Document:

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT AND ANY OF SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER SAID ACTS AND ALL OTHER APPLICABLE SECURITIES LAWS UNLESS AN
        EXEMPTION FROM REGISTRATION IS AVAILABLE.

        THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON EXERCISE AND TRANSFER CONTAINED IN ARTICLE IV HEREOF.

        DAYBREAK OIL AND GAS, INC.

        WARRANT TO PURCHASE SHARES

        OF

        COMMON STOCK

        Date of Issuance: [________], 2010

    THIS CERTIFIES that, for value received, Daybreak Oil and Gas, Inc., a Washington corporation (the “Company”), hereby grants to [___], or its registered assigns (the “Holder”), the right to purchase, at any time and from time to time prior to the
        Expiration Date, [___]shares of Common Stock of the Company, par value $0.001 per share, subject to the terms and conditions set forth herein. This warrant is hereinafter referred to as this “Warrant.”

        ARTICLE I

        CERTAIN DEFINITIONS

        For all purposes of this Warrant, unless the context otherwise requires, the following terms shall have the respective meanings set forth below:

        “Act” means the federal Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.

        “Additional Shares of Common Stock” means all shares of common stock, regardless of series, issued by the Company after the Date of Issuance, other than the Warrant Shares.

        “Commission” means the Securities and Exchange Commission or any other federal agency then administering the Act.

        “Common Stock” means the common stock of the Company, $0.001 par value per share, (including any securities into which or for which such shares may be exchanged for, or converted into, pursuant to any stock dividend, stock split, stock combination, recapitalization, reclassification, reorganization or other similar
        event).

        “Company” means Daybreak Oil and Gas, Inc., a Washington corporation, located at 601 W. Main Ave., Suite 1012, Spokane, Washington 99201 and any other corporation assuming or required to assume this Warrant pursuant to Article V.

        “Date of Issuance” means the issue date of this Warrant, as set forth on the first page hereof.

        “Exercise Agreement” has the meaning set forth in Section 2.1 hereof.

         

        

        

        

        “Exercise Price” means $0.14 per share of Common Stock.

        “Expiration Date” has the meaning set forth in Article VII hereof.

        “Holder” has the meaning set forth on the first page hereof.

        “Person” means any individual, corporation, partnership, limited liability company, trust, unincorporated organization and any government, and any political subdivision, instrumentality or agency thereof.

        “Stock Unit” means one (1) share of Common Stock, as such stock is constituted on the Date of Issuance and thereafter the number of shares of Common Stock as shall result from the adjustments specified in Article V.

        “Subscription Agreement” means that certain subscription agreement for 12% subordinated notes due 2015 and warrants executed by the Holder and accepted by the Company as of the Date of Issuance.

        “Warrant” has the meaning set forth on the first page hereof.

        “Warrant Office” has the meaning set forth in Section 3.1 hereof.

        “Warrant Shares” means the shares of Common Stock underlying the Stock Units purchasable by the Holder upon the exercise of this Warrant.

        ARTICLE II

        EXERCISE OF WARRANT

        2.1       Method of Exercise. To exercise this Warrant, the Holder shall deliver to the Company at the Warrant Office designated pursuant to Section 3.1, (a) an Exercise Agreement substantially in the form attached hereto as
        Exhibit A (the “Exercise Agreement”) duly executed by the Holder, specifying the number of Warrant Shares to be purchased; (b) payment of an amount equal to the aggregate Exercise Price for all such Warrant Shares, which shall be made (i) in cash, (ii) by certified or bank cashier’s check payable to the order of the Company, or (iii) by wire transfer of
        immediately available funds; and (c) this Warrant. Subject to the terms herein, the Holder shall have the option to exercise this Warrant in whole or in part. The Company shall, as promptly as practicable, cause to be issued and delivered to the Holder (or its nominee) or the transferee designated in the Exercise Agreement a certificate or certificates representing the number of Warrant Shares specified in the Exercise Agreement. The stock certificate or certificates so delivered shall
        be in denominations of shares as may be specified in the Exercise Agreement and shall be issued in the name of the Holder or such other name as shall be designated in such Exercise Agreement. At the time of delivery of the certificate or certificates, appropriate notation shall be made on the Warrant Shares Purchase Schedule attached to this Warrant designating the number of shares purchased, and this Warrant shall then be returned to the Holder if this Warrant has been exercised only
        in part. The Holder or transferee so designated in the Exercise Agreement shall be deemed to have become the Holder of record of such Warrant Shares for all purposes as of the close of business on the date on which the Exercise Agreement is delivered to the Warrant Office, provided that an amount equal to the aggregate Exercise Price and this Warrant shall have also been delivered to the Company. The Company shall pay all expenses,
        taxes (excluding transfer taxes, capital gains and income taxes) and other charges payable in connection with the preparation, issuance and delivery of the stock certificates contemplated hereunder.

         

        
            

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        2.2       Shares to be Fully Paid and Non-Assessable. All Warrant Shares issued upon the exercise of this Warrant and the payment therefor shall be validly issued, fully paid, non-assessable and free from preemptive rights.

        2.3       No Fractional Shares to be Issued. The Company shall not be required upon the exercise of this Warrant to issue a certificate representing any fraction of a share of Common Stock.

        2.4       Legend on Warrant Shares. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such shares are registered under the Act, shall bear substantially the following legend (and any additional legend required by any national securities exchanges
        upon which such shares may, at the time of such exercise, be listed or under applicable securities laws):

        The securities represented by this certificate have not been registered under the federal Securities Act of 1933, as amended, or the securities laws of any state. They may not be sold, transferred, assigned, pledged, hypothecated, encumbered, or otherwise disposed of unless, in the opinion of counsel reasonably acceptable to the issuer, such transfer would be pursuant to an effective registration statement under said Act
        or pursuant to an exemption from such registration.

        Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement under the Act of the securities represented thereby) shall also bear the above legend unless, in the opinion of counsel to the Company, the securities represented thereby need
        no longer be subject to the restrictions on transferability. In addition, the provisions of Article IV shall be binding upon all subsequent holders of this Warrant.

