shares,  or (iii) combine
or reclassify its outstanding  Common Stock into a smaller number of shares, the
Exercise  Price in effect at the time of the record  date for such  dividend  or
distribution  or of the  effective  date of  such  subdivision,  combination  or
reclassification,  shall be  proportionally  adjusted so that the Holder of this
Warrant  exercised  after such date shall be entitled  to receive the  aggregate
number and kind of shares  that,  if this  Warrant  had been  exercised  by such
Holder  immediately  prior to such date,  he would have owned upon such exercise
and been entitled to receive upon such  dividend,  subdivision,  combination  or
reclassification.  For example, if the Company declares a 2 for 1 stock dividend
or stock split and the Exercise Price  immediately prior to such event was $2.00
per share,  the adjusted  Exercise Price  immediately  after such event would be
$1.00 per share. Such adjustment shall be made  successively  whenever any event
listed above shall occur.  Whenever the Exercise  Price payable upon exercise of
each Warrant is adjusted pursuant to this subsection (c), the number of Exercise
Shares  purchasable  upon  exercise  of this  Warrant  shall  simultaneously  be
adjusted by multiplying  the number of Exercise Shares  initially  issuable upon
exercise of this Warrant by the Exercise  Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.

<PAGE>

      (d) In the event  that at any  time,  as a result  of an  adjustment  made
pursuant  to  subsection  (a),  (b) or (c)  above,  the  Holder of this  Warrant
thereafter  shall become entitled to receive any Exercise Shares of the Company,
other  than  Common  Stock,  thereafter  the  number  of such  other  shares  so
receivable  upon exercise of this Warrant  shall be subject to  adjustment  from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in subsections (a), (b) or
(c) above.

      (e) Irrespective of any adjustments in the Exercise Price or the number or
kind of Exercise  Shares  purchasable  upon exercise of this  Warrant,  Warrants
theretofore  or  thereafter  issued may  continue  to express the same price and
number  and kind of  shares  as are  stated in the  similar  Warrants  initially
issuable pursuant to this Warrant.

      (f)  Whenever  the  Exercise  Price  shall be  adjusted as required by the
provisions of the foregoing  Section 6, the Company shall  forthwith file in the
custody of its Secretary or an Assistant  Secretary at its principal  office and
with its stock  transfer  agent,  if any, an officer's  certificate  showing the
adjusted  Exercise  Price  determined  as  herein  provided,  setting  forth  in
reasonable detail the facts requiring such adjustment,  including a statement of
the number of additional shares of Common Stock, if any, and such other facts as
shall be  necessary  to show the  reason for and the  manner of  computing  such
adjustment.  Each such  officer's  certificate  shall be made  available  at all
reasonable  times for inspection by the holder and the Company shall,  forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder.

      (g) All  calculations  under this  Section 6 shall be made to the  nearest
cent or to the nearest one  one-hundredth  (1/100th) of a share, as the case may
be.

7. Restrictions on Transferability: Restrictive Legend. Neither this Warrant nor
the  Exercise  Shares  shall  be  transferable  except  in  accordance  with the
provisions of this Section.

      (a)  Restrictions on Transfer;  Indemnification.  Neither this Warrant nor
any Exercise Share may be offered for sale or sold, or otherwise  transferred or
sold in any transaction which would constitute a sale thereof within the meaning
of the  Securities  Act of 1933,  as amended (the "1933  Act"),  unless (i) such
security  has been  registered  for sale  under the 1933 Act and  registered  or
qualified under  applicable state securities laws relating to the offer and sale
of securities, or (ii) exemptions from the registration requirements of the 1933
Act and  the  registration  or  qualification  requirements  of all  such  state
securities  laws are available and the Company shall have received an opinion of
counsel  satisfactory to the Company that the proposed sale or other disposition
of such securities may be effected without  registration  under the 1933 Act and
would not  result in any  violation  of any  applicable  state  securities  laws
relating to the  registration  or  qualification  of securities  for sale,  such
counsel and such opinion to be satisfactory to the Company.

<PAGE>

      The Holder agrees to indemnify  and hold harmless the Company  against any
loss, damage, claim or liability arising from the disposition of this Warrant or
any Exercise  Share held by such holder or any interest  therein in violation of
the provisions of this Section 7.

      (b)  Restrictive  Legends.  Unless and until  otherwise  permitted by this
Section 7, this  Warrant  Certificate,  each Warrant  Certificate  issued to the
Holder or to any  transferee or assignee of this Warrant  Certificate,  and each
certificate representing Exercise Shares issued upon exercise of this Warrant or
to any transferee of the person to whom the Exercise  Shares were issued,  shall
bear a legend setting forth the  requirements  of subsection (a) of this Section
7,  together  with such  other  legend or  legends  as may  otherwise  be deemed
necessary or appropriate by counsel to the Company.

      (c) Removal of Legend. The Company shall, at the request of any registered
holder of a Warrant or Exercise  Share,  exchange the  certificate  representing
such security for a certificate  representing  the same security not bearing the
restrictive  legend  required  by  subsection  (b) if, in the opinion of counsel
acceptable to the Company, such restrictive legend is no longer necessary.

8. Registration  Rights.  The Holder shall be entitled to the rights and subject
to the  obligations  set forth in Section 6 of that certain  Form of  Securities
Purchase  Agreement related to the sale of up to 14,000,000 Units by and between
the Company and the purchasers of such Units.

9. Notices.  All notices or other  communications under this Warrant shall be in
writing  and  shall be  deemed  to have  been  given on the day of  delivery  if
delivered  by hand,  on the  fifth day  after  deposit  in the mail if mailed by
certified  mail,  postage  prepaid,  return  receipt  requested,  or on the next
business day after mailing if sent by a nationally  recognized overnight courier
such as federal express, addressed as follows:

            If to the Company:

                           Touchstone Resources USA, Inc.
                           1600 Smith Street
                           Suite 5100
                           Houston, Texas 77002
                           Attention:  Chief Executive Officer

<PAGE>

            with a copy to:
            --------------

                           Fox Rothschild LLP
                           997 Lenox Drive
                           Building 3
                           Lawrenceville, NJ 08648-2311
                           Attention:  Vincent A. Vietti, Esquire

            and to the  Holder at the  address of the  Holder  appearing  on the
            books of the Company or the Company's transfer agent, if any.

      Either of the  Company  or the  Holder  may from time to time  change  the
address  to  which  notices  to it are  to be  mailed  hereunder  by  notice  in
accordance with the provisions of this Section 9.

10. Supplements and Amendments.  The Company may from time to time supplement or
amend this  Warrant  without the approval of any holders of Warrants in order to
cure any ambiguity or to correct or supplement  any provision  contained  herein
which may be defective or inconsistent with any other provision,  or to make any
other  provisions  in regard to matters or questions  herein  arising  hereunder
which the Company may deem necessary or desirable and which shall not materially
adversely affect the interests of the Holder.

11.  Successors  and Assigns.  This Warrant shall inure to the benefit of and be
binding on the respective  successors,  assigns and legal representatives of the
Holder and the Company.

12.  Severability.  If for any reason any provision,  paragraph or terms of this
Warrant is held to be  invalid  or  unenforceable,  all other  valid  provisions
herein  shall  remain in full force and effect  and all  terms,  provisions  and
paragraphs of this Warrant shall be deemed to be severable.

13.  Governing  Law.  This  Agreement  shall be  governed  by and  construed  in
accordance with the laws of the Commonwealth of Pennsylvania,  without regard to
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof, except to the extent that the General Corporation Law of the State
of Delaware shall apply to the internal corporate governance of the Company.

14.  Headings.  Section and subsection  headings used herein are included herein
for convenience of reference only and shall not affect the  construction of this
Warrant nor constitute a part of this Warrant for any other purpose.

                  [Remainder of page intentionally left blank]

<PAGE>

      IN WITNESS  WHEREOF,  the  Company  has caused  these  presents to be duly
executed as of the _____ day of ______________, 200_.

                                        TOUCHSTONE RESOURCES USA, INC.

                                        By: /s/
                                            ------------------------------------
                                            Name:  Roger Abel
                                            Title: Chief Executive Officer

<PAGE>

                                   APPENDIX A

                               NOTICE OF EXERCISE

To:      Touchstone Resources USA, Inc.
         1600 Smith Street, Suite 5100
         Houston, TX 77002
         Attention:  Chief Executive Officer

      (1) The  undersigned  hereby  elects to  purchase  ____________  shares of
Common Stock of Touchstone Resources USA, Inc., a Delaware corporation, pursuant
to the terms of the  attached  Warrant,  and  tenders  herewith  payment  of the
Exercise  Price  for such  shares  in full in  accordance  with the terms of the
Warrant  in the  following  manner  (please  check one or more of the  following
choices):

      |_|   In cash;

      |_|   Cashless exercise through a broker; or

      |_|   Delivery of previously owned shares of Common Stock.

      (2) In  exercising  this  Warrant,  the  undersigned  hereby  confirms and
acknowledges that the shares of Common Stock to be issued upon conversion hereof
are being acquired solely for the account of the  undersigned,  not as a nominee
for any other party,  and for  investment  purposes only (unless such shares are
subject to resale pursuant to an effective prospectus), and that the undersigned
will not offer,  sell or  otherwise  dispose of any such shares of Common  Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.

      (3) Terms not otherwise  defined in this Notice of Exercise shall have the
meanings ascribed to such terms in the attached Warrant.

      (4) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned.

                                        HOLDER

--------------------------              -----------------------------------
(Date)                                  (Signature)FORM OF
                         TOUCHSTONE RESOURCES USA, INC.

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

                          Securities Purchase Agreement

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

                               Units Comprised of
                                Common Stock and
                                    Warrants

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

                                  CONFIDENTIAL
<PAGE>

                            CONFIDENTIAL INFORMATION

      THE OFFEREE, BY ACCEPTING THE SECURITIES PURCHASE AGREEMENT AND THE OTHER
OFFERING DOCUMENTS RELATING TO THE COMPANY'S PROPOSED OFFERING OF UNITS
COMPRISED OF SHARES OF ITS COMMON STOCK AND WARRANTS TO ACQUIRE SHARES OF ITS
COMMON STOCK, ACKNOWLEDGES AND AGREES THAT: (I) THE OFFERING DOCUMENTS HAVE BEEN
FURNISHED TO THE OFFEREE ON A CONFIDENTIAL BASIS SOLELY FOR THE PURPOSE OF
ENABLING THE OFFEREE TO EVALUATE THE OFFERING; (II) THAT THE OFFEREE MAY NOT
FURTHER DISTRIBUTE THE OFFERING DOCUMENTS WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMPANY, EXCEPT TO THE OFFEREE'S LEGAL, FINANCIAL OR OTHER PERSONAL
ADVISORS, IF ANY, WHO WILL USE THE OFFERING DOCUMENTS ON THE OFFEREE'S BEHALF
SOLELY FOR PURPOSES OF EVALUATING THE OFFERING; (III) ANY REPRODUCTION OR
DISTRIBUTION OF THE OFFERING DOCUMENTS, IN WHOLE OR IN PART, OR THE DIRECT OR
INDIRECT DISCLOSURE OF THE CONTENTS OF THE OFFERING DOCUMENTS FOR ANY OTHER
PURPOSE WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY IS PROHIBITED; AND (IV)
THE OFFEREE SHALL BE BOUND BY ALL TERMS AND CONDITIONS SPECIFIED IN THE OFFERING
DOCUMENTS

                               NOTICE TO OFFEREES

      THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER THE
APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THIS SECURITIES
PURCHASE AGREEMENT AND THE OTHER OFFERING DOCUMENTS DO NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.

      THE SECURITIES ARE BEING OFFERED AND SOLD PURSUANT TO REGULATION S UNDER
THE SECURITIES ACT FOR INVESTMENT PURPOSES ONLY, WITHOUT A VIEW TO RESALE OR
DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED, RESOLD OR OFFERED FOR RESALE
IN THE UNITED STATES OR TO U.S. PERSONS UNLESS REGISTERED UNDER THE SECURITIES
ACT AND REGISTERED OR QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY
STATE OR OTHER JURISDICTION, OR PURSUANT TO THE AVAILABILITY OF AN EXEMPTION
THEREFROM.

