heartland10ksba042504

Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. The marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. These factors cannot be accurately predicted and the combination of these factors may result in our company not receiving an adequate return on invested capital.

Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring the leases.

The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed. Our budget anticipates our acquisition of additional acreage in the Forest City basin. This acreage may not become available or if it is available for leasing, that we may not be successful in acquiring the leases. There are other competitors that have operations in the Forest City basin and the presence of these competitors could adversel y affect our ability to acquire additional leases.


	11

The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.

The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.

Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.

Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of t hose anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which it may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.

Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations.

In general, our exploration and production activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Gene rally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry.

We believe that our operations comply, in all material respects, with all applicable environmental regulations.

Our operating partners maintain insurance coverage customary to the industry; however, we are not fully insured against all possible environmental risks.

Exploratory drilling involves many risks and we may become liable for pollution or other liabilities which may have an adverse effect on our financial position.

Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labour, and other risks are involved. We may become subject to liability for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.


	12

Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business.

The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitably.

Item 2. Description of Property.

Our executive and head offices are located at Suite 1925, 200 Burrard Street, Vancouver, British Columbia, V6C 3L6. The offices are approximately 2,935 square feet in size and are leased on an annual basis, expiring February 29, 2008, at an annual rent of approximately CDN$58,700. Our current premises are adequate for our current operations and we do not anticipate that we will require any additional premises in the foreseeable future.

Our Soldier Creek project currently encompasses approximately 240,000 acres of prospective frontier coal bed methane lands located in the Forest City Basin of northeast Kansas. As at the date hereof we had a total of 240,000 acres of undeveloped land under lease, of which 215,000 acres were concentrated in Nemaha County, Brown County and the northern part of Jackson County, Kansas.

We had no productive wells as at the date hereof and no developed acreage. In September and October of 2001, Heartland Oil and Gas Inc. drilled three coal bed methane stratigraphic/exploration wells on its property. All three wells have been cased pending completion. In July 2003 we drilled four more coal bed methane stratigraphic/exploration wells on our property. These four additional wells have been cased and are awaiting results from testing. “Cased” means that metal casing has been cemented in place in the well to protect the well from fluids, pressures and/or wellbore stability problems in the wells, in anticipation of testing and/or production. In November 2003, five of the wells located in the Engelke area were fracture stimulated and pumps were installed to begin dewatering the coals. At December 31, 2003 all of these wells were continuing to pr oduce water.

Item 3. Legal Proceedings.

We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 4. Submissions of Matters to a Vote of Security Holders.

On December 8, 2003, we held a special meeting for the purposes of approving the amendment to our Articles of Incorporation for the amendment of our authorized share capital to authorize the issuance of up to 5,000,000 shares of preferred stock, par value of $0.001 per share. The amendment was approved by a quorum of shareholders with 9,330,600 votes casted in favor, nil votes casted against and nil votes abstained.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

Our common stock is traded on the National Association of Securities Dealers OTC Bulletin Board under the symbol "HOGC" Between March 7, 2002 and November 3, 2002 our common stock traded under the symbol "ADRH". The following quotations obtained from Bloomberg reflect the high and low bids for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission an may not represent actual transactions.


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The high and low bid prices of our common stock for the periods indicated below are as follows:

OTC Bulletin Board ^{(1) (2)}
Quarter Ended	High	Low
January 1, 2004 to March 9, 2004	$4.55	$2.85
December 31, 2003	$5.17	$3.48
September 30, 2003	$5.70	$3.90
June 30, 2003	$3.96	$1.65
March 31, 2003	$2.50	$1.96
December 31, 2002	$2.20	$1.57
September 30, 2002	$2.00	$1.40

(1) Our common stock began being quoted for trading on the OTC Bulletin Board on March 7, 2002.

(2) Over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.

Our common shares are issued in registered form. Registrar and Transfer Company of 10 Commerce Drive, Cranford, New Jersey, USA 07016-9814 (Telephone: (800) 866-1340; Facsimile: (908) 497-2310) is the registrar and transfer agent for our common shares.

On March 23, 2004, the shareholders’ list of our common shares showed 122 registered shareholders and 24,391,321 shares outstanding.

We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Although there are no restrictions that limit the ability to pay dividends on our common shares, our intention is to retain future earnings for use in our operations and the expansion of our business.

Recent Sales of Unregistered Securities

On May 2, 2003, we issued 6,000 shares of common stock to a non-U.S. person upon exercise of stock options previously granted to him. The shares were issued in an offshore transaction relying on Regulation S under the Securities Act of 1933.

On May 23, 2003, we issued 15,000 shares of common stock to a non-U.S. person upon exercise of stock options previously granted to him. The shares were issued in an offshore transaction relying on Regulation S under the Securities Act of 1933.

On June 30, 2003, we issued 6,000 shares of common stock to a non-U.S. person upon exercise of stock options previously granted to him. The shares were issued in an offshore transaction relying on Regulation S under the Securities Act of 1933.

On October 13, 2003, we issued 8,000 shares of common stock to a non-U.S. person upon exercise of stock options previously granted to him. The shares were issued in an offshore transaction relying on Regulation S under the Securities Act of 1933.

On December 1, 2003, we issued 25,000 shares of common stock to a non-U.S. person upon exercise of stock options previously granted to him. The shares were issued in an offshore transaction relying on Regulation S under the Securities Act of 1933.


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Item 6. Management's Discussion and Analysis or Plan of Operation.

The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this annual report, particularly in the section entitled "Risk Factors" beginning on page 8 of this annual report.

Our consolidated audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Overview

We are an exploration stage oil and gas company and carry out our operations through our wholly owned subsidiary, Heartland Oil and Gas Inc. We are currently engaged in the exploration for and development of coal bed methane in the Soldier Creek Prospect located in the Forest City Basin of northeast Kansas. We do not have any revenues other than interest income, as we are in the development stage. Our only recent activity was on September 17, 2002 when we acquired all of the shares of Heartland Oil and Gas Inc. We exchanged one share of Adriatic Holdings Ltd. for one share of Heartland Oil and Gas Inc. A total of 12,212,429 shares of Adriatic Holdings Ltd. were issued in exchange for the shares of Heartland Oil and Gas Inc. Heartland and Oil and Gas Inc. has approximately 240,000 acres under lease in central Kansas where it has drilled 7 exploratory gas wells.

Plan of Operations

For the next 12 months we plan to continue drilling a series of pilot programs in our Soldier Creek acreage area, consisting of drilling up to 18 further new wells. Fifteen of the wells will be completed for potential coal bed methane and 3 of the wells will be completed as salt water disposal wells. As we will be in a test period initially, gathering systems and pipeline tie-ins will be undertaken at the completion of the drilling program.

We also intend to undertake additional completion operations in the Engelke area, including additional hydraulic fracturing of existing coals and perforating and fracturing new coals in the wells.

Pursuant to several oil and gas leases entered into with various parties, our Soldier Creek project encompasses approximately 240,000 acres of prospective frontier coal bed methane lands. Heartland Oil and Gas Inc. holds the interests in the leases for the lands and operates the project. The expiration dates for the leases range from dates in 2004 through 2009. Certain of the leases may be extended upon the exercise of options on the leases. For the year ending December 31, 2004 we will be required to pay approximately $258,532 on the leases. There are no lease option payments due in 2005 and for the year ending December 31, 2006 we will be required to pay approximately $355,076 on the leases. In addition, we are obligated to pay delay rentals on certain leases of approximately $16,000 in each of the years 2004, 2005 and 2006.

We may require additional funds to implement our growth strategy in our gas exploration operations. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock. Further, we may continue to be unprofitable.

In order to proceed with our plans we raised funds by way of a private placement of equity securities in our company pursuant to exemptions from registration provided by Regulation S under the Securities Act of 1933. The offering consisted of units at a price of $1.40 per unit. Each unit consisted of one common share $0.001 par value and one warrant exercisable at $1.75 expiring August 30, 2004. In May, 2003 we closed the private placement having issued 1,000,000 units for gross proceeds of $1,400,000. The net proceeds received will be used as working capital to allow us to continue our ongoing lease acquisition program and to expand on the exploration and development of our Soldier Creek Prospect.


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In June, 2003, we sold an aggregate of 602,836 of our shares of our common stock and share purchase warrants to acquire an additional 301,418 shares of our common stock in a private placement for gross proceeds of approximately $1,700,000. The share purchase warrants have an exercise price of $3.38 and expire three years from the date of issuance.

On August 19, 2003, we sold an aggregate of $8,815,024 of our shares of our common stock and share purchase warrants to acquire additional shares of our common stock in a private placement. The private placement involved the issuance of 2,754,695 shares of our common stock and share purchase warrants to acquire an additional 1,377,348 shares of our common stock. The share purchase warrants have an exercise price of $3.84 and expire on August 19, 2006.

Our net cash provided by financing activities during the year ended December 31, 2003 was $10,658,421.

On January 13, 2004 we closed a private placement for the issuance and sale of 995,306 units at a purchase price of $3.20 per unit for total aggregate proceeds of $3,184,979. Each unit is comprised of one share of Series A Preferred Convertible Stock and one stock purchase warrant to purchase one-half of one share of common stock for the additional consideration of $3.84 per share for a period of three years. Each preferred share is to be convertible into one common share for no additional consideration. The preferred shares will not bear interest.

Over the next twelve months we intend to use all available funds to continue our ongoing lease acquisition program and to expand on the exploration and development of our Soldier Creek Prospect, as follows:

Estimated Funding Required During the Next Twelve Months

General and Administrative		$750,000
Acreage
	Rentals and Option Payments	280,000

Operations
	Drill and complete 15 new wells	4,500,000
	Drill and equip 3 new disposal wells	510,000
	Additional completion operations at Engelke	500,000
	Gathering and Pipelines	1,775,000
	Lease Operating Expense	950,000
	Corporate and Severance Taxes	888,000

Working Capital		347,000
Total		$10,500,000

As at December 31, 2003, we had $500,363 in current liabilities. Our financial statements report a net loss of $1,219,393 for the year ended December 31, 2003 compared to a net loss of $428,554 the year ended December 31, 2002. Our accumulated loss increased to $1,701,538 during the period from inception to December 31, 2003 as we reported a net loss for the year ended of $1,219,393. Our losses increased primarily as a result of stock-based compensation expenses and increased expenses associated with professional fees and administration activities. Stock-based compensation for the year ended December 31, 2003 was $455,375, as compared to $219,600 for the year ended December 31, 2002.

Our total liabilities as of December 31, 2003 were $500,363, as compared to total liabilities of $748,733 as of December 31, 2002. The decrease was due to the conversion of outstanding convertible debentures in the amounts of $450,016 and $242,690, inclusive of accrued interest.

We have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital. In this regard we have raised additional capital through the equity offerings noted above.


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The continuation of our business is dependent upon obtaining further financing, a successful program of acquisition and exploration, and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.

New Accounting Pronouncements

A reporting issue has arisen regarding the application of certain provisions of SFAS No. 141 and SFAS No. 142 to companies in the extractive industries, including oil and gas companies. The issue is whether SFAS No. 142 requires registrants to classify the costs of mineral rights held under lease or other contractual arrangement associated with extracting oil and gas as intangible assets in the balance sheet, apart from other capitalized oil and gas property costs, and provide specific footnote disclosures. Historically, we have included the costs of such mineral rights associated with extracting oil and gas as a component of oil and gas properties. If it is ultimately determined that SFAS No. 142 requires oil and gas companies to classify costs of mineral rights held under lease or other contractual arrangement associated with extracting oil and gas as a separate intangible assets line item on the balance sheet, we would be required to reclassify approximately $2,372,337 at December 31, 2003 and $917,003 at December 31, 2002 out of oil and gas properties and into a separate intangible asset line item. Our cash flows and results of operations would not be affected since such intangible assets would continue to be depleted and assessed for impairment in accordance with full-cost accounting rules.

In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Such standard requires any gain or loss on extinguishments of debt to be presented as a component of continuing operations (unless specific criteria are met) whereas SFAS No. 4 required that such gains and losses be classified as an extraordinary item in determining net income. Upon adoption of SFAS No. 145, we will reclassify any extraordinary gains and losses on the extinguishments of debt recorded in prior periods to continuing operations. The adoption of SFAS 145 did not have a material effect on our financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Such standard requires costs associated with exit or disposal activities (including restructurings) to be recognized when the costs are incurred, rather than at a date of commitment to an exit or disposal plan. SFAS No. 146 nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” Under SFAS No. 146, a liability related to an exit or disposal activity is not recognized until such liability has actually been incurred whereas under EITF Issue No. 94-3 a liability was recognized at the time of a commitment to an exit or disposal plan. The provisions of this standard are effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 did not have a material effect on our financial position or results of operations.

On December 31, 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation--Transition and Disclosure.” This standard amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This standard also requires prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure requirements of SFAS No. 148 are required to be included in the summary of significant accounting policies.

In May, 2003, SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", was issued. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial


	17

instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Generally, a financial instrument, whether in the form of shares or otherwise, that is mandatorily redeemable, i.e. that embodies an unconditional obligation requiring the issuer to redeem it by transferring its shares or assets at a specified or determinable date (or dates) or upon an event that is certain to occur, must be classified as a liability (or asset in some circumstances). In some cases, a financial instrument that is conditionally redeemable may also be subject to the same treatment. This Statement does not apply to features that are embedded in a financial instrument that is not a derivative (as defined) in its entirety. For public entities, this Statement is effective for financial instruments entered into or modified after May 31, 2003. The adoption of SFAS 150 did not effect the Company's financial position or results of operations.

Application of Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. We have chosen to account for stock-based compensation Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB25”) and have adopted the disclosure only provisions of SFAS 123. Accordingly, compensation for stock options is measured as the excess, if any, of the quoted market price of our stock at the date of grant over the amount an employee is required to pay for the stock.

We account for stock-based compensation issued to non-employees and consultants in accordance with the provisions of SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 (“EITF 96-18”), “Accounting for Equity Instruments that are issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services”.

We utilize the full cost method to account for our investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, capitalized interest costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. For the years ending December 31, 2003 and 2002, we did not capitalize interest costs relating to unproved properties. As of December 31, 2003, we have no properties with proven reserves. When we obtain proven oil and gas reserves capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of prove d reserves. Investments in unproved properties and major development projects including capitalized interest, if any, are not amortized until proved reserves associated with the projects can be determined. If the future development of unproved properties are determined uneconomical the amount of such properties is added to the capitalized cost to be amortized. As of December 31, 2003, all of our oil and gas properties were unproved and were excluded from amortization. At December 31, 2003, none of our unproved oil and gas properties were considered impaired.

The capitalized costs included in the full cost pool are subject to a “ceiling test”, which limits such costs to the aggregate of the estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions. No impairment existed as of December 31, 2003 and 2002.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.


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Revenue from sales or services will be recognized at the time the product is delivered or at the time the service is performed.

Transaction amounts denominated in foreign currencies are translated at exchange rates prevailing at transaction dates. Carrying values of monetary assets and liabilities are adjusted at each balance sheet date to reflect the exchange rate at that date. Non-monetary assets and liabilities are translated at the exchange rate on the original transaction date. Gains and losses from restatement of foreign currency monetary and non-monetary assets and liabilities are included in the statement of operations. Revenue and expenses are translated at the dates such items are recognized in the statement of operations.

Our financial instruments consist of cash, prepaid expenses and other liabilities. The carrying amounts of financial instruments approximate fair value due to their short maturities.

Financial instruments that potentially subject us to concentrations of credit risk consists primarily of cash in excess of the federally insured amount of $100,000. To date, we have not incurred a loss relating to this concentration of credit risk.

We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

Earnings per share requires presentation of both basic earnings per common share and diluted earnings per common share. Common stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Item 7. Financial Statements.

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

The Independent Auditor’s Report of Staley Okada & Partners, for the audited consolidated financial statements for the year ended December 31, 2003, dated March 22, 2004.

The Independent Auditor's Report of Spicer, Jeffries LLP, Independent Certified Public Accountants, for the audited consolidated financial statements for the year ended December 31, 2002 dated March 7, 2003.

Balance Sheets at December 31, 2003 and 2002.

Statements of Operations for the years ended December 31, 2003 and 2002 and for the period from inception (August 11, 2000) through December 31, 2003.

Statements of Changes in Stockholders' Equity for the years ended December 31, 2003 and 2002 and for the period from inception (August 11,2000) to December 31, 2000.

Statements of Cash Flows for the years ended December 31, 2003 and 2002 and for the period from inception (August 11, 2000) through December 31, 2003.

Notes to the Financial Statements.


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INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders

Heartland Oil and Gas Corp. and Subsidiary

(An Exploration Stage Company)

We have audited the consolidated balance sheet of Heartland Oil and Gas Corp. and Subsidiary (An Exploration Stage Company) as of December 31, 2003 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended and the December 31, 2003 amounts included in the cumulative amounts for the period from inception (August 11, 2000) to December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Heartland Oil and Gas Corp. and Subsidiary (An Exploration Stage Company) as of December 31, 2003, and the results of their operations and their cash flows for the year then ended and the December 31, 2003 amounts included in the cumulative amounts for the period from inception (August 11, 2000) to December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/ STALEY OKADA & PARTNERS

Vancouver, Canada

March 22, 2004


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INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders

Heartland Oil and Gas Corp. and Subsidiary

(An Exploration Stage Company)

We have audited the consolidated balance sheet of Heartland Oil and Gas Corp. and Subsidiary (An Exploration Stage Company) as of December 31, 2002 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended and the December 31, 2002 amounts included in the cumulative amounts for the period from inception (August 11, 2000) to December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Heartland Oil and Gas Corp. and Subsidiary (An Exploration Stage Company) as of December 31, 2002, and the results of their operations and their cash flows for the year then ended and the December 31, 2002 amounts included in the cumulative amounts for the period from inception (August 11, 2000) to December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

/s/ SPICER JEFFRIES LLP

Greenwood Village, Colorado

March 7, 2003


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HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

BALANCE SHEETS

	December 31,2003	December 31,2002


ASSETS

CURRENT ASSETS
Cash and cash equivalents	$8,279,474	$86,475
Prepaid expenses	27,011	4,341


Total current assets	8,306,485	90,816

OIL AND GAS PROPERTIES, unproven (Note 7)	4,267,171	2,150,084

EQUIPMENT, net of accumulated amortization of $3,630 and $59, respectively	16,075	3,041


TOTAL ASSETS	$12,589,731	$2,243,941


LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable and accrued expenses	$493,336	$64,256
Due to related parties (Note 2)	7,027	14,078
Convertible debentures (Note 5)	-	435,000


Total current liabilities	500,363	513,334


LONG-TERM DEBT
Convertible debenture – related party (Note 5)	-	235,399


TOTAL LIABILITIES	500,363	748,733


STOCKHOLDERS’ EQUITY (Note 3 and 4)
Preferred stock - $0.001 par value, 5,000,000 shares authorized, none issued and outstanding	-	-
Common stock - $0.001 par value, 100,000,000 shares authorized,
24,301,320 and 19,582,429 shares issued and outstanding, respectively	24,301	19,582
Additional paid-in capital	13,766,605	1,957,771
Deficit accumulated during the exploration stage	(1,701,538)	(482,145)


	12,089,368	1,495,208


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$12,589,731	$2,243,941

The accompanying notes are an integral part of these statements.


	22

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

STATEMENTS OF OPERATIONS

	Year Ended December 31, 2003	Year Ended December 31, 2002	Period from Inception (August 11, 2000) Through December 31, 2003




REVENUE	$-	$-	$-


EXPENSES
Professional fees	203,423	70,211	282,345
Management fees (Note 2)	48,000	30,000	94,000
Interest expense	22,399	31,943	67,206
Stock based compensation (Note 1)	455,375	219,600	674,975
Travel and promotion	217,645	29,889	247,534
Office rent	32,168	-	32,168
Consulting	53,489	18,758	85,171
General and administrative	214,796	28,508	247,396


Total operating expenses	1,247,295	428,909	1,730,795


Loss from operations	(1,247,295)	(428,909)	(1,730,795)

OTHER INCOME
Interest income	27,902	355	29,257


NET LOSS	$(1,219,393)	$(428,554)	$(1,701,538)


BASIC AND DILUTED NET
LOSS PER COMMON SHARE	$(0.06)	$(0.03)


BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING	21,752,375	14,335,771

The accompanying notes are an integral part of these statements


	23

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

PERIOD FROM INCEPTION (AUGUST 11, 2000) TO DECEMBER 31, 2003

	Common Shares	Stock Amount	Additional Paid-in Capital	Deficit Accumulated During the Exploration Stage




INCEPTION, August 11, 2000	-	$-	$-	$-

Common stock issued at $0.005 per share	10,000,000	10,000	40,000	-
Common stock issued at $0.35 per share	1,332,429	1,332	465,018	-
Net loss	-	-	-	(10,004)


BALANCES, December 31, 2000	11,332,429	11,332	505,018	(10,004)

Net loss	-	-	-	(43,587)


BALANCES, December 31, 2001	11,332,429	11,332	505,018	(53,591)

Common stock issued at $0.50 per share	880,000	880	439,120	-
Recapitalization (Note 1)	7,090,000	7,090	402,313	-
Common stock issued at $1.40 per share	280,000	280	391,720	-
Issuance of stock warrants as compensation	-	-	219,600	-
Net loss	-	-	-	(428,554)


BALANCES, December 31, 2002	19,582,429	19,582	1,957,771	(482,145)

Common stock issued at $1.40 per share	720,000	720	1,007,280	-
Exercise of options at $0.50 per share	70,000	70	34,930	-
Conversion of debentures at $2.00	121,345	121	242,569	-
Conversion of debentures at $1.00	450,016	450	449,566	-
Common stock issued at $2.82 per share	602,835	603	1,699,392	-
Common stock issued at $3.20 per share	2,754,695	2,755	8,812,269
Issuance of stock options as compensation	-	-	455,375	-
Less: share issue costs	-	-	(892,547)	-
Net loss	-	-	-	(1,219,393)


BALANCES, December 31, 2003	24,301,320	$24,301	$13,766,605	$(1,701,538)

The accompanying notes are an integral part of these statements.


	24

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31, 2003	Year Ended December 31, 2002	Period from Inception (August 11,2000) Through December 31, 2003




CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$(1,219,393)	$(428,554)	$(1,701,538)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accrued interest on convertible debentures	22,307	13,889	49,061
Stock options issued as compensation	455,375	219,600	674,975
Depreciation and amortization	3,571	59	3,630
Decrease in exploration advance	-	6,719	-
Increase in prepaid expenses	(22,670)	(2,698)	(26,986)
Increase (decrease) in accounts payable
and accrued expenses	429,080	(67,965)	722,782


Net cash used in
operating activities	(331,730)	(258,950)	(278,076)


CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment	(16,605)	(3,100)	(19,705)
Acquisition and exploration of oil and
gas properties	(2,117,087)	(917,003)	(4,267,171)


Net cash used in
investing activities	(2,133,692)	(920,103)	(4,286,876)


CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in due to related parties	(7,051)	30,675	228,507
Cash received on recapitalization	-	15,896	15,896
Proceeds from issuance of common stock, net of offering costs	10,665,472	832,000	12,013,821
Proceeds from long-term debt	-	376,202	586,202


Net cash provided by
financing activities	10,658,421	1,254,773	12,844,426


NET INCREASE IN CASH AND CASH EQUIVALENTS	8,192,999	75,720	8,279,474

CASH AND CASH EQUIVALENTS, beginning of period	86,475	10,755	-


CASH AND CASH EQUIVALENTS, end of period	$8,279,474	$86,475	$8,279,474

The accompanying notes are an integral part of these statements


	25

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

	Year Ended December 31, 2003	Year Ended December 31, 2002	Period from Inception (August 11, 2000) Through December 31, 2003




SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Note payable converted to convertible debenture	$-	$201,510	$201,510


Advances received on long-term debt relieved upon reverse acquisition	$-	$586,202	$586,202


Conversion of convertible debentures including interest to common stock	$692,706	$-	$692,706


The Company acquired 72 % of the capital stock of Adriatic Holdings Limited for 100% of the capital of Heartland Oil & Gas, Inc. in a reverse acquisition (See Note 1). In connection with the reverse acquisition, liabilities were assumed as follows: Fair value $454,401 Cash acquired 15,896 Liabilities assumed $438,505

The accompanying notes are an integral part of these statements


	26

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Organization

On April 10, 2002, Adriatic Holdings Limited ("Adriatic") entered into a letter of intent to acquire all of the shares of Heartland Oil and Gas Inc., a Nevada corporation ("Heartland"). Heartland was incorporated in the State of Nevada on August 11, 2000 and its principal business activity consists of exploration and development of oil and gas properties in the United States to determine whether they contain economically recoverable resources. The Company is currently in the exploration stage and has not generated revenue from its operations. Effective September 17, 2002, the acquisition of Heartland by Adriatic was completed through the issuance of one share of Adriatic common stock for each share of Heartland outstanding. At the time of the acquisition, Adriatic had 7,090,000 shares of common stock outstanding. Adriatic issued 12,212,429 shares of common stock t o the shareholders of Heartland, and as a result, the Company had 19,302,429 shares of common stock outstanding immediately after the acquisition. As part of the exchange agreement, Adriatic changed its name to Heartland Oil & Gas Corp.