        2.5       Acknowledgment of Continuing Obligation. The Company shall, at the time of any exercise of this Warrant in whole or in part, upon request of the Holder, acknowledge in writing its continuing obligation to the Holder in respect of any rights to which the Holder shall continue to be entitled
        after exercise in accordance with this Warrant; provided, however, that the failure of the Holder to make any such request shall not affect the continuing obligation of the Company to the Holder in respect of such rights. 

        ARTICLE III

        WARRANT OFFICE; TRANSFER, DIVISION

        OR COMBINATION OF WARRANTS

        3.1       Warrant Office. The Company shall maintain an office for certain purposes specified herein (the “Warrant Office”), which office shall initially be the Company’s location set forth in Article
        I hereof, and may subsequently be such other office of the Company or of any transfer agent of the Common Stock in the continental United States as to which written notice has previously been given to the Holder of this Warrant.

        3.2       Ownership of Warrant. The Company may deem and treat the Person in whose name this Warrant is registered as the Holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice
        to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article III.

         

        
            

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        3.3       Transfer Records. The Company agrees to maintain at the Warrant Office records for the registration of Permitted Transfers, as defined in the Subscription Agreement, of this Warrant. A Permitted Transfer of this Warrant and all rights hereunder shall be recorded on the books at that office,
        upon surrender of this Warrant at that office, together with a written assignment of this Warrant duly executed by the Holder or his, her or its duly authorized agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of the transfer. Subject to Article IV, upon surrender and payment, the Company shall execute and deliver a new warrant in the name of the assignee, noting thereon the number of Warrant
        Shares theretofore purchased under this Warrant, and this Warrant shall promptly be canceled. This Warrant may not be transferred in part.

        3.4       Division or Combination of Warrants. Except as provided in Section 3.3 above, this Warrant may not be divided or combined with any other warrant.

        3.5       Expenses of Delivery of Warrants. The Company shall pay all expenses, taxes (other than transfer taxes, capital gains and income taxes), and other charges payable in connection with the preparation, issuance and delivery of new Warrants hereunder.

        ARTICLE IV

        RESTRICTIONS ON EXERCISE AND TRANSFER

        4.1       Restrictions on Exercise and Transfer. Notwithstanding any provisions contained in this Warrant to the contrary, this Warrant shall not be exercisable or transferable except upon the fulfillment of the conditions specified in this Article IV,
        which conditions are intended, among other things, to insure compliance with the provisions of the Act in respect of the exercise or transfer of this Warrant. The Holder, by acceptance hereof, agrees that Holder will not exercise or transfer this Warrant prior to delivery to the Company of any required opinion of the Holder’s counsel (as the opinion and counsel are described in Section 4.2 hereof).

        4.2       Permitted Transfer of Warrant. Notwithstanding any other provisions contained in this Warrant to the contrary, in no event shall this Warrant be transferrable by the Holder unless the transfer of this Warrant is a Permitted Transfer (as defined in the Subscription Agreement). Any purported
        transfer of this Warrant made in violation of the terms of the Subscription Agreement shall be void and shall entitle the Company to repurchase this Warrant, as provided in the Subscription Agreement.

        4.3       Opinion of Counsel on Exercise of Warrant. In connection with the exercise of this Warrant, the following provisions shall apply:

        (a)          If, in the written opinion of counsel to the Holder (which opinion and counsel must be acceptable to the Company), the proposed exercise of this Warrant may be effected without registration of this Warrant or the Common Stock issuable hereunder under the Act, the Holder shall be entitled to exercise this Warrant as proposed.
        In no event shall the Company be obligated (i) to effect a registration under the Act or any state securities law so as to permit the proposed exercise of this Warrant or (ii) to qualify to do business or to file a general consent to service of process in any state or other jurisdiction where the Company has not already done so.

        (b)          If in the opinion of such counsel, the proposed exercise of this Warrant may not be effected without registration of this Warrant under the Act, the Holder shall not be entitled to exercise this Warrant unless the Company, in its sole discretion, elects to register this Warrant under the Act or any state securities law and
        such registration becomes effective or until exercise may be effected without registration, in the opinion of such counsel as set forth in Section 4.3(a) above.

         

        
            

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        4.4       Transfer of Warrant Shares. The Warrant Shares are subject to certain restrictions on transfer as set forth in the Subscription Agreement and the Exercise Agreement.

        ARTICLE V

        ADJUSTMENTS

        5.1       Adjustments to Number of Stock Units. The number of shares of Common Stock comprising a Stock Unit shall be subject to adjustment from time to time as set forth in this Section 5.1.

        (a)          Stock Dividends, Subdivision and Combination. In case at any time or from time to time the Company shall:

        (i)        take a record of the holders of its Common Stock of any series for the purpose of entitling them to receive a dividend payable in, or other distribution of, Common Stock of any series;

        (ii)       subdivide its outstanding shares of Common Stock of any series into a larger number of shares of Common Stock of any series; or

        (iii)      combine its outstanding shares of Common Stock of any series into a smaller number of shares of Common Stock of any series;

        then the number of shares of Common Stock comprising a Stock Unit immediately after the happening of any such event shall be adjusted so as to consist of the number of shares of Common Stock that a record holder of the number of shares of Common Stock comprising a Stock Unit immediately prior to the happening of such event would own or be entitled to receive after the happening of such
        event. The adjustments required by this subsection shall be made whenever and as often as any specified event requiring an adjustment shall occur.

        (b)          Other Provisions Applicable to Adjustment Under This Section. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock comprising a Stock Unit hereinbefore provided for in this Section
        5.1:

        (i)        Treasury Stock. The sale or other disposition of any issued shares of Common Stock owned or held by or for the account of the Company shall be deemed an issuance thereof for the purposes of this Section 5.1.