      HEDGING TRANSACTIONS, INCLUDING, BUT NOT LIMITED TO, SHORT SALES, SWAPS OR
DERIVATIVE SECURITIES TRANSACTIONS, INVOLVING THESE SECURITIES MAY NOT BE
CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION.
<PAGE>

      NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR THE SECURITIES
COMMISSION OR OTHER REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS SECURITIES PURCHASE AGREEMENT OR ANY OF THE OTHER OFFERING
DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

      INVESTORS MUST COMPLY WITH ALL APPLICABLE LAWS AND REGULATIONS IN FORCE IN
ANY JURISDICTION IN WHICH THEY PURCHASE, OFFER OR SELL THE SECURITIES AND MUST
OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED FOR THE PURCHASE, OFFER OR
SALE BY IT OF THE SECURITIES UNDER THE LAWS AND REGULATIONS IN FORCE IN ANY
JURISDICTION TO WHICH IT IS SUBJECT OR IN WHICH IT MAKES SUCH PURCHASES, OFFERS
OR SALES. THE COMPANY SHALL NOT HAVE ANY RESPONSIBILITY WITH RESPECT TO INVESTOR
COMPLIANCE THEREWITH.
<PAGE>

                             ADDITIONAL INFORMATION

      Touchstone Resources USA, Inc. (the "Company") files annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as
amended. Reports, statements or other information that we file with the SEC are
available to the public at the SEC's Website at http://www.sec.gov, as well as
our Website at www.touchstonetexas.com. Information contained on our Website
does not constitute part of this agreement. The following documents that we have
previously filed with the SEC are incorporated by reference into this agreement:

      o     Quarterly Report on Form 10-QSB for the fiscal quarter ended
            September 30, 2005;

      o     Current Report on Form 8-K dated August 11, 2005;

      o     Current Report on Form 8-K dated July 21, 2005;

      o     Annual Report on Form 10-KSB for the fiscal year ended December 31,
            2004 ; and

      o     Any reports on Form 8-K filed with the SEC after November 22, 2005
            and before the date this agreement is executed.

The information incorporated by reference into this agreement is an important
part of this agreement. Any statement contained in a document incorporated by
reference into this agreement shall be deemed to be modified or superseded for
the purposes of this agreement to the extent that a statement contained herein
or in any other subsequently filed document modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this agreement.

      The Company will provide to each person to whom this agreement is sent,
upon the written or oral request of such person, a copy of any or all of the
documents referred to above that have been incorporated by reference into this
agreement but not delivered with this agreement. You may make such requests at
no cost to you by writing or telephoning us at the following address or number:

                           Touchstone Resources USA, Inc.
                           1600 Smith Street
                           Suite 5100
                           Houston, TX 77002
                           (713) 784-1113

      You should rely only on the information contained in this agreement or
incorporated by reference into this agreement. The Company has not authorized
anyone to provide you with different information. You should not assume that the
information in this agreement is accurate as of any date other than the date
this agreement is sent to you for review or that the information incorporated by
reference into this agreement is accurate as of any date other than the date set
forth on the front of the document containing such information.
<PAGE>

CONFIDENTIAL

                          SECURITIES PURCHASE AGREEMENT

      THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated
_______________, 200_, by and between TOUCHSTONE RESOURCES USA, INC., a Delaware
corporation (the "Company"), and the purchaser or purchasers identified on the
signature page hereof ("Purchaser").

                                R E C I T A L S:

      WHEREAS, Purchaser desires to purchase and the Company desires to sell
units comprised of shares of common stock and warrants to acquire shares of
common stock on the terms and conditions set forth herein.

      NOW, THEREFORE, in consideration of the premises hereof and the agreements
set forth herein below, the parties hereto hereby agree as follows:

      1. The Offering.

                  (a) Private Offering. The securities offered by this Agreement
are being offered in a private offering (the "Offering") of up to 28,000,000
shares ("Shares") of common stock, $.001 par value per share ("Common Stock"),
and warrants ("Warrants") to acquire up to 14,000,000 shares of Common Stock.
The Shares and Warrants will be sold in units ("Units") comprised of two (2)
shares of Common Stock and one (1) Warrant. Up to 14,000,000 Units will be sold
in the Offering; provided, however, that in the event of any over-allotments of
Units during the offering period, the Company reserves the right to sell in
excess of 14,000,000 Units to cover such over-allotments. The Units will be sold
on a reasonable "best efforts" basis at a purchase price of $1.80 per Unit
("Purchase Price") pursuant to Rules 901 and 903 of Regulation S under the
Securities Act of 1933, as amended (the "Securities Act"). The Units are being
offered solely to persons that are not "U.S. Persons" as such term is defined in
Rule 902 of Regulation S under the Securities Act during an offering period that
will commence on July 11, 2005, and terminate at the sole discretion of the
Company. Each Warrant is initially exercisable into one (1) share of Common
Stock at an exercise price of $1.50 per share, subject to adjustment. The terms
of the Warrants are set forth in the Form of Warrant, attached hereto and made a
part hereof as Exhibit B. The Shares, Warrants and shares of Common Stock
issuable upon exercise of the Warrants are hereinafter referred to collectively
as the "Securities."

                  (b) Use of Proceeds. Assuming all 14,000,000 Units are sold,
the net proceeds to the Company are estimated to be approximately $23,134,030
(after deducting offering expenses payable by the Company estimated at $20,000
and assuming payment of the maximum amount of placement agent and finders fees
of up to $2,016,000). The Company intends to use the net proceeds for general
working capital purposes and other general corporate purposes which may include
the repayment of up to $3,050,000 principal amount of outstanding indebtedness.

                                       1
<PAGE>

            (c) Placement Agent and Finders Fees. The Company reserves the right
to pay cash fees to agents, brokers, dealers and finders in connection with the
sale of the Securities in an amount equal to up to eight percent (8%) of the
Purchase Price of such Securities and to issue warrants to such persons to
purchase shares of Common Stock equal to up to eight percent (8%) of the number
of Shares included in the Units issued hereunder at an exercise price of $1.50
per share which terminate three years after the date of issuance.

            (d) Status of Concurrent Offering; Summary Memorandum. The Company
is currently conducting a private placement offering of units on the same terms
as the Units offered hereunder to a limited number of "accredited investors", as
that term is defined in Rule 501(a) of the Securities Act, in the United States
pursuant to Section 4(2) of the Securities Act of 1933 and/or Rule 506 of
Regulation D thereunder (the "Regulation D Offering"). Between August 22, and
November 22, 2005, the Company has sold 3,161,111 Units in the Regulation D
Offering to a limited number of investors, realized aggregate gross proceeds of
$5,690,001, paid placement agent fees of $357,200 to Legend Merchant Group. Inc,
and Mid-South Capital, Inc., broker dealers registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and members of the
National Association of Securities Dealers, Inc., and issued warrants to Legend
Merchant Group, Inc. to purchase 147,111 shares of Common Stock at an exercise
price of $1.50 per share in payment of additional placement agent fees. The
Company intends to offer the remaining 10,838,889 Units until the Offering is
terminated. Attached hereto and made a part hereof as Exhibit A, is a Summary
Investment Memorandum describing among other things, certain material risks
factors applicable to the Company and the Offering (the "Summary Investment
Memorandum").

      2. Sale and Purchase of Securities.

            (a) Sale and Purchase of Securities. Subject to the terms and
conditions hereof, the Company agrees to sell, and Purchaser irrevocably
subscribes for and agrees to purchase, the number of Units set forth on the
signature page of this Agreement at a purchase price of $1.80 per Unit. The
aggregate purchase price for the Units shall be as set forth on the signature
page hereto (the "Purchase Price") and shall be payable upon execution hereof by
check or wire transfer of immediately available funds.

            (b) Subscription Procedure. In order to purchase Units, Purchaser
shall deliver to the Company, at its principal executive office identified in
Section 16 hereof: (i) one completed and duly executed copy of this Agreement;
and (ii) immediately available funds, or a certified check or bank check, in an
amount equal to the Purchase Price. Execution and delivery of this Agreement
shall constitute an irrevocable subscription for that number of Units set forth
on the signature page hereto. The minimum investment that may be made by a
Purchaser is 15,000 Units for a purchase price of $27,000, although the Company
may, in its sole discretion, accept subscriptions for a lesser number of Units.
Payment for the Securities may be made by wire transfer to:

                           Frost National Bank
                           Houston, TX
                           ABA # 114 000 093
                           Credit to:  Touchstone Resources USA, Inc.
                                        1600 Smith Street, Ste. 5100
                                        Houston, TX  77002
                           Account #: 5400 15822

                                       2
<PAGE>

or by check made payable to: Touchstone Resources USA, Inc., 1600 Smith Street,
Suite 5100, Houston, TX 77002. Receipt by the Company of funds wired, or deposit
and collection by the Company of the check tendered herewith, will not
constitute acceptance of this Agreement by the Company. The Units subscribed for
will not be deemed to be issued to, or owned by, Purchaser until the Company has
executed this Agreement. All funds tendered by Purchaser will be held by the
Company pending acceptance or rejection of this Agreement by the Company and the
closing of Purchaser's purchase of Units. This Agreement will either be accepted
by the Company, in whole or in part, in its sole discretion, or rejected by the
Company as promptly as practicable. If this Agreement is accepted only in part,
Purchaser agrees to purchase such smaller number of Units as the Company
determines to sell to Purchaser. If this Agreement is rejected for any reason,
including the termination of the Offering by the Company, this Agreement and all
funds tendered herewith will be promptly returned to Purchaser, without interest
or deduction of any kind, and this Agreement will be void and of no further
force or effect.

            (c) Closing. Subscriptions will be accepted by the Company in its
sole discretion. Upon the Company's execution of this Agreement, the
subscription evidenced hereby, if not previously rejected by the Company, will,
in reliance upon Purchaser's representations and warranties contained herein, be
accepted, in whole or in part, by the Company. If Purchaser's subscription is
accepted only in part, this Agreement will be marked to indicate such fact, and
the Company will return to Purchaser the portion of the funds tendered by
Purchaser representing the unaccepted portion of Purchaser's subscription,
without interest or deduction of any kind. Upon acceptance of this Agreement in
whole or in part by the Company, the Company will issue certificates for the
Shares to Purchaser, together with a copy of Purchaser's executed Agreement
countersigned by the Company and a Warrant ("Warrant Certificate") executed by
the Company.

      3. Representations and Warranties of Purchaser. Purchaser represents and
warrants to the Company as follows:

            (a) Organization and Qualification.

                  (i) If Purchaser is an entity, Purchaser is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, with the corporate or other entity power and authority to own and
operate its business as presently conducted, except where the failure to be or
have any of the foregoing would not have a material adverse effect on Purchaser,
and Purchaser is duly qualified as a foreign corporation or other entity to do
business and is in good standing in each jurisdiction where the character of its
properties owned or held under lease or the nature of their activities makes
such qualification necessary, except for such failures to be so qualified or in
good standing as would not have a material adverse effect on it.

                                       3
<PAGE>

                  (ii) If Purchaser is an entity, the address of its principal
place of business is as set forth on the signature page hereto, and if Purchaser
is an individual, the address of its principal residence is as set forth on the
signature page hereto.

            (b) Authority; Validity and Effect of Agreement.

                  (i) If Purchaser is an entity, Purchaser has the requisite
corporate or other entity power and authority to execute and deliver this
Agreement and perform its obligations under this Agreement. The execution and
delivery of this Agreement by Purchaser, the performance by Purchaser of its
obligations hereunder and all other necessary corporate or other entity action
on the part of Purchaser have been duly authorized by its board of directors or
similar governing body, and no other corporate or other entity proceedings on
the part of Purchaser is necessary for Purchaser to execute and deliver this
Agreement and perform its obligations hereunder.