The acquisition of Heartland by Adriatic is considered a reverse acquisition and accounted for under the purchase method of accounting. Under reverse acquisition accounting, Heartland is considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of Adriatic. Assets acquired and liabilities assumed are reported at their historical amounts.

The consolidated financial statements include the accounts of Adriatic since the date of the reverse acquisition (September 17, 2002) and the historical accounts of its wholly owned subsidiary, Heartland Oil and Gas Inc. (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has suffered recurring losses from operations and has accumulated a deficit of $1,701,538 since its inception on August 11, 2000. The Company has raised approximately $10,665,000 during 2003 and as mentioned in Note 9 to the financial statements, the Company has raised an additional $3,184,976 in 2004. The Company has sufficient working capital to fund its current operations through 2004. Since inception, the Company has funded operations through the issuance of capital stock and debt. Management's plan is to continue raising additional funds through future equity or debt financing until it achieves profitable operations from its oil and gas drilling activities.

Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted the disclosure only provisions of SFAS 123. Accordingly, compensation cost for stock options is measured at intrinsic value, which is the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee is required to pay for the stock.

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services".

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.


	27

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Oil and Gas Properties

The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, capitalized interest costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. As of December 31, 2003, the Company has no properties with proven reserves. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects including ca pitalized interest, if any, are not amortized until proved reserves associated with the projects can be determined. If the future exploration of unproved properties are determined uneconomical the amount of such properties are added to the capitalized cost to be amortized. As of December 31, 2003, and 2002 all of the Company's oil and gas properties were unproved and were excluded from amortization. At December 31, 2003 and 2002, none of the Company’s unproved oil and gas properties were considered impaired.

The capitalized costs included in the full cost pool are subject to a "ceiling test", which limits such costs to the aggregate of the estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions. No impairment existed as of December 31, 2003 and 2002.

Revenue Recognition

Revenue from sales or services will be recognized at the time the product is delivered or at the time the service is performed.

Foreign Currency Translation

Fair Value of Financial Instruments

Substantially all of the Company's assets and liabilities are carried at fair value or contracted amounts that approximate fair value. Estimates of fair value are made at a specific point in time, based on relative market information and information about the financial instrument, specifically, the value of the underlying financial instrument. Assets that are recorded at fair value consist largely of cash and other assets, which are carried at contracted amounts that approximate fair value. Oil and gas properties are valued as discussed above. The Company's liabilities consist of short-term liabilities and notes payable recorded at contracted amounts that approximate fair value.


	28

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash in excess of the federally insured amount of $100,000. To date, the Company has not incurred a loss relating to this concentration of credit risk.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

Loss Per Share

Earnings per share requires presentation of both basic earnings per common share and diluted earnings per common share. Due to the Company recognizing losses to date, common stock equivalents have not been included in the weighted average calculation since their effect would be anti-dilutive.

Use of Estimates

Recent Accounting Pronouncements

A reporting issue has arisen regarding the application of certain provisions of SFAS No. 141 and SFAS No. 142 to companies in the extractive industries, including oil and gas companies. The issue is whether SFAS No. 142 requires registrants to classify the costs of mineral rights held under lease or other contractual arrangement associated with extracting oil and gas as intangible assets in the balance sheet, apart from other capitalized oil and gas property costs, and provide specific footnote disclosures. Historically, Heartland has included the costs of such mineral rights associated with extracting oil and gas as a component of oil and gas properties. If it is ultimately determined that SFAS No. 142 requires oil and gas companies to classify costs of mineral rights held under lease or other contractual arrangement associated with extracting oil and gas as a separate intangible assets line item on the balance sheet, Heartland would be required to reclassify approximately $2,372,337 at December 31, 2003 and $917,003 at December 31, 2002 from oil and gas properties and into a separate intangible assets line item. Heartland’s cash flows and results of operations would not be affected since such intangible assets would continue to be depleted and assessed for impairment in accordance with full-cost accounting rules.


	29

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Such standard requires any gain or loss on extinguishments of debt to be presented as a component of continuing operations (unless specific criteria are met) whereas SFAS No. 4 required that such gains and losses be classified as an extraordinary item in determining net income. Upon adoption of SFAS No. 145, the Company will reclassify any extraordinary gains and losses on the extinguishments of debt recorded in prior periods to continuing operations. The adoption of SFAS 145 did not have a material effect on the Company’s financial position or results of operations.

On December 31, 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” This standard amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This standard also requires prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure requirements of SFAS No. 148 are required to be included in the summary of significant accounting policies.

In May, 2003, SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, was issued. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Generally, a financial instrument, whether in the form of shares or otherwise, that is mandatorily redeemable, i.e. that embodies an unconditional obligation requiring the issuer to redeem it by transferring its shares or assets at a specified or determinable date (or dates) or upon an event that is certain to occur, must be classified as a liability (or asset in so me circumstances). In some cases, a financial instrument that is conditionally redeemable may also be subject to the same treatment. This Statement does not apply to features that are embedded in a financial instrument that is not a derivative (as defined) in its entirety. For public entities, this Statement is effective for financial instruments entered into or modified after May 31, 2003. The adoption of SFAS 150 did not effect the Company’s financial position or results of operations.


	30

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

NOTE 2 - RELATED PARTY TRANSACTIONS

Amounts due to related parties at December 31, 2003 and 2002 are as follows:

	December 31, 2003	December 31, 2002


Advances payable to officers and directors, non-interest bearing,
unsecured and no due date	$ 7,027	$ 14,078

During the years ended December 31, 2003 and 2002, the Company paid certain officers and directors management and consultant fees of $101,000 and $30,000, respectively.

NOTE 3 - STOCK OPTIONS

On December 3, 2001, the Company's Board of Directors adopted the 2002 Officer, Director, Consultant and Advisor Stock Compensation Plans (the "Plan"), stock option plans. The aggregate number of shares of common stock that may be granted by the Company will not exceed a maximum of 1,600,000 shares during the period of the Plan. The Plan shall terminate upon the earlier of December 31, 2012 or the issuance of all shares granted under the Plan. The option prices per share are determined by the Board of Directors when the stock option is granted.

If for any reason a recapitalization, sale or merger of the Company occurs, all shares subject to the stock option Plan shall be immediately adjusted proportionally. The Board of Directors may amend the Plan at any time. Certain amendments require stockholders' approval.

Information with respect to all options is as follows:

	Compensation Plan	Other Options and Warrants	Exercise Price Range	Weighted Average Exercise Price	Weighted Average Remaining Life


Available


Balance at December 31, 2001	500,000	-	$0.35	$ 0.35	4.92 years
Granted	670,000	280,000	0.50 – 1.75	0.87


Balance at December 31, 2002	1,170,000	280,000	0.35 – 1.75	0.69	3.58 years
Granted	100,000	2,970,127	0.50 – 3.84	2.73
Exercised	(70,000)	-	0.50	0.50


Balance at December 31, 2003	1,200,000	3,250,127	$0.35 – 3.84	$2.10	2.05 years


	31

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

NOTE 3 - STOCK OPTIONS (continued)

	Compensation Plan	Other Options and Warrants	Exercise Price Range	Weighted Average Exercise Price	Weighted Average Remaining Life


Exercisable


Number of options exercisable
at December 31, 2002	680,000	280,000	$0.35 – 0.50	$0.79	3.58 years


Number of options exercisable
at December 31, 2003	972,500	3,250,127	$0.35 – 0.50	$2.18	1.95 years

At December 31, 2003 and 2002 respectively, 400,000 and 500,000 share options were available for future grant under the Plan.

The Company measures compensation cost under APB 25 based on the intrinsic value of the options at the grant date. The options which vested in 2003 and 2002 had an exercise price range of $0.50 to $2.00 when the market value of the underlying common stock ranged from $1.72 to $2.83 which resulted in compensation cost recognized by the Company of $455,375 and $219,600 for the years ended December 31, 2003 and 2002.

Had the Company measured compensation cost based on the fair value of the options at the grant date for 2003 and 2002 consistent with the method prescribed by SFAS 123, the Company's net loss and loss per common share would have been increased to the pro forma amounts indicated below:

	Year Ended December 31, 2003	Year Ended December 31, 2002

Net loss, as reported	$ (1,219,393)	$ (428,554)

Add: Stock-based employee compensation expense included in reported
net income, net of related tax effects	455,375	219,600

Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects	(593,380)	(297,874)


Pro forma net loss	$ (1,357,398)	$ (506,828)

	Year Ended December 31, 2003	Year Ended December 31, 2002


Net loss per share:
Basic and diluted loss per common share
As reported	$ (0.06)	$ (0.03)
Pro forma	(0.06)	(0.03)


	32

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

NOTE 3 - STOCK OPTIONS (continued)

The fair value of each option grant was estimated at the date of the grant using the Black-Scholes option pricing model with the following assumptions for 2003 and 2002: risk-free interest rate of 2.8% (2002 – 1.66%); no dividend yield; expected lives of 4 to 5 years; and volatility of 76% (2002 – 75%).

NOTE 4 - STOCKHOLDERS' EQUITY

On September 11, 2000, the Company completed a private placement of 10,000,000 common shares at a price of $0.005 per share for proceeds of $50,000. On October 20, 2000 and November 21, 2000 the Company completed additional private placements of 356,429 and 976,000 common shares at $0.35 per share for proceeds of $466,350.

In April 2002, prior to the reverse acquisition with Adriatic (see Note 1), the Company completed a private placement of 880,000 shares of common stock at a $0.50 per share for proceeds of $440,000. On September 17, 2002, the Company completed its reverse acquisition with Adriatic by Adriatic issuing 12,212,429 to the shareholders of Heartland.

In October 2002, the Company commenced a private placement of units (one common share and one common stock purchase warrant exercisable at a price of $1.75 per share until August 30, 2004) at a price of $1.40 per unit. As of December 31, 2002, the Company sold 280,000 units for proceeds of $392,000.

During the year ended December 31, 2003 the following transactions occurred:

·In March 2003, the Company sold 690,000 units at $1.40 for proceeds of $966,000.

·The Company sold 30,000 units at $1.40 for proceeds of $42,000 in May 2003. This sale concluded the “Regulation S” private placement of 1,000,000 units at $1.40 per unit.

·The Company issued 121,345 units at a price of $2.00 for the conversion of $242,690 (including interest of $20,242) outstanding on a convertible debenture. Each unit consists of one share of common stock and one common stock purchase warrant, exercisable at $2.00 per share expiring on December 31, 2004.

·In June 2003, the Company issued 602,835 units at $2.82 per unit for proceeds of approximately $1,700,000 from a private placement. Each unit consisted of one share of common stock and one-half share purchase warrant exercisable at $3.38 per warrant expiring on June 23, 2006.

·A convertible debenture for $450,016 (including interest of $15,016) was converted into 450,016 units at a price of $1.00 per unit on June 30, 2003. Each unit consists of one share of common stock and one common stock purchase warrant, exercisable at $1.00 per share expiring on December 31, 2004.

·In August 2003 the Company issued 2,754,695 units at $3.20 per unit for proceeds of $8,815,024 pursuant to a private placement. Each unit consists of one share of common stock and one-half share purchase warrant exercisable at $3.84 per warrant expiring on August 19, 2006.

·During the year ended December 31, 2003 the Company issued 70,000 shares at $0.50 per share for proceeds of $35,000 from the exercise of stock options.

As of December 31, 2003, none of the warrants had been exercised.


	33

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

NOTE 4 - STOCKHOLDERS' EQUITY (continued)

On August 20, 2003, the Company announced that it had entered into agreements in principle relating to the issuance and sale of 995,305 units at a purchase price of $3.20 per unit for total aggregate proceeds of $3,184,979. Each unit is comprised of one share of Series A Preferred convertible shares and one stock purchase warrant to purchase one-half of one share of common stock for the additional consideration of $3.84 per share. Each preferred share is convertible into one common share for no additional consideration. The closing of the preferred share offering was subject to the Company entering into definitive agreements and amending its authorized capital to create the class of preferred shares, which received shareholder approval (See Note 9).

NOTE 5 - CONVERTIBLE DEBENTURES AND LONG-TERM DEBT

On May 6, 2002, Adriatic issued a convertible debenture to an unrelated party in the amount of $435,000, bearing interest at 7%, and principal and interest due December 1, 2003. The convertible debenture was convertible at the option of the debenture holder into units (consisting of one share of common stock and one warrant to purchase one share of common stock) at $1.00 per unit. This debenture was considered to have an embedded beneficial conversion feature because the conversion price was less than the quoted market price at the time of the issuance. Accordingly, the beneficial conversion feature was valued separately and the intrinsic value, essentially interest, was recorded as a charge to operations in the amount of $108,750 with a corresponding credit to additional paid-in capital. This transaction occurred before the acquisition of Heartland by Adriatic an d therefore, is not included in the accompanying statements of operations.

On June 30, 2003 the Company issued 450,016 units (one share of common stock and one common stock purchase warrant) at a price of $1.00 per unit for the conversion of $450,016 (including interest of $15,016) outstanding on the convertible debenture.

In October 2002, the Company converted a $200,000 note payable plus accrued interest into a convertible debenture in the amount of $222,448 bearing interest at 7% per annum and is due on December 31, 2004. The debenture is convertible at $2.00 per unit (one share of common stock and one common stock purchase warrant, exercisable at $2.00 per share), at the option of the holder, at any time commencing on January 1, 2003 until maturity.

On June 30, 2003 the Company issued 121,345 units (one share of common stock and one common stock purchase warrant) at $2.00 per unit for the conversion of $242,690 (including interest of $20,242) outstanding on this convertible debenture.

NOTE 6 - INCOME TAXES

As of December 31, 2003, the Company had approximately $1,295,000 in pretax U.S. federal and state net operating loss carryforwards, expiring through the 2023. A portion of such net operating loss carryforwards were incurred prior to the September 17, 2002, the reverse acquisition date of the Company, and as such, management of the Company anticipates limitations to the use of these carryforwards under Internal Revenue Code Section 382.


	34

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

NOTE 6 - INCOME TAXES (continued)

The Company provides for deferred taxes arising from temporary differences in the book and tax carrying amounts of assets and liabilities. Temporary differences arise primarily from differences in reporting stock based compensation and intangible drilling and completion costs.

The deferred tax assets that result from such operating loss carryforwards and temporary differences of approximately $760,000 and $256,000 at December 31, 2003 and 2002, respectively, have been fully reserved for in the accompanying consolidated financial statements as follows. For the years ended December 31, 2003 and 2002, the valuation allowance established against the deferred tax assets increased by 504,000 and $215,000, respectively.

	Year Ended December 31, 2003	Year Ended December 31, 2002


Deferred tax liabilities:	$ -	$ -


Deferred tax assets:
Net operating loss deduction	$ 500,000	$ 125,000
Stock based compensation	260,000	131,000

Total deferred tax assets	760,000	256,000
Valuation allowance	(760,000)	(256,000)


	$ -	$ -

Reconciliation of the differences between the statutory tax rate and the effective tax rate is as follows:

	Year Ended December 31, 2003	Year Ended December 31, 2002


Federal statutory tax (benefit) rate	(34%)	(34%)

State taxes, net of federal tax (benefit) rate	(4.57%)	(4.57%)


Effective tax rate	(38.5%)	(38.5%)

Valuation allowance	(38.5%)	(38.5%)


Effective income tax rate	-	-


	35

HEARTLAND OIL & GAS CORP.

AND SUBSIDIARY

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

NOTE 7 - OIL AND GAS PROPERTIES, UNPROVED

The expiration dates of the Company's oil and gas leases range from dates in 2004 through 2007. Certain oil and gas leases may be extended by another one or two terms by the execution of options on these leases. In addition, the Company is required to pay delay rentals on certain leases. For the years ending December 31, 2004, 2005 and 2006, approximately $16,000 per year will be required to be paid on these leases.

The total costs incurred and excluded from amortization are summarized as follows:

	Acquisition Costs	Exploration Costs	Total

Costs incurred during periods ended:
December 31, 2003	$ 839,081	$ 1,278,006	$2,117,087
December 31, 2002	917,003	-	917,003
December 31, 2001	506,253	591,875	1,098,128
December 31, 2000	110,000	24,953	134,953

Totals	$ 2,372,337	$ 1,894,834	$ 4,267,171

At December 31, 2003, all of the Company’s oil and gas properties are considered unproven. Based on the status of the Company’s exploration activities, including the drilling of exploratory test wells, management has determined that no impairment has occurred.

NOTE 8- COMMITMENTS

The Company leases a facility in Vancouver, British Columbia under a non-cancelable operating lease. The lease commenced on February 1, 2004 and will expire on February 29, 2008. As of December 31, 2003, future minimum lease payments are as follows:

Year	Amount

2004	$ 41,486
2005	45,258
2006	45,258
2007	45,258
2008	7,543

	$184,803

The Company paid $32,168 for rent expense for the year ended December 31, 2003.

NOTE 9- EVENT SUBSEQUENT TO BALANCE SHEET DATE

During January and February of 2004 the Company completed an offering of its Series A Preferred Convertible Stock. The shares were issued along with a stock purchase warrant to purchase one half of one share of common stock at an exercise price of $3.84 per share. The Series A Preferred Stock is convertible into one share of common stock at no additional consideration. The Company received proceeds of $3,184,979 pursuant to this offering.


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Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

Item 8A. Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures as of the end of the period covered by this annual report, being December 31, 2003. This evaluation was carried out under the supervision and with the participation of our company's management, including our company's president and chief executive officer. Based upon that evaluation, our company's president and chief executive officer concluded that our company's disclosure controls and procedures are effective. There have been no significant changes in our company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Exchange Act is accumulated and communicated to management, including our company's president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.

All directors of our company hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified. The officers of our company are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.

Our directors, executive officers and other significant employees, their ages, positions held and duration each person has held that position, are as follows:

Name	Position Held with theCompany	Age	Date First Elected or Appointed
Richard Coglon	President and Director	43	September 18, 2002
Robert Knight	Chief Financial Officer, Secretary and Director	47	September 1, 1998

Donald Sharpe	Director	46	September 18, 2002

Randall Buchamer	Director	46	October 24, 2002
Michael Bodino	Director	34	October 16, 2003

Business Experience

The following is a brief account of the education and business experience of each director, executive officer and key employee during at least the past five years, indicating each person’s principal occupation during the period, and the name and principal business of the organization by which he or she was employed.


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Richard Coglon - President and Director

Mr. Coglon has been the President and a director of our company since September 18, 2002. He has also been the President, Secretary-Treasurer and a director of our subsidiary, Heartland Oil and Gas Inc. since August 11, 2000. Mr. Coglon graduated from the University of Alberta in 1982 with a Bachelor of Commerce. In 1983 he then attended the University of Victoria and received his Bachelor of Laws degree in 1986. Mr. Coglon was called to the Bar in British Columbia, Canada in 1987 and began his specialty in the areas of corporate finance and securities law. On January 1, 2003 Mr. Coglon ceased the active practice of law to concentrate on the business of Heartland and his other business ventures.

In 1995 Mr. Coglon co-founded Velvet Exploration Ltd., as a start-up oil exploration and production company. Velvet was eventually listed on the Toronto Stock Exchange and ultimately sold in August of 2001 in a “friendly takeover transaction” with El Paso Energy for approximately $450 Million. Mr. Coglon also serves as a director of Bradner Ventures Ltd. a NASD (OTCBB) company.

Robert Knight - Chief Financial Officer, Secretary, Treasurer and Director

Mr. Knight has served as the Secretary-Treasurer and a director of our company since July 1998. Mr. Knight served as President of our company from 1998 until September 2002. Mr. Knight has served as a director of Invisa Inc. since September 1998 and as the President and Secretary-Treasurer from September 1998 to January 2000. Mr. Knight has served as President, Secretary-Treasurer and Director of Navitrak International Corporation (fka Blackstone Holdings Ltd.) since November 2003. Mr. Knight served as President, Secretary-Treasurer and director of Retinapharma International Inc., from March 14, 2000 until December 2003. From September 1, 1998 to June 12, 1999 he served as President, Secretary-Treasurer and director of Silverwing Systems Corporation. From September 1, 1998 Mr. Knight served as President and director of Centaur BioResearch, Inc. From June 24, 1997 to February 1, 1999, he was the President and director of ANM Holdings Corporation. Additionally, Mr. Knight has served as a director of FlashPoint International, Inc. since October 2001. Mr. Knight has 20 years of experience in the public company arena and corporate finance. In all of these positions, Mr. Knight had the responsibility to manage all of the affairs of each of these companies; to ensure the operation of the business, interact with legal counsel and auditors, and the preparation of all documents to be filed with any regulatory bodies.

Mr. Knight completed a Masters in Business Administration, December 31, 1998 from Herriot-Watt University.

Donald Sharpe - Director

Mr. Sharpe has been a director of our company since September 18, 2002. Mr. Sharpe graduated from the University of British Columbia with a Bachelor of Science degree in Geophysics in 1981 and joined Suncor Inc. in August of that year. From 1981 to 1987 Mr. Sharpe trained and worked as an exploration geophysicist, gaining experience in all parts of the exploration and development cycle throughout the Western Canadian Sedimentary Basin.

In 1987, Mr. Sharpe moved into the then new field of gas marketing where he was responsible for the direct marketing of Suncor’s gas to industrial, commercial and utility customers in the United States and Eastern Canada. In this position, Mr. Sharpe negotiated and completed gas contracts with some of North America’s biggest industrial customers. The position required negotiating skills, an understanding of the North American pipeline infrastructure, and an appreciation for the dynamics of natural gas supply and demand. Mr. Sharpe continued his formal education and received a Certificate in Business Management from the University of Calgary in 1989.

In 1990, Mr. Sharpe returned to exploration at Suncor in the position of group leader for British Columbia exploration. In this position, Mr. Sharpe managed a team of professionals in land, geology and geophysics and was responsible for the planning, budgeting and execution of the team’s exploration program. Mr. Sharpe continued his education and graduated from the Banff School of Advanced Management in 1991.


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In 1994, Mr. Sharpe left Suncor and returned to Vancouver to found and run a number of public companies. Operating under the umbrella of D. Sharpe Management Inc., Mr. Sharpe has consulted to, managed and served as a director of a number of start-up oil and gas companies including Patriot Petroleum Corp. and Gemini Energy Inc., Velvet Exploration Inc., Netco Energy Inc. and Nation Energy Ltd.

Mr. Sharpe is a member of the Association of Professional Engineers, Geologists and Geophysicists of Alberta and the Canadian Society of Exploration Geophysicists.

Michael Bodino – Director

Mr. Bodino has been a director of our company since October 16, 2002. Mr. Bodino is currently a senior vice president and senior exploration and production research analyst with Sterne, Agee & Leach Inc. of New Orleans, Louisianna. In this capacity Mr. Bodino is responsible for developing and implementing corporate development strategies including mergers, acquisitions, and other financial advisory services; developing investment banking opportunities within the energy sector; and research. From 1993 to 1999 Mr. Bodino had served as a research analyst for San Jacinto Securities, Inc., of Dallas, Texas. From 1999 to 2003 Mr. Bodino was a director of Energy Investment Banking for Hibernia Southeast Capital Inc. of New Orleans, Louisiana.

Mr. Bodino holds an MBA in finance from Texas Christian University and a B.S., Bachelor of Science in Economics from Louisiana State University in Shreveport. Mr. Bodino is a member of the William Conner Foundation, a member of the National Association of Petroleum Investment Analysts (NAPIA).

