Document:

THIS WARRANT HAS NOT BEEN REGISTERED
                        UNDER THE SECURITIES ACT OF 1933
                             AND IS NOT TRANSFERABLE
                            EXCEPT AS PROVIDED HEREIN

                               Vaughan Foods, Inc.

                                PURCHASE WARRANT

                                   Issued to:

                        PAULSON INVESTMENT COMPANY, INC.

                             Exercisable to Purchase

                                  277,778 Units

                                       of

                               VAUGHAN FOODS, INC.

                            Void after ________, 2011

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     This is to certify that, for value received and subject to the terms and
conditions set forth below, the Warrantholder (hereinafter defined) is entitled
to purchase, and the Company promises and agrees to sell and issue to the
Warrantholder, at any time on or after ________, 2007 and on or before ________,
2012, up to 277,778 Units (hereinafter defined) at the Exercise Price
(hereinafter defined).

     This Warrant Certificate is issued subject to the following terms and
conditions:

     1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:

          (a) "Act" means the Securities Act of 1933, as amended.

          (b) "Cashless Exercise" means an exercise of Warrants in which, in
lieu of payment of the Exercise Price, the Holder elects to receive a lesser
number of Securities such that the value of the Securities that such Holder
would otherwise have been entitled to receive but has agreed not to receive, as
determined by the closing price of such Securities on the date of exercise or,
if such date is not a trading day, on the next prior trading day, is equal to
the Exercise Price with respect to such exercise. A Holder may only elect a
Cashless Exercise if Securities issuable by the Company on such exercise are
publicly traded securities.

          (c) "Class A Warrant" means a warrant defined as a Class A Warrant in
the Warrant Agreement.

          (d) "Class B Warrant" means a warrant defined as a Class B Warrant in
the Warrant Agreement.

          (e) "Closing Date" means the date on which the Offering is closed.

          (f) "Commission" means the Securities and Exchange Commission.

          (g) "Common Stock" means the common stock, par value $0.001, of the
Company.

          (h) "Company" means Vaughan Foods, Inc., an Oklahoma corporation.

          (i) "Company's Expenses" means any and all expenses payable by the
Company or the Warrantholder in connection with an offering described in Section
6 hereof, except Warrantholder's Expenses.

          (j) "Corporate Financing Rule" means Rule 2710 of the rules of the
National Association of Securities Dealers, Inc.

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<PAGE>

          (k) "Effective Date" means the date on which the Registration
Statement is declared effective by the Commission.

          (l) "Exercise Price" means the price at which the Warrantholder may
purchase one Unit upon exercise of Warrants as determined from time to time
pursuant to the provisions hereof. The initial Exercise Price is $_____ per
Unit.

          (m) "Offering" means the public offering of Units made pursuant to the
Registration Statement.

          (n) "Participating Underwriter" means any underwriter participating in
the sale of the Securities pursuant to a registration under Section 6 of this
Warrant Certificate.

          (o) "Registration Statement" means the Company's registration
statement (File No. 333 -______) as amended on the Closing Date.

     (p) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.

          (q) "Securities" means the securities obtained or obtainable upon
exercise of the Warrant or securities obtained or obtainable upon exercise,
exchange, or conversion of such securities.

          (r) "Unit" means one share of Common Stock, one redeemable Class A
Warrant and one redeemable Class B Warrants.

          (s) "Unit Warrant" means either a Class A Warrant or a Class B
Warrant.

          (t) "Warrant Agreement" means that certain Warrant Agreement, dated as
of _______, 2006, by and between the Company and ___________________ relating to
the issuance of Unit Warrants.

          (u) "Warrant Certificate" means a certificate evidencing the Warrant.

          (v) "Warrantholder" means a record holder of the Warrant or
Securities. The initial Warrantholder is Paulson Investment Company, Inc.

          (w) "Warrantholder's Expenses" means the sum of (i) the aggregate
amount of cash payments made to an underwriter, underwriting syndicate, or agent
in connection with an offering described in Section 6 hereof multiplied by a
fraction the numerator of which is the aggregate sales price of the Securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
the denominator of which is the aggregate sales price of all of the securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
(ii) all out-of-pocket expenses of the Warrantholder, except for the fees and
disbursements of one firm retained as legal counsel for the Warrantholder that
will be paid by the Company.

          (x) "Warrant" means the warrant evidenced by this certificate, any
similar certificate issued in connection with the Offering, or any certificate
obtained upon transfer or partial exercise of the Warrant evidenced by any such
certificate.