                  (ii) This Agreement has been duly and validly authorized,
executed and delivered by Purchaser and, assuming it has been duly and validly
executed and delivered by the Company, constitutes a legal, valid and binding
obligation of Purchaser, in accordance with its terms.

            (c) No Conflict; Required Filings and Consents. Neither the
execution and delivery of this Agreement by Purchaser nor the performance by
Purchaser of its obligations hereunder will: (i) if Purchaser is an entity,
conflict with Purchaser's articles of incorporation or bylaws, or other similar
organizational documents; (ii) violate any statute, law, ordinance, rule or
regulation, applicable to Purchaser or any of the properties or assets of
Purchaser; or (iii) violate, breach, be in conflict with or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or permit the termination of any provision of, or result in the
termination of, the acceleration of the maturity of, or the acceleration of the
performance of any obligation of Purchaser under, or result in the creation or
imposition of any lien upon any properties, assets or business of Purchaser
under, any material contract or any order, judgment or decree to which Purchaser
is a party or by which it or any of its assets or properties is bound or
encumbered except, in the case of clauses (ii) and (iii), for such violations,
breaches, conflicts, defaults or other occurrences which, individually or in the
aggregate, would not have a material adverse effect on its obligation to perform
its covenants under this Agreement.

            (d) Accredited Investor. Purchaser is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D under the Securities Act. If
Purchaser is an entity, Purchaser was not formed for the specific purpose of
acquiring the Securities, and, if it was, all of Purchaser's equity owners are
"accredited investors" as defined above.

            (e) "U.S. Person". The Investor: (i) is executing and delivering
this Agreement outside the United States, is not a "U.S. Person" as such term is
defined in Rule 902 of Regulation S under the Securities Act, and is not
acquiring the securities for the account or benefit of any "U.S. Person"; or
(ii) is a "U.S. Person" that is purchasing the Securities in a transaction that
does not require registration under the Securities Act. A "U.S. Person" is
defined in Rule 902 of Regulation S under the Securities Act as:

                                       4
<PAGE>

                  (i) Any natural person resident in the United States;

                  (ii) Any partnership or corporation organized or incorporated
under the laws of the United States;

                  (iii) Any estate of which any executor or administrator is a
U.S. Person;

                  (iv) Any trust of which any trustee is a U.S. Person;

                  (v) Any agency or branch of a foreign entity located in the
United States;

                  (vi) Any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary for the benefit or
account of a U.S. Person;

                  (vii) Any discretionary account or similar account (other than
an estate or trust) held by a dealer or other fiduciary organized, incorporated,
or, if an individual, resident in the United States; and

                  (viii) Any partnership or corporation if:

                        (A) Organized or incorporated under the laws of any
foreign jurisdiction; and

                        (B) Formed by a U.S. Person principally for the purpose
of investing in securities not registered under the Securities Act, unless it is
organized or incorporated, and owned, by accredited investors (as defined in
Rule 501(a) under the Securities Act) that are not natural persons, estates or
trusts.

            (f) No Government Review. Purchaser understands that neither the
United States Securities and Exchange Commission ("SEC") nor any securities
commission or other governmental authority of any state, country or other
jurisdiction has approved the issuance of the Securities or passed upon or
endorsed the merits of the Securities or this Agreement, the Warrant Certificate
or any of the other documents relating to the proposed Offering (collectively,
the "Offering Documents"), or confirmed the accuracy of, determined the adequacy
of, or reviewed this Agreement, the Warrant Certificate or the other Offering
Documents.

            (g) Investment Intent. The Securities are being acquired for the
Purchaser's own account for investment purposes only, not as a nominee or agent
and not with a view to the resale or distribution of any part thereof, and
Purchaser has no present intention of selling, granting any participation in or
otherwise distributing the same. By executing this Agreement, Purchaser further
represents that Purchaser does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or third person with respect to any of the Securities.

                                       5
<PAGE>

            (h) Restrictions on Transfer. Purchaser understands that the
Securities are "restricted securities" as such term is defined in Rule 144 under
the Securities Act and have not been registered under the Securities Act or
registered or qualified under any state securities law, and may not be, directly
or indirectly, sold, transferred, offered for sale, pledged, hypothecated or
otherwise disposed of except in accordance with the provisions of Regulation S
under the Securities Act, pursuant to registration under the Securities Act and
registration or qualification under applicable state securities laws or the
availability of an exemption therefrom. In any case where such an exemption is
relied upon by Purchaser from the registration requirements of the Securities
Act and the registration or qualification requirements of such state securities
laws, Purchaser shall furnish the Company with an opinion of counsel stating
that the proposed sale or other disposition of such securities may be effected
without registration under the Securities Act and will not result in any
violation of any applicable state securities laws relating to the registration
or qualification of securities for sale, such counsel and opinion to be
satisfactory to the Company. Purchaser acknowledges that it is able to bear the
economic risks of an investment in the Securities for an indefinite period of
time, and that its overall commitment to investments that are not readily
marketable is not disproportionate to its net worth.

            (i) Restrictions on Registration. Purchaser understands that the
Company is not permitted to register any transfer of the Securities not made in
accordance with the provisions of Regulation S, pursuant to registration under
the Securities Act and registration or qualification under applicable state
securities laws, or pursuant to an available exemption therefrom.

            (j) Investment Experience. Purchaser has such knowledge,
sophistication and experience in financial, tax and business matters in general,
and investments in securities in particular, that it is capable of evaluating
the merits and risks of this investment in the Securities, and Purchaser has
made such investigations in connection herewith as it deemed necessary or
desirable so as to make an informed investment decision without relying upon the
Company for legal or tax advice related to this investment. In making its
decision to acquire the Securities, Purchaser has not relied upon any
information other than information provided to Purchaser by the Company or its
representatives and contained herein and in the other Offering Documents.

            (k) Access to Information. Purchaser acknowledges that it has had
access to and has reviewed all documents and records relating to the Company,
including, but not limited to, the Company's Quarterly Report on Form 10-QSB for
the fiscal quarter ended September 30, 2005 and the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2004, that it has deemed
necessary in order to make an informed investment decision with respect to an
investment in the Securities; that it has had the opportunity to ask
representatives of the Company certain questions and request certain additional
information regarding the terms and conditions of such investment and the
finances, operations, business and prospects of the Company and has had any and
all such questions and requests answered to its satisfaction; and that it
understands the risks and other considerations relating to such investment.

                                       6
<PAGE>

            (l) Reliance on Representations. Purchaser understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities. Purchaser represents and warrants to the
Company that any information that Purchaser has heretofore furnished or
furnishes herewith to the Company is complete and accurate, and further
represents and warrants that it will notify and supply corrective information to
the Company immediately upon the occurrence of any change therein occurring
prior to the Company's issuance of the Securities. Within five (5) days after
receipt of a request from the Company, Purchaser will provide such information
and deliver such documents as may reasonably be necessary to comply with any and
all laws and regulations to which the Company is subject.

            (m) No General Solicitation. Purchaser is unaware of, and in
deciding to participate in the Offering is in no way relying upon, and did not
become aware of the Offering through or as a result of, any form of general
solicitation or general advertising including, without limitation, any article,
notice, advertisement or other communication published in any newspaper,
magazine or similar media, or broadcast over television or radio or the
internet, in connection with the Offering.

            (n) Placement and Finder's Fees. No agent, broker, investment
banker, finder, financial advisor or other person acting on behalf of Purchaser
or under its authority is or will be entitled to any broker's or finder's fee or
any other commission or similar fee, directly or indirectly, in connection with
the Offering, and no person is entitled to any fee or commission or like payment
in respect thereof based in any way on agreements, arrangements or understanding
made by or on behalf of Purchaser.

            (o) Investment Risks. Purchaser understands that purchasing
Securities in the Offering will subject Purchaser to certain risks, including,
but not limited to, those set forth in the Summary Investment Memorandum and
each of the following:

                  (i) The Company's business of exploring for and producing oil
and gas involves a substantial risk of investment loss. The Company's oil and
gas operations are subject to the economic risks typically associated with
exploration, development and production activities, including the necessity of
incurring significant expenditures to locate and acquire properties and to drill
exploratory wells. Drilling oil and gas wells involves the risk that the wells
may be unproductive or that, although productive, the wells may not produce oil
or gas in economic quantities. No assurance can be given that the Company will
be able to find and develop or acquire additional reserves on acceptable terms,
or that commercial quantities of oil and gas deposits will be discovered
sufficient to enable the Company to recover its exploration and development
costs or sustain its business.

                  (ii) The offering price of the Securities offered hereby has
been determined solely by the Company and does not necessarily bear any
relationship to the value of the Company's assets, current or potential earnings
of the Company, or any other recognized criteria used for measuring value, and
therefore, there can be no assurance that the offering price of the Units is
representative of the actual value of the underlying Securities.

                  (iii) The Company has experienced net losses in each fiscal
quarter since its inception and expects to continue to incur significant net
losses for the foreseeable future. While the Company is unable to predict
accurately its future operating expenses, it currently expects these expenses to
increase substantially as it implements its business plan.

                                       7
<PAGE>

                  (iv) In order to fund its future operations, attract and
retain employees, consultants and other service providers, and satisfy other
obligations, the Company may be required to issue additional shares of Common
Stock, securities exercisable or convertible into shares of Common Stock, or
debt. Such securities may be issued for a purchase price consisting of cash,
services or other consideration that may be materially different than the
purchase price of the Units. The issuance of any such securities may result in
substantial dilution to the relative ownership interests of the Company's
existing shareholders and substantial reduction in net book value per share.
Additional equity securities may have rights, preferences and privileges senior
to those of the holders of Common Stock, and any debt financing may involve
restrictive covenants that may limit the Company's operating flexibility.

                  (v) The Company has provided herein that it intends to use
most of the net proceeds from the Offering for general working capital purposes
and other general corporate purposes. Thus, Purchaser is making its investment
in the Securities based in part upon very limited information regarding the
specific uses to which the net proceeds will be applied.

                  (vi) An investment in the Securities may involve certain
material legal, accounting and federal and state tax consequences. Purchaser
should consult with its legal counsel, accountant and/or business adviser as to
the legal, accounting, tax and related matters accompanying such an investment.

            (p) Exclusive Offering Documents. In making its decision to purchase
the Securities hereunder, Purchaser has not relied on any representations,
warranties or information other than those set forth in this Agreement which
Purchaser has independently investigated and verified to its satisfaction and
neither the Company nor any person acting on its behalf has made any
representation or warranty regarding the Company or the Securities except as set
forth herein.

            (q) Legends. The certificates and agreements evidencing the
Securities shall have endorsed thereon the following legend (and appropriate
notations thereof will be made in the Company's stock transfer books), and stop
transfer instructions reflecting these restrictions on transfer will be placed
with the transfer agent of the Securities:

            THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
            SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
            APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD,
            TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE
            PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO
            REGISTRATION UNDER THE SECURITIES ACT AND REGISTRATION OR
            QUALIFICATION UNDER APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
            JURISDICTION, OR PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION OR
            QUALIFICATION. HEDGING TRANSACTIONS, INCLUDING, BUT NOT LIMITED TO,
            SHORT SALES, SWAPS OR DERIVATIVE SECURITIES TRANSACTIONS, INVOLVING
            THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE
            SECURITIES ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
            JURISDICTION. NO TRANSFER OF THE SECURITIES REPRESENTED HEREBY MAY
            BE MADE IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION UNLESS
            THERE SHALL HAVE BEEN DELIVERED TO THE ISSUER A WRITTEN OPINION OF
            UNITED STATES COUNSEL OF RECOGNIZED STANDING, IN FORM AND SUBSTANCE
            SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER MAY BE
            MADE WITHOUT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
            ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE SECURITIES
            LAWS OF ANY STATE OR OTHER JURISDICTION.