Randall Buchamer - Director

Mr. Buchamer has been a director of our company since October 24, 2002. Mr. Buchamer has been the Chief Executive Officer of Voice Mobility Inc., a unified communications company, since August 21, 2001 and was the Chairman of Voice Mobility Inc. until January, 2003. Mr. Buchamer was a self-employed business consultant from April 2000 to August 2001. Mr. Buchamer has been a director of User Friendly Media from September 2000. From March 1999 to April 2000 Mr. Buchamer was the Managing Director, Operations of The Jim Pattison Group and was responsible for supporting the operations of the companies owned by The Jim Pattison Group. Prior to joining The Jim Pattison Group, Mr. Buchamer was the Vice-President and Chief Operating Officer for Mohawk Oil from March 1988 to March 1999.

Mr. Buchamer holds an Executive Management Development Degree (Condensed EMBA) from Simon Fraser University and attended the University of Illinois, Chicago taking Business Administration (Marketing and Finance).

Messrs. Coglon and Sharpe are significant employees and the loss of either of these employees would have an adverse impact on our future developments and could impair our ability to succeed.

Family Relationships

There are no family relationships among our directors or officers.

Involvement in Certain Legal Proceedings

Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:

1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);


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3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

4. being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Audit Committee Financial Expert

Our Board of Directors has determined that it does not have a member of its audit committee that qualifies as an “audit committee financial expert” as defined in Item 401(e) of Regulation S-B, and is “independent” as the term is used in Tem 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.

We believe that the members of our Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated revenues to date.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.

To the best of our knowledge, all executive officers, directors and greater than 10% shareholders filed the required reports in a timely manner.

Code of Ethics

Effective March 25, 2004, our company's board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, our company's president (being our principal executive officer) and our company's secretary (being our principal financial and accounting officer and controller), as well as persons performing similar functions. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:

(1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

(2) full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;

(3) compliance with applicable governmental laws, rules and regulations;

(4) the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and

(5) accountability for adherence to the Code of Business Conduct and Ethics.

Our Code of Business Conduct and Ethics requires, among other things, that all of our company's personnel shall be accorded full access to our president and secretary with respect to any matter which may arise relating to the Code


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of Business Conduct and Ethics. Further, all of our company's personnel are to be accorded full access to our company's board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our president or secretary.

In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal , provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our company's president or secretary. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the president or secretary, the incident must be reported to any member of our board of directors. Any failure to report such inappropriate or irregular conduct of others is to be treat ed as a severe disciplinary matter. It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our company's Code of Business Conduct and Ethics by another.

Our Code of Business Conduct and Ethics is filed herewith with the Securities and Exchange Commission as Exhibit 14.1 to this annual report. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to: Heartland Oil and Gas Corp., Suite 1925, 200 Burrard Street, Vancouver, British Columbia, Canada V6C 3L6.

Item 10. Executive Compensation.

Particulars of compensation awarded to, earned by or paid to:

(a) our chief executive officer;

(b) each of our four most highly compensated executive officers who were serving as executive officers at the end of the most recently completed fiscal year and whose total salary and bonus exceeds $100,000 per year; or

(c) any additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as an executive officer of our company at the end of the most recently completed fiscal year;

(the "Named Executive Officers") are set out in the summary compensation table below.

SUMMARY COMPENSATION TABLE

		Annual Compensation			Long Term Compensation (1)

					Awards		Payouts

Name and Principal Position	Year	Salary (US$)	Bonus (US$)	Other Annual Compensation (US$) ⁽¹⁾	Securities Underlying Options/ SARs Granted	Restricted Shares or Restricted Share Units	LTIP Payouts (US$)	All Other Compensation

Richard Coglon President⁽²⁾	2003	$42,000	Nil	Nil	N/A	Nil	Nil	Nil
	2002	$8,000⁽³⁾	Nil	Nil	500,000⁽⁵⁾	Nil	Nil	Nil
	2001	$12,000⁽⁴⁾	Nil	Nil	N/A	Nil	Nil	Nil

Robert Knight Chief Financial Officer⁽⁶⁾	2003	$15,000	Nil	Nil	100,000⁽⁸⁾	Nil	Nil	Nil
	2002	$15,000⁽⁷⁾	Nil	Nil	50,000⁽⁸⁾	Nil	Nil	Nil
	2001	Nil	Nil	Nil	Nil	Nil	Nil	Nil


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⁽¹⁾The value of perquisites and other personal benefits, securities and property for the Named Executive Officers that do not exceed the lesser of $50,000 or 10% of the total of the annual salary and bonus is not reported herein.

⁽²⁾ Mr. Coglon has served as our President since September 18, 2002.

⁽³⁾ Upon becoming our President, Mr. Coglon received $2,000 per month for providing management services to our company until June 2003. He now is under contract and receives $5,000 per month.

⁽⁴⁾ Mr. Coglon received $1,000 per month for providing management services to our subsidiary, Heartland Oil and Gas Inc.

⁽⁵⁾Richard Coglon received 500,000 options at $0.35 on December 2, 2002 pursuant to the Additional 2002 Officer, Director, Employee, Consultant and Advisor Stock Compensation Plan.

⁽⁶⁾Mr. Knight has served as our Chief Executive Officer from July 9, 1998 to September 17, 2002 at which time he was appointed to the position of Chief Financial Officer.

⁽⁷⁾ Mr. Knight received $1,250 per month for providing management services to our company.

⁽⁸⁾Mr. Knight received 50,000 options at $0.50 in December 2002 and 100,000 options: 50,000 options at $0.50 and 50,000 at $2.00 in June 2003 pursuant to the 2001 Officer, Director, Employee, Consultant and Advisor Stock Compensation Plan and the 2003 Officer, Director, Employee, Consultant and Advisor Stock Compensation Plan as compensation for serving as our Chief Financial Officer.

The following table sets forth for each of the Named Executive Officers certain information concerning stock options granted to them during fiscal 2002. We have never issued stock appreciation rights.

OPTION/SAR GRANTS IN THE LAST FISCAL YEAR

Name	Number of Securities Underlying Options/ SARs Granted (#)	% of Total Options/ SARs Granted to Employees in Fiscal Year⁽¹⁾	Exercise Price ($/Share)	Expiration Date

Robert Knight Chief Financial Officer	100,000	100%	$0.50 and $2.00⁽²⁾	June 5, 2008

⁽¹⁾The denominator (of 100,000) was arrived at by calculating the net total number of new options awarded during the year.

⁽²⁾In June 2003, Mr. Knight received 100,000 options of which 50,000 are exercisable at $0.50 and 50,000 are exercisable at $2.00 pursuant to the 2001 Officer, Director, Employee, Consultant and Advisor Stock Compensation Plan and the 2003 Officer, Director, Employee, Consultant and Advisor Stock Compensation Plan.

The following table sets forth for each Named Executive Officer certain information concerning the number of shares subject to both exercisable and unexercisable stock options as of December 31, 2003. No named Executive Officer exercised options during fiscal 2003.


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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

Name	Shares Acquired on Exercise (#)	Aggregate Value Realized	Number of Securities Underlying Unexercised Options/SARs at FY-End (#) Exercisable / Unexercisable		Value of Unexercised In-the -Money Options/SARs at FY-end ($) Exercisable / Unexercisable⁽¹⁾

			Exercisable	Unexercisable	Exercisable	Unexercisable

Richard Coglon	Nil	Nil	500,000	0	$1,725,000	$0

Robert Knight	Nil	Nil	112,500	37,500	$315,000	$105,000

⁽¹⁾ The values for “in-the-money” options are calculated by determining the difference between the fair market value of the securities underlying the options as of December 31, 2003 ($3.80 per share on NASD OTCBB) and the exercise price of the individual’s options.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS

There are no employment agreements between us or any of our subsidiaries and the Named Executive Officers.

Our company has no plans or arrangements in respect of remuneration received or that may be received by Named Executive Officers of our company in fiscal 2003 to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $100,000 per Named Executive Officer.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Our Directors do not receive salaries or fees for serving as directors, nor do they receive any compensation for attending meetings of the Board of Directors or serving on committees of the Board of Directors. We may, however, determine to compensate our directors in the future. Directors are entitled to reimbursement of expenses incurred in attending meetings. In addition, our directors are entitled to participate in our stock option plan.

During the year ended December 31, 2003 we paid $42,000 to Richard Coglon for the services he provided to our company in his capacity as President and a director of our company. We also paid $15,000 to Robert Knight for the services he provided to our company in his former capacity as the President and his current capacity as Chief Financial Officer, Secretary, Treasurer and a director of our company.

Donald Sharpe, a director of our company, earns consulting fees through D. Sharpe Management Inc., a company wholly-owned and controlled by him. We paid D. Sharpe Management Inc. $2,000 per month for consulting services, which was increased to $5,000 per month commencing July 1, 2003. As well, he retains a 1% non-convertible overriding royalty on production from leases acquired by our company in Forest City Basin.

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.

During the year ended December 31, 2001 we established a stock option plan pursuant to which 500,000 common shares were reserved for issuance. During the year ended December 31, 2002 we established a stock option plan pursuant to which 600,000 shares were reserved for issuance and an additional 2002 stock option plan pursuant to which 500,000 shares were reserved for issuance.


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Stock options become exercisable at dates determined by the Board of Directors at the time of granting the option and have initial terms of five years.

The fair value of each option granted in 2003 was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: no dividend yield; volatility of 75%; risk-free interest rate of 76% and an expected life of four to five years.

We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000 per executive officer.

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth, as of March 23 2004, certain information with respect to the beneficial ownership of our common shares by each shareholder known to us to be the beneficial owner of 5% of our common shares, and by each of our officers and directors. Each person has sole voting and investment power with respect to the common shares, except as otherwise indicated. Beneficial ownership consists of a direct interest in the common shares, except as otherwise indicated.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percentage of Class ⁽¹⁾

Richard L. Coglon 5548 Parthenon Place West Vancouver, BC Canada V7W 2V7	850,000⁽²⁾⁽³⁾	3.44%

Donald Sharpe Suite 1925, 200 Burrard Street Vancouver, BC, Canada V6C 3L6	582,500⁽⁴⁾	2.37%

Robert Knight 114 W. Magnolia Street, Suite 446 Bellingham, WA 98225	144,300⁽⁵⁾	*

Randall Buchamer Suite 1925, 200 Burrard Street Vancouver, BC V6C 3L6	54,500⁽⁶⁾	*

Michael Bodino Suite 1925, 200 Burrard Street Vancouver, BC V6C 3L6	50,000⁽⁷⁾	*

Directors and Executive Officers as a Group	1,681,300	6.65%

*Less than 1%.

(1) Based on 24,391,321 shares of common stock issued and outstanding as of March 23, 2004. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.


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Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.

(2) Includes options to acquire an aggregate of 470,000 shares of common stock, exercisable within sixty days.

(3) The 350,000 shares of common stock held by Richard Coglon are the subject of a divorce judgement whereby Mr. Coglon’s ex-wife is entitled to claim one-half ownership. This judgement is under appeal.

(4) Includes options to acquire an aggregate of 232,500 shares of common stock, exercisable within sixty days.

(5) 50,000 of these shares of common stock are held by Knight Financial Ltd., a company wholly-owned by Robert Knight. Also includes options to acquire an aggregate of 82,500 shares of common stock exercisable within sixty days.

(6) Includes options to acquire an aggregate of 50,000 shares of common stock exercisable within sixty days.

(7) Includes options to acquire an aggregate of 50,000 shares of common stock exercisable within sixty days.

Equity Compensation Plan Information

As at December 31, 2003 we have three compensation plans in place, entitled 2001 Officer, Director, Employee, Consultant and Advisor Stock Compensation Plan, 2002 Officer, Director, Employee, Consultant and Advisor Stock Compensation Plan and the Additional 2002 Officer, Director, Employee, Consultant and Advisor Stock Compensation Plan. These plans have not been approved by our security holders.

Number of Securities to be issued upon exercise of outstanding options	Weighted-Average exercise price of outstanding options	Number of securities remaining available for further issuance

1,200,000⁽¹⁾	$2.10	400,000

⁽¹⁾ Total number of options granted pursuant to all three of our compensation plans as of December 31, 2003.

Changes in Control

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our company.

Item 12. Certain Relationships and Related Transactions.

Other than as disclosed below, there have been no transactions, or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 10% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest.

Over the year ended December 31, 2003, our company incurred consulting and management fee expenses in the amount of $57,000. The consulting and management fee expenses were charged by Richard Coglon and Robert Knight, directors of our company. Pursuant to a consulting agreement with our company dated July 1, 2003, Richard Coglon receives $5,000 per month for the services he provides to our company. Pursuant to an oral consulting agreement with our company Mr. Knight currently receives $1,250 per month for the services he provides to our company. Pursuant to a consulting agreement with our company dated July 1, 2003, D. Sharpe Management In c., a company wholly-owned by Donald Sharpe, a director of our company, receives $5,000 per month for consulting services.

In October 2002 we converted a note payable to one of our shareholders in the amount of $200,000 plus accrued interest to a convertible debenture in the amount of $222,448 bearing interest at 7% per annum. This convertible


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debenture was due on December 31, 2004 but was converted on June 30, 2003 into shares of common stock and share purchase warrants.

Item 13. Exhibits and Reports on Form 8-K.

Reports on Form 8-K

On July 7, 2003 we filed a Current Report on Form 8-K with the Securities and Exchange Commission announcing an application to list on The American Stock Exchange and the completion of a $2,500,000 private placement.

Exhibits Required by Item 601 of Regulation S-B

Exhibit Number	Description
3.1	Articles of Incorporation (1)
3.2	Bylaws of Adriatic Holdings Ltd. (1)
3.3	Certificate of Amendment to Articles of Incorporation effective November 4, 2002 (2)
3.4	Certificate of Designation for shares of Series A Convertible Preferred Stock, effective December 18, 2003 (9)
10.1	Share Exchange Agreement between Adriatic Holdings Ltd., Heartland Oil and Gas Inc. and the shareholders of Heartland Oil and Gas Inc., dated July 31, 2002 (3)
10.2	Form of Oil and Gas Lease (4)
10.3	Managing Dealers Agreement, dated June 19, 2003, between Heartland Oil and Gas Corp. and C.K. Cooper and Company, Inc.(5)
10.4	Managing Dealers Agreement, dated July 29, 2003 between Heartland Oil and Gas Corp. and C.K. Cooper and Company, Inc. (8)
10.5	Form of Subscription Agreement in connection with private placements on June 24 and June 30, 2003 (5)
10.6	Form of Subscription Agreement in connection with private placement on August 19, 2003 (6)
10.7	Consulting Agreement dated July 1, 2003, between Heartland Oil and Gas Corp. and Donald Sharpe (8)
10.8	Consulting Agreement dated July 1, 2003, between Heartland Oil and Gas Corp. and Richard Coglon (8)
10.9	Letter Agreement between Topeka-Atchison Gas & Illuminating LLC with Heartland Oil and Gas Inc., dated August 25, 2000 (8)
10.10	Form of Oil and Gas Lease with Option (7)
10.11*	Form of Subscription Agreement in connection with the private placement of preferred stock
14.1*	Code of Business Conduct and Ethics
21.1	Heartland Oil and Gas Inc., a company incorporated pursuant to the laws of the State of Nevada
23.1	Co nsent of Staley Okada and Partners on Heartland Oil and Gas Corp.
31.1	Section 302 Certification under Sarbanes-Oxley Act of 2002 for Richard Coglon
31.2*	Section 302 Certification under Sarbanes-Oxley Act of 2002 for Robert Knight
32.1	Section 906 Certification under Sarbanes-Oxley Act of 2002 for Richard Coglon
32.2*	Section 906 Certification under Sarbanes-Oxley Act of 2002 for Richard Coglon

*Filed herewith.


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(1) Incorporated by reference to the company’s Form SB-2 Registration Statement filed with the Securities and Exchange Commission on October 23, 2001.

(2) Incorporated by reference to the company’s Form 10-QSB filed with the Securities and Exchange Commission on November 14, 2002.

(3) Incorporated by reference to the company’s Form 8-K filed with the Securities and Exchange Commission on October 2, 2002.

(4) Incorporated by reference to the company’s Form 10-KSB filed with the Securities and Exchange Commission on April 1, 2003.

(5) Incorporated by reference to the company’s Form 10-QSB filed with the Securities and Exchange Commission on July 28, 2003.

(6) Incorporated by reference to the company’s Form 8-K filed with the Securities and Exchange Commission on August 21, 2003.

(7) Incorporated by reference to the company’s Form 10-KSB/A filed with the Securities and Exchange Commission on October 22, 2003.

(8) Incorporated by reference to the company’s Form SB-2 Registration Statement filed with the Securities and Exchange Commission on August 29, 2003, as amended.

(9) Incorporated by reference to the company’s Form SB-2 Registration Statement filed with the Securities and Exchange Commission on February 17, 2004.

Item 14. Principal Accountant Fees and Services

Audit Fees

Our board of directors had appointed Spicer Jeffries LLP as independent auditors to audit our financial statements for the current fiscal year. The aggregate fees billed by Spicer Jeffries LLP for professional services rendered for the audit of our annual financial statements included in this Annual Report on Form 10-KSB for the fiscal years ended December 31, 2003 and December 31, 2002 were $15,000 and $12,000, respectively.


	47

Audit Related Fees

For the fiscal years ended December 31, 2003 and December 31, 2002, the aggregate fees billed for assurance and related services by Spicer Jeffries LLP relating to our quarterly financial statements which are not reported under the caption "Audit Fees" above, were $8,513 and $5,700 respectively.

Tax Fees

For the fiscal years ended December 31, 2003 and December 31, 2002, the aggregate fees billed for tax compliance, by Spicer Jeffries LLP were $1,850.

All Other Fees

For the fiscal years ended December 31, 2003 and December 31, 2002, the aggregate fees billed by Spicer Jeffries LLP for other non-audit professional services, other than those services listed above, totaled $3,750 and $1,400, respectively. Substantially all the 2003 fees related to the review of registration statements submitted to the Securities and Exchange Commission, while substantially all of the 2002 fees related to assistance in responding to queries on our financial statements by the Securities and Exchange Commission.

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before Spicer Jeffries LLP is engaged by us or our subsidiaries to render any auditing or permitted non-audit related service, the engagement be:

·approved by our audit committee; or

·entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.

The audit committee pre-approves all services provided by our independent auditors. The pre-approval process has just been implemented in response to the new rules. Therefore, the audit committee does not have records of what percentage of the above fees were pre-approved. However, all of the above services and fees were reviewed and approved by the audit committee either before or after the respective services were rendered.

The audit committee has considered the nature and amount of the fees billed by Spicer Jeffries LLP, and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining Spicer Jeffries LLP independence.


	48

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HEARTLAND OIL AND GAS CORP.

/s/Richard Coglon

_______________________________________________

By: Richard Coglon, President and Director
(Principal Executive Officer)
May 27, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/Richard Coglon

_________________________________________

Richard Coglon, President and Director
(Principal Executive Officer)
May 27, 2004

/s/Robert Knight

_______________________________________________

Robert Knight, Secretary, Treasurer and Director
(Principal Financial Officer and Principal Accounting Officer)
May 27, 2004

/s/Donald Sharpe

_________________________________________

Donald Sharpe, Director
May 27, 2004

/s/Randall Buchamer
_________________________________________

Randall Buchamer, Director
May 27, 2004

/s/Michael Bodino

_______________________________________________

Michael Bodino, Director
May 27, 2004


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Return to Exhibit List

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

To the Board of Directors
Heartland Oil and Gas Corp.

We consent to the use of our audit report dated March 22, 2004 on the consolidated balance sheets of Heartland Oil and Gas Corp. as of December 31, 2003 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended, for incorporation by reference in Heartland Oil and Gas Corp.'s Registration Statements on Form S-8, which report appears in the December 31, 2003 annual report on Form 10-KSB of Heartland Oil and Gas Corp.

/s/Staley Okada and Partners

Chartered Accountants

Vancouver, Canada
March 29, 2004


	50

Return to Exhibit List

EXHIBIT 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard Coglon, President of Heartland Oil and Gas Corp., certify that:

1. I have reviewed this annual report on Form 10-KSB of Heartland Oil and Gas Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and

5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date: March 29, 2004

/s/Richard Coglon

Richard Coglon, President and Chief Executive Officer
(Principal Executive Officer)


	51

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Knight, Chief Financial Officer of Heartland Oil and Gas Corp., certify that:

1. I have reviewed this annual report on Form 10-KSB of Heartland Oil and Gas Corp.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date: March 29, 2004

/s/Robert Knight

Robert Knight, Chief Financial Officer
(Principal Financial Officer)


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Return to Exhibit List

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Richard Coglon, President and Chief Executive Officer of Heartland Oil and Gas Corp., and Robert Knight, Chief Financial Officer of Heartland Oil and Gas Corp., each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-KSB of Heartland Oil and Gas Corp. for the year ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Heartland Oil and Gas Corp.

Dated: March 29, 2004


		/s/Richard Coglon

		Richard Coglon
		President and Chief Executive Officer,
		Heartland Oil and Gas Corp.


		/s/Robert Knight

		Robert Knight
		Chief Financial Officer,
		Heartland Oil and Gas Corp.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Heartland Oil and Gas Corp. and will be retained by Heartland Oil and Gas Corp. and furnished to the Securities and Exchange Commission or its staff upon request.


	53

EX-10.11 2 heartland10ksbaexhibit1011.htm HEARTLAND10KSBAEXHIBIT10.11 heartland10ksbaexhibit10.11

Return to Heartland Form 10KSB/A

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of September 24, 2003, is made by and among Heartland Oil and Gas Corp., a corporation organized under the laws of the State of Nevada (the “Company”), and each of the purchasers (individually, a “Purchaser” and collectively the “Purchasers”) set forth on the execution pages hereof (each, an “Execution Page” and collectively the “ Execution Pages”).

BACKGROUND

A. The Company and each Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D (“Regulation D”), as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).

B. Upon the terms and conditions stated in this Agreement, the Company desires to issue and sell to the Purchasers, and each Purchaser desires to purchase, _______ units (the “Units”), each Unit consisting of one share of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Preferred Stock”), which Preferred Stock shall have the rights, preferences and privileges set forth in the form of Certificate of Designation, Preferences and Rights attached hereto as Exhibit A (the “Certifi cate of Designation”) and a warrant, in the form attached hereto as Exhibit B (the “Warrants”), to acquire ______ shares of the Common Stock. The shares of Common Stock issuable upon conversion of or otherwise pursuant to the Preferred Stock are referred to herein as the “Conversion Shares” and the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are referred to herein as the “Warrant Shares”. The Preferred Stock, the Warrants and the Conversion Shares and the Warrant Shares are collectively referenced herein as the “ Securities” and each of them may individually be referred to herein as a “Security.”

C. In connection with the Closing pursuant to this Agreement, the parties hereto will execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit C (the “Registration Rights Agreement”), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws. This Agreement, the Certificate of Designation, the Warrants and the Registration Rights Agreement are collectively referred to herein as the “Transaction Documents.”

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Purchasers, intending to be legally bound, hereby agree as follows:

1. PURCHASE AND SALE OF SECURITIES.

(a) Purchase and Sale of Securities. The purchase price (the “Purchase Price”) per Unit at the Closing shall be equal to Three Dollars and Twenty Cents ($3.20).

(b) Closing Date. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Sections 9 and 10 below, the date and time of the issuance and sale of the Securities pursuant to this Agreement (the “Closing”) shall be at 12:00 noon Eastern Time on November 24, 2003 (the “Closing Date”) or such other time as may be mutually agreed upon by the Company and the Purchasers. The Closing shall occur at the offices of Drinker Biddle & Reath LLP at One Logan Square, 18^th & Cherry Streets, Philad elphia, Pennsylvania 19103 or such other place as the Company and the Purchasers may mutually agree.

On the Closing Date, subject to the satisfaction (or waiver) of the conditions set forth in Sections 9 and 10 below, the Company shall issue and sell to each Purchaser and each Purchaser shall purchase from the Company the number of Units identified as “Closing Units” on the signature page hereto executed by such Purchaser.

(c) Form of Payment. On the Closing Date, each Purchaser shall pay the aggregate Purchase Price for the Units being purchased by such Purchaser hereunder by wire transfer to the Company, in accordance with the Company’s wiring instructions below against delivery of the duly executed certificates representing the Preferred Stock and Warrants being purchased by such Purchaser hereunder. The Company shall deliver such certificates and Warrants upon receipt of such aggregate Purchase Price. Each Purchaser shall wire the funds to:

“Comerica Bank – HOGC Escrow Account”

2. .DOCUMENTS REQUIRED FROM PURCHASER.