     2. EXERCISE OF WARRANT. All or any part of the Warrant represented by this
Warrant Certificate may be exercised commencing one year after the Effective
Date and

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<PAGE>

ending at 5 p.m. Pacific Time on the fifth anniversary of the Effective Date
(the "Expiration Date") by surrendering this Warrant Certificate, together with
appropriate instructions, duly executed by the Warrantholder or by its duly
authorized attorney, at the office of the Company, 216 N.E. 12th Street, Moore,
Oklahoma 73160, Attention: Chief Executive Officer; or at such other office or
agency as the Company may designate. The date on which such instructions are
received by the Company shall be the date of exercise. If the Holder has elected
a Cashless Exercise, such instructions shall so state. Subject to the provisions
below, upon receipt of notice of exercise, the Company shall immediately
instruct its transfer agent to prepare certificates for the Securities to be
received by the Warrantholder upon completion of the Warrant exercise. When such
certificates are prepared, the Company shall notify the Warrantholder and
deliver such certificates to the Warrantholder or as per the Warrantholder's
instructions immediately upon payment in full by the Warrantholder, in lawful
money of the United States, of the Exercise Price payable with respect to the
Securities being purchased, if any. If the Warrantholder shall represent and
warrant that all applicable registration and prospectus delivery requirements
for their sale have been complied with upon sale of the Securities received upon
exercise of the Warrant, such certificates shall not bear a legend with respect
to the Act.

     If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver to
the Warrantholder a new Warrant Certificate (dated the date hereof), in form and
tenor similar to this Warrant Certificate, evidencing that portion of the
Warrant not exercised. The Securities to be obtained on exercise of the Warrant
will be deemed to have been issued, and any person exercising the Warrant will
be deemed to have become a holder of record of those Securities, as of the date
of the payment of the Exercise Price.

     Notwithstanding the foregoing, in no event shall such Securities be issued,
and the Company is authorized to refuse to honor the exercise of the Warrant, if
such exercise would result in the opinion of the Company's Board of Directors,
upon advice of counsel, in the violation of any law. In any such event, if the
Warrant is exercisable solely for Securities listed on a securities exchange or
for which there are at least three independent market makers, the Company may
elect to redeem the Warrant submitted for exercise for a price equal to the
difference between the aggregate low asked price, or closing price, as the case
may be, of the Securities for which the Warrant is exercisable on the date of
exercise and the Exercise Price; in the event of such redemption, the Company
will pay to the holder of the Warrant the above-described redemption price in
cash within 10 business days after receipt of notice of exercise. If the Company
shall fail to honor any exercise of the Warrant as provided above, then (i) the
Company shall use its best efforts to cause the exercise of the Warrant to be
lawful at the earliest practicable time and (ii) the Warrant and its associated
registration rights shall not expire until the tenth business day following the
date on which the Company notifies the Warrantholder that the Warrant may be
lawfully exercised.

     3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of
Securities for which this Warrant Certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:

          (a) If the outstanding shares of the Company's Common Stock are
divided into a greater number of shares or a dividend in stock is paid on the
Common Stock, the number of shares of Common Stock for which the Warrant is then
exercisable will be proportionately increased and the Exercise Price will be
proportionately reduced; and, conversely, if the outstanding shares of Common
Stock are combined into a smaller number of shares of Common Stock, the number
of shares of Common Stock for which the Warrant is then exercisable will be
proportionately reduced and the Exercise Price will be proportionately
increased. The increases and reductions provided for in this Section 3(a) will
be made with the intent and, as nearly as

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<PAGE>

practicable, the effect that neither the percentage of the total equity of the
Company obtainable on exercise of the Warrants nor the price payable for such
percentage upon such exercise will be affected by any event described in this
Section 3(a).

          (b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or other
change in the capital structure of the Company, other than changes in par value,
then, as a condition of such change, lawful and adequate provision will be made
so that the holder of this Warrant Certificate will have the right thereafter to
receive upon the exercise of the Warrant the kind and amount of shares of stock
or other securities or property to which he would have been entitled if,
immediately prior to such event, he had held the number of shares of Common
Stock obtainable upon the exercise of the Warrant. In any such case, appropriate
adjustment will be made in the application of the provisions set forth herein
with respect to the rights and interest thereafter of the Warrantholder, to the
end that the provisions set forth herein will thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the exercise of the Warrant. The Company
will not permit any change in its capital structure to occur unless the issuer
of the shares of stock or other securities to be received by the holder of this
Warrant Certificate, if not the Company, agrees to be bound by and comply with
the provisions of this Warrant Certificate.

          (c) When any adjustment is required to be made in the number of shares
of Common Stock, other securities, or the property purchasable upon exercise of
the Warrant, the Company will promptly determine the new number of such shares
or other securities or property purchasable upon exercise of the Warrant and (i)
prepare and retain on file a statement describing in reasonable detail the
method used in arriving at the new number of such shares or other securities or
property purchasable upon exercise of the Warrant and (ii) cause a copy of such
statement to be mailed to the Warrantholder within thirty (30) days after the
date of the event giving rise to the adjustment.