        (ii)       Timing of Adjustments. The adjustments required by the preceding subsections of this Section 5.1 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that no adjustment of the
        number of shares of Common Stock comprising a Stock Unit that would otherwise be required shall be made (except in the case of a subdivision or combination of shares of the common stock, as provided for in Section 5.1(a)) unless and until such adjustment, either by itself or with other adjustments not previously made, adds or subtracts at least one one hundredth (1/100th) of a share to or from the number of shares of Common
        Stock comprising a Stock Unit immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) shall be carried forward and made as soon as such adjustment, together with other adjustments required by this section and not previously made, would result in a minimum adjustment. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of this
        occurrence.

         

        
            

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        (iii)      Fractional Interests. In computing adjustments under this section, fractional interests in Common Stock shall be taken into account to the nearest 1/100th of a share.

        (c)          When Adjustment Not Required Abandonment of Plan for Dividend and the Like. If the Company shall take a record of the holders of its Common Stock of any series for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and
        shall, thereafter and before the distribution to shareholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.

        (d)          Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, merge or consolidate into another corporation, then the number of shares of stock purchasable upon exercise of
        this Warrant shall be adjusted to consist of the number of shares of stock or other securities that a record holder of the number of shares of Common Stock purchasable upon exercise of this Warrant immediately prior to such event would own or be entitled to receive immediately after such event.

        (e)          No Adjustment. Notwithstanding the foregoing, an adjustment as provided in this Section 5.1 shall not be made with respect to the Company’s offering of securities to the public pursuant to a registration statement under
        the Act. In the event that any adjustment of the Exercise Price under any provision of this Warrant would result in an Exercise price per Warrant Share less than the par value per share of Common Stock (after giving effect to any such adjustment), the Exercise Price per Warrant Share shall be equal to the par value per share of Common Stock after giving effect to such adjustment. Upon exercise of this Warrant, the Company shall pay the Holder in cash the amount of the difference between
        any adjusted Exercise Price less than the par value per share that would have otherwise resulted from such adjustment and the par value per share multiplied by the number of Warrant Shares issued to Holder at an Exercise Price equal to the par value per share.

        5.2       Notice to Holder. Whenever the Company takes any action that causes the composition of a Stock Unit to change under Section 5.1, the Company shall provide the Holder with written notice of such change and the number of Warrant Shares for which
        this Warrant is or will become exercisable. Such notice will be provided not more than ten (10) days after any such action has occurred.

        ARTICLE VI

        ADDITIONAL NOTICES TO WARRANT HOLDER

        In addition to any other notice required hereunder, the Company shall provide the Holder with a copy of any notice that the Company is required to provide those Persons holding shares of Common Stock on the same date such Persons receive such notice. 

        ARTICLE VII

        EXPIRATION

        This Warrant shall continue in effect until the earlier of (i) five (5) years from the Date of Issuance of this Warrant (the “Expiration Date”) and (ii) the date on which this Warrant has been exercised or cancelled pursuant to the terms hereof or pursuant to the Subscription Agreement with respect to all of the
        Warrant Shares.

         

        
            

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        ARTICLE VIII

        CERTAIN COVENANTS

        The Company has taken all action necessary to authorize the issuance of this Warrant and the issuance of shares of Common Stock upon exercise hereof. The Company covenants and agrees that it will reserve and set apart and have at all times, free from preemptive rights, a number of shares of authorized but unissued Common Stock or other securities deliverable upon the exercise of this
        Warrant from time to time sufficient to enable it at any time to fulfill all its obligations hereunder.

        ARTICLE IX

        MISCELLANEOUS

        9.1       Entire Agreement; Governing Law. This Warrant and the Subscription Agreement contain the entire agreement between the Holder and the Company with respect to the purchase of the Warrant Shares and supersedes all prior arrangements or understandings with respect thereto. This Warrant shall be
        governed by and construed under the laws of the State of Washington, without regard to its principles of conflicts of laws.

        9.2       Waiver and Amendment. Any term or provision of this Warrant may be waived at any time by the party that is entitled to the benefits thereof, and any term or provision of this Warrant may be amended or supplemented at any time by agreement of the holder hereof and the Company, except that any
        waiver of any term or condition, or any amendment or supplementation, of this Warrant must be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Warrant shall not in any way affect, limit or waive a party’s rights hereunder at any time to enforce strict compliance thereafter with any term or condition of this Warrant.

        9.3       Illegality. In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions
        of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired.

        9.4     Filing of Warrant. A copy of this Warrant shall be filed in the records of the Company.

        9.5       Notices. The address of Holder set forth in the Subscription Agreement shall be the initial address of Holder shown on the books of the Company maintained at the Warrant Office for the registration of this Warrant. Any notice or other document required or permitted to be given or delivered to
        the Holder shall be delivered personally, or sent by certified or registered mail, to the Holder at the last address shown on the books of the Company maintained at the Warrant Office for the registration of, and the registration of transfer of, this Warrant or at any more recent address of which any Holder shall have notified the Company in writing. Any notice or other document required or permitted to be given or delivered to the Company shall be delivered at, or sent by certified or
        registered mail to, the Warrant Office, attention: President, or such other address within the United States of America as shall have been furnished by the Company to the Holder hereof.

        9.6       Limitation of Liability; Not Stockholders. Other than as expressly provided in this Warrant, no provision of this Warrant shall be construed as conferring upon the Holder the right to vote, consent, receive dividends or receive notice in respect of meetings of stockholders for the election of
        directors of the Company or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price 

         

        
            

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        of any Warrant Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

        9.7       Loss, Destruction, etc. of Warrant. Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of this Warrant, and in the case of any such loss, theft or destruction, upon delivery of a bond of indemnity in such form and amount as shall be reasonably
        satisfactory to the Company, or in the event of such mutilation, upon surrender and cancellation of this Warrant, the Company shall make and deliver a new warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions of this Section 9.7 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original
        contractual obligation on the part of the Company.