                                       8
<PAGE>

      4. Representations and Warranties of the Company. The Company represents
and warrants to Purchaser as follows:

            (a) Organization and Qualification. The Company is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, with the corporate power and authority to own and operate its
business as presently conducted, except where the failure to be or have any of
the foregoing would not have a material adverse effect on the Company. The
Company is duly qualified as a foreign corporation or other entity to do
business and is in good standing in each jurisdiction where the character of its
properties owned or held under lease or the nature of their activities makes
such qualification necessary, except for such failures to be so qualified or in
good standing as would not have a material adverse effect on the Company.

            (b) Authority; Validity and Effect of Agreement.

                  (i) The Company has the requisite corporate power and
authority to execute and deliver this Agreement, perform its obligations under
this Agreement, and conduct the Offering. The execution and delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder, the Offering and all other necessary corporate action on the part of
the Company have been duly authorized by its board of directors, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or the Offering. This Agreement has been duly and validly executed and
delivered by the Company and, assuming that it has been duly authorized,
executed and delivered by Purchaser, constitutes a legal, valid and binding
obligation of the Company, in accordance with its terms, subject to the effects
of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.

                                       9
<PAGE>

                  (ii) The Shares have been duly authorized and, when issued and
paid for in accordance with this Agreement, will be validly issued, fully paid
and non-assessable shares of Common Stock with no personal liability resulting
solely from the ownership of such shares and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company. The shares of Common Stock issuable upon exercise of the Warrants when
issued and paid for in accordance with the Warrants, will be duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock with no
personal liability resulting solely from the ownership of such shares and will
be free and clear of all liens, charges, restrictions, claims and in
encumbrances imposed by or through the Company.

            (c) No Conflict; Required Filings and Consents. Neither the
execution and delivery of this Agreement by the Company nor the performance by
the Company of its obligations hereunder will: (i) conflict with the Company's
certificate of incorporation or bylaws; (ii) violate any statute, law,
ordinance, rule or regulation, applicable to the Company or any of the
properties or assets of the Company; or (iii) violate, breach, be in conflict
with or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or permit the termination of any
provision of, or result in the termination of, the acceleration of the maturity
of, or the acceleration of the performance of any obligation of the Company, or
result in the creation or imposition of any lien upon any properties, assets or
business of the Company under, any material contract or any order, judgment or
decree to which the Company is a party or by which it or any of its assets or
properties is bound or encumbered except, in the case of clauses (ii) and (iii),
for such violations, breaches, conflicts, defaults or other occurrences which,
individually or in the aggregate, would not have a material adverse effect on
its obligation to perform its covenants under this Agreement.

            (d) Placement and Finder's Fees. Except as provided in Section 1(c),
neither the Company nor any of its respective officers, directors, employees or
managers, has employed any broker, dealer, finder, advisor or consultant, or
incurred any liability for any investment banking fees, brokerage fees,
commissions or finders' fees, advisory fees or consulting fees in connection
with the Offering for which the Company has or could have any liability.

      5. Indemnification. Purchaser agrees to indemnify, defend and hold
harmless the Company and its respective affiliates and agents from and against
any and all demands, claims, actions or causes of action, judgments,
assessments, losses, liabilities, damages or penalties and reasonable attorneys'
fees and related disbursements incurred by the Company that arise out of or
result from a breach of any representations or warranties made by Purchaser
herein, and Purchaser agrees that in the event of any breach of any
representations or warranties made by Purchaser herein, the Company may, at its
option, forthwith rescind the sale of the Units to Purchaser.

      6. Registration Rights. The Company covenants and agrees as follows:

            6.1 For the purpose of this Section 6, the following definitions
shall apply:

                  (a) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC thereunder, all as
the same shall be in effect at the time.

                                       10
<PAGE>

                  (b) "Person" shall mean an individual, partnership (general or
limited), corporation, limited liability company, joint venture, business trust,
cooperative, association or other form of business organization, whether or not
regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.

                  (c) "Register," "registered," and "registration" shall refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or order of
effectiveness of such registration statement or document by the SEC.

                  (d) "Registration Statement" shall mean any registration
statement of the Company filed with the SEC pursuant to the provisions of
Section 6.2 of this Agreement, which covers the resale of the Restricted Stock
on an appropriate form then permitted by the SEC to be used for such
registration and the sales contemplated to be made thereby under the Securities
Act, or any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including any pre- and post-
effective amendments thereto, in each case including the prospectus contained
therein, all exhibits thereto and all materials incorporated by reference
therein.

                  (e) "Restricted Stock" shall mean (i) the Shares; (ii) the
shares of Common Stock issuable upon exercise of the Warrants; and (iii) any
additional shares of Common Stock of the Company issued or issuable after the
date hereof in respect of any of the foregoing securities, by way of a stock
dividend or stock split; provided that as to any particular shares of Restricted
Stock, such securities shall cease to constitute Restricted Stock when (x) a
Registration Statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of thereunder, (y) such securities are permitted to be transferred
pursuant to Rule 144(k) (or any successor provision to such rule) under the
Securities Act or (z) such securities are otherwise freely transferable to the
public without further registration under the Securities Act.

                  (f) "Selling Stockholders" shall mean Purchaser and any other
purchaser of Units in the Offering, and their respective successors and assigns.

            6.2. Registration of the Shares.

                  The Company shall use its reasonable best efforts to prepare
and file with the SEC, within 60 days of the date the Offering is completed, a
Registration Statement under the Act to permit the public sale of the Restricted
Stock, and to cause such Registration Statement to be declared effective within
150 days of the date the Offering is completed. The Selling Stockholders shall
furnish such information as may be reasonably requested by the Company in order
to include such Restricted Stock in such Registration Statement. If any Selling
Stockholder decides not to include all of its Restricted Stock in any
registration statement thereafter filed by the Company, such Selling Stockholder
shall nevertheless continue to have the right to include any Restricted Stock in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein. In the event that any registration pursuant to
this Section 6.2 is terminated or withdrawn, the Company shall use its
reasonable best efforts to prepare and file with the SEC, as soon thereafter as
practicable, a Registration Statement under the Securities Act to permit the
public sale of the Restricted Stock purchased hereby.

                                       11
<PAGE>

            6.3. Registration Procedures. Whenever it is obligated to register
any Restricted Stock pursuant to this Agreement, the Company shall:

                  (a) prepare and file with the SEC a Registration Statement
with respect to the Restricted Stock in the manner set forth in Section 6.2
hereof and use its reasonable best efforts to cause such Registration Statement
to become effective as promptly as possible and to remain effective until the
earlier of: (i) the sale of all shares of Restricted Stock covered thereby, (ii)
the availability under Rule 144(k) for the Selling Stockholder to immediately,
freely resell without restriction all Restricted Stock covered thereby, or (iii)
two (2) years from the date of this Agreement;

                  (b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such Registration Statement and
the prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective for the period specified in Section 6.3(a)
above and to comply with the provisions of the Act with respect to the
disposition of all Restricted Stock covered by such Registration Statement in
accordance with the intended method of disposition set forth in such
Registration Statement for such period;

                  (c) furnish to the Selling Stockholders such number of copies
of the Registration Statement and the prospectus included therein (including
each preliminary prospectus) as such person may reasonably request in order to
facilitate the public sale or other disposition of the Restricted Stock covered
by such Registration Statement;

                  (d) use its reasonable best efforts to register or qualify the
Restricted Stock covered by such Registration Statement under the state
securities laws of such jurisdictions as any Selling Stockholder shall
reasonably request; provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;

                  (e) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each
Purchaser participating in such underwriting shall also enter into and perform
its obligations under such an agreement, as described in Section 6.2(b);

                  (f) immediately notify each Selling Stockholder at any time
when a prospectus relating thereto is required to be delivered under the Act, of
the happening of any event as a result of which the prospectus contained in such
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required or necessary to be
stated therein in order to make the statements contained therein not misleading
in light of the circumstances under which they were made. The Company will use
reasonable efforts to amend or supplement such prospectus in order to cause such
prospectus not to 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 not misleading in the light of the circumstances under which
they were made;

                                       12
<PAGE>

                  (g) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statements as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement;

                  (h) use its reasonable best efforts to list the Restricted
Stock covered by such Registration Statement on each exchange or automated
quotation system on which similar securities issued by the Company are then
listed (with the listing application being made at the time of the filing of
such Registration Statement or as soon thereafter as is reasonably practicable);

                  (i) notify each Selling Stockholder of any threat by the SEC
or state securities commission to undertake a stop order with respect to sales
under the Registration Statement; and

                  (j) cooperate in the timely removal of any restrictive legends
from the shares of Restricted Stock in connection with the resale of such shares
covered by an effective Registration Statement.

            6.4. Delay of Registration.

                  (a) The Company and the Selling Stockholders agree that the
Selling Stockholders may suffer damages if the Registration Statement is not
filed on or prior to the date that is 60 days after the date the Offering is
completed (the "Target Filing Date") and maintained in the manner contemplated
herein. The Company and the Selling Stockholders further agree that it would not
be feasible to ascertain the extent of such damages with precision. Accordingly,
if the Registration Statement is not filed on or prior to the Target Filing
Date, the Company shall pay in cash or in shares of Common Stock (at the
Company's option) as liquidated damages for such failure and not as a penalty to
the Selling Stockholders, an amount equal to two percent (2%) of the Purchase
Price and an additional amount equal to one percent (1%) of the Purchase Price
at the end of each subsequent 30-day period during which the Registration
Statement is not filed (the "Late Filing Damages"). Any payments to be made to
the Selling Stockholders pursuant to this Section 6.4(a) shall be due and
payable within three (3) business days of any demand therefor by the Selling
Stockholders. The parties agree that the Late Filing Damages represent the sole
and exclusive remedy, whether at law or in equity, available to the Selling
Stockholders if the Registration Statement is not filed on or prior to the
Target Filing Date. If the Company elects to pay the Late Filing Damages in
shares of Common Stock, such shares of Common Stock shall be valued at the
average closing price of a share of Common Stock on the applicable trading
market for the Common Stock for the 5-trading-day period immediately preceding
the date of demand of such Late Filing Damages.

                                       13
<PAGE>

                  (b) The Company and the Selling Stockholders agree that the
Selling Stockholders may suffer damages if the Registration Statement is not
declared effective by the SEC on or prior to the date that is 150 days after the
date the Offering is completed (the "Effectiveness Deadline"). The Company and
the Selling Stockholders further agree that it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if the
Registration Statement is not declared effective by the SEC prior to the
Effectiveness Deadline, the Company shall pay in cash or in shares of Common
Stock (at the Company's option) as liquidated damages for such failure and not
as a penalty to the Selling Stockholders, an amount equal to two percent (2%) of
the Purchase Price and an additional amount equal to one percent (1%) of the
Purchase Price at the end of each subsequent 30-day period during which the
Registration Statement is not declared effective (the "Non-Effectiveness
Damages"). Payments to be made to the Selling Stockholders pursuant to this
Section 6.4(b) shall be due and payable within three (3) business days of any
demand therefor by the Selling Stockholders. The parties agree that the
Non-Effectiveness Damages represent the sole and exclusive remedy, whether at
law or in equity, available to the Selling Stockholders if the Registration
Statement is not declared effective on or prior to the date that is 150 days
after the Target Filing Date. If the Company elects to pay the Non-Effectiveness
Damages in shares of Common Stock, such shares of Common Stock shall be valued
at the average closing price of a share of Common Stock on the applicable
trading market for the Common Stock for the 5-trading-day period immediately
preceding the date of demand of such Non-Effectiveness Damages.

                  (c) No Selling Stockholder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 6.

            6.5 Expenses.

                  (a) For the purposes of this Section 6.5, the term
"Registration Expenses" shall mean: all expenses incurred by the Company in
complying with Section 6.2 of this Agreement, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees under state
securities laws, fees of the National Association of Securities Dealers, Inc.
("NASD"), fees and expenses of listing shares of Restricted Stock on any
securities exchange or automated quotation system on which the Company's shares
are listed and fees of transfer agents and registrars. The term "Selling
Expenses" shall mean: all underwriting discounts and selling commissions
applicable to the sale of Restricted Stock and all accountable or
non-accountable expenses paid to any underwriter in respect of such sale.