          (d) No fractional shares of Common Stock or other securities will be
issued in connection with the exercise of the Warrant, but the Company will pay,
in lieu of fractional shares, a cash payment therefor on the basis of the mean
between the bid and asked prices of the Common Stock in the over-the-counter
market or the last sale price of the Common Stock on the principal exchange or
other trading facility on which the Common Stock is traded on the day
immediately prior to exercise.

          (e) If securities of the Company or securities of any subsidiary of
the Company are distributed pro rata to holders of Common Stock, such number of
securities will be distributed to the Warrantholder or its assignee upon
exercise of its rights hereunder as such Warrantholder or assignee would have
been entitled to if this Warrant Certificate had been exercised prior to the
record date for such distribution. The provisions with respect to adjustment of
the Common Stock provided in this Section 3 will also apply to the securities to
which the Warrantholder or its assignee is entitled under this Section 3(e).

          (f) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the sale by the Company of the Common
Stock or other Securities purchasable upon exercise of the Warrant.

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<PAGE>

          (g) If, immediately prior to any exercise of Warrants, there shall be
outstanding no securities of a class or series that, but for the provisions of
this Section 3, would be issuable upon such exercise (the "FORMERLY ISSUABLE
SECURITIES"), then, upon such exercise, and in lieu of the Formerly Issuable
Securities, the Company shall issue that number and kind of other securities or
property for which the Formerly Issuable Securities were most recently
exercisable or into which the Formerly Issuable Securities were most recently
convertible, as the case may be.

     4. RESERVATION OF SECURITIES. The Company agrees that the number of shares
of Common Stock or other Securities sufficient to provide for the exercise of
the Warrant upon the basis set forth above will at all times during the term of
the Warrant be reserved for exercise.

     5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of
the Warrant will be duly and validly issued in accordance with their terms, and
the Company will pay all documentary and transfer taxes, if any, in respect of
the original issuance thereof upon exercise of the Warrant.

     6. REGISTRATION OF SECURITIES ISSUABLE ON EXERCISE OF WARRANT CERTIFICATE.

          (a) The Company will register the Securities with the Commission
pursuant to the Act so as to allow the unrestricted sale of the Securities to
the public from time to time commencing on the first anniversary of the
Effective Date and ending at 5:00 p.m. Pacific Time on the fifth anniversary of
the Effective Date (the "REGISTRATION PERIOD"). The Company will also file such
applications and other documents necessary to permit the sale of the Securities
to the public during the Registration Period in those states in which the Units
were qualified for sale in the Offering or such other states as to which the
Company and the Warrantholder agree. In order to comply with the provisions of
this Section 6(a), the Company is not required to file more than one
registration statement. No registration right of any kind, "piggyback" or
otherwise, will last longer than five years from the Effective Date.

          (b) The Company will pay all of the Company's Expenses and each
Warrantholder will pay its pro rata share of the Warrantholder's Expenses
relating to the registration, offer, and sale of the Securities.

          (c) Except as specifically provided herein, the manner and conduct of
the registration, including the contents of the registration statement, will be
entirely in the control and at the discretion of the Company. The Company will
file such post-effective amendments and supplements as may be necessary to
maintain the currency of the registration statement during the period of its
use. In addition, if the Warrantholder participating in the registration is
advised by counsel that the registration statement, in their opinion, is
deficient in any material respect, the Company will use its best efforts to
cause the registration statement to be amended to eliminate the concerns raised.

          (d) The Company will furnish to the Warrantholder the number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably request
in order to facilitate the disposition of Securities owned by it.

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<PAGE>

          (e) The Company will, at the request of Warrantholders holding at
least 50 percent of the then outstanding Warrants, (i) furnish an opinion of the
counsel representing the Company for the purposes of the registration pursuant
to this Section 6, addressed to the Warrantholders and any Participating
Underwriter, (ii) furnish an appropriate letter from the independent public
accountants of the Company, addressed to the Warrantholders and any
Participating Underwriter, and (iii) make such representations and warranties to
the Warrantholders and any Participating Underwriter as are customarily given to
underwriters of public offerings of equity securities in connection with such
offerings. A request pursuant to this subsection (e) may be made on three
occasions. The documents required to be delivered pursuant to this subsection
(e) will be dated within ten days of the request and will be, in form and
substance, equivalent to similar documents furnished to the underwriters in
connection with the Offering, with such changes as may be appropriate in light
of changed circumstances.