        9.8       Dispute Resolution. The Company and the Holder, and by receipt of this Warrant or any Warrant Shares, all subsequent Holders or holders of Warrant Shares, agree to submit all controversies, claims, disputes and matters of difference with respect to this Warrant, including, without limitation,
        the application of this Section 9.8 to arbitration in Spokane, Washington, according to the rules and practices of the American Arbitration Association from time to time in force; provided, however, that if such rules and practices conflict with the applicable procedures of Washington courts of general jurisdiction or any other provisions of Washington law then in force, those Washington rules and provisions shall govern. This agreement
        to arbitrate shall be specifically enforceable. Arbitration may proceed in the absence of any party if notice of the proceeding has been given to that party. The parties agree to abide by all awards rendered in any such proceeding. These awards shall be final and binding on all parties to the extent and in the manner provided by the rules of civil procedure enacted in Washington. All awards may be filed, as a basis of judgment and of the issuance of execution for its collection, with
        the clerk of one or more courts, state or federal, having jurisdiction over either the party against whom that award is rendered or its property. No party shall be considered in default hereunder during the pendency of arbitration proceedings relating to that default.

        [SIGNATURE PAGE FOLLOWS]

         

        
            

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        IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name by its duly authorized Officer as of the 29th day of January, 2010.

        	 	DAYBREAK OIL AND GAS, INC.
	 	 	 
	 	By:  	/s/ 
	 	Name: 	 
	
                     

                	
                    Title:

                	
                     

              

         

        
            

            Signature Page to

            Warrant 

        

         

        

        

        

        WARRANT SHARES PURCHASE SCHEDULE

        
            	
                        No. of Shares Purchased

                    	
                         

                    	
                        Date of Purchase

                    	
                         

                    	
                        Notation by Company Officer

                    
	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    
	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    
	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    
	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    
	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    
	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    	
                         

                    	
                        
                             

                        

                    

        

         

         

         

        

        

        

        EXHIBIT A

        EXERCISE AGREEMENT

        
            	
                        TO:

                    	
                        Daybreak Oil and Gas, Inc.

                    
	 	601 W. Main Ave., Suite 1012
	 	Spokane, Washington 99201
	 	Attn: President

        

         

        The undersigned holder of the attached Warrant dated [________], 2010, issued to the undersigned by Daybreak Oil and Gas, Inc. (the “Company”) hereby agrees as follows:

    1.         The undersigned hereby elects to acquire ___ shares of Common Stock of the Company pursuant to the terms of the attached Warrant. Capitalized terms not otherwise defined in this Exercise Agreement have the meaning ascribed to such terms in the attached Warrant.

        2.         The undersigned tenders herewith payment in the manner required pursuant to the Warrant in full for the purchase price of the Warrant Shares being purchased, together with all applicable transfer taxes, if any.

        3.         The undersigned hereby requests that the Company issue a certificate or certificates representing the Warrant Shares in the name of the undersigned or in such other name as is specified below:

        	 
	
                    
                        (Name)
                    

                
	 
	 
	 
	
                    
                        (Address)
                    

                

         

        4.         The undersigned hereby reconfirms that the representations and warranties made by the undersigned in the Subscription Agreement are true and correct as of the date hereof. The undersigned hereby represents and warrants that the Warrant Shares are being acquired for the account of the undersigned for investment and not with a view
        to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such Warrant Shares.

        5.         The undersigned acknowledges that the Warrant Shares shall not be transferable except upon the fulfillment of the conditions specified in Section 6 below, which conditions are intended, among other things, to insure compliance with the provisions of the Act in respect of the
        transfer of the Warrant Shares. The undersigned agrees that the undersigned will not transfer the Warrant Shares prior to delivery to the Company of any required opinion of the Holder’s counsel described in Section 6 below.

        6.         The undersigned agrees that in connection with the transfer of the Warrant Shares, the following provisions shall apply:

        (a)       If, in the written opinion of counsel to the Holder (which opinion and counsel must be acceptable to the Company), the proposed transfer of the Warrant Shares may be effected without registration of the Common Stock issuable pursuant to the Warrant under the Act, the Holder shall be entitled to transfer the Warrant Shares as proposed. In no
        event shall the Company be obligated (i) to effect a registration under the Act or any state securities law so as to permit the proposed transfer of the 

         

        
            

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        Common Stock issuable pursuant to the Warrant; (ii) to qualify to do business or to file a general consent to service of process in any state or other jurisdiction where the Company has not already done so; or (iii) to effect a transfer to multiple transferees regardless of whether such transferees are qualified institutional buyers or institutional accredited investors.

        (b)       If in the opinion of such counsel, the proposed exercise or transfer of the Warrant Shares may not be effected without registration of the Warrant Shares under the Act, the Holder shall not be entitled to transfer the Warrant Shares unless the Company, in its sole discretion, elects to register the Warrant Shares under the Act or any state
        securities law and such registration becomes effective or until transfer may be effected without registration, in the opinion of such counsel as set forth in Section 6(a) above.

        7.         The undersigned acknowledges that the certificate evidencing the Warrant Shares shall be legended as set forth in Section 2.4 of the Warrant.

         

        	 	By:  	 
	 	Name: 	 
	
                     

                	
                    Title:

                	
                     

                
	 	 	 
	 	Date:	 

         

        
            

            A-2Daybreak Oil and Gas, Inc.

        (the “Company”)

         

        SUBSCRIPTION AGREEMENT FOR

        12% SUBORDINATED NOTES DUE 2015 AND WARRANTS

        This Subscription Agreement (this “Agreement”) is executed and delivered by the undersigned (“Subscriber”) who hereby acknowledges receiving and reviewing a copy of the Confidential Information Booklet relating to the offering of the 12% Subordinated
        Notes due 2015 (the “Notes”) and Warrants (the “Warrants”) consisting of (i) the Executive Summary; (ii) copies of the Company’s most recent Form 10-K for the year ended February 29, 2008, Form 10-Q for the quarter ended November 30, 2009 and Proxy Statement dated June 1, 2009 (collectively, the “SEC
        Filings”); (iv) the Offering Term Sheet; (v) Form of Note; (vi) Form of Warrant; (vii) Offeree Questionnaire; and (viii) this Agreement (collectively, the “Offering Documents”), relating to the private offering (the “Offering”) of the Notes and the Warrants of the Company. Capitalized terms not otherwise defined
        herein shall have the meaning ascribed to such terms in the Executive Summary.