The Purchaser must complete, sign and return to the Company:

(a) an executed copy of this Agreement;

(b) Prospective Investor Suitability Questionnaire in the form attached as Exhibit D (the "US Questionnaire"); and

(c) a British Columbia Accredited Investor Questionnaire in the form attached as Exhibit E (together with the US Questionnaire, the "Questionnaires").

The Purchaser shall complete, sign and return to the Company as soon as possible, on request by the Company, any documents, questionnaires, notices and undertakings as may be required by regulatory authorities and applicable law.

3. Acknowledgements of Purchaser.

The Purchaser acknowledges and agrees that:


	2

(a) none of the Securities have been registered under the 1933 Act, under any state securities or "blue sky" laws of any state of the United States and, unless so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act and in each case only in accordance with any applicable securities laws;

(b) except as provided for in the Registration Rights Agreement, the Purchaser acknowledges that the Company has not undertaken, and will have no obligation, to register any of the Securities under the 1933 Act;

(c) by completing the Questionnaires, the Purchaser is representing and warranting that the Purchaser is an "Accredited Investor", as the term is defined in Regulation D under the 1933 Act and in Multilateral Instrument 45-103 adopted by the British Columbia Securities Commission;

(d) the decision to execute this Agreement and purchase the Securities agreed to be purchased hereunder has been based upon written representations as to fact or otherwise made by or on behalf of the Company, and such decision is also based upon a review of information (the receipt of which is hereby acknowledged) which has been filed by the Company with the United States Securities and Exchange Commission ("SEC") in compliance, or intended compliance, with applicable securities legislation, including, specifically, a review of the Risk Factors which are attached as Exhibit F (collectively, the "Public Record ");

(e) it will indemnify and hold harmless the Company and, where applicable, its directors, officers, employees, agents, advisors and shareholders from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) arising out of or based upon any representation or warranty of the Purchaser contained herein or in any document furnished by the Purchaser to the Company in connection herewith being untrue in any material respect or any breach or failure by the Purchaser to comply with any covenant or agreement made by the Purchaser to the Company in connection therewith; provided t hat the amount of such indemnification shall be limited to the amount of the Subscription Price set forth in Section 1(a) hereof;

(f) it has been advised to consult its own legal, tax and other advisors with respect to the merits and risks of an investment in the Securities and with respect to applicable resale restrictions and it is solely responsible for compliance with applicable resale restrictions;

(g) the Securities are not listed on any stock exchange or subject to quotation except that currently certain market makers make market in the Securities of the Company on the National Association of Securities Dealers Inc.’s OTC Bulletin Board (the “OTCBB”), and no representation has been made to the Purchaser that the Securities will become listed on any other stock exchange or subject to quotation on any other quotation system except that the Company has applied to list its shares of common stock for trading on the American Stock Exchange ("AMEX") and for which no assurances are provided that the Company’s shares will become listed for trading on AMEX;


	3

(h) no securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities;

(i) there is no government or other insurance covering the Securities;

(j) there are risks associated with an investment in the Securities, as more fully described in certain information forming part of the Public Record;

(k) the Company has advised the Purchaser that the Company is relying on an exemption from the requirements to provide the Purchaser with a prospectus and to sell the Securities through a person registered to sell securities under the Securities Act (British Columbia) (the "B.C. Act") and, as a consequence of acquiring the Securities pursuant to this exemption, certain protections, rights and remedies provided by the B.C. Act, including statutory rights of rescission or damages, will not be available to the Purchaser;

(l) the Purchaser and the Purchaser’s advisor(s) have had a reasonable opportunity to ask questions of and receive answers from the Company in connection with the distribution of the Securities hereunder, and to obtain additional information, to the extent possessed or obtainable without unreasonable effort or expense, necessary to verify the accuracy of the information about the Company;

(m) the books and records of the Company were available upon reasonable notice for inspection, subject to certain confidentiality restrictions, by the Purchaser during reasonable business hours at its principal place of business, and all documents, records and books in connection with the distribution of the Securities hereunder have been made available for inspection by the Purchaser, the Purchaser’s lawyer and/or advisor(s);

(n) in addition to resale restrictions imposed under U.S. securities laws, there are additional restrictions on the Purchaser’s ability to resell the Securities under the B.C. Act and Multilateral Instrument 45-102 adopted by the British Columbia Securities Commission ("BCSC");

(o) the Company will refuse to register any transfer of the Securities not made pursuant to an effective registration statement under the 1933 Act or pursuant to an available exemption from the registration requirements of the 1933 Act;

(p) the statutory and regulatory basis for the exemption claimed for the offer Securities, although in technical compliance with Regulation D, would not be available if the offering is part of a plan or scheme to evade the registration provisions of the 1933 Act;

(q) the Purchaser has been advised to consult the Purchaser’s own legal, tax and other advisors with respect to the merits and risks of an investment in the Securities and with respect to applicable resale restrictions, and it is solely responsible (and the Company is not in any way responsible) for compliance with:

i. any applicable laws of the jurisdiction in which the Purchaser is resident in connection with the distribution of the Securities hereunder, and


	4

ii. applicable resale restrictions; and

(r) this Agreement is not enforceable by the Purchaser unless it has been accepted by the Company.

4. Representations, Warranties and Covenants of the Purchaser.

The Purchaser hereby represents and warrants to and covenants with the Company (which representations, warranties and covenants shall survive the Closing) that:

(a) if the Purchaser is an individual or other entity, the Purchaser has the legal capacity and competence to enter into and execute this Subscription and to take all actions required pursuant hereto and, if the Purchaser is a corporation, it is duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders and others have been obtained to authorize execution and performance of this Subscription on behalf of the Purchaser;

(b) if the Purchaser is a corporation or other entity, the entering into of this Subscription and the transactions contemplated hereby do not result in the violation of any of the terms and provisions of any law applicable to, or the constituent documents of, the Purchaser or of any agreement, written or oral, to which the Purchaser may be a party or by which the Purchaser is or may be bound;

(c) the Purchaser has duly executed and delivered this Agreement and it constitutes a valid and binding agreement of the Purchaser enforceable against the Purchaser;

(d) the Purchaser has the requisite knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment in the Securities and the Company, and the Purchaser is providing evidence of such knowledge and experience in these matters through the information requested in the Questionnaires;

(e) all information contained in the Questionnaires is complete and accurate and may be relied upon by the Company;

(f) the Purchaser is resident in the jurisdiction set out under the heading "Name and Address of Purchaser" on the signature page of this Agreement;

(g) the Purchaser is acquiring the Securities for investment purposes only and not with a view to resale or distribution and, in particular, it has no intention to distribute either directly or indirectly any of the Securities in the United States or to U.S. Persons, other than pursuant to an effective registration statement providing for the resale of the Securities or pursuant to an exemption from such registration requirements;

(h) the Purchaser is acquiring the Securities as principal for the Purchaser’s own account (except for the circumstances outlined in Section 6(j)), for investment purposes only, and not with a view to, or for, resale, distribution or fractionalisation thereof, in whole or in part, and no other person has a direct or indirect beneficial interest in such Securities;


	5

(i) the Purchaser is not an underwriter of, or dealer in, the common shares of the Company, nor is the Purchaser participating, pursuant to a contractual agreement or otherwise, in the distribution of the Securities;

(j) if the Purchaser is acquiring the Securities as a fiduciary or agent for one or more investor accounts:

the Purchaser has sole investment discretion with respect to each such account and it has full power to make the foregoing acknowledgements, representations and agreements on behalf of such account, and
the investor accounts for which the Purchaser acts as a fiduciary or agent satisfy the definition of an "Accredited Investor", as the term is defined in Regulation D under the 1933 Act and in Multilateral Instrument 45-103 adopted by the BCSC; and

(k) no person has made to the Purchaser any written or oral representations:

that any person will resell or repurchase any of the Securities;
that any person will refund the purchase price of any of the Securities;
as to the future price or value of any of the Securities; or
that any of the Securities will be listed and posted for trading on any stock exchange or automated dealer quotation system or that application has been made to list and post any of the Securities of the Company on any stock exchange or automated dealer quotation system, except that currently certain market makers make market in the common shares of the Company on the OTCBB.

In this Agreement, the term "U.S. Person" shall have the meaning ascribed thereto in Regulation S and for the purpose of the Subscription includes any person in the United States.

5. BRITISH COLUMBIA RESALE RESTRICTIONS.

(a) The Purchaser acknowledges that the Securities are subject to resale restrictions in British Columbia and may not be traded in British Columbia except as permitted by the B.C. Act and the rules made thereunder.

(b) Pursuant to Multilateral Instrument 45-102, as adopted by the BCSC, a subsequent trade in the Securities will be a distribution subject to the prospectus and registration requirements of applicable Canadian securities legislation (including the B.C. Act) unless certain conditions are met, which conditions include a hold period (the "Canadian Hold Period") that shall have elapsed from the date on which the Securities were issued to the Purchaser and, during the currency of the Canadian Hold Period, any certificate representing the Securities is to be imprinted with a restrictive legend (the "Canadian Legend").

(c) By executing and delivering this Agreement, the Purchaser will have directed the Company not to include the Canadian Legend on any certificates representing the Securities to be issued to the Purchaser.

(d) As a consequence, the Purchaser will not be able to rely on the resale provisions of Multilateral Instrument 45-102, and any subsequent trade in the Securities during or after the Canadian Hold Period will be a distribution subject to the prospectus and registration requirements of Canadian securities legislation, to the extent that the trade is at that time subject to any such Canadian securities legislation.

6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

Except as set forth in the Disclosure Schedule attached hereto as Exhibit G, the Company represents and warrants to each Purchaser as follows:

(a) Organization and Qualification. The Company and each of its direct and indirect subsidiaries (collectively, the “Subsidiaries”) is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated or organized, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where the failure so to qualify or be in good standing would have a Material Adver se Effect. For purposes of this Agreement, “Material Adverse Effect” means any effect which, individually or in the aggregate with all other effects, reasonably would be expected to be materially adverse to (i) the Securities, (ii) the ability of the Company to perform its obligations under this Agreement or the other Transaction Documents or (iii) the business, operations, properties, prospects, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole.

(b) Authorization; Enforcement. (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents, to issue and sell the Units in accordance with the terms hereof, to issue the Conversion Shares upon conversion of the Preferred Stock in accordance with the terms thereof and to issue the Warrant Shares upon exercise of the Warrants in accordance with the terms thereof; (ii) the execution, delivery and performance of this Agreement and the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Units and the issuance and reservation for issuance of the Conversion Shares and War rant Shares) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or any committee of the Board of Directors is required except for the approval of the shareholders of the Company for the creation of the Preferred Stock, and (iii) this Agreement constitutes, and, upon execution and delivery by the Company of the other Transaction Documents, such Transaction Documents will constitute, valid and binding obligations of the Company enforceable against the Company in accordance with their terms.

(c) Capitalization. The capitalization of the Company as of the date hereof, including the authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company’s stock option plans, the number of shares


	7

issuable and reserved for issuance pursuant to securities (other than the Preferred Stock and the Warrants) exercisable or exchangeable for, or convertible into, any shares of capital stock and the number of shares to be reserved for issuance upon conversion of the Preferred Stock and exercise of the Warrants is set forth in the Disclosure Schedule. All of such outstanding shares of capital stock have been, or upon issuance in accordance with the terms of any such exercisable, exchangeable or convertible securities will be, validly issued, fully paid and non-assessable. No shares of capital stock of the Company (including the Common Shares and the Warrant Shares) are subject to any liens or encumbrances. Except for the Securities and as set forth in the Disclosure Schedule, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exc hangeable for, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, nor are any such issuances, contracts, commitments, understandings or arrangements contemplated; (iii) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem or otherwise acquire any security of the Company or any of its Subsidiaries; and (iv) the Company does not have any shareholder rights plan, “poison pill” or other anti-takeover plans or similar arrangements. There are no securities or instruments issued by the Company or any of its Subsidiaries that contain anti-dilution or similar provisions, and, except as and to the extent set forth thereon, the sale and issuance of the Securities will not trigger any anti-dilution adjustments to any such securities or instruments. The Company has furnished to each Purchaser true and correct copies of the Company’s Articles of Incorporation as in effect on the date hereof (“Articles of Incorporation”), the Company’s Bylaws as in effect on the date hereof (the “Bylaws”). The Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or any such Subsidiary.

(d) Issuance of Securities. The Units (and the Securities comprising the Units) will be duly authorized and, upon issuance in accordance with the terms of this Agreement, (i) will be validly issued, fully paid and non-assessable and free from all taxes, liens, claims and encumbrances, and (ii) will not impose personal liability on the holder thereof. The Conversion Shares and Warrant Shares are duly authorized and reserved for issuance, and, upon conversion of the Preferred Stock and exercise of the Warrants in accordance with the terms thereof, (x) will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances, (y) will not be subject to preemptive rights, rights of first refusal or other similar rights of stockholders of the Company or a ny other person and (z) will not impose personal liability upon the holder thereof.

(e) No Conflicts; Consents. The execution, delivery and performance of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Units and the issuance and reservation for issuance of the Conversion Shares and Warrant Shares) will not (i) result in a violation of the Articles of Incorporation or Bylaws, (ii) conflict


	8

with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment (including, without limitation, the triggering of any anti-dilution provisions), acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws, rules and regulations and rules and regulations of any self-regulatory organizations to which either the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except, with respect to clauses (ii) and (iii), for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not , individually or in the aggregate, have a Material Adverse Effect). Except (w) as may be required under the Securities Act in connection with the performance of the Company’s obligations under the Registration Rights Agreement, (x) for the filing of a Form D with the SEC, or (y) as may be required for compliance with applicable state securities or “blue sky” laws, the Company is not required to obtain any consent, approval, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency or other third party (including, without limitation, pursuant to any Material Contract (as defined in Section 6(g) below)) in order for it to execute, deliver or perform any of its obligations under this Agreement or any of the other Transaction Documents, other than the approval of its shareholders for the authoriz ation of the Preferred Stock.

(f) Compliance. The Company is not in violation of its Articles of Incorporation, Bylaws or other organizational documents and no Subsidiary is in violation of any of its organizational documents. Neither the Company nor any of its Subsidiaries is in default (and no event has occurred that with notice or lapse of time or both would put the Company or any of its Subsidiaries in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party (including, without limitation, the Material Contracts), except for actual or possible violations, defaults or rights that would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries are not being conducted, and shall not be conducted so long as any Purchaser owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity, except for possible violations the sanctions for which either individually or in the aggregate have not had and would not have a Material Adverse Effect. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company or any Subsidiary, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity, made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, violated or is in violation of any provision of the U.S. Foreign Corrupt Pr actices Act of 1977, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, provincial or foreign regulatory authorities that are material to the conduct of its business, and neither the Company nor any of its Subsidiaries has received any notice of proceeding relating to the revocation or modification of any such certificate, authorization or permit.


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(g) SEC Documents, Financial Statements. Since July 28, 2003, the Company has timely filed (within applicable extension periods) all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, the “SEC Documents”). The Company has delivered to each P urchaser true and complete copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings made prior to the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects w ith applicable accounting requirements and the published rules and regulations of the SEC applicable with respect thereto. Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), consistently applied, during the periods involved (except as may be otherwise indicated in such financial statements or the notes thereto or, in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, immaterial year-end audit adjustments). Except as set forth in the financial statements of the Company inclu ded in the Select SEC Documents (as defined below), the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of such financial statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in such financial statements, which liabilities and obligations referred to in clauses (i) and (ii), individually or in the aggregate, are not material to the financial condition or operating results of the Company. To the extent required by the rules and regulations of the SEC applicable thereto, the Select SEC Documents contain a complete and accurate list of all material undischarged written or oral contracts, agreements, leases or other instruments to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or to which any of the properties or assets of the Company or any Subsidiary is subject (eac h, a “Material Contract”). Except as set forth in the Select SEC Documents, none of the Company, its Subsidiaries or, to the best knowledge of the Company, any of the other parties thereto is in breach or violation of any Material Contract, which breach or violation would have a Material Adverse Effect. For purposes of this Agreement, “Select SEC Documents” means the Company’s (A) Proxy Statement for its 2002 Annual Meeting, (B) Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002 (the “2002 Annual Report”), (C) Quarterly Reports on Form 10-QSB for the fiscal quarters ended March 31, 2003 and June 30, 2003, and (D) Current Reports on Form 8-K filed since January 1, 2003.

(h) Internal Accounting Controls. The Company and each of its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exc hange Act Rules 13a-14 and 15d-14) for the Company and designed such disclosures controls and procedures to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s Annual Report on Form 10-KSB or Quarterly Report on Form 10-QSB, as the case may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures as of a date within 90 days prior to the filing date of the 2002 Annual Report and the Company’s most recently filed Quarterly Report on Form 10-QSB (each such date, an “Evaluation Date”). The Company presented in the 2002 Annual Report and its most recently filed Quarterly Report on Form 10-QSB the conclusions of the certifying officers about the effectiveness of the dis closure controls and procedures based on their evaluations as of the respective Evaluation Date. Since the Evaluation Date for the 2002 Annual Report, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge, in other factors that could significantly affect the Company’s internal controls.

(i) Absence of Certain Changes. Except as set forth in the Select SEC Documents, since December 31, 2002, there has been no material adverse change and no material adverse development in the business, properties, operations, prospects, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy or receivership law, nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings with respect to the Company or any of its Subsidiaries.

(j) Transactions With Affiliates. Except as set forth in the Select SEC Documents, none of the officers, directors, or employees of the Company or any of its Subsidiaries is presently a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services solely in their capacity as officers, directors or employees), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or any corporation, partnership, trust or other entity in which any such officer, director, or employee has an ownership interest of five percent or more or is an officer, director, trustee or partner.

(k) Absence of Litigation. Except as disclosed in the Select SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body (including, without limitation, the SEC) pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against


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or affecting the Company, any of its Subsidiaries, or any of their respective directors or officers in their capacities as such. There are no facts which, if known by a potential claimant or governmental authority, could give rise to a claim or proceeding which, if asserted or conducted with results unfavorable to the Company or any of its Subsidiaries, could reasonably be expected to have a Material Adverse Effect.

(l) Intellectual Property. Each of the Company and its Subsidiaries owns or is duly licensed (and, in such event, has the unfettered right to grant sublicenses) to use all patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, permits, inventions, discoveries, processes, scientific, technical, engineering and marketing data, object and source codes, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, “Intangibles”) necessary for the conduct of its business as now being conducted and as presently contemplated to be conducted in the future. To the knowledge of the Company and its Subsidiaries, neither the Company nor any Subsidiary of the Company infringes or is in conflict with any right of any other person with respect to any third party Intangibles. Neither the Company nor any of its Subsidiaries has received written notice of any pending conflict with or infringement upon such third party Intangibles. Neither the Company nor any of its Subsidiaries has entered into any consent agreement, indemnification agreement, forbearance to sue or settlement agreement with respect to the validity of the Company’s or its Subsidiaries’ ownership of or right to use its Intangibles and there is no reasonable basis for any such claim to be successful. The Intangibles are valid and enforceable and no registration relating thereto has lapsed, expired or been abandoned or canceled or is the subject of cancellation or other adversarial proceedings, and all applications th erefor are pending and in good standing. The Company and its Subsidiaries have complied, in all material respects, with their respective contractual obligations relating to the protection of the Intangibles used pursuant to licenses. No person is infringing on or violating the Intangibles owned or used by the Company or its Subsidiaries.

(m) Title. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and merchantable title to all personal property owned by them that is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such prope rty and buildings by the Company and its Subsidiaries.

(n) Tax Status. Except as set forth in the Select SEC Documents, the Company and each of its Subsidiaries has made or filed all foreign, U.S. federal, state, provincial and local income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for


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the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to any statute of limitations relating to the assessment or collection of any foreign, federal, state, provincial or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.

(o) Key Employees. Each of the Company’s directors and officers and any Key Employee (as defined below) is currently serving the Company in the capacity disclosed in the Select SEC Documents. No Key Employee is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each Key Employee does not subject the Company or any of its Subsidiaries to any material liability with respect to any of the foregoing matters. No Key Employee has, to the knowledge of the Company and its Subsidiaries, any intention to terminate or limit his employment with, or services to, the Compa ny or any of its Subsidiaries, nor is any such Key Employee subject to any constraints which would cause such employee to be unable to devote his full time and attention to such employment or services. For purposes of this Agreement “Key Employee” means the persons listed in the Disclosure Schedule and any individual who assumes or performs any of the duties of a Key Employee.

(p) Employee Relations. Neither the Company nor any of its Subsidiaries is involved in any material union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. The Company and its Subsidiaries believe that their relations with their employees are good. No executive officer (as defined in Rule 501(f) of the Securities Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer’s employment with the Company. The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, e ither individually or in the aggregate, result in a Material Adverse Effect.

(q) Insurance. The Company and each of its Subsidiaries has in force fire, casualty, product liability and other insurance policies, with extended coverage, sufficient in amount to allow it to replace any of its material properties or assets which might be damaged or destroyed or sufficient to cover liabilities to which the Company may reasonably become subject, and such types and amounts of other insurance with respect to its business and properties, on both a per occurrence and an aggregate basis, as are customarily carried by persons engaged in the same or similar business as the Company. No default or event has occurred that could give rise to a default under any such policy.

(r) Environmental Matters. There is no environmental litigation or other environmental proceeding pending or, to the knowledge of the Company or any of its Subsidiaries, threatened by any governmental regulatory authority or others with respect to the current or any former business of the Company or any of its Subsidiaries or any partnership or joint venture currently or at any time affiliated with the Company or any of its Subsidiaries. No state of facts exists as to environmental matters or Hazardous Substances (as defined below) that involves the


	13

reasonable likelihood of a material capital expenditure by the Company or any of its Subsidiaries that may otherwise have a Material Adverse Effect. No Hazardous Substances have been treated, stored or disposed of, or otherwise deposited, in or on the properties owned or leased by the Company or any of its Subsidiaries or by any partnership or joint venture currently or at any time affiliated with the Company or any of its Subsidiaries in violation of any applicable environmental laws. The environmental compliance programs of the Company and each of its Subsidiaries comply in all respects with all environmental laws, whether foreign, federal, state, provincial or local, currently in effect. For purposes of this Agreement, “Hazardous Substances” means any substance, waste, contaminant, pollutant or material that has been determined by any governmental authority to be capable of pos ing a risk of injury to health, safety, property or the environment.

(s) Solvency. Based on the financial condition of the Company as of the Closing Date, (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would rec eive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

(t) Listing. The Common Stock is currently quoted for trading on the OTCBB. The Company is not in violation of the listing requirements of the OTCBB does not reasonably anticipate that the Common Stock will be delisted by the OTCBB for the foreseeable future, and has not received any notice regarding the possible delisting of the Common Stock from the OTCBB.

(u) Anti-Takeover Provisions. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under its Articles of Incorporation or the laws of the state of its incorporation which is or could become applicable to any Purchaser as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any and all Purchaser’s ownership of the Securities.

(v) Acknowledgment Regarding Each Purchaser’s Purchase of the Securities. The Company acknowledges and agrees that each Purchaser is acting solely in the capacity of arm’s length purchaser with respect to this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, and that no Purchaser is (i) an officer or director of the Company, (ii) an “affiliate” of the Company (as defined in Rule 144 under the Securities Act (including any successor rule, “Rule 144”)) or (iii) a “beneficial owner” of more than 5% of the Common Stock (as defined for purposes of Rule 13d-3 of the Exchange Act). The Company


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further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the other Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Purchaser or any of its representatives or agents in connection with this Agreement or the other Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Purchaser’s purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

(w) No General Solicitation or Integrated Offering. Neither the Company nor any distributor participating on the Company’s behalf in the transactions contemplated hereby (if any) nor any person acting for the Company, or any such distributor, has conducted any “general solicitation” (as such term is defined in Regulation D) with respect to any of the Securities being offered hereby. Neither the Company nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration of the Securities being offered hereby under the Securities Act or cause this offering of Securities to be integrated with any prior offeri ng of securities of the Company for purposes of the Securities Act, which result of such integration would require registration under the Securities Act, or any applicable stockholder approval provisions.