     7. INDEMNIFICATION IN CONNECTION WITH REGISTRATION.

          (a) If any of the Securities are registered, the Company will
indemnify and hold harmless each selling Warrantholder, any person who controls
any selling Warrantholder within the meaning of the Act, and any Participating
Underwriter against any losses, claims, damages, or liabilities, joint or
several, to which any Warrantholder, controlling person, or Participating
Underwriter may be subject under the Act or otherwise; and it will reimburse
each Warrantholder, each controlling person, and each Participating Underwriter
for any legal or other expenses reasonably incurred by the Warrantholder,
controlling person, or Participating Underwriter in connection with
investigating or defending any such loss, claim, damage, liability, or action,
insofar as such losses, claims, damages, or liabilities, joint or several (or
actions in respect thereof), arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained, on the effective
date thereof, in any such registration statement or any preliminary prospectus
or final prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any case
to the extent that any loss, claim, damage, or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement, preliminary prospectus,
final prospectus, or any amendment or supplement thereto, in reliance upon and
in conformity with written information furnished by a Warrantholder for use in
the preparation thereof. The indemnity agreement contained in this subparagraph
(a) will not apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by the Company, such approval not to
be unreasonably withheld.

          (b) Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed any registration statement
or other filing or any amendment or supplement thereto, and any person who
controls the Company within the meaning of the Act, against any losses, claims,
damages, or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or action, insofar as such
losses, claims, damages, or liabilities (or actions in respect

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<PAGE>

thereof) arise out of or are based upon any untrue or alleged untrue statement
of any material fact contained in said registration statement, any preliminary
or final prospectus, or other filing, or any amendment or supplement thereto, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, preliminary or final prospectus, or other
filing, or amendment or supplement, in reliance upon and in conformity with
written information furnished by such Warrantholder for use in the preparation
thereof; provided, however, that the indemnity agreement contained in this
subparagraph (b) will not apply to amounts paid to any claimant in settlement of
any suit or claim unless such payment is first approved by the Warrantholder,
such approval not to be unreasonably withheld.

          (c) Promptly after receipt by an indemnified party under subparagraphs
(a) or (b) above of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, notify the indemnifying party of the commencement thereof; but the
omission to notify the indemnifying party will not relieve it from any liability
that it may have to any indemnified party otherwise than under subparagraphs (a)
and (b).

          (d) If any such action is brought against any indemnified party and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party; and after
notice from the indemnifying party to such indemnified party of its election to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.

     8. RESTRICTIONS ON TRANSFER. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned, pledged, or hypothecated, or be the subject
of any hedging, short sale, derivative, put, or call transaction that would
result in the effective economic disposition of the securities by any person for
a period of 180 days immediately following the Effective Date, except as
permitted in subparagraph (g)(2) of the Corporate Financing Rule. The Warrant
may be divided or combined, upon request to the Company by the Warrantholder,
into a certificate or certificates evidencing the same aggregate number of
Warrants.

     9. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.

     10. NOTICE. Any notices required or permitted to be given hereunder will be
in writing and may be served personally or by mail; and if served will be
addressed as follows:

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         If to the Company:

                  Vaughan Foods, Inc.
                  216 N.E. 12th Street
                  Moore, Oklahoma 73160
                  Attention:  Chief Executive Officer

         If to the Warrantholder:

                  at the address furnished
                  by the Warrantholder to the
                  Company for the purpose of
                  notice.

     Any notice so given by mail will be deemed effectively given 48 hours after
mailing when deposited in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed as specified above. Any
party may by written notice to the other specify a different address for notice
purposes.

     11. APPLICABLE LAW. This Warrant Certificate will be governed by and
construed in accordance with the laws of the State of Oregon, without reference
to conflict of laws principles thereunder. All disputes relating to this Warrant
Certificate shall be tried before the courts of Oregon located in Multnomah
County, Oregon to the exclusion of all other courts that might have
jurisdiction.

         Dated as of _______, 2006

                                            VAUGHAN FOODS, INC.

                                            By: ________________________________
                                                Name: Mark E. Vaughan
                                                Title:   Chief Executive Officer

         Agreed and Accepted as of _______, 2006

                                            PAULSON INVESTMENT COMPANY, INC.