        1.         Subscription. Subject to the terms and conditions hereof, Subscriber hereby subscribes for and agrees to purchase a Note in the principal amount indicated on the signature page hereof. Subscriber hereby tenders to the Company funds in the principal amount of the Note for which
        Subscriber is subscribing, in payment of the purchase price. Subscriber acknowledges that this Agreement shall be the binding agreement of Subscriber upon acceptance by the Company of this subscription for any principal amount of the Note equal or less than the full principal amount subscribed for by Subscriber. Subscriber acknowledges that a Warrant will be issued to Subscriber to purchase two (2) shares of Common Stock of the Company for each One Dollar ($1.00) of principal amount of
        the Note purchased by Subscriber. Subscriber further acknowledges that the exercise price for each share of Common Stock covered by the Warrant will be one hundred twenty percent (120%) of the Fair Market Value (as defined in the Note) per share of the Company’s Common Stock on January 12, 2010.

        This Agreement shall not become binding unless the Company accepts this subscription, the subscription price has been received and accepted by the Company and such additional conditions as the Company, in its sole and absolute discretion, shall require are satisfied. This subscription shall not be deemed accepted by the Company until a duly authorized officer of the Company signs this
        Agreement. If this subscription is accepted, this Agreement shall become effective as between the Company and Subscriber. If this subscription is rejected for all or any portion of the amount of the Note subscribed, the subscription price for the rejected portion will be returned to Subscriber as soon as reasonably practicable, and this subscription shall apply solely to the subscription for the amount of the Note accepted by the Company. If this entire subscription is rejected, the
        Company will return to Subscriber, this Agreement and the entire subscription price tendered by Subscriber and thereupon this subscription shall be rendered void and of no further force or effect. Subscriber hereby authorizes the Company to issue to Subscriber a Note for the principal amount of the Note accepted by the Company and a Warrant for two (2) shares of Common Stock for each One Dollar ($1.00) principal amount of the Note accepted by the Company.

        2.         Acceptance of Subscription. Subscriber acknowledges and agrees that this subscription is made subject to the following express terms and conditions: (a) Subscriber is committing to purchase the Note and the Warrant for which Subscriber has subscribed in accordance with the terms of
        this Agreement and the Confidential Information Booklet, (b) the Company shall have the right to reject the subscription, in whole or in part, for any reason whatsoever, (c) the Company shall have no obligation to accept subscriptions for the Notes and the Warrants in the order received, and (d) the Company shall have no liability for documents or checks lost in the mail or by other delivery carriers.

        3.         Offeree Questionnaire. Subscriber represents and warrants to the Company that Subscriber has completed and delivered to the Company an Offeree Questionnaire (the “Offeree 

         

        

        

        

        Questionnaire”) and that the answers contained in the Offeree Questionnaire and the representations and warranties contained in this Agreement are true and correct. Subscriber agrees to immediately notify the Company of anything that would cause the Offeree Questionnaire or any representation, warranty or covenant of Subscriber contained herein to be untrue,
        incomplete or have been breached at any time on or prior to acceptance or rejection of this subscription.

        4.         General Acknowledgments, Representations and Covenants of Subscriber. Subscriber acknowledges that Subscriber is purchasing the Note and the Warrant without being furnished any offering literature or prospectus other than the Offering Documents (which supersede any other
        documentation that may have been furnished to Subscriber). Subscriber acknowledges that Subscriber has had an opportunity to ask questions of and receive answers concerning the terms and conditions of the Offering and to obtain any additional information that the Company possesses or could acquire without unreasonable effort or expense necessary to verify the accuracy of the information contained in the Offering Documents, and that Subscriber has relied on Subscriber’s own
        knowledge or the advice of Subscriber’s own counsel, accountants or advisers with regard to the tax and other considerations involved in making an investment in the Note and the Warrant, and no representations have been made to Subscriber concerning the Note, the Warrant, the Company, its business or prospects, or other matters, except as set forth in the Offering Documents. Subscriber, if Subscriber is a natural person, represents and warrants that Subscriber either (i) has a
        personal net worth or joint net worth with his spouse of greater than $1,000,000 or (ii) has individual income (not joint income with his spouse) in excess of $200,000 in each of the two most recent years or joint income with his spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year. If Subscriber is
        not a natural person, Subscriber and the person signing on its behalf represent and warrant that either (i) all owners of all equity interests in Subscriber meet the qualifications stated in the preceding sentence or (ii) Subscriber otherwise qualifies as an “accredited investor” as that term is defined in Rule 501 promulgated under the Securities Act of 1933, as amended (the “Act”).

        5.         Additional Acknowledgments and Representations of Subscriber. Subscriber further acknowledges, represents, warrants and covenants as follows:

        (a)       If Subscriber is an individual, Subscriber is at least twenty-one (21) years of age and a bona fide resident and domiciliary (not a temporary or transient resident) of the state or country set forth in the Offeree Questionnaire, and has no present intention of becoming a resident of any other state or jurisdiction, and Subscriber represents
        that these statements are now true and have been true since prior to the first offer to Subscriber of an opportunity to invest in the Company.

        (b)       If Subscriber is not an individual, it is a bona fide resident and domiciliary (not a temporary or transient resident) of the state or country set forth in the Offeree Questionnaire and has no present intention of becoming a resident or domiciliary of any other state or jurisdiction, and Subscriber represents that these statements are now
        true and have been true since prior to the first offer to Subscriber of an opportunity to invest in the Company.

        (c)       Subscriber understands that the Note is subject to automatic conversion to the Common Stock of the Company (the “Common Stock”) under certain conditions set forth in the Offering Documents. The Note and the Warrant purchased pursuant to this Agreement and the Common Stock
        that may be issued upon conversion of the Note or exercise of the Warrant are collectively referred to herein as the “Securities.” Subscriber acknowledges and confirms that Subscriber has fully considered the contents of the Offering Documents, and that Subscriber understands, among other things, that the purchase of the Securities is a speculative investment which involves a high degree of risk of loss to Subscriber
        and it is unlikely that there will be a trading market for any of the Securities, and none of the Securities will at any time be freely transferable, and, accordingly, it may not be possible for Subscriber 

        

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        to liquidate Subscriber’s investment or any portion thereof, in case of emergency, if at all. Subscriber is familiar with the nature of and risks attending investments in securities, and has determined that the purchase of Securities is consistent with Subscriber’s investment objectives and income prospects. Subscriber is able (i) to bear the economic risk of his investment in the Securities;
        (ii) to hold the Securities for an indefinite period of time; and (iii) to afford a complete loss of Subscriber’s investment.