                  (b) Except as otherwise provided herein, the Company will pay
all Registration Expenses in connection with the Registration Statements filed
pursuant to Section 6.2 of this Agreement. All Selling Expenses in connection
with any Registration Statements filed pursuant to Section 6.2 of this Agreement
shall be borne by the Selling Stockholders pro rata on the basis of the number
of shares registered by each Selling Stockholder whose shares of Restricted
Stock are covered by such Registration Statement, or by such persons other than
the Company (except to the extent the Company may be a seller) as they may
agree.

                                       14
<PAGE>

            6.6. Obligations of the Selling Stockholders.

                  (a) In connection with each registration hereunder, each
Selling Stockholder will furnish to the Company in writing such information with
respect to it and the securities held by it and the proposed distribution by it,
as shall be reasonably requested by the Company in order to assure compliance
with applicable federal and state securities laws as a condition precedent to
including the Selling Stockholder's Restricted Stock in the Registration
Statement. Each Selling Stockholder shall also promptly notify the Company of
any changes in such information included in the Registration Statement or
prospectus as a result of which there is an untrue statement of material fact or
an omission to state any material fact required or necessary to be stated
therein in order to make the statements contained therein not misleading in
light of the circumstances under which they were made.

                  (b) In connection with the filing of the Registration
Statement, each Selling Stockholder shall furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with such Registration Statement or prospectus.

                  (c) In connection with each registration pursuant to this
Agreement, each Selling Stockholder agrees that it will not effect sales of any
Restricted Stock until notified by the Company of the effectiveness of the
Registration Statement, and thereafter will suspend such sales after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update a Registration Statement or prospectus. At the end
of any period during which the Company is obligated to keep a Registration
Statement current, each Selling Stockholder shall discontinue sales of
Restricted Stock pursuant to such Registration Statement upon receipt of notice
from the Company of its intention to remove from registration the Restricted
Stock covered by such Registration Statement that remains unsold, and each
Selling Stockholder shall notify the Company of the number of shares registered
which remain unsold immediately upon receipt of such notice from the Company.

            6.7. Information Blackout and Holdbacks.

                  (a) At any time when a Registration Statement effected
pursuant to Section 6.2 is effective, upon written notice from the Company to
Purchaser that the Company has determined in good faith that the sale of
Restricted Stock pursuant to the Registration Statement would require disclosure
of non-public material information, Purchaser shall suspend sales of Restricted
Stock pursuant to such Registration Statement until such time as the Company
notifies Purchaser that such material information has been disclosed to the
public or has ceased to be material, or that sales pursuant to such Registration
Statement may otherwise be resumed.

                  (b) Notwithstanding any other provision of this Agreement,
Purchaser shall not effect any public sale or distribution (including sales
pursuant to Rule 144 under the Securities Act), if and when available, of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the thirty (30) days prior to the
commencement of any primary offering to be undertaken by the Company of shares
of its unissued Common Stock ("Primary Offering"), which may also include other
securities, and ending one hundred twenty (120) days after completion of any
such Primary Offering, unless the Company, in the case of a non-underwritten
Primary Offering, or the managing underwriter, in the case of an underwritten
Primary Offering, otherwise agree.

                                       15
<PAGE>

            6.8. Indemnification.

                  (a) The Company agrees to indemnify, to the extent permitted
by law, each Selling Stockholder, such Selling Stockholder's respective
partners, officers, directors, underwriters and each Person who controls any
Selling Stockholder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by (i) any untrue
statement of or alleged untrue statement of material fact contained in the
Registration Statement, prospectus or preliminary prospectus or any amendment or
supplement thereto, (ii) any omission of or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law in connection with the offering covered by such Registration
Statement ("Violations"); provided, however, that the indemnity agreement
contained in this Section 6.8(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld, nor shall the Company be liable in for any loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
a Violation which occurs in reliance upon and in conformity with information
furnished to the Company by such Selling Stockholder, partner, officer,
director, underwriter or controlling person of such Selling Stockholder.

                  (b) To the extent permitted by law, each Selling Stockholder
shall indemnify and hold harmless the Company, each of its directors, its
officers and each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Selling Stockholder selling
securities under such registration statement or any of such other Selling
Stockholder's partners, directors or officers or any person who controls such
Selling Stockholder, against any losses, claims, damages or liabilities (joint
or several) to which the Company or any such director, officer, controlling
person, underwriter or other such Selling Stockholder, or partner, director,
officer or controlling person of such other Selling Stockholder, may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs (i) in reliance
upon and in conformity with information furnished by such Selling Stockholder to
the Company, (ii) as a result of any failure to deliver a copy of the prospectus
relating to such Registration Statement, or (iii) as a result of any disposition
of the Restricted Stock in a manner that fails to comply with the permitted
methods of distribution identified within the Registration Statement.

                                       16
<PAGE>

                  (c) Any Person entitled to indemnification hereunder shall (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (provided that the failure to give prompt
notice shall not impair any Person's right to indemnification hereunder to the
extent such failure has not prejudiced the indemnifying party), and (ii) unless
in such indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.

                  (d) If the indemnification provided for in this Section 6.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the violation(s) described in Section
6.8(a) that resulted in such loss, claim, damage or liability, as well as any
other relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law 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 indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided, that in no event
shall any contribution by a Selling Stockholder hereunder exceed the net
proceeds from the offering received by such Selling Stockholder.

                  (e) The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and shall survive the transfer of securities.
The Company also agrees to make such provisions as are reasonably requested by
any indemnified party for contribution to such party in the event the Company's
indemnification is unavailable for any reason.

            7. Confidentiality. Purchaser acknowledges and agrees that:

                  (a) All of the information contained herein and in the other
Offering Documents is of a confidential nature and may be regarded as material
non-public information under Regulation FD of the Securities Act.

                  (b) This Agreement and the other Offering Documents have been
furnished to Purchaser by the Company for the sole purpose of enabling Purchaser
to consider and evaluate an investment in the Company, and will be kept
confidential by Purchaser and not used for any other purpose.

                                       17
<PAGE>

                  (c) The existence of this Agreement and the information
contained herein shall not, without the prior written consent of the Company, be
disclosed by Purchaser to any person or entity, other than Purchaser's personal
financial and legal advisors for the sole purpose of evaluating an investment in
the Company, and Purchaser will not, directly or indirectly, disclose or permit
Purchaser's personal financial and legal advisors to disclose, any of such
information without the prior written consent of the Company.

                  (d) Purchaser shall make its representatives aware of the
terms of this section and to be responsible for any breach of this Agreement by
such representatives.

                  (e) Purchaser shall not, without the prior written consent of
the Company, directly or indirectly, make any statements, public announcements
or release to trade publications or the press with respect to the subject matter
of this Agreement or the other Offering Documents.

                  (f) If Purchaser decides to not pursue further investigation
of the Company or to not participate in the Offering, Purchaser will promptly
return this Agreement, other Offering Documents and any accompanying
documentation to the Company.

      8. Non-Public Information. Purchaser acknowledges that information
concerning the matters that are the subject matter of this Agreement may
constitute material non-public information under United States federal
securities laws, and that United States federal securities laws prohibit any
person who has received material non-public information relating to the Company
from purchasing or selling securities of the Company, or from communicating such
information to any person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell securities of the
Company. Accordingly, until such time as any such non-public information has
been adequately disseminated to the public, Purchaser shall not purchase or sell
any securities of the Company, or communicate such information to any other
person.

      9. Entire Agreement. This Agreement contains the entire agreement between
the parties and supercedes all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereto, and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, guarantees or covenants except as specifically set
forth in this Agreement. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

      10. Amendment and Modification. This Agreement may not be amended,
modified or supplemented except by an instrument or instruments in writing
signed by the party against whom enforcement of any such amendment, modification
or supplement is sought.

      11. Extensions and Waivers. At any time prior to the Closing, the parties
hereto entitled to the benefits of a term or provision may (a) extend the time
for the performance of any of the obligations or other acts of the parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document, certificate or writing delivered pursuant
hereto, or (c) waive compliance with any obligation, covenant, agreement or
condition contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument or
instruments in writing signed by the party against whom enforcement of any such
extension or waiver is sought. No failure or delay on the part of any party
hereto in the exercise of any right hereunder shall impair such right or be
construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty, covenant or agreement.

                                       18
<PAGE>

      12. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, provided, however, that no party hereto may assign its rights or
delegate its obligations under this Agreement without the express prior written
consent of the other party hereto. Except as provided in Sections 5 and 6,
nothing in this Agreement is intended to confer upon any person not a party
hereto (and their successors and assigns) any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

      13. Survival of Representations, Warranties and Covenants. The
representations and warranties contained herein shall survive the Closing and
shall thereupon terminate 18 months from the Closing, except that the
representations contained in Sections 3(a), 3(b), 4(a), and 4(b) shall survive
indefinitely. All covenants and agreements contained herein which by their terms
contemplate actions following the Closing shall survive the Closing and remain
in full force and effect in accordance with their terms. All other covenants and
agreements contained herein shall not survive the Closing and shall thereupon
terminate.

      14. Headings; Definitions. The Section headings contained in this
Agreement are inserted for convenience of reference only and will not affect the
meaning or interpretation of this Agreement. All references to Sections
contained herein mean Sections of this Agreement unless otherwise stated. All
capitalized terms defined herein are equally applicable to both the singular and
plural forms of such terms

      15. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance is held to be invalid or unenforceable to
any extent, the remainder of this Agreement shall remain in full force and
effect and shall be reformed to render the Agreement valid and enforceable while
reflecting to the greatest extent permissible the intent of the parties.

      16. Notices. All notices hereunder shall be sufficiently given for all
purposes hereunder if in writing and delivered personally, sent by documented
overnight delivery service or, to the extent receipt is confirmed, telecopy,
telefax or other electronic transmission service to the appropriate address or
number as set forth below:

      If to the Company:

                           Touchstone Resources USA, Inc.
                           1600 Smith Street
                           Suite 5100
                           Houston, TX  77002
                           Attention:  Chief Executive Officer

                                       19
<PAGE>

      with a copy to:

                           Fox Rothschild LLP
                           997 Lenox Drive
                           Building 3
                           Lawrenceville, NJ 08648-2311
                           Attention:  Vincent A. Vietti, Esquire

      If to Purchaser:

      To that address indicated on the signature page hereof.

      17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without regard to the laws that
might otherwise govern under applicable principles of conflicts of laws thereof,
except to the extent that the General Corporation Law of the State of Delaware
shall apply to the internal corporate governance of the Company.

      18. Arbitration. If a dispute arises as to the interpretation of this
Agreement, it shall be decided in an arbitration proceeding conforming to the
Rules of the American Arbitration Association applicable to commercial
arbitration then in effect at the time of the dispute. The arbitration shall
take place in Houston, Texas. The decision of the arbitrators shall be
conclusively binding upon the parties and final, and such decision shall be
enforceable as a judgment in any court of competent jurisdiction. The parties
shall share equally the costs of the arbitration.

      19. Counterparts. This Agreement may be executed and delivered by
facsimile in two or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same agreement.

                                       20
<PAGE>

      IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
caused this Agreement to be executed as of the date set forth below.

                                     PURCHASER

Date: ____________________           _____________________________________

                                     By:__________________________________
                                          Name:
                                          Title:
                                          Address:

                                     Number of Units Purchased: __________

                                     Purchase Price
                                     @ $1.80 per Unit: $__________________

                                     TOUCHSTONE RESOURCES USA, INC.