                                            By: ________________________________
                                                Name:
                                                Title:

                                        9EX-10.3

                               VAUGHAN FOODS, INC.
                           2006 EQUITY INCENTIVE PLAN

1. Purpose; Types of Awards; Construction.

The purpose of the Vaughan Foods, Inc. 2006 Equity Incentive Plan (the "Plan")
is to align the interests of officers, other key employees, consultants and
nonemployee directors of Vaughan Foods, Inc. (the "Company") and its affiliates
with those of the stockholders of the Company, to afford an incentive to such
officers, employees, consultants and directors to continue as such, to increase
their efforts on behalf of the Company and to promote the success of the
Company's business. To further such purposes, the Committee may grant options to
purchase shares of the Company's common stock. The provisions of the Plan are
intended to satisfy the requirements of Section 16(b) of the Securities Exchange
Act of 1934 and of Section 162(m) of the Internal Revenue Code of 1986, as
amended, and shall be interpreted in a manner consistent with the requirements
thereof, as now or hereafter construed, interpreted and applied by regulations,
rulings and cases.

2. Definitions.

As used in this Plan, the following words and phrases shall have the meanings
indicated below:

(a) "Agreement" shall mean a written agreement entered into between the Company
and an Optionee in connection with an award under the Plan.

(b) "Board" shall mean the Board of Directors of the Company.

(c) "Cause," when used in connection with the termination of an Optionee's
employment by the Company or the cessation of an Optionee's service as a
consultant or a member of the Board, shall mean (i) the conviction of the
Optionee for the commission of a felony, or (ii) the willful and continued
failure by the Optionee substantially to perform his duties and obligations to
the Company or a Subsidiary (other than any such failure resulting from his
incapacity due to physical or mental illness), or (iii) the willful engaging by
the Optionee in misconduct that is demonstrably injurious to the Company or a
Subsidiary. For purposes of this Section 2(c), no act, or failure to act, on an
Optionee's part shall be considered "willful" unless done, or omitted to be
done, by the Optionee in bad faith and without reasonable belief that his action
or omission was in the best interest of the Company. The Committee shall
determine whether a termination of employment is for Cause for purposes of the
Plan.

(d) "Change in Control" shall mean the occurrence of the event set forth in any
of the following paragraphs:

(i) any Person (as defined below) is or becomes the beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly
or indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its subsidiaries) representing 50% or more of the combined voting
power of the Company's then outstanding securities; or

(ii) the following individuals cease for any reason to constitute a majority of
the number of directors then serving: individuals who, on the date hereof,
constitute the Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation, relating to the
election of directors of the Company) whose appointment or election by the Board
or nomination for election by the Company's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved or recommended;
or

(iii) there is consummated a merger or consolidation of the Company or a direct
or indirect subsidiary thereof with any other corporation, other than (A) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior to such merger or consolidation continuing
<PAGE>

to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in combination with
the ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, at least 50% of the combined voting power
of the securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or (B) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no Person is or becomes the beneficial owner,
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired directly
from the Company or its subsidiaries) representing 50% or more of the combined
voting power of the Company's then outstanding securities; or

(iv) the stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or substantially all of
the Company's assets to an entity, at least 50% of the combined voting power of
the voting securities of which are owned by Persons in substantially the same
proportions as their ownership of the Company immediately prior to such sale.

For purposes of this Section 2(d), "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof, except that such term shall not include (i) the Company or any of
its subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.

(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.

(f) "Committee" shall mean a committee established by the Board to administer
the Plan.

(g) "Common Stock" shall mean shares of common stock, no par value, of the
Company.

(h) "Company" shall mean Vaughan Foods, Inc., a corporation organized under the
laws of the State of Oklahoma, or any successor corporation.

(i) "Disability" shall mean an Optionee's inability to perform his duties with
the Company or on the Board by reason of any medically determinable physical or
mental impairment, as determined by a physician selected by the Optionee and
acceptable to the Company.

(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and as now or hereafter construed, interpreted and applied by
regulations, rulings and cases.

(k) "Fair Market Value" per share as of a particular date shall mean
(i) if the shares of Common Stock are then listed on a national securities
exchange, the closing sales price per share of Common Stock on the national
securities exchange on which the Common Stock is principally traded for the last
preceding date on which there was a sale of such Common Stock on such exchange,
or (ii) if the shares of Common Stock are then traded in an over-the-counter
market, the closing bid price for the shares of Common Stock in such
over-the-counter market for the last preceding date on which there was a sale of
such Common Stock in such market, or (iii) if the shares of Common Stock are not
then listed on a national securities exchange or traded in an over-the-counter
market, such value as the Committee, in its sole discretion, shall determine.

(l) "Incentive Stock Option" shall mean any option intended to be and designated
as an incentive stock option within the meaning of Section 422 of the Code.

 (m) "Nonemployee Director" shall mean a member of the Board who is not an
employee of the Company.
<PAGE>

(n) "Nonqualified Option" shall mean an Option that is not an Incentive Stock
Option.