(x) Acknowledgment Regarding Securities. The number of Conversion Shares issuable upon conversion of the Preferred Stock and the number of Warrant Shares issuable upon exercise of the Warrants may increase in certain circumstances. The Company’s directors and executive officers have studied and fully understand the nature of the Securities being sold hereunder. The Company acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Stock in accordance with the terms thereof and the Warrant Shares upon the exercise of the Warrants in accordance with the terms thereof is absolute and unconditional, regardless of the dilution that such issuance may have on the ownership interests of other stockholders and the availability of remedies provided for in an y of the Transaction Documents relating to a failure or refusal to issue Conversion Shares or Warrant Shares. Taking the foregoing into account, the Company’s Board of Directors has determined in its good faith business judgment that the issuance of the Units hereunder and the consummation of the other transactions contemplated hereby are in the best interests of the Company and its stockholders.

(y) Disclosure. All information relating to or concerning the Company and/or any of its Subsidiaries set forth in this Agreement or provided to the Purchasers pursuant to Section 2(d) hereof or otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or its Subsidiaries or their respective businesses, properties, prospects, operations or financial conditions, which has not been publicly disclosed but, under applicable law, rule or regulation, would be required to be disclosed by the Company in a registration statement filed on the date hereof by the Company under the Securities Act with respect to a primary issuance of the Company’s securities.


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(z) No Brokers. The Company has taken no action that would give rise to any claim by any person for brokerage commissions, finder’s fees or similar payments by any Purchaser relating to this Agreement or the transactions contemplated hereby.

7. COVENANTS.

(a) Best Efforts. The parties shall use their respective best efforts timely to satisfy each of the conditions described in Sections 9 and 10 of this Agreement.

(b) Form D; Blue Sky Laws. The Company shall file with the SEC a Form D with respect to the Securities as required under Regulation D and provide a copy thereof to each Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to each Purchaser pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States or obtain exemption therefrom, and shall provide evidence of any such action so taken to each Purchaser on or prior to the Closing Date. Within two days after the Closing Date, the Company shall file a Form 8-K with the SEC concerning this Agreement and the transactions contemplated hereby, whic h Form 8-K shall attach this Agreement and its Exhibits as exhibits to such Form 8-K (the “8-K Filing”). From and after the 8-K Filing, the Company hereby acknowledges that no Purchaser shall be in possession of any material nonpublic information received from the Company, any of its Subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing. The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents not to, provide any Purchaser with any material nonpublic information regarding the Company or any of its Subsidiaries from and after the 8-K Filing without the express written consent of such Purchaser; provided, however, that a Purchaser that exercises its rights under Section 7(m) hereof shall be deemed to have given such express written consent. In the event of a breach of the foregoing covenant by the Company, any of its Subsidiaries or any of its or their respective officers, directors, employees and agents, in addition to any other remedy provided herein or in the other Transaction Documents, a Purchaser shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material nonpublic information without the prior approval by the Company, its Subsidiaries or any of its or their respective officers, directors, employees or agents. No Purchaser shall have any liability to the Company, its Subsidiaries or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure. Subject to the foregoing, neither the Company nor any Purchaser shall issue any press releases or any other public statements with respe ct to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Purchaser shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release).

(c) Reporting Status. So long as any Purchasers (or any of their respective affiliates) beneficially own any of the Securities, the Company shall timely file all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status


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as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. In addition, the Company shall take all actions necessary to meet the “registrant eligibility” requirements set forth in the general instructions to Form SB-2 or any successor form thereto, to continue to be eligible to register the resale of its Common Stock on a registration statement on Form SB-2 under the Securities Act.

(d) Use of Proceeds. The Company shall use the proceeds from the sale and issuance of the Units for exploration and developmental drilling, general corporate purposes and working capital. Such proceeds shall not be used to (i) pay dividends; (ii) pay for any increase in executive compensation or make any loan or other advance to any officer, employee, shareholder, director or other affiliate of the Company, without the express approval of the Board of Directors acting in accordance with past practice; (iii) purchase debt or equity securities of any entity (including redeeming the Company’s own securities), except for (A) evidences of indebtedness issued or fully guaranteed by the United States of America and having a maturity of not more than one year from the date of acquisition, (B) certificates of deposit, notes, acceptances and repurchase agreements having a maturity of not more than one year from the date of acquisition issued by a bank organized in the United States having capital, surplus and undivided profits of at least $500,000,000, (C) the highest-rated commercial paper having a maturity of not more than one year from the date of acquisition, and (D) “Money Market” fund shares, or money market accounts fully insured by the Federal Deposit Insurance Corporation and sponsored by banks and other financial institutions, provided that the investments consist principally of the types of investments described in clauses (A), (B), or (C) above; or (iv) make any investment not directly related to the current business of the Company.

(e) Financial Information. So long as any Purchasers (or any of their respective affiliates) beneficially own any of the Securities, the Company shall send (via electronic transmission or otherwise) the following reports to each such Purchaser: (i) within ten days after the filing with the SEC, a copy of its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB, its proxy statements and any Current Reports on Form 8-K; and (ii) within one day after release, copies of all press releases issued by the Company or any of its Subsidiaries.

(f) Reservation of Shares. The Company currently has authorized and reserved for the purpose of issuance __________ shares of Common Stock to provide for the full conversion of the Preferred Stock and issuance of the Conversion Shares in connection therewith, the full exercise of the Warrants and the issuance of the Warrant Shares in connection therewith and as otherwise required by the Preferred Stock, the Warrants and the Registration Rights Agreement (collectively, the “Issuance Obligations”). In the event such number of shares becomes insufficient to satisfy the Issuance Obligations, the Company shall take all necessary action to authorize and reserve such additional shares of Common Stock necessary to satisfy the Issuance Obligations.

(g) Stockholder Approvals. Within sixty (60) business days of the Closing, the Company shall use its best efforts to obtain the approval of the stockholders of the Company in connection with the amendment to its Articles of Incorporation and the authorization of the Preferred Stock (the “Stockholder Approval”). If the Stockholder Approval has not been obtained within 60 days following the Closing, the Company shall immediately notify the holders of such failure


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and this Agreement shall terminate and be of no further force or effect, other than the obligations of the Company pursuant to Section 7(q), which shall survive such termination.

(h) Listing. So long as any Purchasers (or any of their respective affiliates) beneficially own any of the Securities, the Company shall maintain the listing of all Conversion Shares and Warrant Shares from time to time issuable upon conversion of the Preferred Stock and exercise of the Warrants on each national securities exchange, automated quotation system or electronic bulletin board on which shares of Common Stock are currently listed. The Company shall use its best efforts to continue the quotation of its Common Stock on the OTCBB and shall comply in all respects with the reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers, Inc. (the “NASD”), such exchanges, or such electronic system, as applicable. The Company shall promptly provide to each Purchaser copies of any notices it receives regarding the continued eligibility of the Common Stock for trading on any securities exchange or automated quotation system on which securities of the same class or series issued by the Company are then listed or quoted, if any.

(i) Corporate Existence. So long as any Purchasers (or any of their respective affiliates) beneficially own any of the Securities, the Company shall maintain its corporate existence, and in the event of a merger, consolidation or sale of all or substantially all of the Company’s assets, the Company shall ensure that the surviving or successor entity in such transaction (i) assumes the Company’s obligations under this Agreement and the other Transaction Documents and the agreements and instruments entered into in connection herewith and therewith regardless of whether or not the Company would have had a sufficient number of shares of Common Stock authorized and available for issuance in order to effect the conversion of all the Preferred Stock and exercise in full of all Warran ts outstanding as of the date of such transaction; and (ii) except in the event of a merger, consolidation of the Company into any other corporation, or the sale or conveyance of all or substantially all of the assets of the Company where the consideration consists solely of cash, the surviving or successor entity is a publicly traded corporation whose common stock is quoted for trading on the OTCBB.

(j) No Integrated Offerings. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would cause this offering of the Securities to be integrated with any other offering of securities by the Company for purposes of any stockholder approval provision applicable to the Company or its securities.

(k) Legal Compliance. The Company shall conduct its business and the business of its Subsidiaries in compliance with all laws, ordinances or regulations of governmental entities applicable to such businesses, except where the failure to do so would not have a Material Adverse Effect.

(l) Information. So long as any Purchasers (or any of their respective affiliates) beneficially own any of the Securities, the Company shall furnish to each such Purchaser:

concurrently with the filing with the SEC of its annual reports on Form 10-KSB, a certificate of the President, a Vice President or a senior financial officer of the Company stating that, based upon such examination or investigation and review of this Agreement as in the opinion of the signer is necessary to enable the signer to express an


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informed opinion with respect thereto, neither the Company nor any of its Subsidiaries is or has during such period been in default in the performance or observance of any of the terms, covenants or conditions hereof, or, if the Company or any of its Subsidiaries shall be or shall have been in default, specifying all such defaults, and the nature and period of existence thereof, and what action the Company or such Subsidiary has taken, is taking or proposes to take with respect thereto; and

ii. the information the Company must deliver to any holder or to any prospective transferee of Securities in order to permit the sale or other transfer of such Securities pursuant to Rule 144A of the SEC or any similar rule then in effect.

The Company shall keep at its principal executive office a true copy of this Agreement (as at the time in effect), and cause the same to be available for inspection at such office during normal business hours by any holder of Securities or any prospective transferee of Securities designated by a holder thereof.

(m) Inspection of Properties and Books. So long as any Purchasers (or any of their respective affiliates) beneficially own any of the Securities, each such Purchaser and its representatives and agents (collectively, the “Inspectors”) shall have the right, at such Purchaser’s expense, to visit and inspect any of the properties of the Company and of its Subsidiaries, to examine the books of account and records of the Company and of its Subsidiaries, to make or be provided with copies and extracts therefrom, to discuss the affairs, finances and accounts of the Company and of its Subsidiaries with, and to be advised as to the same by, its and their officers, employees and independent public a ccountants (and by this provision the Company authorizes such accountants to discuss such affairs, finances and accounts, whether or not a representative of the Company is present) all at such reasonable times and intervals and to such reasonable extent as the Purchasers may desire; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to such Purchaser) of any such information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (i) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement filed pursuant to the Registration Rights Agreement, (ii) the release of such information is ordered pursuant to a subpoena or other order from a court or governm ent body of competent jurisdiction, or (iii) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. Each Purchaser agrees that it shall, upon learning that disclosure of such information is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the information deemed confidential.

(n) Shareholders Rights Plan. No claim shall be made or enforced by the Company or any other person that any Purchaser is an “Acquiring Person” under any shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under this Agreement or any other Transaction Documents or under any other agreement between the Company and the Purchasers.


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(o) Pledge of Securities. The Company acknowledges and agrees that the Securities may be pledged by any Purchaser in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Purchaser effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document. The Company shall execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Purchaser.

(p) Variable Securities. So long as any Purchasers (or any of their respective affiliates) beneficially own any of the Securities, the Company shall not, without first obtaining the written approval of the holders of a majority of the [shares of Preferred Stock / aggregate principal face amount of the Notes] then outstanding (which approval may be given or withheld by such holders in their sole and absolute discretion), issue or sell any rights, warrants or options to subscribe for or purchase Common Stock, or any other securities directly or indirectly convertible into or exchangeable or exercisable for Common Stock, at an effective conversion, exchange or exercise price that varies or may vary with the market price of the Common Stock, including by way of one or more reset(s) to any fixed price.

(q) Expenses. At the Closing, the Company shall pay to each Purchaser reimbursement for the out-of-pocket expenses reasonably incurred by such Purchaser, its affiliates and its or their advisors in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, including, without limitation, each Purchaser’s and their respective affiliates’ and advisors’ reasonable due diligence and attorneys’ fees and expenses (the “Expenses”); provided, however, that each Purchaser shall be permitted, in its discretion, to deduct all of its Expenses from the Purchase Price payable by such Purchaser hereunder[; and provided, further, that the aggregate amount of the Expenses payable to all Purchasers shall not exceed [$______] (the “Expense Cap,” which Expense Cap shall be allocated among the Purchasers pro rata in accordance with their respective Purchase Price amounts) unless prior approval is obtained from the Company]. In addition, from time to time thereafter, upon any Purchaser’s written request, the Company shall pay to such Purchaser such additional Expenses [(not to exceed, in the aggregate for all Purchasers, the Expense Cap)], if any, not covered by such payment, in each case to the extent reasonably incurred by such Purchaser, its affiliates or its or their advisors in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby.

8, SECURITIES TRANSFER MATTERS.

(a) Conversion and Exercise. Upon conversion of the Preferred Stock or exercise of the Warrants by any person, (i) if the DTC Transfer Conditions (as defined below) are satisfied, the Company shall cause its transfer agent to electronically transmit all Conversion Shares and Warrant Shares by crediting the account of such person or its nominee with the Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission system; or (ii) if the DTC Transfer Conditions are not satisfied, the Company shall issue and deliver, or instruct its


	20

transfer agent to issue and deliver, certificates (subject to the legend and other applicable provisions hereof and the Certificate of Designation and Warrants), registered in the name of such person its nominee, physical certificates representing the Conversion Shares and Warrant Shares, as applicable. Even if the DTC Transfer Conditions are satisfied, any person effecting a conversion of Preferred Stock or exercising Warrants may instruct the Company to deliver to such person or its nominee physical certificates representing the Conversion Shares and Warrant Shares, as applicable, in lieu of delivering such shares by way of DTC Transfer. For purposes of this Agreement, “DTC Transfer Conditions” means that (A) the Company’s transfer agent is participating in the DTC Fast Automated Securities Transfer program and (B) the certificates for the Conversion Shares or Warrant Share s required to be delivered do not bear a legend and the person effecting such conversion or exercise is not then required to return such certificate for the placement of a legend thereon.

(b) Transfer or Resale. Each Purchaser understands that (i) except as provided in the Registration Rights Agreement, the sale or resale of the Securities have not been and are not being registered under the Securities Act or any state securities laws, and the Securities may not be transferred unless (A) the transfer is made pursuant to and as set forth in an effective registration statement under the Securities Act covering the Securities; or (B) such Purchaser shall have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registratio n; or (C) sold under and in compliance with Rule 144; or (D) sold or transferred to an affiliate of such Purchaser that agrees to sell or otherwise transfer the Securities only in accordance with the provisions of this Section 8(b) neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities laws (other than pursuant to the terms of the Registration Rights Agreement). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement, provided such pledge is consistent with applicable laws, rules and regulations.

(c) Legends. Each Purchaser understands that the Preferred Stock and Warrants and, until such time as the Conversion Shares and Warrant Shares have been registered under the Securities Act (including registration pursuant to Rule 416 thereunder) as contemplated by the Registration Rights Agreement or otherwise may be sold by such Purchaser under Rule 144, the certificates for the Conversion Shares and Warrant Shares may bear a restrictive legend in substantially the following form:

The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state of the United States or in any other jurisdiction. The securities represented hereby may not be offered, sold or transferred in the absence of an effective registration statement for the securities under applicable securities laws unless offered, sold or transferred pursuant to an available exemption from the registration requirements of those laws.


	21

The Company shall, immediately prior to a registration statement covering the Securities (including, without limitation, the Registration Statement contemplated by the Registration Rights Agreement) being declared effective, deliver to its transfer agent an opinion letter of counsel, opining that at any time such registration statement is effective, the transfer agent shall issue, in connection with the issuance of the Conversion Shares and Warrant Shares, certificates representing such Conversion Shares and Warrant Shares without the restrictive legend above, provided such Conversion Shares and Warrant Shares are to be sold pursuant to the prospectus contained in such registration statement. Upon receipt of such opinion, the Company shall cause the transfer agent to confirm, for the benefit of the holders, that no further opinion of counsel is required at the ti me of transfer in order to issue such shares without such restrictive legend.

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by state securities laws, (i) the sale of such Security is registered under the Securities Act (including registration pursuant to Rule 416 thereunder); (ii) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the Securities Act; or (iii) such holder provides the Company with reasonable assurances that such Security can be sold under Rule 144. In the event the above legend is removed from any Security and thereafter the effectiveness of a registration statement covering such Se curity is suspended or the Company determines that a supplement or amendment thereto is required by applicable securities laws, then upon reasonable advance written notice to such Purchaser the Company may require that the above legend be placed on any such Security that cannot then be sold pursuant to an effective registration statement or under Rule 144 and such Purchaser shall cooperate in the replacement of such legend. Such legend shall thereafter be removed when such Security may again be sold pursuant to an effective registration statement or under Rule 144.

(d) Transfer Agent Instruction. Upon compliance by any Purchaser with the provisions of this Section 8 with respect to the transfer of any Securities, the Company shall permit the transfer of such Securities and, in the case of the transfer of Conversion Shares or Warrant Shares, promptly instruct its transfer agent to issue one or more certificates (or effect a DTC Transfer) in such name and in such denominations as specified by such Purchaser. The Company shall not give any instructions to its transfer agent with respect to the Securities, other than any permissible or required instructions provided in this Section 8, and the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement.

9. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

The obligation of the Company hereunder to issue and sell the Units to each Purchaser hereunder at the Closing is subject to the satisfaction, at or before the Closing, of each of the following conditions as to such Purchaser, provided that such conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:


	22

(a) Execution of Transaction Documents. Each Purchaser shall have executed such Purchaser’s Execution Page to this Agreement, the Questionnaires and each other Transaction Document to which such Purchaser is a party and delivered the same to the Company.

(b) Payment of Purchase Price. Each Purchaser shall have delivered the full amount of such Purchaser’s Purchase Price to the Company by wire transfer in accordance with the Company’s written wiring instructions.

(c) Representations and Warranties True; Covenants Performed. The representations and warranties of each Purchaser shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), and such Purchaser shall have performed, satisfied and complied with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or prior to the Closing Date.

(d) No Legal Prohibition. No statute, rule, regulation, executive order, decree, ruling, injunction, action or proceeding shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which restricts or prohibits the consummation of any of the transactions contemplated by this Agreement.

10. CONDITIONS TO EACH PURCHASER’S OBLIGATION TO PURCHASE.

The obligation of each Purchaser hereunder to purchase the Units to be purchased by it at the Closing is subject to the satisfaction, at or before Closing Date, of each of the following conditions, provided that such conditions are for each Purchaser’s individual and sole benefit and may be waived by any Purchaser as to such Purchaser at any time in such Purchaser’s sole discretion:

(a) Execution of Transaction Documents. The Company shall have executed such Purchaser’s Execution Page to this Agreement and the Questionnaires and each other Transaction Document to which the Company is a party and delivered executed originals of the same to such Purchaser.

(b) Filing of Certificate of Designation. The Certificate of Designation shall have been filed and accepted for filing with the Secretary of State of the State of Nevada and a copy thereof certified by the Secretary of State of the State of Nevada shall have been delivered to such Purchaser.

(c) Delivery of Securities. The Company shall have delivered to such Purchaser duly executed certificates representing the Preferred Stock and Warrants for the number of shares of Units being purchased by such Purchaser (each in such denominations as such Purchaser shall request), registered in such Purchaser’s name.

(d) Listing. The Common Stock shall be authorized for quotation and listed on the OTCBB and trading in the Common Stock on the OTCBB shall not have been suspended by the SEC or the NASD.


	23

(e) Representations and Warranties True Covenants Performed. The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Purchaser shall have received a certificate, executed by the Chief Executive Officer of the Company after reasonable investigation, dated as of the Closing Date to the foregoing effect and as to such other matters as may reasonably be requested by such Purchaser.

(f) No Legal Prohibition. No statute, rule, regulation, executive order, decree, ruling, injunction, action or proceeding shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which restricts or prohibits the consummation of, any of the transactions contemplated by this Agreement.

(g) Legal Opinion. Such Purchaser shall have received an opinion of the Company’s counsel, dated as of the Closing Date, in the form attached hereto as Exhibit H.

(h) No Material Adverse Change. There shall have been no material adverse changes and no material adverse developments in the business, properties, operations, prospects, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole, since the date hereof, and no information that is materially adverse to the Company and of which such Purchaser is not currently aware shall come to the attention of such Purchaser.

(i) Corporate Approvals. Such Purchaser shall have received a copy of resolutions, duly adopted by the Board of Directors of the Company, which shall be in full force and effect at the time of the Closing, authorizing the execution, delivery and performance by the Company of this Agreement and the other Transaction Documents and the consummation by the Company of the transactions contemplated hereby and thereby, certified as such by the Secretary or Assistant Secretary of the Company, and such other documents they reasonably request in connection with the Closing.

11. GOVERNING LAW; MISCELLANEOUS.

(a) Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada applicable to contracts made and to be performed in the State of Nevada. The Company and each Purchaser irrevocably consent to the jurisdiction of the United States federal courts and the state courts located in the State of Nevada, in any suit or proceeding based on or arising under this Agreement and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding in such forum. The Company further agrees that service of process upon the Company mailed by first class mail shall be deemed in every resp ect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the right of any Purchaser to serve process in any other manner permitted by law. The Company agrees that a


	24

final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

(b) Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. In the event any signature is delivered by facsimile transmission, the party using such means of delivery shall cause the manually executed execution page(s) hereof to be physically delivered to the other party within five days of the execution hereof, provided that the failure to so deliver any manually executed execution page shall not aff ect the validity or enforceability of this Agreement.

(c) Construction. Whenever the context requires, the gender of any word used in this Agreement includes the masculine, feminine or neuter, and the number of any word includes the singular or plural. Unless the context otherwise requires, all references to articles and sections refer to articles and sections of this Agreement, and all references to schedules are to schedules attached hereto, each of which is made a part hereof for all purposes. The descriptive headings of the several articles and sections of this Agreement are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof.

(d) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

(e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents (including any schedules and exhibits hereto and thereto) contain the entire understanding of the Purchasers, the Company, their affiliates and persons acting on their behalf with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchasers make any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement, and no provision of this Agreement may be amended other than by an instrument in writing signed by the Company and each Purchaser.

(f) Notices. Any notices required or permitted to be given under the terms of this Agreement shall be in writing and sent by certified or registered mail (return receipt requested) or delivered personally, by nationally recognized overnight carrier or by confirmed facsimile transmission, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by nationally recognized overnight carrier or confirmed facsimile transmission, in each case addressed to a party as provided herein. The initial addresses for such communications shall be as follows, and each party shall provide notice to the other parties of any change in such party’s address:


	25

(i) If to the Company:

Heartland Oil and Gas Corp.

1360 – 885 West Georgia Street

Vancouver, British Columbia

Canada V6C 3E8

Telephone: 604-693-0177

Facsimile: 604-638-3525

Attention: Richard Coglon

with a copy simultaneously transmitted by like means (which transmittal shall not constitute notice hereunder) to:

Clark, Wilson
Barristers and Solicitors

800 – 885 West Georgia Street

Vancouver, British Columbia

Canada V6C 3H1

Telephone: 604-687-5700

Facsimile: 604-687-6314

Attention: William Macdonald

(ii) If to any Purchaser, to the address set forth under such Purchaser’s name on the Execution Page hereto executed by such Purchaser.

(g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Except as provided herein, the Company shall not assign this Agreement or any rights or obligations hereunder. Any Purchaser may assign or transfer the Securities pursuant to the terms of this Agreement and of such Securities, or assign such Purchaser’s rights hereunder to any other person or entity.


	26

(h) Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person; provided, however, that Section 7(q) may be enforced by any Purchaser’s affiliates and its or their advisors to the extent the same is entitled to reimbursement of Expenses pursuant thereto.

(i) Survival. The representations and warranties of the Company and the Purchasers and the agreements and covenants set forth in Sections 3, 4, 5, 6, 7 and 8 hereof shall survive the Closing notwithstanding any due diligence investigation conducted by or on behalf of any Purchaser. Moreover, none of the representations and warranties made by any other party herein shall act as a waiver of any rights or remedies any other party may have under applicable U.S. federal or state securi ties laws.

(j) Publicity. The Company and each Purchaser shall have the right to approve before issuance any press releases, SEC or, to the extent applicable, NASD filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Purchasers, to make any press release or SEC or, to the extent applicable, NASD filings with respect to such transactions as is required by applicable law and regulations (although the Purchasers shall be consulted by the Company in connection with any such press release and filing prior to its release and shall be provided with a copy thereof and must provide specific consent to the use of their name in connection therewith).