Date:____________________            By:__________________________________
                                          Roger Abel
                                          Chief Executive Officer

                                       21
<PAGE>

                                    EXHIBIT A

                          SUMMARY INVESTMENT MEMORANDUM

CAPITALIZATION

      The following table sets forth the number of shares of common stock and
the number of shares of common stock issuable upon exercise or conversion, as
applicable, of outstanding warrants, options, convertible notes and convertible
preferred stock as of November 22, 2005:

        Common Stock, $0.001 par value .......................   68,639,758
        Series A Convertible Preferred Stock, $0.001 par value    7,100,630
        Warrants .............................................   15,159,893
        Options ..............................................    5,217,540
        Convertible Notes ....................................    3,277,778
                                                                 ----------
        Total (fully diluted) ................................   99,395,599
                                                                 ==========

RISK FACTORS

      An investment in the Units is highly speculative and involves a high
degree of risk. You should carefully consider the following risk factors in
addition to other information in our filings with the SEC before purchasing the
Units. If any of these or other risks actually occurs, our business may be
adversely affected, the trading price of our Common Stock may decline, and you
may lose all or part of your investment.

                       Risks Associated With Our Business

We have had operating losses and limited revenues to date, need additional
capital to execute our business plan and do not expect to be profitable in the
foreseeable future.

      We have experienced net losses in each fiscal quarter since our inception,
and we expect to continue to incur substantial losses for the foreseeable
future. Net loss applicable to common stockholders for our fiscal year ended
December 31, 2004 and for the nine-month period ended September 30, 2005 was
$15,595,304 and $11,820,551, respectively. As of December 31, 2004 and September
30, 2005, we had an accumulated deficit of $15,680,932 and $27,501,481,
respectively. In addition, we have generated limited revenues to date and our
current liabilities exceed our current assets. We may not be able to generate
significant revenues in the future and expect our operating expenses to increase
substantially over the next 12 months as we continue to pursue our gas and oil
exploration activities. As a result, we expect to continue to experience
negative cash flow for the foreseeable future and cannot predict when, if ever,
we might become profitable. We will need to raise additional funds, and such
funds may not be available on commercially acceptable terms, if at all. If we
cannot raise funds on acceptable terms, we may not be able to execute our
business plan, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements. This may seriously harm our business,
financial condition and results of operations. As a result of these factors, our
independent auditors have included an explanatory paragraph in their opinion for
the year ended December 31, 2004 as to the substantial doubt about our ability
to continue as a going concern.
<PAGE>

We are a development stage company with a limited operating history.

      We are a development stage company with only a limited operating history
upon which to base an evaluation of our current business and future prospects.
We have only been engaged in the oil and gas exploration and development
business since March 2004 and do not have an established history of locating and
developing properties that have oil and gas reserves. As a result, the revenue
and income potential of our business is unproven. In addition, because of our
limited operating history, we have limited insight into trends that may emerge
and affect our business. We may make errors in predicting and reacting to
relevant business trends and will be subject to the risks, uncertainties and
difficulties frequently encountered by early-stage companies in evolving markets
such as ours. We may not be able to successfully address any or all of these
risks and uncertainties. Failure to adequately do so could cause our business,
results of operations and financial condition to suffer.

Our operations will require significant capital expenditures for which we may
not have sufficient funding.

      We intend to make capital expenditures far in excess of our existing
capital resources to exploit our existing reserves and to discover new oil and
gas reserves. Specifically, we expect to incur capital calls and production
costs of approximately $19 million over the next 12 months. We intend to rely on
external sources of financing to meet our capital requirements to continue
acquiring, exploring and developing oil and gas properties and to otherwise
implement our corporate development and investment strategies. We plan to obtain
such funding through the debt and equity markets, but we cannot assure you that
we will be able to obtain additional funding when it is required or that it will
be available to us on commercially acceptable terms, if at all. We also intend
to make offers to acquire oil and gas properties in the ordinary course of our
business. If these offers are accepted, our capital needs may increase
substantially. If we fail to obtain the funding that we need when it is
required, we may have to forego or delay potentially valuable opportunities to
acquire new oil and gas properties or default on existing funding commitments to
third parties and forfeit or dilute our rights in existing oil and gas
properties.

If we are unable to satisfy our debt obligations to third parties, our business
may be adversely affected.

      As of November 14, 2005, we had outstanding term indebtedness to third
parties in the aggregate amount of approximately $3.05 million, all of which is
due during the next 12 months. Of this amount, $2.05 million is secured by
substantially all of our assets. We do not currently have the funds available to
repay this existing indebtedness. If we are unable to repay this indebtedness as
it becomes due, the lenders will have the right to declare the indebtedness in
default and seek all available remedies against us, including executing upon all
of our assets. In addition, the presence of this indebtedness may have a
negative effect on our ability to obtain additional financing. There can be no
assurance that additional debt or equity financing or cash generated by
operations will be available to meet these requirements.

                                       2
<PAGE>

The successful implementation of our business plan is subject to risks inherent
in the oil and gas business.

      Our oil and gas operations are subject to the economic risks typically
associated with exploration, development and production activities, including
the necessity of making significant expenditures to locate and acquire
properties and to drill exploratory wells. In addition, the cost and timing of
drilling, completing and operating wells is often uncertain. In conducting
exploration and development activities, the presence of unanticipated pressure
or irregularities in formations, miscalculations or accidents may cause our
exploration, development and production activities to be unsuccessful. This
could result in a total loss of our investment in a particular property. If
exploration efforts are unsuccessful in establishing proved reserves and
exploration activities cease, the amounts accumulated as unproved costs will be
charged against earnings as impairments.

      In addition, market conditions or the unavailability of satisfactory oil
and gas transportation arrangements may hinder our access to oil and gas markets
or delay our production. The availability of a ready market for our oil and gas
production depends on a number of factors, including the demand for and supply
of oil and gas and the proximity of reserves to pipelines and terminal
facilities. Our ability to market our production depends in substantial part on
the availability and capacity of gathering systems, pipelines and processing
facilities, in some cases owned and operated by third parties. Our failure to
obtain such services on acceptable terms could materially harm our business. We
may be required to shut in wells for lack of a market or because of inadequacy
or unavailability of pipelines or gathering system capacity. If that occurs, we
would be unable to realize revenue from those wells until arrangements are made
to deliver our production to market.

Our future performance is dependent upon our ability to identify, acquire and
develop oil and gas properties.

      Our future performance depends upon our ability to identify, acquire and
develop oil and gas reserves that are economically recoverable. Our success will
depend upon our ability to acquire working and revenue interests in properties
upon which oil and gas reserves are ultimately discovered in commercial
quantities, and our ability to develop prospects that contain proven oil and gas
reserves to the point of production. Without successful acquisition and
exploration activities, we will not be able to develop oil and gas reserves or
generate revenues. We cannot provide you with any assurance that we will be able
to identify and acquire oil and gas reserves on acceptable terms, or that oil
and gas deposits will be discovered in sufficient quantities to enable us to
recover our exploration and development costs or sustain our business.

                                       3
<PAGE>

      The successful acquisition and development of oil and gas properties
requires an assessment of recoverable reserves, future oil and gas prices and
operating costs, potential environmental and other liabilities, and other
factors. Such assessments are necessarily inexact and their accuracy inherently
uncertain. In addition, no assurance can be given that our exploitation and
development activities will result in the discovery of any reserves. Our
operations may be curtailed, delayed or canceled as a result of lack of adequate
capital and other factors, such as title problems, weather, compliance with
governmental regulations or price controls, mechanical difficulties, or unusual
or unexpected formations, pressures or and work interruptions. In addition, the
costs of exploitation and development may materially exceed our initial
estimates.

We rely heavily upon reserve estimates when determining whether or not to
acquire or invest in a particular oil or gas property.

      The oil and gas reserve information that we present in our filings with
the Securities and Exchange Commission ("SEC") and use in evaluating oil and gas
prospects is based on reserve estimates involving a great deal of subjectivity.
Different reserve engineers may make different estimates of reserves and cash
flows based on the same available data. Reserve estimates depend in large part
upon the reliability of available geologic and engineering data which is
inherently imprecise. Geologic and engineering data are used to determine the
probability that a reservoir of oil and natural gas exists at a particular
location, and whether oil and natural gas are recoverable from a reservoir.
Recoverability is ultimately subject to the accuracy of data including, but not
limited to the following:

      o     geological characteristics of the reservoir structure;

      o     reservoir fluid properties;

      o     the size and boundaries of the drainage area;

      o     reservoir pressure; and

      o     the anticipated rate of pressure depletion.

      The evaluation of these and other factors is based upon available seismic
data, computer modeling, well tests and information obtained from production of
oil and natural gas from adjacent or similar properties, but the probability of
the existence and recoverability of reserves is less than 100% and actual
recoveries of proved reserves usually differ from estimates.

      Reserve estimates also require numerous assumptions relating to operating
conditions and economic factors, including:

      o     the price at which recovered oil and natural gas can be sold;

      o     the costs of recovery;

      o     assumptions concerning future operating costs, severance and excise
            taxes, development costs and workover and remedial costs;

      o     prevailing environmental conditions associated with drilling and
            production sites;

      o     availability of enhanced recovery techniques, ability to transport
            oil and natural gas to markets and governmental regulation; and

                                       4
<PAGE>

      o     other regulatory factors, such as taxes and environmental laws.

      A negative change in any one or more of these factors could result in
quantities of oil and natural gas previously estimated as proved reserves
becoming uneconomic to produce. For example, a decline in the market price of
oil or natural gas to an amount that is less than the cost of recovery of such
oil and natural gas in a particular location could make production commercially
impracticable. The risk that a decline in price could have that effect is
magnified in the case of reserves requiring sophisticated or expensive
production enhancement technology and equipment, such as some types of heavy
oil. Each of these factors, by having an impact on the cost of recovery and the
rate of production, will also affect the present value of future net cash flows
from estimated reserves. In addition, the 10% discount factor, which is required
by the SEC to be used to calculate discounted future net cash flows for
reporting purposes, is not necessarily the most appropriate discount factor
based on interest rates in effect from time to time and risks associated with us
or the oil and gas industry in general.

We have a very small management team and the loss of any member of this team may
prevent us from implementing our business plan in a timely manner.

      We have two executive officers and a limited number of additional
employees and consultants. Our success depends largely upon the continued
services of these individuals, particularly our executive officers. Although we
have an employment agreement with our chief executive officer, we do not
maintain key person life insurance policies on any of our officers. The loss of
one or more of these individuals could seriously harm our business, financial
condition and results of operations. In such an event, we may not be able to
recruit personnel to replace these individuals in a timely manner, or at all, on
acceptable terms.

Our continued growth could strain our personnel and infrastructure resources,
and if we are unable to implement appropriate controls and procedures to manage
our growth, we may not be able to successfully implement our business plan.

      We continue to experience rapid growth in our operations, which has
placed, and will continue to place, a significant strain on our management,
administrative, operational and financial infrastructure. Our future success
will depend in part upon the ability of our executive officers to manage growth
effectively. This may require us to hire and train additional personnel to
manage our expanding operations. In addition, we must continue to improve our
operational, financial and management controls and our reporting systems and
procedures. If we fail to successfully manage our growth, we may be unable to
execute upon our business plan.

The geographic concentration of substantially all of our properties in Texas,
Louisiana and Mississippi subjects us to an increased risk of loss of revenue or
curtailment of production from factors affecting that region.

      The geographic concentration of substantially all of our projects in the
states of Texas, Louisiana and Mississippi means that some or all of our
properties could be affected by the same event should the region experience:

                                       5
<PAGE>

      o     severe weather;

      o     delays or decreases in production, the availability of equipment,
            facilities or services;

      o     delays or decreases in the availability of capacity to transport,
            gather or process production; or

      o     changes in the regulatory environment.

Because substantially all of our properties could experience the same condition
at the same time, these conditions could have a relatively greater impact on our
results of operations than they might have had our properties been dispersed
over a greater geographic area.

      In addition, our ability to add reserves through drilling is dependent
upon our ability to timely obtain drilling permits and regulatory approvals. The
permitting and approval process has been more difficult in recent years due to
increased activism from environmental and other groups and has extended the time
it takes to receive permits. Because of our relatively small size and
concentrated property base, we can be disproportionately disadvantaged by delays
in obtaining or failing to obtain drilling approvals compared to companies with
larger or more dispersed property bases. For example, we are less able to shift
drilling activities to areas where permitting may be easier, and we have fewer
properties over which to spread the costs of complying with these regulations
and the cost of foregone opportunities resulting from delays.