(o) "Option" shall mean the right, granted hereunder, to purchase shares of
Common Stock. Options granted by the Committee pursuant to the Plan may
constitute either Incentive Stock Options or Nonqualified Stock Options.

(p) "Optionee" shall mean a person who receives a grant of an Option.

(q) "Option Price" shall mean the exercise price of the shares of Common Stock
covered by an Option.

(r) "Parent" shall mean any company (other than the Company) in an unbroken
chain of companies ending with the Company if, at the time of granting an
Option, each of the companies other than the Company owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other companies in such chain.

(s) "Plan" shall mean this Vaughan Foods, Inc. 2006 Equity Incentive Plan.

(t) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in effect,
promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act, including any successor to such Rule.

(u) "Subsidiary" shall mean any company (other than the Company) in an unbroken
chain of companies beginning with the Company if, at the time of granting an
Option, each of the companies other than the last company in the unbroken chain
owns stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other companies in such chain.

(v) "Ten Percent Stockholder" shall mean an Optionee who, at the time an
Incentive Stock Option is granted, owns (or is deemed to own pursuant to the
attribution rules of Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary.

3. Administration.

The Plan, except as may otherwise be determined by the Board, shall be
administered by the Committee, the members of which shall be "nonemployee
directors" under Rule 16b-3 and "outside directors" under Section 162(m) of the
Code.

The Committee shall have the authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan and
to exercise all the powers and authorities either specifically granted to it
under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority to grant Options; to determine
which Options shall constitute Incentive Stock Options and which Options shall
constitute Nonqualified Stock Options; to determine the purchase price of the
shares of Common Stock covered by each Option; to determine the persons to whom,
and the time or times at which awards shall be granted; to determine the number
of shares to be covered by each award; to interpret the Plan; to prescribe,
amend and rescind rules and regulations relating to the Plan; to determine the
terms and provisions of the Agreements (which need not be identical) and to
cancel or suspend awards, as necessary; and to make all other determinations
deemed necessary or advisable for the administration of the Plan.

The Committee may not delegate its authority to grant Options. The Committee may
employ one or more persons to render advice with respect to any responsibility
the Committee may have under the Plan. The Board shall have sole authority,
unless expressly delegated to the Committee, to grant Options to Nonemployee
Directors. All decisions, determination and interpretations of the Committee
shall be final and binding on all Optionees of any awards under this Plan.

The Board shall have the authority to fill all vacancies, however caused, in the
Committee. The Board may from time to time appoint additional members to the
Committee, and may at any time remove one or more
<PAGE>

Committee members. One member of the Committee shall be selected by the Board as
chairman. The Committee shall hold its meetings at such times and places as it
shall deem advisable. All determinations of the Committee shall be made by a
majority of its members either present in person or participating by conference
telephone at a meeting or by written consent. The Committee may appoint a
secretary and make such rules and regulations for the conduct of its business as
it shall deem advisable, and shall keep minutes of its meetings.

No member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any award granted
hereunder.

4. Eligibility.

Awards may be granted to officers and other key employees of and consultants to
the Company, and its Subsidiaries, including officers and directors who are
employees, and to Nonemployee Directors. In determining the persons to whom
awards shall be granted and the number of shares to be covered by each award,
the Committee shall take into account the duties of the respective persons,
their present and potential contributions to the success of the Company and such
other factors as the Committee shall deem relevant in connection with
accomplishing the purpose of the Plan.

5. Stock.

The maximum number of shares of Common Stock reserved for the grant of awards
under the Plan shall be 1,650,000, subject to adjustment as provided in Section
9 hereof. Such shares may, in whole or in part, be authorized but unissued
shares or shares that shall have been or may be reacquired by the Company.

If any outstanding award under the Plan should for any reason expire, be
canceled or be forfeited without having been exercised in full, the shares of
Common Stock allocable to the unexercised, canceled or terminated portion of
such award shall (unless the Plan shall have been terminated) become available
for subsequent grants of awards under the Plan.

6. Terms and Conditions of Options.

Each Option granted pursuant to the Plan shall be evidenced by an Agreement, in
such form and containing such terms and conditions as the Committee shall from
time to time approve, which Agreement shall comply with and be subject to the
following terms and conditions, unless otherwise specifically provided in such
Option Agreement:

(a) Number of Shares. Each Option Agreement shall state the number of shares of
Common Stock to which the Option relates.

(b) Type of Option. Each Option Agreement shall specifically state that the
Option constitutes an Incentive Stock Option or a Nonqualified Stock Option.

(c) Option Price. Each Option Agreement shall state the Option Price, which
shall not be less than one hundred percent (100%) of the Fair Market Value of
the shares of Common Stock covered by the Option on the date of grant. The
Option Price shall be subject to adjustment as provided in Section 9 hereof. The
date as of which the Committee adopts a resolution expressly granting an Option
shall be considered the day on which such Option is granted, unless such
resolution specifies a different date.