(k) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

(l) Indemnification. In consideration of each Purchaser’s execution and delivery of this Agreement and the other Transaction Documents and purchase of the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement and the other Transaction Documents, from and after the Closing, the Company shall defend, protect, indemnify and hold harmless each Purchaser and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement, collectively, the “ ;Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or


	27

thereby or (iii) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (A) the execution, delivery, performance or enforcement of this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby, (B) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance and sale of the Securities, (C) any disclosure made by such Purchaser pursuant to Section 4(b) hereof, or (D) the status of such Purchaser or holder of the Securities as an investor in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satis faction of each of the Indemnified Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 11(l) shall be the same as those set forth in Section 7(c) of the Registration Rights Agreement. Notwithstanding the foregoing, the Company’s aggregate obligation to indemnify the Purchaser shall be limited to the amount of the Purchase Price received by the Company from the Purchaser, other than in respect of such liabilities arising from Section 6(w).

(m) Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser hereunder or pursuant to any of the other Transaction Documents or any Purchaser enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be sa tisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

(n) Joint Participation in Drafting. Each party to this Agreement has participated in the negotiation and drafting of this Agreement and the other Transaction Documents. As such, the language used herein and therein shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement.

(o) Remedies. No provision of this Agreement or any other Transaction Document providing for any remedy to a Purchaser shall limit any other remedy which would otherwise be available to such Purchaser at law, in equity or otherwise. Nothing in this Agreement or any other Transaction Document shall limit any rights any Purchaser may have under any applicable federal or state securities laws with respect to the investment contemplated hereby. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchasers by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations hereunder (including, but not limited to, its obligations purs uant to Section 7 hereof) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement (including, but not limited to, its obligations pursuant to Section 7 hereof), that each Purchaser shall be entitled, in addition to all other available remedies, to an


	28

injunction restraining any breach and requiring immediate issuance and transfer of the Securities, without the necessity of showing economic loss and without any bond or other security being required.

(p) Knowledge. As used in this Agreement, the term “knowledge” of any person or entity shall mean and include (i) actual knowledge and (ii) that knowledge which a reasonably prudent business person could have obtained in the management of his or her business affairs after making due inquiry and exercising due diligence which a prudent business person should have made or exercised, as applicable, with respect thereto.

(q) Exculpation Among Purchasers; No “Group”. Each Purchaser acknowledges that it has independently evaluated the merits of the transactions contemplated by this Agreement and the other Transaction Documents, that it has independently determined to enter into the transactions contemplated hereby and thereby, that it is not relying on any advice from or evaluation by any other Purchaser, and that it is not acting in concert with any other Purchaser in making its purchase of securities hereunder or in monitoring its investment in the Company. The Purchasers and, to its knowledge, the Company agree that the Purchasers have not taken any actions that would deem such Purchasers to be members of a “group” for purposes of Section 13(d) of the Exchange Act, and the Purchaser s have not agreed to act together for the purpose of acquiring, holding, voting or disposing of equity securities of the Company. Each Purchaser further acknowledges that [Insert Name of DB&R Client] has retained Drinker Biddle & Reath LLP (“DB&R”) to act as its counsel in connection with the transactions contemplated by this Agreement and the other Transaction Documents and that DB&R has not acted as counsel for any of the other Purchasers in connection therewith and none of the other Purchasers have the status of a client of DB&R for conflict of interest or other purposes as a result thereof.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]


	29

IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this Agreement to be duly executed as of the date first above written.

HEARTLAND OIL AND GAS CORP.

By:

Name:

Title:

PURCHASER:

(Print or Type Name of Purchaser)

By: &nbs p;

Name:

Title:

RESIDENCE:

ADDRESS: ;

Telephone:

Facsimile:

Attention:

AGGREGATE SUBSCRIPTION AMOUNT:

Number of Closing Units to be Purchased at the Closing: __________

Total Units to be Purchased: __________

Purchase Price ($______ per Unit) for the Closing: $__________

Total Purchase Price: $__________

SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT

EXHIBIT A

CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS

SERIES A CONVERTIBLE PREFERRED STOCK

HEARTLAND OIL AND GAS CORP.

(Pursuant to NRS 78.195 and 78.1955 of the

Nevada Revised Statutes)

Heartland Oil and Gas Corp., a corporation organized and existing under the laws of the State of Nevada (the “Corporation”), hereby certifies that the Board of Directors of the Corporation (the “Board of Directors” or the “Board”), pursuant to authority of the Board of Directors under NRS 78.195 and 78.1955 of the Nevada Revised Statutes, and in accordance with the provisions of its Articles of Incorporation and Bylaws, each as amended and restated through the date hereof, has and hereby authorizes a series of the Corporation’s previously authorized Preferred Stock, par value $0 .01 per share (the “Preferred Stock”), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof, as follows:

I. DESIGNATION AND AMOUNT

The designation of this series, which consists of ? shares of Preferred Stock, is the Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and the purchase price shall be Three Dollars and Twenty Cents ($3.20) per share (the “Purchase Price”)

II. CERTAIN DEFINITIONS

For purposes of this Certificate of Designation, in addition to the other terms defined herein, the following terms shall have the following meanings:

A. “Business day” means any day, other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law, regulation or executive order to close.

B. “Closing Sales Price” means, for any security as of any date, the last sales price of such security on the principal trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Corporation and reasonably acceptable to the Majority Holders if Bloomberg


	A-1

Financial Markets is not then reporting closing sales prices of such security) (collectively, “Bloomberg”), or if the foregoing does not apply, the last reported sales price of such security on a national exchange or in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no such price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the “pink sheets” by the National Quotation Bureau, Inc., in each case for such date or, if such date was not a trading day for such security, on the next preceding date which was a trading day. If the Closing Sales Price cannot be calculated for such security as of either of such dates on any of the foregoing bases, the Closing Sales Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Corporation and reasonably acceptable to the Majority Holders, with the costs of such appraisal to be borne by the Corporation.

C. “Conversion Date” means, (i) for any Optional Conversion (as defined in Article IV.A below), the date specified in the notice of conversion in the form attached hereto (the “Notice of Conversion”), so long as a copy of the Notice of Conversion is faxed (or delivered by other means resulting in notice) to the Corporation before 11:59 p.m., New York City time, on the Conversion Date indicated in the Notice of Conversion; provided, however, that if the Notice of Conversion is not so faxed or oth erwise delivered before such time, then the Conversion Date shall be the date the holder faxes or otherwise delivers the Notice of Conversion to the Corporation, and (ii) for a Mandatory Conversion (as defined in Article IV.A below), that date specified on the notice delivered to the holders of Series A Preferred Stock being converted pursuant to Article IV.C in the event that such Mandatory Conversion occurs.

D. “Conversion Price” means $3.20 and shall be subject to adjustment as provided herein.

E. “Default Cure Date” means, as applicable, (i) with respect to a Conversion Default described in clause (i) of Article VI.A, the date the Corporation effects the conversion of the full number of shares of Series A Preferred Stock, (ii) with respect to a Conversion Default described in clause (ii) of Article VI.A, the date the Corporation issues freely tradable shares of Common Stock in satisfaction of all conversions of Series A Preferred Stock in accordance with Article IV, or (iii) with respect to either type of a Conversion Default, the date on which the Corporation redeems shares of Series A Preferred Stock held by such holder pursuant to Article VI.A.

F. “Issuance Date” means the date of the closing under the Securities Purchase Agreement by and among the Corporation and the purchasers named therein (the “Securities Purchase Agreement”), pursuant to which the Corporation issues, and such purchasers purchase, shares of Series A Preferred Stock upon the terms and conditions stated therein.

G. “Majority Holders” means the holders of a majority of the then outstanding shares of Series A Preferred Stock.


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H. “Mandatory Redemption Date” means, for any Mandatory Redemption (as defined in Article VII.D below), that date specified on the notice delivered to the holders of the Series A Preferred Stock being redeemed pursuant to Article VII.D.

I. “Registration Rights Agreement” means the Registration Rights Agreement, dated as of the Issuance Date, by and among the Corporation and the initial holders of Series A Preferred Stock.

J. “trading day” means any day on which the principal United States securities exchange or trading market where the Common Stock is then listed or traded, is open for trading.

K. “Warrants” means the warrants issued by the Corporation to the initial holders of Series A Preferred Stock pursuant to the Securities Purchase Agreement.

III. DIVIDENDS

The Series A Preferred Stock will bear no dividends, and the holders of the Series A Preferred Stock shall not be entitled to receive dividends on the Series A Preferred Stock.

IV. CONVERSION

A. Conversion at the Option of the Holder. Each holder of shares of Series A Preferred Stock may, at any time and from time to time, convert (an “Optional Conversion”) any share of Series A Preferred Stock into one fully paid and nonassessable share of Common Stock by paying the Conversion Price for each share of Preferred Stock so converted.

B. Mechanics of Conversion. In order to effect an Optional Conversion, a holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the Corporation (Attention: Secretary) and (y) surrender or cause to be surrendered the original certificates representing the Series A Preferred Stock being converted (the “Preferred Stock Certificates”), duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Corporation. Upon receipt by the Corporation of a facsimile copy of a Notice of Conversion from a holder, the Corporation shall promptly send, via facsimil e, a confirmation to such holder stating that the Notice of Conversion has been received, the date upon which the Corporation expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion. The Corporation shall not be obligated to issue shares of Common Stock upon a conversion unless either the Preferred Stock Certificates are delivered to the Corporation as provided above, or the holder notifies the Corporation that such Preferred Stock Certificates have been lost, stolen or destroyed and delivers the documentation to the Corporation required by Article XIV.B hereof.

(i) Delivery of Common Stock Upon Conversion. Upon the surrender of Preferred Stock Certificates accompanied by a Notice of Conversion, the Corporation (itself, or through its transfer agent) shall, no later than the later of (a) the second business day following the Conversion Date and (b) the business day following the date of such surrender (or, in the case of lost, stolen or destroyed certificates, after provision of indemnity pursuant to Article XIV.B)


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(the “Delivery Period”), issue and deliver (i.e., deposit with a nationally recognized overnight courier service postage prepaid) to the holder or its nominee (x) that number of shares of Common Stock issuable upon conversion of such shares of Series A Preferred Stock being converted and (y) a certificate representing the number of shares of Series A Preferred Stock not being converted, if any. Notwithstanding the foregoing, if the Corporation’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program, and so long as the certificates therefor do not bear a legend (pursuant to the terms of the Securities Purchase Agr eement) and the holder thereof is not then required to return such certificate for the placement of a legend thereon (pursuant to the terms of the Securities Purchase Agreement), the Corporation shall cause its transfer agent to promptly electronically transmit the Common Stock issuable upon conversion to the holder by crediting the account of the holder or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DTC Transfer”). If the aforementioned conditions to a DTC Transfer are not satisfied, the Corporation shall deliver as provided above to the holder physical certificates representing the Common Stock issuable upon conversion. Further, a holder may instruct the Corporation to deliver to the holder physical certificates representing the Common Stock issuable upon conversion in lieu of delivering such shares by way of DTC Transfer.

(ii) Taxes. The Corporation shall pay any and all taxes that may be imposed upon it with respect to the issuance and delivery of the shares of Common Stock upon the conversion of the Series A Preferred Stock.

(iii) No Fractional Shares. If any conversion of Series A Preferred Stock would result in the issuance of a fractional share of Common Stock (aggregating all shares of Series A Preferred Stock being converted pursuant to a given Notice of Conversion), such fractional share shall be payable in cash based upon the ten day average Closing Sales Price of the Common Stock at such time, and the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock shall be the next lower whole number of shares. If the Corporation elects not to, or is unable to, make such a cash payment, the holder shall be entitled to receive, in lieu of the fina l fraction of a share, one whole share of Common Stock.

(iv) Conversion Disputes. In the case of any dispute with respect to a conversion, the Corporation shall promptly issue such number of shares of Common Stock as are not disputed in accordance with subparagraph (i) above. If such dispute involves the calculation of the Conversion Price, and such dispute is not promptly resolved by discussion between the relevant holder and the Corporation, the Corporation shall submit the disputed calculations to an independent outside accountant via facsimile within three business days of receipt of the Notice of Conversion. The accountant, at the Corporation’s sole expense, shall promptly audit the calculations and noti fy the Corporation and the holder of the results no later than three business days from the date it receives the disputed calculations. The accountant’s calculation shall be deemed conclusive, absent manifest error. The Corporation shall then issue the appropriate number of shares of Common Stock in accordance with subparagraph (i) above.


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(v) Payment of Accrued Amounts. Upon conversion of any shares of Series A Preferred Stock, all amounts then accrued or payable on such shares under this Certificate of Designation or the Registration Rights Agreement through and including the Conversion Date shall be paid in cash by the Corporation.

C. Conversion at the Option of the Corporation. Subject to the Required Conditions contained in Paragraph D of this Article VI, the Corporation may require each holder of shares of Series A Preferred Stock, at any time following (a) at least eighteen (18) months from the Issuance Date, and (b) the date that shares of the Corporation’s common stock have been trading at or above 200% of the Conversion Price (as the Conversion Price may be adjusted from time to time pursuant to Article X) for a period of ten consecutive trading days, to convert (a “Mandatory Conversion”) each of its shares of Series A Preferred Stock into a number of fully paid and nonassessable shares of Common Stock determined in accordance with the Conversion Price. In order to effect a Mandatory Conversion, the Corporation shall deliver written notice to the holders of the Series A Preferred Stock no more than thirty (30) days prior to and no less than ten (15) days prior to the Conversion Date stated in such notice. Thereafter, the Corporation and the holders of the Series A Preferred Stock shall follow the applicable conversion procedures set forth in Article IV.B (including the requirement that the holders deliver the Preferred Stock Certificates representing the Series A Preferred Stock being converted to the Corporation); provided, however, the holders of the Series A Preferred Stock shall not be required to deliver a Notice of Conversion to the Corporation. In the event the Corporation elects to convert only a portion of the outstanding shares of Series A Preferred Stock pursuant to this Article IV.C, the outstanding shares of Series A Preferred Stock shall be converted pro rata among the holders of the Series A Preferred Stock based upon their aggregate relative ownership of outstanding shares of Series A Preferred Stock as of the Conversion Date.

D. The “Required Conditions” shall consist of the following:

(i) Each Registration Statement required to be filed by the Corporation pursuant to Section 2(a) of the Registration Rights Agreement shall have been declared effective by the Securities and Exchange Commission (it being understood that the Corporation shall comply with its obligations under Section 2(a) of the Registration Rights Agreement relating to the effectiveness of the Registration Statements) and shall have been kept effective pursuant to the Registration Rights Agreement;

(ii) No Redemption Event (as defined in Article VII below) shall have occurred without having been cured;

(iii) All amounts, if any, then accrued and payable under this Certificate of Designation or the Registration Rights Agreements shall have been paid.

V. RESERVATION OF SHARES OF COMMON STOCK

A. Reserved Amount. On or prior to the Issuance Date, the Corporation shall reserve ? shares of its authorized but unissued shares of Common Stock for issuance upon conversion of the Series A Preferred Stock, and, thereafter, the number of authorized but unissued shares of


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Common Stock so reserved (the “Reserved Amount”) shall at all times be sufficient to provide for the full conversion of all of the Series A Preferred Stock outstanding at the then current Conversion Price thereof. The Reserved Amount shall be allocated among the holders of Series A Preferred Stock as provided in Article XIV.C.

B. Increases to Reserved Amount. If the Reserved Amount for any three consecutive trading days (the last of such three trading days being the “Authorization Trigger Date”) shall be less than one hundred percent (100%) of the number of shares of Common Stock issuable upon full conversion of the then outstanding shares of Series A Preferred Stock, the Corporation shall immediately notify the holders of Series A Preferred Stock of such occurrence and shall take immediate action (including, if necessary, seeking stockholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to one hundred percent (100%) of the number of shares of Common Stock then issuable upon full conversion of all of the outstanding Series A Preferred Stock at the then current Conversion Price.

VI. FAILURE TO SATISFY CONVERSIONS

A. Conversion Defaults. If, at any time, (i) a holder of shares of Series A Preferred Stock submits a Notice of Conversion and the Corporation fails for any reason to deliver, on or prior to the fifth business day following the expiration of the Delivery Period for such conversion, such number of shares of Common Stock to which such holder is entitled upon such conversion, or (ii) the Corporation provides written notice to any holder of Series A Preferred Stock (or makes a public announcement via press release) at any time of its intention not to issue shares of Common Stock upon exercise by any holder of its conversion rights in accordance with the terms of this Certificate of Designation (each of (i) and (ii) being a “Conversion Default”), then the holder may elect, at any time and from time to time prior to the Default Cure Date for such Conversion Default, by delivery of a Redemption Notice to the Corporation, to have all or any portion of such holder’s outstanding shares of Series A Preferred Stock redeemed by the Corporation for cash, at an amount per share equal to the Redemption Amount (as defined in Article VII.B). If the Corporation fails to redeem any of such shares within five business days after its receipt of such Redemption Notice, then such holder shall be entitled to the remedies provided in Article VII.C.

B. Buy-In Cure. Unless the Corporation has notified the applicable holder in writing prior to the delivery by such holder of a Notice of Conversion that the Corporation is unable to honor conversions, if (i) (a) the Corporation fails to promptly deliver during the Delivery Period shares of Common Stock to a holder upon a conversion of shares of Series A Preferred Stock or (b) there shall occur a Legend Removal Failure (as defined in Article VII.A(iii) below) and (ii) thereafter, such holder purchases (in an open market transaction or otherwise) shares of Common Stock to make delivery in satisfaction of a sale by such holder of the unlegended shares of Common Stock (the “Sol d Shares”) which such holder anticipated receiving upon such conversion (a “Buy-In”), the Corporation shall pay such holder, in addition to any other remedies available to the holder, the amount by which (x) such holder’s total purchase price (including brokerage commissions, if any) for the unlegended shares of Common Stock so purchased exceeds (y) the net proceeds received by such holder from the sale of the Sold Shares.


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For example, if a holder purchases unlegended shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for $10,000, the Corporation will be required to pay the holder $1,000. A holder shall provide the Corporation written notification and supporting documentation indicating any amounts payable to such holder pursuant to this Article VI.B.

VII. REDEMPTION DUE TO CERTAIN EVENTS

A. Redemption by Holder. In the event (each of the events described in clauses (i)-(viii) below after expiration of the applicable cure period (if any) being a “Redemption Event”):

(i) the Common Stock (including any of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock) is suspended from trading on any of, or is not listed (and authorized) for trading on at least one of, the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market for an aggregate of ten or more trading days in any twelve month period;

(ii) the registration statement required to be filed by the Corporation pursuant to Section 2(a) of the Registration Rights Agreement has not been declared effective by the one hundred and twentieth (120^th) day following the Issuance Date or such registration statement, after being declared effective, cannot be utilized by the holders of Series A Preferred Stock for the resale of all of their Registrable Securities (as defined in the Registration Rights Agreement) for an aggregate of more than 20 days (other than as permitted under the Registration Rights Agreement);

(iii) the Corporation fails to remove any restrictive legend on any certificate or any shares of Common Stock issued to the holders of Series A Preferred Stock upon conversion of the Series A Preferred Stock as and when required by this Certificate of Designation, the Securities Purchase Agreement or the Registration Rights Agreement (a “Legend Removal Failure”), and any such failure continues uncured for five business days after the Corporation has been notified thereof in writing by the holder;

(iv) the Corporation provides written notice (or otherwise indicates) to any holder of Series A Preferred Stock, or states by way of public announcement distributed via a press release, at any time, of its intention not to issue, or otherwise refuses to issue, shares of Common Stock to any holder of Series A Preferred Stock upon conversion in accordance with the terms of this Certificate of Designation;

(v) the Corporation or any subsidiary of the Corporation shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed;

(vi) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Corporation or any subsidiary of the Corporation and if instituted against the Corporation or any subsidiary of the Corporation by a third party, shall not be dismissed within 60 days of their initiation;


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(vii) the Corporation shall:

(a) sell, convey or dispose of all or substantially all of its assets (the presentation of any such transaction for stockholder approval being conclusive evidence that such transaction involves the sale of all or substantially all of the assets of the Corporation);

(b) merge or consolidate with or into, or engage in any other business combination with, any other person or entity, in any case , which results in either (i) the holders of the voting securities of the Corporation immediately prior to such transaction holding or having the right to direct the voting of fifty percent (50%) or less of the total outstanding voting securities of the Corporation or such other surviving or acquiring person or entity immediately following such transaction or (ii) the members of the board of directors or other governing body of the Corporation comprising fifty percent (50%) or less of the members of the board of dir ectors or other governing body of the Corporation or such other surviving or acquiring person or entity immediately following such transaction;

(c) either (i) fail to pay, when due, or within any applicable grace period, any payment with respect to any indebtedness of the Corporation in excess of $250,000 due to any third party, other than payments contested by the Corporation in good faith, or otherwise be in breach or violation of any agreement for monies owed or owing in an amount in excess of $250,000 which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist any other default or event of default under any agreement binding the Corporation which default or event of default would or is like ly to have a material adverse effect on the business, operations, properties, prospects or financial condition of the Corporation;

(d) have thirty-five percent (35%) or more of the voting power of its capital stock owned beneficially by one person, entity or “group” (as such term is used under Section 13(d) of the Securities Exchange Act of 1934, as amended); or

(viii) except with respect to matters covered by subparagraphs (i) – (vii) above, as to which such applicable subparagraphs shall apply, the Corporation otherwise shall breach any material term hereunder or under the Securities Purchase Agreement, the Registration Rights Agreement or the Warrants, including, without limitation, the representations and warranties contained therein (i.e., in the event of a material breach as of the date such representation and warranty was made) and if such breach is curable, shall fail to cure such breach within ten business days after the Corporation has been notified thereof in writing by the holder;

then, upon the occurrence of any such Redemption Event, each holder of shares of Series A Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a written notice to such effect (a “Redemption Notice”) to the Corporation while such Redemption Event continues, to require the Corporation to purchase for cash any or all of the then outstanding shares of Series A Preferred Stock held by such holder for an amount per share equal to the Redemption Amount (as defined in Paragraph B below) in effect at the time of the redemption hereunder. For the avoidance of doubt, the occurrence of any event described in clauses (i), (ii), (iv), (v), (vi) and (vii) above shall immediately constitute


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a Redemption Event and there shall be no cure period. Upon the Corporation’s receipt of any Redemption Notice hereunder (other than during the three trading day period following the Corporation’s delivery of a Redemption Announcement (as defined below) to all of the holders in response to the Corporation’s initial receipt of a Redemption Notice from a holder of Series A Preferred Stock), the Corporation shall immediately (and in any event within one business day following such receipt) deliver a written notice (a “Redemption Announcement”) to all holders of Series A Preferred Stock stating the date upon which the Corporation received such Redemption Notice and the amount of Series A Preferred Stock covered thereby. The Corporation shall not redeem any shar es of Series A Preferred Stock during the three trading day period following the delivery of a required Redemption Announcement hereunder. At any time and from time to time during such three trading day period, each holder of Series A Preferred Stock may request (either orally or in writing) information from the Corporation with respect to the instant redemption (including, but not limited to, the aggregate number of shares of Series A Preferred Stock covered by Redemption Notices received by the Corporation) and the Corporation shall furnish (either orally or in writing) as soon as practicable such requested information to such requesting holder.

B. Definition of Redemption Amount. The “Redemption Amount” with respect to a share of Series A Preferred Stock means an amount equal to the greater of:

(i) V _x _M

C P

and (ii) V x

where:

“V” means the Purchase Price thereof ;

“CP” means the Conversion Price in effect on the date on which the Corporation receives the Redemption Notice;

“M” means (i) with respect to all redemptions other than redemptions pursuant to subparagraph (a) or (b) of Article VII.A(vii) hereof, the highest Closing Sales Price of the Corporation’s Common Stock during the period beginning on the date on which the Corporation receives the Redemption Notice and ending on the date immediately preceding the date of payment of the Redemption Amount and (ii) with respect to redemptions pursuant to subparagraph (a) or (b) of Article VII.A(vii) hereof, the greater of (a) the amount determined pursuant to clause (i) of this definition or (b) the fair market value, as of the date on which the Corporation receives the Redemption Notice, of the consideration payable to the holder of a share of Common Stock pursuant to the transaction wh ich triggers the redemption. For purposes of this definition, “fair market value” shall be determined by the mutual agreement of the Corporation and the Majority Holders, or if such agreement cannot be reached within five business days prior to the date of redemption, by an investment banking firm selected by the Corporation and reasonably acceptable to the Majority Holders, with the costs of such appraisal to be borne by the Corporation; and


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“R” means 112%.