        (d)       Subscriber acknowledges and understands that the Offering Documents supersede all materials previously provided to Subscriber and nothing other than the Offering Documents was relied upon in making a decision to subscribe for the Note and the Warrant.

        (e)       Subscriber has such knowledge and experience in financial and business matters that Subscriber is capable of evaluating the merits and risks of an investment in the Securities and of making an informed investment decision.

        (f)        Subscriber understands that (i) the Note and the Warrant are subject to additional restrictions on transfer and a repurchase option by the Company in the event of any purported transfer in violation of this Agreement, as set forth in Section 6 of this Agreement and (ii) the rights of a
        holder of Common Stock of the Company shall be subject to the provisions of the Articles of Incorporation and the Amended and Restated Bylaws of the Company, as each may be amended from time to time (the “Charter Documents”).

        (g)       Subscriber understands that the Securities have not been, and will not be, registered under the Act or the laws of any State and are being offered under an exemption from registration thereunder; Subscriber represents and warrants that the Securities will be acquired by Subscriber solely for Subscriber’s own account, for investment
        purposes only, and not with a view to, or in connection with, any resale or other distribution thereof; Subscriber further represents and warrants that Subscriber has no agreement or other arrangement, formal or informal, with any person to sell, transfer or pledge any part of the Securities subscribed for hereby, or which would guarantee to Subscriber any profit or against any loss with respect to such Securities; Subscriber further represents and warrants that Subscriber has no plans
        to enter into any such agreement or arrangement; and consequently understands that Subscriber must bear the economic risk of Subscriber’s investment for an indefinite period of time because, pursuant to the securities laws, the Securities cannot be sold or otherwise transferred (except in certain very limited circumstances).

        (h)       Subscriber understands that no federal or state agency has passed on or made any recommendation or endorsement of the Securities.

        (i)        Subscriber agrees to execute (with acknowledgment or affidavit, if requested by the Company), promptly all such agreements, certificates, tax statements, tax returns and other documents as may be required of the Company or the investors in the Company by the laws of the United States of America, or any state in which the Company
        conducts or plans to conduct business, or any political subdivision or agency thereof or of any foreign nation.

        (j)        There have been no representations, guaranties or warranties made to Subscriber by the Company, or its agents or employees, or by any other person, expressly or by implication, with respect to (i) whether or when any opportunity may arise to sell, transfer or liquidate the Securities; (ii) the percentage of profit and/or amount of
        or type of consideration, profit or loss (including tax benefits) to be realized, if any, as a result of investment in the Securities; (iii) the possibility that the past performance or experience on the part of the Company or any officer of the Company or of any other person, might in any way indicate the predictable results of operations of the Company, or of ownership 

        

        - 3 -

         

        

        

        

        of the Securities; and (iv) whether the Company will successfully achieve any additional financing or receive additional capital from any private or public sources of capital.

        (k)       Subscriber also understands that the exemptions under Rule 144 under the Act, will not be generally available with respect to the Securities because of the conditions and limitations of Rule 144; that in the absence of the availability of such Rule any disposition by Subscriber of any portion of the Securities would require compliance with
        another exemption under the Act; and that the Company will be under no obligation and does not plan to take any action in furtherance of making Rule 144 or any other exemption so available. Subscriber understands that to the extent that Rule 144 may be currently applicable to sales of the Company’s Common Stock, there is no assurance or commitment by the Company that the Company will qualify in the future to permit sales of its Common Stock under Rule 144.

        (l)        Subscriber understands that the Company will make notations in the appropriate records of the Company of the restrictions on the transferability of the Securities and may stamp or affix to any document or instrument representing any part of the Securities an appropriate legend stating, in effect, that the Securities have not been
        registered under the Act and that transfers thereof are prohibited unless such transfers comply with this Agreement and the Act and applicable state securities laws.

        (m)      In the event that Subscriber resides in a jurisdiction which requires that any legend additional to the legend described in paragraph (k) of this Section 5 be placed on any documents evidencing the Securities or any portion thereof, Subscriber consents to the placement of such legend on any documents evidencing the same.

        (n)       The Company may conduct other offerings of promissory notes, warrants, common stock or other securities with terms different than the terms of the Notes and the Warrants during or after the Offering and the terms of any securities issued by the Company in the future may be senior or preferential to the terms of any of the
        Securities.

        (o)       Subscriber understands that upon conversion of the Note or exercise of the Warrant, Subscriber’s rights as a holder of Common Stock shall be subject to the Charter Documents, as may be amended from time to time.

        (p)       Subscriber has no reason to anticipate any change in personal circumstances, financial or otherwise, that may cause or require any sale or distribution of Securities, if acquired; and

        (q)       Subscriber acknowledges that Subscriber has reviewed the Executive Summary and the information therein regarding the Company. The Company’s prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in similar stages of development and financial condition, particularly companies in
        the markets such as those in which the Company competes. Such risks include, but are not limited to, evolving and unpredictable business models, management of growth, the Company’s ability to anticipate and adapt to developing markets, and the volatility of the oil and gas markets. To address these risks, the Company must, among other things, respond to competitive developments, continue to form and maintain relationships with strategic partners, continue to attract, retain and
        motivate qualified personnel, continue to engage qualified companies to which aspects of the business have been outsourced and continue to develop its oil and gas producing properties. There can be no assurance that the Company will be successful in addressing such risks, and a failure to do so could have a material adverse effect on the Company’s business, financial condition and results of operations.