(d) Medium and Time of Payment. The Option Price shall be paid in full, at the
time of exercise, in cash.

 (e) Exercise Schedule and Period of Options. Each Option Agreement shall
provide the exercise schedule for the Option as determined by the Committee;
provided, however, that, the Committee shall have the
<PAGE>

authority to accelerate the exercisability of any outstanding Option at such
time and under such circumstances as it, in its sole discretion, deems
appropriate. The exercise period shall be ten (10) years from the date of the
grant of the Option unless otherwise determined by the Committee; provided,
however, that, in the case of an Incentive Stock Option, such exercise period
shall not exceed ten (10) years from the date of grant of such Option. The
exercise period shall be subject to earlier termination as provided in Sections
6(f) and 6(g) hereof. An Option may be exercised, as to any or all full shares
of Common Stock as to which the Option has become exercisable, by written notice
delivered in person or by mail to the Secretary of the Company, specifying the
number of shares of Common Stock with respect to which the Option is being
exercised.

(f) Termination. Except as provided in this Section 6(f) and in
Section 6(g) hereof, an Option may not be exercised unless (i) with respect to
an Optionee who is an employee of the Company, the Optionee is then in the
employ of the Company or a Subsidiary (or a company or a Parent or Subsidiary
company of such company issuing or assuming the Option in a transaction to which
Section 424(a) of the Code applies), and unless the Optionee has remained
continuously so employed since the date of grant of the Option and (ii) with
respect to an Optionee who is a Nonemployee Director, the Optionee is then
serving as a member of the Board or as a member of a board of directors of a
company or a Parent or Subsidiary company of such company issuing or assuming
the Option. In the event that the employment of an Optionee shall terminate or
the service of an Optionee as a member of the Board shall cease (other than by
reason of death, Disability, or Cause), all Options of such Optionee that are
exercisable at the time of such termination may, unless earlier terminated in
accordance with their terms, be exercised within ninety (90) days after the date
of such termination or service (or such different period as the Committee shall
prescribe).

(g) Death or Disability of Optionee. If an Optionee shall die while employed by
the Company or a Subsidiary or serving as a member of the Board, or within
ninety (90) days after the date of termination of such Optionee's employment or
cessation of such Optionee's service (or within such different period as the
Committee may have provided pursuant to Section 6(f) hereof), or if the
Optionee's employment shall terminate or service shall cease by reason of
Disability, all Options theretofore granted to such Optionee (to the extent
otherwise exercisable) may, unless earlier terminated in accordance with their
terms, be exercised by the Optionee or by his beneficiary, at any time within
one year after the death or Disability of the Optionee (or such different period
as the Committee shall prescribe). In the event that an Option granted hereunder
shall be exercised by the legal representatives of a deceased or former
Optionee, written notice of such exercise shall be accompanied by a certified
copy of letters testamentary or equivalent proof of the right of such legal
representative to exercise such Option. Unless otherwise determined by the
Committee, Options not otherwise exercisable on the date of termination of
employment shall be forfeited as of such date.

(h) Other Provisions. The Option Agreements evidencing awards under the Plan
shall contain such other terms and conditions not inconsistent with the Plan as
the Committee may determine, including penalties for the commission of
competitive acts.

7. Nonqualified Stock Options.

Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 6 hereof.

8. Incentive Stock Options.

Options granted pursuant to this Section 8 are intended to constitute Incentive
Stock Options and shall be subject to the following special terms and
conditions, in addition to the general terms and conditions specified in Section
6 hereof. An Incentive Stock Option may not be granted to a Nonemployee Director
or a consultant to the Company.

(a) Value of Shares. The aggregate Fair Market Value (determined as of the date
the Incentive Stock
<PAGE>

Option is granted) of the shares of Common Stock with respect to which Incentive
Stock Options granted under this Plan and all other option plans of any
subsidiary become exercisable for the first time by each Optionee during any
calendar year shall not exceed $100,000.

(b) Ten Percent Stockholder. In the case of an Incentive Stock Option granted to
a Ten Percent Stockholder, (i) the Option Price shall not be less than one
hundred ten percent (110%) of the Fair Market Value of the shares of Common
Stock on the date of grant of such Incentive Stock Option, and (ii) the exercise
period shall not exceed five (5) years from the date of grant of such Incentive
Stock Option.

9. Effect of Certain Changes.

(a) In the event of any extraordinary dividend, stock dividend,
recapitalization, merger, consolidation, stock split, warrant or rights
issuance, or combination or exchange of such shares, or other similar
transactions, each of the number of shares of Common Stock available for awards,
the number of such shares covered by outstanding awards, and the price per share
of Options, as appropriate, shall be equitably adjusted by the Committee to
reflect such event and preserve the value of such awards.