We may be unable to identify liabilities associated with the properties we
acquire or obtain protection from sellers against such liabilities.

      The properties we acquire may be subject to liabilities that we are unable
to identify or from which we are unable to obtain protection from the seller.
Our reviews of acquired properties are inherently incomplete because it is not
generally feasible to review in depth every individual property involved in each
acquisition. Our assessment may not reveal all existing or potential problems,
nor will it permit us to become familiar enough with the properties to assess
fully their capabilities and deficiencies. Inspections may not reveal structural
or environmental problems, such as pipeline corrosion or groundwater
contamination, when they are made. Even a detailed review of records and
properties may not necessarily reveal existing or potential problems, nor will
it permit us to become sufficiently familiar with the properties to assess fully
their deficiencies and potential.

      In addition, we may not be able to obtain contractual indemnities from the
seller for liabilities that it created. We often assume certain environmental
and other risks and liabilities in connection with the acquired properties. We
may also be required to assume the risk of the physical condition of the
properties in addition to the risk that they may not perform in accordance with
our expectations.

                                       6
<PAGE>

The oil and gas exploration and production industry historically is a cyclical
industry and market fluctuations in the prices of oil and gas could adversely
affect our business.

      Prices for oil and gas tend to fluctuate significantly in response to
factors beyond our control. These factors include, but are not limited to:

      o     weather conditions in the United States and elsewhere;

      o     economic conditions in the United States and elsewhere;

      o     actions by OPEC, the Organization of Petroleum Exporting Countries;

      o     political instability in the Middle East and other major oil and gas
            producing regions;

      o     governmental regulations, both domestic and foreign;

      o     domestic and foreign tax policy;

      o     the pace adopted by foreign governments for the exploration,
            development, and production of their national reserves;

      o     the price of foreign imports of oil and gas;

      o     the cost of exploring for, producing and delivering oil and gas;

      o     the discovery rate of new oil and gas reserves;

      o     the rate of decline of existing and new oil and gas reserves;

      o     available pipeline and other oil and gas transportation capacity;

      o     the ability of oil and gas companies to raise capital;

      o     the overall supply and demand for oil and gas; and

      o     the availability of alternate fuel sources.

      Changes in commodity prices may significantly affect our capital
resources, liquidity and expected operating results. Price changes directly
affect revenues and can indirectly impact expected production by changing the
amount of funds available to reinvest in exploration and development activities.
Reductions in oil and gas prices not only reduce revenues and profits, but could
also reduce the quantities of reserves that are commercially recoverable.
Significant declines in prices could result in non-cash charges to earnings due
to impairment. We do not currently engage in any hedging program to mitigate our
exposure to fluctuations in oil and gas prices.

      Changes in commodity prices may also significantly affect our ability to
estimate the value of producing properties for acquisition and divestiture and
often cause disruption in the market for oil and gas producing properties, as
buyers and sellers have difficulty agreeing on the value of the properties.
Price volatility also makes it difficult to budget for and project the return on
acquisitions and the development and exploitation of projects. We expect that
commodity prices will continue to fluctuate significantly in the future.

                                       7
<PAGE>

Our ability to produce sufficient quantities of oil and gas from our properties
may be adversely affected by a number of factors outside of our control.

      The business of exploring for and producing oil and gas involves a
substantial risk of investment loss. Drilling oil and gas wells involves the
risk that the wells may be unproductive or that, although productive, the wells
may not produce oil and/or gas in economic quantities. Other hazards, such as
unusual or unexpected geological formations, pressures, fires, blowouts, loss of
circulation of drilling fluids or other conditions may substantially delay or
prevent completion of any well. Adverse weather conditions can also hinder
drilling operations. A productive well may become uneconomic if water or other
deleterious substances are encountered that impair or prevent the production of
oil and/or gas from the well. In addition, production from any well may be
unmarketable if it is impregnated with water or other deleterious substances.
There can be no assurance that oil and gas will be produced from the properties
in which we have interests. In addition, the marketability of oil and gas that
may be acquired or discovered may be influenced by numerous factors beyond our
control. These factors include the proximity and capacity of oil and gas
pipelines and processing equipment, market fluctuations in oil and gas prices,
taxes, royalties, land tenure, allowable production and environmental
protection. We cannot predict how these factors may affect our business.

We are dependent upon the efforts of various third parties that we do not
control and, as a result, we may not be able to control the timing of
development efforts, the associated costs, or the rate of production of
reserves.

      The success of our business is dependent upon the efforts of various third
parties that we do not control. We serve as the operator for the Vicksburg
Project, Wharton Project, Maverick Basin Project, Martinez Ranch Project and
Pierce Ranch Project. We do not serve as the operator for the remaining
projects. As a result, we may have limited ability to exercise influence over
the operations of some non-operated properties or their associated costs. Our
dependence on the operator and other working interest owners for these projects
and our limited ability to influence operations and associated costs could
prevent the realization of our targeted returns on capital in drilling or
acquisition activities. The success and timing of development and exploitation
activities on properties operated by others depend upon a number of factors that
will be largely outside of our control, including:

      o     the timing and amount of capital expenditures;

      o     the operator's expertise and financial resources;

      o     approval of other participants in drilling wells;

      o     selection of technology;

      o     the rate of production of the reserves; and

      o     the availability of suitable offshore drilling rigs, drilling
            equipment, production and transportation infrastructure, and
            qualified operating personnel.

                                       8
<PAGE>

      We rely upon various companies to assist us in identifying desirable oil
and gas prospects to acquire and to provide us with technical assistance and
services. We also rely upon the services of geologists, geophysicists, chemists,
engineers and other scientists to explore and analyze oil and gas prospects to
determine a method in which the oil and gas prospects may be developed in a
cost-effective manner. Although we have developed relationships with a number of
third-party service providers, we cannot assure you that we will be able to
continue to rely on such persons. If any of these relationships with third-party
service providers are terminated or are unavailable on commercially acceptable
terms, we may not be able to execute our business plan.

The unavailability or high cost of drilling rigs, equipment, supplies, personnel
and oil field services could adversely affect our ability to execute our
exploration and development plans on a timely basis and within our budget.

      Shortages or the high cost of drilling rigs, equipment, supplies or
personnel could delay or adversely affect our exploitation and exploration
operations, which could have a material adverse effect on our business,
financial condition and results of operations. Since our operations and
properties are concentrated in Texas, Louisiana and Mississippi, we could be
materially and adversely affected if the unavailability or high cost of rigs,
equipment supplies or personnel is particularly severe in this region. We must
currently schedule rigs several months in advance to ensure availability for a
particular project.

We may be required to write-down the carrying values and/or estimates of total
reserves of our oil and gas properties.

      Accounting rules applicable to us require that we review periodically the
carrying value of our oil and gas properties for possible impairment. Based on
specific market factors and circumstances at the time of prospective impairment
reviews and the continuing evaluation of development plans, production data,
economics and other factors, we may be required to write down the carrying value
of our oil and gas properties.

      For our fiscal year ended December 31, 2004, we recorded impairment
charges of $315,322 related primarily to an impairment of the carrying value of
unproved properties acquisition and drilling costs incurred in PHT West Pleito,
LLC and the carrying value of our equity investment in the Stent Project. During
the nine-month period ended September 30, 2005, we recorded impairment charges
of $1,185,684. A write-down constitutes a noncash charge to earnings. See "Item
6. Management's Discussion and Analysis - Critical Accounting Policies -
Impairment of Properties" of our Annual Report on Form 10-KSB for a discussion
of when and how impairment of properties charges are determined. We may incur
noncash charges for impairment of our properties in the future, which could have
a material adverse effect on our results of operations in the period taken. We
may also reduce our estimates of the reserves that may be economically
recovered, which could have the effect of reducing the total value of our
reserves.

We may be unable to retain our leases and working interests in leases.

      Some of our properties are held under leases and working interests in
leases. If we or the holder of the lease fail to meet the specific requirements
of each lease, such lease may terminate or expire. We cannot assure you that any
of the obligations required to maintain each lease will be met. The termination
or expiration of our leases or our working interest relating to a lease may harm
our business. Some of our property interests will terminate unless we fulfill
certain obligations under the terms of our agreements related to such
properties. If we are unable to satisfy these conditions on a timely basis, we
may lose our rights in these properties. The termination of our interests in
these properties may harm our business.

                                       9
<PAGE>

      In addition, we will need significant funds to meet capital calls,
drilling and production costs on our various interests in oil and gas prospects
to explore, produce, develop, and eventually sell the underlying natural gas and
oil products. Specifically, we expect to incur capital calls and production
costs of approximately $19 million with respect to our various limited
partnership and limited liability company interests during the next 12 months.
If any of the other owners of the leasehold interests in any of the projects in
which we participate, or any of the limited partners or membership interest
holders in the limited partnerships or limited liability companies,
respectively, in which we own an interest fails to pay its equitable portion of
development costs or capital calls, we may need to pay additional funds to
protect our ownership interests.

Title deficiencies could render our leases worthless.

      The existence of a material title deficiency can render a lease worthless
and can result in a large expense to our business. It is our practice in
acquiring oil and gas leases or undivided interests in oil and gas leases to
forgo the expense of retaining lawyers to examine the title to the oil or gas
interest to be placed under lease or already placed under lease. Instead, we
rely upon the judgment of oil and gas lease brokers or landmen who perform the
field work in examining records in the appropriate governmental office before
attempting to place under lease a specific oil or gas interest. This is
customary practice in the oil and gas industry. However, we do not anticipate
that we, or the person or company acting as operator of the wells located on the
properties that we intend to lease, will obtain counsel to examine title to the
lease until the well is about to be drilled. As a result, we may be unaware of
deficiencies in the marketability of the title to the lease. Such deficiencies
may render the lease worthless.

If we or our operators fail to maintain adequate insurance, our business could
be materially and adversely affected.

      Our operations are subject to risks inherent in the oil and gas industry,
such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or
well fluids, fires, pollution, earthquakes and other environmental risks. These
risks could result in substantial losses due to injury and loss of life, severe
damage to and destruction of property and equipment, pollution and other
environmental damage, and suspension of operations. Any offshore operations that
we engage in will be subject to a variety of operating risks peculiar to the
marine environment, such as hurricanes or other adverse weather conditions, to
more extensive governmental regulation, including regulations that may, in
certain circumstances, impose strict liability for personal injuries, property
damage, oil spills, discharge of hazardous materials, remediation and clean-up
costs, and other environmental damages. We could be liable for environmental
damages caused by previous property owners. As a result, substantial liabilities
to third parties or governmental entities may be incurred, the payment of which
could have a material adverse effect on our financial condition and results of
operations.

                                       10
<PAGE>

      For the projects for which we act as the operator, we maintain insurance
coverage for our operations with policy limits and retention liability customary
in the industry, including limited coverage for sudden environmental damages and
for existing contamination. We do not believe that insurance coverage for
environmental damages that occur over time or insurance coverage for the full
potential liability that could be caused by sudden environmental damages is
available at a reasonable cost. As a result, we may be subject to liability or
may lose substantial portions of our properties in the event of certain
environmental damages.

      In the projects in which we own an equity interest in a limited
partnership that owns a non-operating interest, the operator for the prospect
maintains insurance of various types to cover our operations with policy limits
and retention liability customary in the industry. We believe the coverage and
types of insurance maintained by the operators of such prospects are adequate
and, therefore, have not acquired our own insurance coverage for such prospects.
The occurrence of a significant adverse event on such prospects that is not
fully covered by insurance could result in the loss of all or part of our
investment in a particular prospect which could have a material adverse effect
on our financial condition and results of operations.

Complying with environmental and other government regulations could be costly
and could negatively impact our production.