        

        - 4 -

         

        

        

        

        6.         Transfer Restrictions and Repurchase Option.

        (a)       Subscriber acknowledges and agrees that neither the Note nor the Warrant may be directly or indirectly transferred, sold, donated, assigned, pledged or hypothecated (each, a “Transfer”), except pursuant to a “Permitted Transfer,” as herein defined. For the
        purpose of this Agreement, any change in control of any entity that holds the Note and/or the Warrant shall be deemed an indirect Transfer of the Note and/or the Warrant. A change in control means any change of fifty percent (50%) or more of the economic interest or voting power of any entity. For the purpose of this Agreement, a “Permitted Transfer” shall mean a Transfer of the Note and the Warrant if:

        (i)       the Company, in its sole discretion, consents to such Transfer;

        (ii)       the Transfer involves not less than all of the interest of the transferor in the Note and the Warrant to a single transferee to hold the Note and the Warrant;

        (iii)      the transferor provides the written opinion of counsel to the transferor (which opinion and counsel must be acceptable to the Company), that the proposed transfer of the Note and the Warrant may be effected without registration of the Note and the Warrant or the Common Stock issuable thereunder under the Act;

        (iv)      the Company is not obligated (1) to effect a registration under the Act or any state securities law so as to permit the proposed transfer of the Note and the Warrant; (2) to qualify to do business or to file a general consent to service of process in any state or other jurisdiction where the Company has not already done so; or
        (3) to effect a transfer to multiple transferees of the Note and the Warrant regardless of whether such transferees are accredited investors; and

        (v)       the transferee executes an agreement, in form and substance satisfactory to the Company, agreeing to be bound by the transfer restrictions and repurchase option set forth in this Agreement.

        (b)       In the event that Subscriber or any transferee of the Note and/or the Warrant purport to Transfer the Note and/or the Warrant other than pursuant to a Permitted Transfer, then:

        (i)        Any such purported Transfer shall be void and of no effect;

        (ii)       The Company shall have the option (the “Repurchase Option”), in its sole discretion, to repurchase the Note and the Warrant for an aggregate price equal to:

        (1)       the lesser of (a) twenty percent (20%) of the outstanding principal amount of the Note and (b) the amount of consideration received by the transferor in the event of a purported direct or indirect sale of the Note and/or the Warrant,

        (2)       $100.00 in the event of any purported direct or indirect transfer of the Note and/or the Warrant without consideration, or

        (3)       the sum of outstanding principal amount of the Note and accrued unpaid interest thereon, plus the Fair Market Value (as defined in the Note) of the Warrant Shares (as defined in the Warrant) less the Warrant Exercise Price in the event of a testamentary (or intestate) transfer of the Note and/or the Warrant as a result of
        the 

        

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        death of Subscriber or a Permitted Transferee or any purported transfer of the Note and/or the Warrant by judicial order.

        (iii)      The Repurchase Option may be exercised at any time by the Company following any purported Transfer that is not a Permitted Transfer by written notice (the “Notice”) to the holder of record of the Note and the Warrant. The Notice shall state the closing date
        (the “Repurchase Date”) on which the purchase price shall be payable, which shall be not later than thirty (30) days after the date of the Notice. From and after the Repurchase Date, the Note and the Warrant shall be cancelled and of no further force and effect and shall solely evidence the holder’s right to receive the purchase price. The purchase price shall be paid only upon surrender of the Note and the
        Warrant to the Company on or after the Repurchase Date.

        7.         Other Matters.

        (a)       Subscriber recognizes that the sale of the Securities to Subscriber is based upon representations and warranties contained herein and Subscriber agrees to indemnify the Company and its directors, officers, employees, consultants and shareholders and to hold all of them harmless against any liability, costs or expenses (including reasonable
        attorneys’ fees) arising by reason of or in connection with any misrepresentation or any breach of such warranties by Subscriber, or arising as a result of the sale or distribution of the Securities by Subscriber in violation of the Act, or other applicable law.

        (b)       Subscriber agrees that, except as provided herein, this Agreement or any agreement made hereunder or pursuant hereto may not be canceled, terminated or revoked by Subscriber except with the written consent of the Company.

        (c)       Subscriber agrees that this Agreement and the foregoing acknowledgments, representations and covenants shall survive delivery, acceptance of the subscription, closing of the transactions contemplated by this Agreement and any investigation made by any party relying on the same.

        (d)       Subscriber agrees to execute any and all further documents necessary or advisable, in the sole discretion of the Company, in connection with his becoming a holder of the Note, the Warrant or the holder of Common Stock upon conversion of the Note to Common Stock or exercise of the Warrant. Subscriber hereby acknowledges and agrees that the
        execution of this Subscription Agreement by Subscriber shall also constitute Subscriber’s agreement to be bound by the Charter Documents upon the conversion of the Note to Common Stock or exercise of the Warrant.

        (e)       All notices or other communications given or made hereunder shall be either (i) to the Company in writing and delivered by hand or mailed by registered or certified mail, return receipt requested, postage prepaid, at Daybreak Oil and Gas, Inc., 601 W. Main Ave., Suite 1012, Spokane, Washington 99201, Attn: President or (ii) to Subscriber at
        the street address or e-mail address set forth on the signature page hereto (or at such address as either party may, by notice given in the manner described herein, change its address for purposes of notice hereunder).

        (f)        Subscriber acknowledges and agrees that no director, officer, employee, consultant or shareholder of the Company shall have any liability for any obligations of the Company under the Note or the Warrant or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting the Note and the Warrant,
        Subscriber waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Note and the Warrant.

        

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        (g)       Subscriber agrees not to transfer or assign this Agreement, or any of Subscriber’s interest herein.

        (h)       Subscriber acknowledges and agrees that the Common Stock issuable upon conversion of the Note or exercise of the Warrant shall not be transferable except in compliance with all applicable laws and upon the fulfillment of the conditions specified in Section 7(i) below, which conditions are
        intended, among other things, to insure compliance with the provisions of the Act in respect of the transfer of the Common Stock. Subscriber agrees that Subscriber will not transfer any of the Common Stock prior to delivery to the Company of any required opinion of Subscriber’s counsel described in Section 7(i) below.