(b) Upon the occurrence of a Change in Control, each Option granted under the
Plan and then outstanding but not yet exercisable shall thereupon become fully
exercisable.

10. Surrender and Exchange of Awards.

The Committee may permit the voluntary surrender of all or a portion of any
Option granted under the Plan or any option granted under any other plan,
program or arrangement of the Company or any Subsidiary ("Surrendered Option"),
to be conditioned upon the granting to the Optionee of a new Option for the same
number of shares of Common Stock as the Surrendered Option, or may require such
voluntary surrender as a condition precedent to a grant of a new Option to such
Optionee. Subject to the provisions of the Plan, such new Option may be an
Incentive Stock Option or a Nonqualified Stock Option, and shall be exercisable
at the price, during such period and on such other terms and conditions as are
specified by the Committee at the time the new Option is granted.

11. Period During Which Awards May Be Granted.

Awards may be granted pursuant to the Plan from time to time within a period of
ten (10) years from the date the Plan is adopted by the Board, or the date the
Plan is approved by the shareholders of the Company, whichever is earlier,
unless the Board shall terminate the Plan at an earlier date.

12. Nontransferability of Awards.

Except as otherwise determined by the Committee, awards granted under the Plan
shall not be transferable otherwise than by will or by the laws of descent and
distribution, and awards may be exercised or otherwise realized, during the
lifetime of the Optionee, only by the Optionee or by his guardian or legal
representative.

13. Approval of Shareholders.

The Plan shall take effect upon its adoption by the Board and shall terminate on
the tenth anniversary of such date, but the Plan (and any grants of awards made
prior to the shareholder approval mentioned herein) shall be subject to the
approval of Company's shareholders, which approval must occur within twelve
months of the date the Plan is adopted by the Board.

14. Agreement by Optionee Regarding Withholding Taxes.

If the Committee shall so require, as a condition of exercise of a Nonqualified
Stock Option (a "Tax Event"), each Optionee who is not a Nonemployee Director
shall agree that no later than the date of the Tax Event, such Optionee will pay
to the Company or make arrangements satisfactory to the Committee
<PAGE>

regarding payment of any federal, state or local taxes of any kind required by
law to be withheld upon the Tax Event. Alternatively, the Committee may provide
that such an Optionee may elect, to the extent permitted or required by law, to
have the Company deduct federal, state and local taxes of any kind required by
law to be withheld upon the Tax Event from any payment of any kind due the
Optionee. The withholding obligation may be satisfied by the withholding or
delivery of Common Stock. Any decision made by the Committee under this Section
15 shall be made in its sole discretion.

15. Amendment and Termination of the Plan.

The Board at any time and from time to time may suspend, terminate, modify or
amend the Plan; provided, however, that, unless otherwise determined by the
Board, an amendment that requires stockholder approval in order for the Plan to
continue to comply with Rule 16b-3, Section 162(m) of the Code or any other law,
regulation or stock exchange requirement shall not be effective unless approved
by the requisite vote of stockholders. Except as provided in Section 9(a)
hereof, no suspension, termination, modification or amendment of the Plan may
adversely affect any award previously granted, unless the written consent of the
Optionee is obtained.

16. Rights as a Shareholder.

An Optionee or a transferee of an award shall have no rights as a shareholder
with respect to any shares covered by the award until the date of the issuance
of a stock certificate to him for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distribution of other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 9(a)
hereof.

17. No Rights to Employment or Service as a Director or Consultant.

Nothing in the Plan or in any award granted or Agreement entered into pursuant
hereto shall confer upon any Optionee the right to continue in the employ of the
Company or any Subsidiary or as a member of the Board or a consultant to the
Company or any Subsidiary or to be entitled to any remuneration or benefits not
set forth in the Plan or such Agreement or to interfere with or limit in any way
the right of the Company or any such Subsidiary to terminate such Optionee's
employment or service. Awards granted under the Plan shall not be affected by
any change in duties or position of an employee Optionee as long as such
Optionee continues to be employed by the Company or any Subsidiary.

18. Beneficiary.

An Optionee may file with the Committee a written designation of a beneficiary
on such form as may be prescribed by the Committee and may, from time to time,
amend or revoke such designation. If no designated beneficiary survives the
Optionee, the executor or administrator of the Optionee's estate shall be deemed
to be the Optionee's beneficiary.

19. Governing Law.

The Plan and all determinations made and actions taken pursuant hereto shall be
governed by the laws of the State of Oklahoma.

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