      Our business is governed by numerous laws and regulations at various
levels of government in the countries in which we operate. These laws and
regulations govern the operation and maintenance of our facilities, the
discharge of materials into the environment and other environmental protection
issues. Such laws and regulations may, among other potential consequences,
require that we acquire permits before commencing drilling, restrict the
substances that can be released into the environment with drilling and
production activities, limit or prohibit drilling activities on protected areas
such as wetlands or wilderness areas, require that reclamation measures be taken
to prevent pollution from former operations, require remedial measures to
mitigate pollution from former operations, such as plugging abandoned wells and
remediating contaminated soil and groundwater, and require remedial measures to
be taken with respect to property designated as a contaminated site.

      Under these laws and regulations, we could be liable for personal injury,
clean-up costs and other environmental and property damages, as well as
administrative, civil and criminal penalties. We maintain limited insurance
coverage for sudden and accidental environmental damages as well as
environmental damage that occurs over time. However, we do not believe that
insurance coverage for the full potential liability of environmental damages is
available at a reasonable cost. Accordingly, we could be liable, or could be
required to cease production on properties, if environmental damage occurs.

      The costs of complying with environmental laws and regulations in the
future may harm our business. Furthermore, future changes in environmental laws
and regulations could occur that result in stricter standards and enforcement,
larger fines and liability, and increased capital expenditures and operating
costs, any of which could have a material adverse effect on our financial
condition or results of operations.

                                       11
<PAGE>

The oil and gas industry is highly competitive.

      The oil and gas industry is highly competitive. We compete with oil and
natural gas companies and other individual producers and operators, many of
which have longer operating histories and substantially greater financial and
other resources than we do, as well as companies in other industries supplying
energy, fuel and other needs to consumers. Many of these companies not only
explore for and produce crude oil and natural gas, but also carry on refining
operations and market petroleum and other products on a worldwide basis. Our
larger competitors, by reason of their size and relative financial strength, can
more easily access capital markets than we can and may enjoy a competitive
advantage in the recruitment of qualified personnel. They may be able to absorb
the burden of any changes in laws and regulation in the jurisdictions in which
we do business and handle longer periods of reduced prices for oil and gas more
easily than we can. Our competitors may be able to pay more for 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 we can. Further,
these companies may enjoy technological advantages and may be able to implement
new technologies more rapidly than we can. Our ability to acquire additional
properties in the future will depend upon our ability to conduct efficient
operations, evaluate and select suitable properties, implement advanced
technologies and consummate transactions in a highly competitive environment.

Our international investments in oil and gas interests may be subject to risks
associated with the legal, tax, economic and political environment of the
country in which the interest is located.

      Our foreign investments may be subject to certain risks, including
uncertain political, economic, legal and tax environments and expropriation and
nationalization of assets. We attempt to conduct our business and financial
affairs so as to protect against political and economic risks applicable to
operations in the various countries where we operate, but there can be no
assurance that we will be successful in protecting against such risks.

      Our international assets and operations are subject to various political,
economic and other uncertainties, including, among other things, the risks of
war, expropriation, nationalization, renegotiation or nullification of existing
contracts, taxation policies, foreign exchange restrictions, changing political
conditions, international monetary fluctuations, currency controls and foreign
regulations that favor or require the awarding of drilling contracts to local
contractors or require foreign contractors to employ citizens of, or purchase
supplies from, a particular jurisdiction. In addition, if a dispute arises with
foreign operations, we may be subject to the exclusive jurisdiction of foreign
courts or may not be successful in subjecting foreign persons, especially
foreign oil ministries and national oil companies, to the jurisdiction of the
United States.

                                       12
<PAGE>

      Our private ownership of oil and gas reserves under oil and gas leases in
the United States differs distinctly from our ownership of oil and gas
properties in foreign countries. In the foreign countries in which we may
operate, the state generally retains ownership of the reserves and consequently
retains control of, and in many cases participates in, the exploration and
production of hydrocarbon reserves. Accordingly, operations outside the United
States and estimates of reserves attributable to properties located outside the
United States may be materially affected by host governments through royalty
payments, export taxes and regulations, surcharges, value-added taxes,
production bonuses and other charges.

                   Risks Related to the Offering and Our Stock

There is no minimum offering amount and even if all Units included in this
Offering, we will not have sufficient funds to satisfy our expected expenditures
related to our current projects or repay our outstanding indebtedness.

      We currently do not have the funds available to meet existing and expected
expenditures related to our existing projects or to repay outstanding
indebtedness over the next 12 months. Funds received in payment for the Units
will be released to us upon execution of the Securities Purchase Agreement to
which this Memorandum is attached. We are not required to raise any minimum
amount of proceeds prior to obtaining such funds. Because there is no minimum
amount of Units we must sell before accepting funds in the Offering, investors
participating in the Offering will not be assured that we will have sufficient
funds to execute our business plan, satisfy expected capital expenditures, repay
indebtedness as it becomes due, and support operations over the next 12 months
and will bear the risk that we will be unable to secure the funds necessary to
meet our current and anticipated capital obligations. Even if we sell all of the
Units included in this Offering, we will need to raise additional financing
within the next 12 months. We can give no assurances that we will be able to do
so on terms acceptable to us, if at all. If we are unable to do so, we could
lose some or all of our entire ownership interest in certain of our projects and
be liable for damages.

The offering price of the Units has been arbitrarily determined.

      The offering price of the Units has been arbitrarily determined by us and
bears no relationship to our assets, net worth, book value, potential business
operations or other recognized criteria of value. The offering price should,
therefore, not be taken to be an indication of the actual value of the Company
or the Units offered hereby.

Investors in this Offering will suffer immediate and substantial dilution in net
tangible book value per share.

      Investors in this Offering will suffer an immediate and substantial
dilution in the net tangible book value per share of the shares of our common
stock contained in the Units. Net tangible book value per share of common stock
is determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) on a particular date, by the number of
shares of common stock outstanding on such date. Dilution is the difference
between the offering price of a security and the net tangible book value of that
security immediately after the offering, giving effect to the receipt of net
proceeds in the offering. The net tangible book value of our common stock is
substantially less than the offering price of the Units. Investors in this
Offering may also suffer further dilution if we sell additional equity or
convertible securities following completion of this Offering.

                                       13
<PAGE>

Investors in this Offering may experience dilution of their ownership interests
due to the issuance of additional shares of our Common Stock.

      We may in the future issue our previously authorized and unissued
securities which will result in the dilution of the ownership interests of our
present stockholders. We are currently authorized to issue 150,000,000 shares of
common stock and 5,000,000 shares of preferred stock with such designations,
preferences and rights as determined by our board of directors. As of November
14, 2005 we have issued 68,639,758 shares of common stock, options to purchase
an additional 5,217,540 shares of common stock, warrants to purchase an
additional 15,159,893 shares of common stock, notes convertible into an
additional 3,277,778 shares of common stock, and preferred stock convertible
into an additional 7,100,630 shares of our common stock. Assuming the exercise
or conversion, as applicable, of the all of the forgoing securities, we would
have 99,395,599 outstanding shares of common stock. If all of the Units are sold
in the Offering, we would be issuing an additional 21,677,778 shares of common
stock and may be required to issue up to 10,838,889 additional shares of common
stock upon exercise of warrants included in the Units. Issuance of these shares
will substantially dilute the ownership interests of our existing stockholders.
The potential issuance of such additional shares of common stock may also create
downward pressure on the trading price of our common stock. We may also issue
additional shares of our stock in connection with the hiring of personnel,
future acquisitions, future private placements of our securities, for capital
raising purposes, or for other business purposes. This may further dilute the
interests of our existing holders.

Purchasers of Units may have to bear the risk of such investment for an
indefinite period of time as federal and applicable state securities laws impose
substantial restrictions on the resale of the common stock.

      The Units offered hereby have not been registered under the Securities Act
or any state securities or blue-sky law and constitute "restricted securities"
under applicable federal securities laws. As a result, subscribers for the Units
may not sell or otherwise transfer such securities except pursuant to
registration under the Securities Act and any applicable state securities laws
or an exemption therefrom. Because of such restrictions, a subscriber for the
Units must bear the economic risks of such investment for an indefinite period
of time. Although we have agreed to register the public resale of the shares of
common stock and shares issuable upon exercise of the warrants included in the
Units, there can be no assurance as to when such a registration statement will
become effective or whether there will be a public trading market for our common
stock at such time. The influx into the market of such a significant number of
shares could have an adverse effect on the market prior to the Company
registering the public resale of such shares.

No legal or tax advice.

      An investment in the Units may involve certain material federal and state
tax consequences. Prospective investors should not rely on this Memorandum or
the Securities Purchase Agreement for legal, tax or business advice. Prospective
investors in the Offering should consult with their respective legal counsel,
accountant or business adviser as to legal, tax and related matters concerning
investment in the Units offered hereby.

                                       14
<PAGE>

There is no significant market for our common stock.

      There is no active trading market for our common stock. Our common stock
is not eligible for trading on any national or regional securities exchange or
the Nasdaq Stock Market. Our common stock is eligible for trading on the OTC
Bulletin Board. This market tends to be substantially less liquid than national
and regional securities exchanges or the Nasdaq Stock Market. We cannot provide
you with any assurance that an active trading market for our common stock will
develop, or if such a market develops, that it will be sustained.

Applicable SEC Rules governing the trading of "penny stocks" limits the trading
and liquidity of our common stock which may affect the trading price of our
common stock.

      Our common stock currently trades on the OTC Bulletin Board. Since our
common stock continues to trade below $5.00 per share, our common stock is
considered a "penny stock" and is subject to SEC rules and regulations that
impose limitations upon the manner in which our shares can be publicly traded.
These regulations require the delivery, prior to any transaction involving a
penny stock, of a disclosure document explaining the penny stock market and the
associated risks. Under these regulations, brokers who recommend penny stocks to
persons other than established customers or certain accredited investors must
make a special written suitability determination for the purchaser and receive
the purchaser's written agreement to a transaction prior to sale. These
regulations may have the effect of restricting the ability of brokers to sell
our shares of common stock which will have the effect of limiting the trading
activity of our common stock and reducing the liquidity of an investment in our
common stock.

We intend to raise additional capital in the future, and such additional capital
may be dilutive to stockholders or impose operational restrictions.

      We intend to raise additional capital in the future to help fund our
operations through sales of shares of our common stock or securities convertible
into shares of our common stock, as well as issuances of debt. Additional equity
financing may be dilutive to our stockholders and debt financing, if available,
may involve restrictive covenants that may limit our operating flexibility. If
additional capital is raised through the issuance of shares of our common stock
or securities convertible into shares of our common stock, the percentage
ownership of our stockholders will be reduced. These stockholders may experience
additional dilution in net book value per share and any additional equity
securities may have rights, preferences and privileges senior to those of the
holders of our common stock.

The trading price of our common stock is likely to be highly volatile.

      The trading price of our shares has from time to time fluctuated widely
and in the future may be subject to similar fluctuations. The trading price may
be affected by a number of factors including events described in the risk
factors set forth in this report as well as our operating results, financial
condition, announcements regarding our oil and gas activities, general
conditions in the oil and gas exploration and development industry, and other
events or factors. In addition, the stock market has experienced significant
price and volume fluctuations that have particularly affected the price of many
small capitalization companies and that often have been unrelated or
disproportionate to the operating performance of these companies. Market
fluctuations such as these may seriously harm the market price of our common
stock. Further, securities class action suits have been filed against companies
following periods of market volatility in the price of their securities. If such
an action is instituted against us, we may incur substantial costs and a
diversion of management attention and resources, which would seriously harm our
business, financial condition and results of operations.

                                       15
<PAGE>

We do not intend to pay dividends in the foreseeable future.

      We have never declared or paid a dividend on our common stock. We intend
to retain earnings, if any, for use in the operation and expansion of our
business and, therefore, do not anticipate paying any dividends in the
foreseeable future. In addition, the terms of our Series A Convertible Preferred
Stock prevent us from declaring or paying any dividends on our common stock
unless and until all accrued or declared and unpaid dividends on such shares
have been paid in full. As a result, in the event we have retained earnings
available for distribution as dividends, we must first pay any accrued or
declared and unpaid dividends on any outstanding shares of Series A Convertible
Preferred Stock before we pay any dividends on shares of our commonstock.

                                       16

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