        (i)        Subscriber agrees that in connection with the transfer of the Common Stock, the following provisions shall apply:

        (1)       If, in the written opinion of counsel to Subscriber (which opinion and counsel must be acceptable to the Company), the proposed transfer of the Securities may be effected without registration of any of the Common Stock under the Act, Subscriber shall be entitled to transfer the Common Stock as proposed. In no event shall
        the Company be obligated (i) to effect a registration under the Act or any state securities law so as to permit the proposed transfer of the Common Stock; (ii) to qualify to do business or to file a general consent to service of process in any state or other jurisdiction where the Company has not already done so; or (iii) to effect a transfer to multiple transferees regardless of whether such transferees are qualified institutional buyers or institutional accredited
        investors.

        (2)       If in the opinion of such counsel, the proposed transfer of the Common Stock may not be effected without registration of the Securities under the Act, Subscriber shall not be entitled to transfer the Common Stock unless the Company, in its sole discretion, elects to register the Common Stock under the Act or any state
        securities law and such registration becomes effective or until transfer may be effected without registration, in the opinion of such counsel as set forth in Section 7(i)(1) above.

        (j)        Subscriber acknowledges that the certificates evidencing the Common Stock issuable upon conversion of the Note or upon exercise of the Warrant shall be legended substantially as follows:

        The securities represented by this certificate have not been registered under the federal Securities Act of 1933, as amended, or the securities laws of any state. They may not be sold, transferred, assigned, pledged, hypothecated, encumbered, or otherwise disposed of unless, in the opinion of counsel reasonably acceptable to the issuer, such transfer would be pursuant to an effective
        registration statement under said Act or pursuant to an exemption from such registration.

        (k)       THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF ANY JURISDICTION.

        (l)        This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof, and may be amended only by a writing executed by the party to be bound thereby.

        

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        (m)      This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same instrument.

        [SIGNATURE PAGE FOLLOWS]

        

        - 8 -

         

        

        

        

        IN WITNESS WHEREOF, Subscriber has hereby executed this Agreement as of the day set forth below.

         

        
            	
                         

                    	
                         

                    	
                         

                    
	
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                        Subscriber’s Street Address

                    
	
                         

                    	
                         

                    	
                         

                    
	
                         

                    	
                         

                    	
                         

                    
	
                         

                    	
                         

                    	
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                        who has filled out this

                    	
                         

                    	
                         

                    
	
                        Agreement on behalf of

                    	
                         

                    	
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                        Subscriber

                    	
                         

                    	
                         

                    
	
                         

                    	
                         

                    	
                        E-Mail Address

                    
	
                         

                    	
                         

                    	
                         

                    
	
                         

                    	
                         

                    	
                         

                    
	
                        Signature of Subscriber or

                    	
                         

                    	
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                        Person who has filled out

                    	
                         

                    	
                         

                    
	
                        this Agreement on its behalf

                    	
                         

                    	
                         

                    
	
                         

                    	
                         

                    	
                         

                    
	
                        Date

                    	
                         

                    	
                        Subscriber’s Social Security or Tax ID No.

                    
	
                         

                    	
                         

                    	
                         

                    
	 	 	 

        

        
            	
                        Initial principal amount of Note subscribed: 

                    	 	 

        

         

        (A minimum of $50,000, unless otherwise approved by the Company)

        The foregoing subscription for a Note and Warrant is hereby accepted for the purchase of a Note and Warrant in the principal amount of $____________, and a Warrant to purchase ______ shares of Common Stock at an exercise price of $0.14 per share, subject to the terms and conditions hereof, as of the [___] day of [________], 2010.

	 	DAYBREAK OIL AND GAS, INC.
	 	 	 
	 	By:  	 
	 	Name: 	 
	
                     

                	
                    Title:

                	
                     

                

         

        
            

            Signature Page to

            Daybreak Subscription Agreement 

        

         

        

        

        

        
          

          Daybreak Oil and Gas, Inc.

          (the “Company”)

          

        

         

        CONFIRMATION OF SUBSCRIPTION AGREEMENT FOR

        12% SUBORDINATED NOTES DUE 2015 AND WARRANTS

        This Confirmation of Subscription Agreement (this “Confirmation”) is executed and delivered by the undersigned (“Subscriber”) who hereby acknowledges receiving and reviewing a copy of the Confidential Information Booklet relating to the offering of the 12% Subordinated Notes due 2015 (the “Notes”) and Warrants (the “Warrants”) consisting of (i) the Executive Summary; (ii) copies of the Company’s most recent Form 10-K for the year ended February 29, 2008, Form 10-Q for the quarter ended November 30, 2009 and Proxy Statement dated June 1, 2009 (collectively, the “SEC Filings”); (iv) the Offering Term Sheet; (v) Form of Note; (vi) Form of Warrant; (vii) Offeree Questionnaire; and (viii) the Subscription Agreement submitted to the Company by Subscriber (the “Subscription Agreement”) (collectively, the “Offering Documents”), relating to the private offering (the “Offering”) of the Notes and the Warrants of the Company.  Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Executive Summary.

        1.         Increased Offering.  Subscriber hereby acknowledges that the Company has elected to increase the size of the Offering from $550,000 to $605,000 aggregate principal amount of Notes as permitted pursuant to the terms of the Offering.

        2.         Confirmation of Subscription.  Subscriber hereby confirms Subscriber’s subscription agreement to purchase a Note in the principal amount indicated on the signature page of the Subscription Agreement delivered to the Company by Subscriber.  Subscriber acknowledges that this Confirmation shall be attached to, and become part of, the Subscription Agreement.

        IN WITNESS WHEREOF, Subscriber has hereby executed this Confirmation as of the date set forth below.

         

        
          	 
	 

	 
	Name of Subscriber

	 
	 

	 
	 

	 
	Name and Title of Person who signed this

	 
	Confirmation on behalf of Subscriber

	 
	 

	 
	 

	 
	Signature of Subscriber or Person who signed

	 
	this Confirmation on behalf of Subscriber

	 
	 

	 
	 

	 
	Date

	 
	 

	 
	 

	 
	Initial principal amount of Note subscribed

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