C. Redemption Defaults. If the Corporation fails to pay any holder the Redemption Amount with respect to any share of Series A Preferred Stock within five business days after its receipt of a Redemption Notice, then the holder of Series A Preferred Stock entitled to redemption shall be entitled to interest on the Redemption Amount in accordance with Article XV.E from the date on which the Corporation receives the Redemption Notice until the date of payment of the Redemption Amount hereunder. In the event the Corporation is not able to redeem all of the shares of Series A Preferred Stock subject to Redemption Notices delivered prior to the date upon which such redemption is to be effected, the Corporation shall redeem sh ares of Series A Preferred Stock from each holder pro rata, based on the total number of shares of Series A Preferred Stock outstanding at the time of redemption included by such holder in all Redemption Notices delivered prior to the date upon which such redemption is to be effected relative to the total number of shares of Series A Preferred Stock outstanding at the time of redemption included in all of the Redemption Notices delivered prior to the date upon which such redemption is to be effected.

D. Mandatory Redemption.

(i) Subject to the Required Conditions contained in Paragraph D of Article VI above, at any point following the Issuance Date, the Company may redeem each share of Series A Preferred Stock issued and outstanding at such date (a “Mandatory Redemption”) at the Mandatory Redemption Price (as defined in Paragraph E below) per share so redeemed. In order to effect a Mandatory Redemption, the Corporation shall deliver written notice to the holders of the Series A Preferred Stock no more than forty-five (45) days prior to and no less than twenty (20) days prior to the Mandatory Redemption Date stated in such notice. I n the event the Corporation elects to redeem only a portion of the outstanding shares of Series A Preferred Stock pursuant to this Article VII.D, the outstanding shares of Series A Preferred Stock shall be redeemed pro rata among the holders of the Series A Preferred Stock based upon their aggregate relative ownership of outstanding shares of Series A Preferred Stock as of the Conversion Date.

(ii) Notwithstanding the delivery of written notice of a Mandatory Redemption, a holder of Series A Preferred Stock may convert such shares of Series A Preferred Stock subject to such notice by the delivery prior to the date set forth in such notice on which the Corporation intends to redeem such shares of a Notice of Conversion to the Company or its transfer agent pursuant to the procedures set forth in Article IV.B.

(iii) The Corporation may not deliver to a holder of Series A Preferred Stock a written notice of a Mandatory Redemption unless on or prior to the date of delivery of such notice, the Corporation shall have segregated on the books and records of the Corporation an amount of cash sufficient to pay all amounts to which the holders of Series A Preferred Stock are entitled upon such redemption pursuant to this Article D. Any notice of a Mandatory Redemption delivered shall be irrevocable and shall be accompanied by a statement executed by a duly authorized officer of the Corporation.


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(iv) The redemption amount payable under this Paragraph D shall be paid to the holders of the Series A Preferred Stock being redeemed within five (5) business days of the redemption date specified in the written notice of Mandatory Redemption; provided, however, that the Corporation shall not be obligated to deliver any portion of such redemption amount until either the certificates evidencing the Series A Preferred Stock being redeemed are delivered to the office of the Corporation or the holder notifies the Corporation that s uch certificates have been lost, stolen or destroyed and delivers the documentation in accordance with Article XIV.B hereof. Notwithstanding anything herein to the contrary, in the event that the certificates evidencing the Series A Preferred Stock being redeemed are not delivered to the Corporation prior to the third business day following the redemption date specified in the notice of Mandatory Redemption, the redemption of the Series A Preferred Stock pursuant to this Article VII.D shall still be deemed effective as of the redemption date specified in the written notice of Mandatory Redemption and the applicable redemption amount shall be paid to the holder of Series A Preferred Stock being redeemed within five (5) business days of the date the certificates evidencing the Series A Preferred Stock being redeemed are actually delivered to the Corporation or the holder otherwise complies with Article XIV.B hereof.

E. Mandatory Redemption Price. The Mandatory Redemption Price shall be as follows:

(i) For any Mandatory Redemption that occurs after the Issuance Date and up to but not including 12 months thereafter, 112% of the Conversion Price.

(ii) For any Mandatory Redemption that occurs 12 months after the Issuance Date and up to but not including 24 months thereafter, 124% of the Conversion Price.

(iii) For any Mandatory Redemption that occurs on or after 24 months following the Issuance Date, 136% of the Conversion Price.

VIII. RANK

All shares of the Series A Preferred Stock shall rank (i) prior to the Corporation’s Common Stock and any class or series of capital stock of the Corporation hereafter created (unless, with the consent of the Majority Holders obtained in accordance with Article XII hereof, such class or series of capital stock specifically, by its terms, ranks senior to or pari passu with the Series A Preferred Stock) (collectively with the Common Stock, “Junior Securities”); (ii) pari pass u with any class or series of capital stock of the Corporation hereafter created (with the written consent of the Majority Holders obtained in accordance with Article XII hereof) specifically ranking, by its terms, on parity with the Series A Preferred Stock (the “Pari Passu Securities”); and (iii) junior to any class or series of capital stock of the Corporation hereafter created (with the written consent of the Majority Holders obtained in accordance with Article XII hereof) specifically ranking, by its terms, senior to the Series A Preferred Stock (collectively, the “Senior Securities”), in each case as to distribution of asset s upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

IX. LIQUIDATION PREFERENCE


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A. Priority in Liquidation. In the event that the Corporation shall liquidate, dissolve or wind up its affairs (but not including any event described in Article VII.A(vii)(a) and (b)) (a “Liquidation Event”), no distribution shall be made to the holders of any shares of capital stock of the Corporation (other than Senior Securities pursuant to the rights, preferences and privileges thereof) upon liquidation, dissolution or winding up unless prior thereto the holders of shares of Series A Preferred Stock shall have received the Liquidation Preference with respect to each share. If, upon the occurrence of a Liquidation Event, th e assets and funds available for distribution among the holders of the Series A Preferred Stock and holders of Pari Passu Securities, if any, shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for distribution to the Series A Preferred Stock and the Pari Passu Securities, if any, shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. [If, upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the holders of Senior Securities, if any, the holders of the Series A Preferred Stock and the holders of Pari Passu Securities, if any, shall be sufficient to permit the payment to such holders of the preferential amounts payable thereon, then after such payment shall be made in full to the holders of Senior Securities, if any, the holders of the Series A Preferred Stock and the holders of Pari Passu Securities, if any, the remaining assets and funds available for distribution shall be distributed to the holders of any Junior Securities entitled to a liquidation preference in payment of the aggregate liquidation preference of all such holders. After such payment shall be made in full to the holders of any Junior Securities entitled to a liquidation preference, the remaining assets and funds available for distribution shall be distributed ratably among the holders of shares of Series A Preferred Stock, the holders of any other class or series of Preferred Stock entitled to part icipate with the Common Stock in a liquidating distribution and the holders of the Common Stock, with the holders of shares of Preferred Stock deemed to hold the number of shares of Common Stock into which such shares of Preferred Stock are then convertible.]

B. Definition of Liquidation Preference. The “Liquidation Preference” with respect to a share of Series A Preferred Stock means the greater of (i) an amount equal to the Purchase Price thereof, and (ii) the amount that would be distributed in such Liquidation Event on the number of shares of Common Stock into which a share of Series A Preferred Stock could be converted immediately prior to such Liquidation Event, assuming all shares of Series A Preferred Stock were so converted. The Liquidation Preference with respect to any Pari Passu Securit ies, if any, shall be as set forth in the Certificate of Designation filed in respect thereof.

X. ADJUSTMENTS TO THE CONVERSION PRICE

The Conversion Price shall be subject to adjustment from time to time as follows:

A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the Issuance Date, the number of outstanding shares of Common Stock is increased by a stock split, stock dividend, combination, reclassification or other similar event, the Conversion Price shall be proportionately reduced, or if the number of outstanding shares of Common Stock is decreased by a reverse stock split, combination, reclassification or other similar event, the Conversion Price


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shall be proportionately increased. In such event, the Corporation shall notify the Corporation’s transfer agent of such change on or before the effective date thereof.

B. Merger, Consolidation, Etc. If, at any time after the Issuance Date, there shall be (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation or merger of the Corporation with any other entity (other than a merger in which the Corporation is the surviving or continuing entity and its capital stock is unchanged), (iii) any sale or transfer of all or substantially all of the assets of the Corporation or (iv) any share exchange or other transaction pursuant to which all of the outstanding shares of Common Stock are converted in to other securities or property (each of (i) - (iv) above being a “Corporate Change”), then the holders of Series A Preferred Stock shall thereafter have the right to receive upon conversion, in lieu of the shares of Common Stock otherwise issuable, such shares of stock, securities and/or other property as would have been issued or payable in such Corporate Change with respect to or in exchange for the number of shares of Common Stock which would have been issuable upon conversion had such Corporate Change not taken place, and in any such case, appropriate provisions (in form and substance reasonably satisfactory to the Majority Holders) shall be made with respect to the rights and interests of the holders of the Series A Preferred Stock to the end that the economic value of the shares of Series A Preferred Stock are in no way diminished by such Corporate Change and that the provisions hereof (including, without li mitation, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is not the Corporation, an immediate adjustment of the Conversion Price so that the Conversion Price immediately after the Corporate Change reflects the same relative value as compared to the value of the surviving entity’s common stock that existed between the Conversion Price and the value of the Corporation’s Common Stock immediately prior to such Corporate Change) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the conversion thereof. The Corporation shall not effect any Corporate Change unless (i) each holder of Series A Preferred Stock has received written notice of such transaction at least 45 days prior thereto, but in no event later than 15 days prior to the record date for the determination of stockholders entitled to vote with respect thereto, and (ii) the resulting successor or acqu iring entity (if not the Corporation) assumes by written instrument (in form and substance reasonable satisfactory to the Majority Holders) the obligations of this Certificate of Designation. The above provisions shall apply regardless of whether or not there would have been a sufficient number of shares of Common Stock authorized and available for issuance upon conversion of the shares of Series A Preferred Stock outstanding as of the date of such transaction, and shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges.

C. Distributions. If, at any time after the Issuance Date, the Corporation shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Corporation’s stockholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the holders of Series A Preferred Stock shall be entitled, upon any conversion of shares of Series A Preferred Stock after the date of record for determining stockholders entitled to such


	A-13

Distribution (or if no such record is taken, the date on which such Distribution is declared or made), to receive the amount of such assets which would have been payable to the holder with respect to the shares of Common Stock issuable upon such conversion had such holder been the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to such Distribution (or if no such record is taken, the date on which such Distribution is declared or made).

D. Convertible Securities and Purchase Rights. If, at any time after the Issuance Date, the Corporation issues any securities or other instruments which are convertible into or exercisable or exchangeable for Common Stock (“Convertible Securities”) or options, warrants or other rights to purchase or subscribe for Common Stock or Convertible Securities (“Purchase Rights”) pro rata to the record holders of the Common Stock, whether or not such Convertible Securities or Purchase Rights are immediately convertible, exercisable or exchang eable, then the holders of Series A Preferred Stock shall be entitled, upon any conversion of shares of Series A Preferred Stock after the date of record for determining stockholders entitled to receive such Convertible Securities or Purchase Rights (or if no such record is taken, the date on which such Convertible Securities or Purchase Rights are issued), to receive the aggregate number of Convertible Securities or Purchase Rights which such holder would have received with respect to the shares of Common Stock issuable upon such conversion had such holder been the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to receive such Convertible Securities or Purchase Rights (or if no such record is taken, the date on which such Convertible Securities or Purchase Rights were issued). If the right to exercise or convert any such Convertible Securities or Purchase Rights would expire in accordance with their terms prior to the conversion of the Series A Prefer red Stock, then the terms of such Convertible Securities or Purchase Rights shall provide that such exercise or convertibility right shall remain in effect until 30 days after the date the holder of Series A Preferred Stock receives such Convertible Securities or Purchase Rights pursuant to the conversion hereof.

E. Other Action Affecting Conversion Price. If, at any time after the Issuance Date, the Corporation takes any action affecting the Common Stock that would be covered by Article X.A through D, but for the manner in which such action is taken or structured, which would in any way diminish the value of the Series A Preferred Stock, then the Conversion Price shall be adjusted in such manner as the Board of Directors of the Corporation shall in good faith determine to be equitable under the circumstances.

F. Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Article X amounting to a more than one percent (1%) change in such Conversion Price, or any change in the number or type of stock, securities and/or other property issuable upon conversion of the Series A Preferred Stock, the Corporation, at its expense, shall promptly compute such adjustment or readjustment or change and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment or change and showing in detail the facts upon which such adjustment or readjustment or change is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish to such holder a like certificate setting forth (i) such adjustment or readjustment or change, (ii) the Conversion Price at the time in effect and (iii)


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the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of a share of Series A Preferred Stock.

XI. VOTING RIGHTS

The holders of the Series A Preferred Stock shall have no voting power whatsoever, except as otherwise provided by the Nevada General Corporation Law (the “NGCL”), in this Article XI and in Article XII below.

Notwithstanding the above, the Corporation shall provide each holder of Series A Preferred Stock with prior notification of any meeting of the stockholders (and copies of proxy materials and other information sent to stockholders). If the Corporation takes a record of its stockholders for the purpose of determining stockholders entitled to (i) receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or property, or to receive any other right, or (ii) to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Corporation, or any proposed merger, consolidation, liquidation, dissolution or winding up of the Corporation, the Corporation shall mail a notice to each holder of Series A Preferred Stock, at least 15 days prior to the record date specified therein (or 45 days prior to the consummation of the transaction or event, whichever is earlier, but in no event earlier than public announcement of such proposed transaction), of the date on which any such record is to be taken for the purpose of such vote, dividend, distribution, right or other event, and a brief statement regarding the amount and character of such vote, dividend, distribution, right or other event to the extent known at such time.

To the extent that under the NGCL the vote of the holders of the Series A Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the then outstanding shares of the Series A Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of the Majority Holders (except as otherwise may be required under the NGCL) shall constitute the approval of such action by the class. To the extent that under the NGCL holders of the Series A Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Series A Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then c onvertible using the record date for the taking of such vote of stockholders as the date as of which the Conversion Price is calculated.

XII. PROTECTION PROVISIONS

So long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not take any of the following corporate actions (whether by merger, consolidation or otherwise) without first obtaining the approval (by vote or written consent, as provided by the NGCL) of the Majority Holders:


	A-15

(i) alter or change the rights, preferences or privileges of the Series A Preferred Stock, or increase the authorized number of shares of Series A Preferred Stock;

(ii) alter or change the rights, preferences or privileges of any capital stock of the Corporation so as to affect adversely the Series A Preferred Stock;

(iii) create or issue any Senior Securities or Pari Passu Securities;

(iv) issue any shares of Series A Preferred Stock other than pursuant to the Securities Purchase Agreement;

(v) redeem, repurchase or otherwise acquire, or declare or pay any cash dividend or distribution on, any Junior Securities;

(vi) increase the par value of the Common Stock;

(vii) issue any debt securities or incur any indebtedness that would have any preferences over the Series A Preferred Stock upon liquidation of the Corporation, or redeem, repurchase, prepay or otherwise acquire any outstanding debt securities or indebtedness of the Corporation, except as expressly required by the terms of such securities or indebtedness; provided, however, this Paragraph (vii) shall not apply to any financing with any lender where (x) the interest rate, per annum, applicable to such financing is no greater than the high est rate of interest published as the “Prime Rate” in the “Money Rates” section of the Wall Street Journal from time to time (or, in the event such rate of interest is no longer reported in the Wall Street Journal, any other commercially reasonable method of determining such rate of interest as is satisfactory to the Majority Holders), plus 5%, and (y) the facility fees, up-front fees, commitment fees, set up fees or other similar fees applicable to such financing are no more than, in the aggregate, 1.5% of the total principal amount available to be borrowed pursuant to such financing, so long as neither type of financing in (A) or (B) above involves any equity component;

(viii) enter into any agreement, commitment, understanding or other arrangement to take any of the foregoing actions; or

(ix) cause or authorize any subsidiary of the Corporation to engage in any of the foregoing actions.

Notwithstanding the foregoing, no change pursuant to this Article XII shall be effective to the extent that, by its terms, it applies to less than all of the holders of shares of Series A Preferred Stock then outstanding.

XIII. PARTICIPATION RIGHT

A. Participation Right. Subject to the terms and conditions specified in this Article XIII, [until the second anniversary of the Issuance Date,] the holders of shares of Series A Preferred Stock shall have a right to participate with respect to the issuance or possible issuance of any equity or equity-linked securities or debt which is convertible into equity or in which there


	A-16

is an equity component (as the case may be, “Additional Securities”) on the same terms and conditions as offered by the Corporation to the other purchasers of such Additional Securities. Each time the Corporation proposes to offer any Additional Securities, the Corporation shall make an offering of such Additional Securities to each holder of shares of Series A Preferred Stock in accordance with the following provisions:

(i) The Corporation shall deliver a notice (the “Issuance Notice”) to the holders of shares of Series A Preferred Stock stating (a) its bona fide intention to offer such Additional Securities, (b) the number of such Additional Securities to be offered, (c) the price and terms, if any, upon which it proposes to offer such Additional Securities, and (d) the anticipated closing date of the sale of such Additional Securities.

(ii) By written notification received by the Corporation, within 10 business days after giving of the Issuance Notice, any holder of shares of Series A Preferred Stock may elect to purchase or obtain, at the price and on the terms specified in the Issuance Notice up to that number of such Additional Securities which equals such holder’s Pro Rata Amount (as defined below). The “Pro Rata Amount” for any given holder of shares of Series A Preferred Stock shall equal that portion of the Additional Securities that the Corporation proposes to offer which equals the proportion that the number of shares of Common Stock that such holder owns or has the right to acquire bears to the total number of shares of Common Stock then outstanding (assuming in each case the full conversion, exercise or exchange of all Convertible Securities and Purchase Rights then outstanding); provided, however, that in the event that any such holder exercises its right to pay the consideration for the Additional Securities purchasable hereunder with shares of Series A Preferred Stock (as provided in Paragraph B below), then such holder’s Pro Rata Amount shall be increased (but not decreased) to the extent necessary to equal (x) such number of shares of Common Stock (if the Additional Securities being issued are Common Stock) or (y) that number of Additional Securities as are convertible into or exercisable or exchangeable for such number of shares of Common Stock (if the Additional Securities being issued are Convertible Securities or Purchase Rights), as is obtained by dividing (a) the Redemption Amount attributable to such holder’s shares of Series A Preferred Stock being redeemed by (b) (i) the price per share at which such Common Stock is being issued (if the Additional Securities being issued are Common Stock) or (ii) the conversion, exercise or exchange price at which such Additional Securities are convertible into or exercisable or exchangeable for shares of Common Stock (if the Additional Securities being issued are Convertible Securities or Purchase Rights), and in such event the Corporation shall be obligated to sell such number of Additional Securities to each such holder, even if the aggregate Pro Rata Amount for all such holders exceeds the aggregate amount of Additional Securities that the Corporation had initially proposed to offer. The Corporation shall promptly, in writing, inform each holder of shares of Series A Preferred Stock which elects to purcha se all of the Additional Shares available to it (“Fully-Exercising Holder”) of any other holder’s failure to do likewise. During the five-day period commencing after such information is given, each Fully-Exercising Holder shall be entitled to obtain that portion of the Additional Securities for which the holders of shares of Series A Preferred Stock were entitled to subscribe but which were not subscribed for by such holders which is equal to the proportion that the number of shares of Series A Preferred Stock held by such Fully-Exercising Holder bears to the total number of shares of


	A-17

Series A Preferred Stock held by all Fully-Exercising Holders who wish to purchase any of the unsubscribed shares.

(iii) If all Additional Securities which the holders of shares of Series A Preferred Stock are entitled to obtain pursuant to subparagraph (ii) of this Article XIII.A are not elected to be obtained as provided in such subparagraph, the Corporation may offer the remaining unsubscribed portion of such Additional Securities to any person or persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Issuance Notice.

(iv) The participation right set forth in this Article XIII may not be assigned or transferred, except that such right is assignable by each holder of shares of Series A Preferred Stock to any wholly-owned subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Securities Act of 1933, as amended, controlling, controlled by or under common control with, any such holder.

B. Consideration for Additional Securities. In the event that any holder of shares of Series A Preferred Stock exercises its participation right under this Article XIII, such holder shall be entitled to use the shares of Series A Preferred Stock then held by such holder as the consideration for the purchase of its allocated portion of Additional Securities pursuant to this Article XIII, with the shares of Series A Preferred Stock being valued at the Redemption Amount for such purpose; provided, however, that for the purposes of this Paragraph B, the Red emption Amount shall be calculated as of the day of such purchase and no Redemption Notice shall be required.

XIV. LIMITATIONS ON CERTAIN CONVERSIONS

The conversion of shares of Series A Preferred Stock and transfers of shares of Series A Preferred Stock shall be subject to the following limitation: In no event shall a holder of shares of Series A Preferred Stock of the Corporation have the right to convert shares of Series A Preferred Stock into shares of Common Stock or to dispose of any shares of Series A Preferred Stock to the extent that right to effect such conversion or disposition would result in the holder and its affiliates together beneficially owning more than 4.99% of the outstanding shares of Common Stock. For purposes of this Article XIV, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder. The restriction contained in this Article XIV may not be altered, amended, deleted or changed in any m anner whatsoever unless the holders of a majority of the outstanding shares of Common Stock and the Majority Holders shall approve, in writing, such alteration, amendment, deletion or change.

XV. MISCELLANEOUS

A. Cancellation of Series A Preferred Stock. If any shares of Series A Preferred Stock are converted pursuant to Article IV or redeemed or repurchased by the Corporation, the shares so converted or redeemed shall be canceled, shall return to the status of authorized, but


	A-18

unissued Preferred Stock of no designated series, and shall not be issuable by the Corporation as Series A Preferred Stock.

B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i) evidence of the loss, theft, destruction or mutilation of any Preferred Stock Certificate(s) and (ii) (y) in the case of loss, theft or destruction, indemnity (without any bond or other security) reasonably satisfactory to the Corporation, or (z) in the case of mutilation, the Preferred Stock Certificate(s) (surrendered for cancellation), the Corporation shall execute and deliver new Preferred Stock Certificate(s) of like tenor and date. However, the Corporation shall not be obligated to reissue such lost, stolen, destroyed or mutilated Preferred Stock Certificate(s) if the holder contemporaneously requests the Corporation to convert such Series A Pr eferred Stock.

C. Reserved Amount. The initial Reserved Amount shall be allocated pro rata among the holders of Series A Preferred Stock based on the number of shares of Series A Preferred Stock issued to each such holder. Each increase to the Reserved Amount shall be allocated pro rata among the holders of Series A Preferred Stock based on the number of shares of Series A Preferred Stock held by each holder at the time of the increase in the Reserved Amount. In the event a holder shall sell or otherwise transfer any of such holder’s shares of Series A Preferred Stock, each transferee shall be allocated a pro rata portion of such transferor’s Reserved Amount. Any portion of the Reserved Amount which remains allocated to any person or entity which does not hold any Series A Preferred Stock shall be allocated to the remaining holders of shares of Series A Preferred Stock, pro rata based on the number of shares of Series A Preferred Stock then held by such holders.

D. Quarterly Statements of Available Shares. For each calendar quarter beginning in the quarter in which the initial registration statement required to be filed pursuant to Section 2(a) of the Registration Rights Agreement is declared effective and thereafter for so long as any shares of Series A Preferred Stock are outstanding, the Corporation shall deliver (or cause its transfer agent to deliver) to each holder a written report notifying the holders of any occurrence that prohibits the Corporation from issuing Common Stock upon any conversion. The report shall also specify (i) the total number of shares of Series A Preferred Stock outstanding as of the end of such quarter, (ii) the total number of shares of Common Sto ck issued upon all conversions of Series A Preferred Stock prior to the end of such quarter, (iii) the total number of shares of Common Stock which are reserved for issuance upon conversion of the Series A Preferred Stock as of the end of such quarter and (iv) the total number of shares of Common Stock which may thereafter be issued by the Corporation upon conversion of the Series A Preferred Stock before the Corporation would exceed the Cap Amount and the Reserved Amount. The Corporation (or its transfer agent) shall use its best efforts to deliver the report for each quarter to each holder prior to the tenth day of the calendar month following the quarter to which such report relates. In addition, the Corporation (or its transfer agent) shall provide, as promptly as practicable following delivery to the Corporation of a written request by any holder, any of the information enumerated in clauses (i) - (iv) of this Paragraph D as of the date of such request.

E. Payment of Cash; Defaults. Whenever the Corporation is required to make any cash payment to a holder under this Certificate of Designation (upon redemption or otherwise), such cash payment shall be made to the holder within five business days after delivery by such


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holder of a notice specifying that the holder elects to receive such payment in cash and the method (e.g., by check, wire transfer) in which such payment should be made and any supporting documentation reasonably requested by the Corporation to substantiate the holder’s claim to such cash payment or the amount thereof. If such payment is not delivered within such five business day period, such holder shall thereafter be entitled to interest on the unpaid amount at a per annum rate equal to the lower of eighteen percent (18%) and the highest interest rate permitted by applicable law until such amount is paid in full to the holder.

F. Status as Stockholder. Upon submission of a Notice of Conversion by a holder of Series A Preferred Stock, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such holder’s allocated portion of the Reserved Amount or Cap Amount) shall be deemed converted into shares of Common Stock and (ii) the holder’s rights as a holder of such converted shares of Series A Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such holder because of a failure by the Corporation to comply with the terms of this Certificate of Designation. Notwithstanding the foregoing, if a holder has not received certificates for all shares of Common Stock prior to the sixth business day after the expiration of the Delivery Period with respect to a conversion of Series A Preferred Stock for any reason, then (unless the holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Corporation within five business days after the expiration of such six business day period after expiration of the Delivery Period) the holder shall regain the rights of a holder of Series A Preferred Stock with respect to such unconverted shares of Series A Preferred Stock and the Corporation shall, as soon as practicable, return such unconverted shares to the holder. In all cases, the holder shall retain all of its rights and remedies for the Corporation’s failure to convert Series A Preferred Stock.

G. Remedies Cumulative. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit a holder’s right to pursue actual damages for any failure by the Corporation to comply with the terms of this Certificate of Designation. The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of Series A Preferred Stock and that the remedy at law for any such breach may be inadequate. The Corporation therefore agrees, in the event of any s uch breach or threatened breach, that the holders of Series A Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

H. Waiver. Notwithstanding any provision in this Certificate of Designation to the contrary, any provision contained herein and any right of the holders of Series A Preferred Stock granted hereunder may be waived as to all shares of Series A Preferred Stock (and the holders thereof) upon the written consent of the Majority Holders, unless a higher percentage is required by applicable law, in which case the written consent of the holders of not less than such higher percentage of shares of Series A Preferred Stock shall be required.


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I. Notices. Any notices required or permitted to be given under the terms hereof shall be sent by certified or registered mail (return receipt requested) or delivered personally, by responsible overnight carrier or by confirmed facsimile, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by responsible overnight carrier or confirmed facsimile, in each case addressed to a party. The addresses for such communications are (i) if to the Corporation to [Name of Corporation], [Address of Corporation], Telephone: [(___) ___-____], Facsimile: [(___) ___-____], Attention: [_______________], and (ii) if to any holder to the address set for th under such holder’s name on the execution page to the Securities Purchase Agreement, or such other address as may be designated in writing hereafter, in the same manner, by such person.

IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation this ___ day of _____________, 2003.

HEARTLAND OIL AND GAS CORP.

By:

Name:

Title:


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NOTICE OF CONVERSION

(To be Executed by the Registered Holder

in order to Convert the Series A Preferred Stock)

The undersigned hereby irrevocably elects to convert ____________ shares of Series A Preferred Stock (the “Conversion”), represented by Stock Certificate No(s). ___________ (the “Preferred Stock Certificates”), into shares of common stock (“Common Stock”) of [Name of Corporation] (the “Corporation”) according to the conditions of the Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock (the “Certificate of Designation”), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. Each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof).

Except as may be provided below, the Corporation shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee (which is _________________) with DTC through its Deposit Withdrawal Agent Commission System (“DTC Transfer”).

In the event of partial exercise, please reissue a new stock certificate for the number of shares of Series A Preferred Stock which shall not have been converted.

The undersigned acknowledges and agrees that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Series A Preferred Stock have been or will be made only pursuant to an effective registration of the transfer of the Common Stock under the Securities Act of 1933, as amended (the “Act”), or pursuant to an exemption from registration under the Act.

¨ In lieu of receiving the shares of Common Stock issuable pursuant to this Notice of Conversion by way of DTC Transfer, the undersigned hereby requests that the Corporation issue and deliver to the undersigned physical certificates representing such shares of Common Stock.

Date of Conversion:

Applicable Conversion Price:

Signature:

Name:

Address:


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EXHIBIT B

WARRANT CERTIFICATE

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

WARRANT CERTIFICATE

WARRANT FOR PURCHASE OF COMMON SHARES

THIS WARRANT WILL BE VOID AND OF NO VALUE UNLESS EXERCISED WITHIN THE LIMITS HEREIN PROVIDED

HEARTLAND OIL AND GAS CORP.
(Incorporated under the laws of the State of Nevada)

WARRANT CERTIFICATE NO. _____

_______________ WARRANTS

Each such warrant entitling the holder to purchase one-half of one Common Share at the Exercise Price of $3.84 per full Common Share if exercised at or before 5:00 p.m. (Vancouver time) on , 2006.

DATE OF ISSUANCE: _______, 2003

THIS IS TO CERTIFY THAT __________ (herein called the “Holder”) is entitled to acquire in the manner herein provided, subject to the restrictions herein contained, during the period commencing on the date hereof and ending at 5:00 p.m. (Vancouver time) on , 2006 (the “Expiry Date”), up to _____________ fully paid and non-assessable common shares (“Common Shares”) without nominal or par value of Heartland Oil and Gas Corp. (“the Company”) as set forth above.

The Warrants are governed by the Terms and Conditions attached.


	B-1

Any Common Shares issuable on exercise of the Warrants represented by this Certificate will contain the following legends:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS

provided, however, following the date on which the Common Shares have been registered under the Securities Act pursuant to that certain Registration Rights Agreement, dated as of _________, 2003, by and among the Company and the other signatories thereto or otherwise may be sold by the Holder pursuant to Rule 144 promulgated under the Securities Act (or a successor rule), such Common Shares shall not bear any restrictive legend.

THE FOLLOWING ARE THE TERMS AND CONDITIONS REFERRED TO IN THIS WARRANT:

ARTICLE 1

INTERPRETATION

1.1 Definitions.

In these Terms and Conditions, unless there is something in the subject matter or context inconsistent therewith:

(a) “Common Shares” means the common shares in the capital of the Company as constituted at the date hereof and any shares resulting from any subdivision or consolidation of the Common Shares;

(b) “Company” means Heartland Oil and Gas Corp. or its successor corporation as a result of consolidation, amalgamation or merger with or into any other corporation or corporations, or as a result of the conveyance or transfer of all or substantially all of the properties and estates of the Company as an entirety to any other corporation and thereafter “Company” will mean such successor corporation;

(d) “Exercise Price” means the exercise price, per share, to purchase the Common Shares conferred by the Warrants, equal to $3.84.


	B-2

(e) “herein”, “hereby” and similar expressions refer to these Terms and Conditions as the same may be amended or modified from time to time; and the expression “Article” and “Section” followed by a number refer to the specified Article or Section of these Terms and Conditions;

(f) “Market Price” means, for any security as of any date, the last sales price of such security on the principal trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Company and reasonably acceptable to the Warrant Holder hereof if Bloomberg Financial Markets is not then reporting closing sales prices of such security) (in any case, “Bloomberg”), or if the foregoing does not apply, the last reported sales price of such security on a national exchange or in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no such price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the “pink sheets” by the National Quotation Bureau, Inc., in each case for such date or, if such date was not a trading day for such security, on the next preceding date which was a trading day. If the Market Price cannot be calculated for such security as of either of such dates on any of the foregoing bases, the Market Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Company and reasonably acceptable to the Warrant Holder hereof, with the costs of such appraisal to be borne by the Company;

(g) “person” means an individual, corporation, partnership, trustee or any unincorporated organization and words importing persons have a similar meaning;

(h) “Warrant Holders” or “Holders” means the holders of the Warrants; and

(i) “Warrants” mean share purchase warrants issued by the Company.

1.2 Gender.

Words importing the singular number include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders.

1.3 Interpretation Not Affected by Headings

The division of these Terms and Conditions into Articles and Sections, and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation thereof.

1.4 Applicable Law.

The Warrants will be construed in accordance with the laws of the Nevada and will be treated in all respects as Nevada contracts.


	B-3

ARTICLE 2
ISSUE OF ADDITIONAL WARRANTS

2.1 Additional Warrants.

The Company may at any time and from time to time issue additional warrants or grant options or similar rights to acquire or purchase Common Shares.

2.2 Issue in Substitution for Lost Warrants.

In case a Warrant becomes mutilated, lost, destroyed or stolen, the Company, upon receipt of evidence reasonably satisfactory to the Company of the mutilation, loss, destruction, or theft of such Warrant and, in the case of loss, destruction or theft, upon receipt of an indemnity agreement reasonably satisfactory in form and amount to the Company, will issue and deliver, at its expense, a new Warrant of like date and tenor as the one mutilated, lost, destroyed or stolen, in exchange for and in place of and upon cancellation of such mutilated Warrant, or in lieu of, and in substitution for such lost, destroyed or stolen Warrant and the substituted Warrant will be entitled to the benefit hereof and rank equally in accordance with its terms with all other Warrants issued or to be issued by the Company.

2.3 Warrant Holder Not a Shareholder.

A Warrant Holder is not a shareholder of the Company, is not entitled to any rights or interests as a shareholder of the Company and has only the rights and interests expressly provided herein.

ARTICLE 3
NOTICE

3.1 Notice to Warrant Holders.

Any notice to be given to the Holders will be sent by prepaid registered post and will be deemed to have been received by the Holder on the fourth day following the mailing thereof or on the date of successful facsimile transmission or email. Any such notice will be addressed to the Holder at the address of the Holder appearing on the Holder’s Warrant or to such other address as the Holder may advise the Company by notice in writing.

3.2 Notice to the Company.

Any notice to be given to the Company may be delivered personally, or sent by facsimile or other means of electronic communication providing a printed copy (“Electronic Communication”) or may be forwarded by first class prepaid registered mail to the addresses set forth below. Any notice delivered or sent by Electronic Communication shall be deemed to have been given and received at the time of delivery. Any notice mailed as aforesaid shall be deemed to have been given and received on expiration of 72 hours after it is posted, addressed as follows:


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Heartland Oil and Gas Corp.
Suite 1500 – 885 West Georgia Street
Vancouver, B.C., Canada V6C 3E8

Attention: The President

Facsimile No.: (604) 638-3525

ARTICLE 4
EXERCISE OF WARRANTS

4.1 Method of Exercise of Warrants.

(a) The right to acquire Common Shares conferred by the Warrants may be exercised by the Holder of such Warrant by surrendering the Warrant Certificate representing same, together with a duly completed and executed Exercise Form in the form attached hereto and a bank draft or certified cheque payable to the Company at its principal office in the City of Vancouver, British Columbia, for the Exercise Price applicable at the time of exercise in respect of the number of Warrants exercised.

(b) Notwithstanding anything in this Warrant to the contrary, in no event shall the Holder of this Warrant be entitled to exercise a number of Warrants (or portions thereof) in excess of the number of Warrants (or portions thereof) upon exercise of which the sum of (i) the number of Common Shares beneficially owned by the Holder and its affiliates other than Common Shares which may be deemed beneficially owned through the ownership of the unexercised Warrants and the unexercised or unconverted portion of any other securities of the Company (including any other securities subject to a limitation on conversion or exercise analogous to the limitation contained herein) and (ii) the number of Common Shares is suable upon exercise of the Warrants (or portions thereof) with respect to which the determination described herein is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding Common Shares. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in clause (i) hereof. Notwithstanding anything in this Warrant to the contrary, the restrictions on exercise of this Warrant set forth in this paragraph shall not be amended without (i) the written consent of the Holder and the Company and (ii) the approval of the holders of a majority of the Common Shares present or represented by proxy, and voting at any meeting called to vote on the amendment of such restriction.

4.2 Effect of Exercise of Warrants.

(a) Upon surrender and payment as aforesaid the Common Shares so subscribed for will be deemed to have been issued and such person or persons will be deemed to have become the holder or holders of record of such Common Shares on the date of such surrender.


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(b) Within five business days after surrender as aforesaid (the “Delivery Period”), the Company will forthwith cause to be delivered to the person or persons in whose name or names the Common Shares so subscribed for are to be issued as specified in such subscription or mailed to him or them at his or their respective addresses specified in such subscription, a certificate or certificates for the appropriate number of Common Shares not exceeding those which the Warrant Holder is entitled to acquire pursuant to the Warrant surrendered.

(c) If, at any time, a Warrant Holder submits the necessary items required by Section 4.1(a) above, and the Company fails for any reason (other than the reasons contemplated by Section 4.1(b) above) to deliver, on or prior to the second business day following the expiration of the Delivery Period for such exercise, the number of shares of Common Shares to which the Warrant Holder is entitled upon such exercise (an “Exercise Default”), then the Company shall pay to the Warrant Holder payments (“Exercise Default Payments”) for an Exercise Default in the amount of (i) (N/365), multiplied by (ii) the amount by which the Market Price of the Common Shares on the date the Exercise Form givin g rise to the Exercise Default is transmitted in accordance with Section 4.1(a) above (the “Exercise Default Date”) exceeds the Exercise Price in respect of such Common Shares, multiplied by (iii) the number of shares of Common Shares the Company failed to so deliver in such Exercise Default, multiplied by (iv) .24, where N equals the number of days from the Exercise Default Date to the date that the Company effects the full exercise of this Warrant which gave rise to the Exercise Default. The accrued Exercise Default Payment for each calendar month shall be paid in cash and shall be made to the holder by the fifth day of the month following the month in which it has accrued. Nothing herein shall limit the Warrant Holder’s right to pursue actual damages for the Company’s failure to maintain a sufficient number of authorized shares of Common Shares as required pursuant to the terms of Section 5.1 hereof, or to otherwise issue shares of Common Shares upon exercise of this Warrant in accorda nce with the terms hereof, and the Warrant Holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief).

4.3 Subscription for Less Than Entitlement.

The holder of any Warrant may subscribe for and acquire a number of Common Shares, less than the number which he is entitled to acquire pursuant to the surrendered Warrant. In the event of any acquisition of a number of Common Shares less than the number which can be acquired pursuant to a Warrant, the holder thereof upon exercise thereof will in addition be entitled to receive a new Warrant in respect of the balance of the Common Shares which he was entitled to acquire pursuant to the surrendered Warrant and which were not then acquired.

4.4 Warrants for Fractions of Shares.

To the extent that the holder of any Warrant is entitled to receive on the exercise or partial exercise thereof a fraction of a Common Share, such right may be exercised in respect of such fraction only in combination with another Warrant or other Warrants which in the aggregate entitle the holder to receive a whole number of such Common Shares.


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4.5 Expiration of Warrants.

After the expiration of the period within which a Warrant is exercisable, all rights thereunder will wholly cease and terminate and such Warrant will no longer be valid and of no effect.

4.6 Time of Essence.

Time will be of the essence hereof.

4.7 Adjustments.

The number of Common Shares deliverable upon the exercise of the Warrants will be subject to adjustment in the event and in the manner following:

(a) Merger, Sale of Assets, Etc. If at any time while this Warrant, or any portion thereof, is outstanding and unexpired there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a reverse triangular merger in which the Company is the surviving entity but the shares of the Company’s capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or (iii) a sale or transfer of the Company’s properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 4.7. The foregoing provisions of this Section 4.7 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. If the per share consideration payable to the holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company’s Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company’s Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant.

(b) Reclassification, Etc. If the Company, at any time while this Warrant, or any portion thereof, remains outstanding and unexpired by reclassification of securities or


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otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4.7. No adjustment shall be made pursuant to this Section 4.7, upon any conversion or redemption.

(c) Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, into a different number of securities of the same class, the Exercise Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination.

(d) Adjustments for Dividends in Stock or Other Securities or Property. If while this Warrant, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which purchase rights under this Warrant exist at the time shall have received, or, on or after the record date fixed for the determination of eligible Stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Company by way of dividend, then and in each case, this Warrant shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Warrant, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Company that such holder would hold on the date of such exercise had it been the holder of record of the security receivable upon exercise of this Warrant on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 4.7.

(e) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4.7, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request, at any time, of any such Holder, furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such adjustments and readjustments; (ii) the Exercise Price at the time in ef fect; and (iii) the number of shares and the amount, if any, of other property that at the time would be received upon the exercise of the Warrant.

(f) No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the


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provisions of this Section 4.7 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of this Warrant against impairment.

4.8 Determination of Adjustments.

If any questions will at any time arise with respect to any adjustment provided for in Section 4.7, such question will be conclusively determined by the Company’s Auditors, or, if they decline to so act any other firm of chartered accountants, in Vancouver, British Columbia, that the Company may designate and who will have access to all appropriate records and such determination will be binding upon the Company and the holders of the Warrants.

ARTICLE 5
COVENANTS BY THE COMPANY

5.1 Reservation of Shares.

The Company will reserve and there will remain unissued out of its authorized capital a sufficient number of Common Shares to satisfy the rights provided for herein and in the Warrants should the holders of all the Warrants from time to time outstanding determine to exercise such rights in respect of all Common Shares which they are or may be entitled to acquire pursuant thereto and hereto.

5.2 Company may Purchase.

The Company may from time to time offer to purchase and purchase, for cancellation only, any Warrants in such manner, from such persons and on such terms and conditions as it determines.

ARTICLE 6
CASHLESS EXERCISE

This Warrant may be exercised at any time before the Expiry Date by presentation and surrender of this Warrant to the Company at its principal executive offices with a written notice of the Warrant Holder’s intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a “Cashless Exercise”). In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Warrant for that number of shares of Common Shares determined by multiplying the number of Common Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the difference between the then current Market Price of a share of the Common Share on the date of exercise and the Exercise Price, and the denominator of which shall be the then current Market Price per share of Common Share.


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ARTICLE 7
MODIFICATION OF TERMS, MERGER, SUCCESSORS

7.1 Modification of Terms and Conditions for Certain Purposes.

From time to time the Company may, subject to the provisions of these Terms and Conditions, modify the Terms and Conditions hereof, for the purpose of correction or rectification of any ambiguities, defective provisions, errors or omissions herein, provided that such modifications shall not adversely effect the rights of the Holder without the Holder’s prior written consent.

7.2 Transferability.

The Warrant and all rights attached to it are transferable or assignable, if transferred or assigned in accordance with all applicable securities laws.

IN WITNESS WHEREOF HEARTLAND OIL AND GAS CORP. has caused this Warrant to be signed by its duly authorized officers under its corporate seal, and this Warrant to be dated as of the date of issuance first above written.

HEARTLAND OIL AND GAS CORP.

Per:	Per:
Authorized Signatory	Authorized Signatory


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EXERCISE FORM

TO: Heartland Oil and Gas Corp.

The undersigned holder of Warrants hereby exercises the right to acquire _____________ Common Shares without nominal or par value of Heartland Oil and Gas Corp. (the “Company”) (or such number of other securities or property to which such Warrants entitle the undersigned in lieu thereof or in addition thereto under the provisions set forth in the Warrant Certificate) according to the terms set forth in the Warrant Certificate.

Such securities or property are to be issued as follows:

Name:
& nbsp;

Address in Full:

The undersigned acknowledges that the certificates representing the Common Shares issuable hereunder shall bear such legends as may be required under applicable securities law.

DATED this _____ day of _______________, 200_.

Signature

(Print full name)

(Print full address)

Instructions:

The registered holder may exercise his right to acquire Common Shares by completing the above form, surrendering this Warrant Certificate and providing payment by bank draft, money order or certified check to the Company at its principal office in Vancouver, British Columbia. For the protection of the holder, it would be prudent to register if forwarding by mail. Certificates for Common Shares will be delivered or mailed as soon as practicable after the exercise of the Warrants. The rights of the registered holder cease if the Warrants are not exercised prior to 5:00 p.m. (Vancouver time) on the Expiry Date.


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EXHIBIT C

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of _____________ ___, 2003, is made by and among Heartland Oil and Gas Corp., a corporation organized under the laws of the State of Nevada (the “Company”), and the undersigned (together with their affiliates, the “Initial Investors”).

BACKGROUND

A. In connection with that certain Securities Purchase Agreement of even date herewith by and among the Company and the Initial Investors (the “Securities Purchase Agreement”), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell to the Initial Investors (i) shares of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Preferred Stock”), that are convertible into shares of the Company’s common stock, par value $0.001 per share (the “Commo n Stock”), upon the terms and subject to the limitations and conditions set forth in the Certificate of Designation, Rights and Preferences with respect to such Preferred Stock (the “Certificate of Designation”), and (ii) warrants (the “Warrants”) to acquire shares of Common Stock. The shares of Common Stock issuable upon conversion of or otherwise pursuant to the Preferred Stock are referred to herein as the “Conversion Shares” and the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are referred to herein as the “Warrant Shares.”

B. To induce the Initial Investors to execute and deliver the Securities Purchase Agreement, and to consummate the transactions contemplated thereby, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities Act”), and applicable state securities laws.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Initial Investors, intending to be legally bound, hereby agree as follows:

1. DEFINITIONS.

(a) As used in this Agreement, the following terms shall have the following meanings:

(i) “Investor” means the Initial Investors and any transferees or assignees who agree to become bound by the provisions of this Agreement in accordance with Section 10 hereof.


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(ii) “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the “SEC”).

(iii) “Registrable Securities” means (a) the Conversion Shares, (b) the Warrant Shares, and (c) any shares of capital stock issued or issuable, from time to time, as a distribution on or in exchange for or otherwise with respect to any of the foregoing (including the Preferred Stock and the Warrants), whether as default payments, on account of anti-dilution or other adjustments or otherwise.

(iv) “Registration Statement” means a registration statement of the Company under the Securities Act.

(b) Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement.

2. REGISTRATION.

Registration Procedures and Other Matters.

(a) The Company shall:

(i) as soon as possible but in any event not later than the 60th day after the issuance of the Preferred Stock (or, if such day is a Saturday, Sunday or holiday, then by the next succeeding business day), file a Registration Statement on Form S-3 (or, if Form S-3 is not then available, on such form of registration statement as is then available to effect a registration of the Conversion Shares and Warrant Shares) to enable the resale of the Conversion Shares and the Warrant Shares by the Investors from time to time;

(ii) use commercially reasonable efforts to cause a Registration Statement to be declared effective by the SEC as soon as possible, but in any event not later than the earlier of (a) the 120th day following the issuance of the Preferred Stock, and (b) the fifth trading day following the date on which the Company is notified by the SEC that the Registration Statement will not be reviewed or is no longer subject to further review and comments;

(iii) use commercially reasonable efforts to prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith (the "Prospectus") as may be necessary to keep the Registration Statement continuously current, effective and free from any material misstatement or omission to state a material fact for a period not exceeding, with respect to the Conversion Shares and Warrant Shares purchased hereunder from the date it is first declared effective until, the earlier of (A) two years from the date of the final exercise of all of the Warrants, (B) the date on which the Investor may sell all Conversion Shares and Warrant Shares then held by t he Investor pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be


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immediately sold, or (C) the public sale of all of the Conversion Shares and the Warrant Shares (such period, the "Effectiveness Period");

(iv) if (A) the Registration Statement is not filed on or prior to the date of filing required pursuant to Section 2(a)(i), (B) the Registration Statement is not declared effective on or prior to the date required by Section 2(a)(ii), or (C) after the date first declared effective by the SEC and prior to the expiration of the Effectiveness Period, the Registration Statement ceases to be effective and available to each Investor as to its Conversion Shares and Warrant Shares without being succeeded within 20 trading days by an effective amendment thereto or by a subsequent Registration Statement filed with and declared effective by the SEC, (any such failure being referred to as an "Event" and the date of such failure being the "Event Date"), then, in addition to any other rights available to the Investor under this Agreement or applicable law: (w) on the failure by the Company to comply with the Event required pursuant to Section 2(a)(i) the Company shall pay to the Investor an amount in cash, as liquidated damages and not as a penalty, equal to one percent of the Purchase Price paid by the Investor and on each monthly anniversary of such Event Date (if the Event has not been cured by such date) until the applicable Event is cured, the Company shall pay to the Investor a further amount in cash, as liquidated damages and not as a penalty, equal to one percent of the Purchase Price paid by the Investor; (x) on the failure by the Company to comply with the Event required pursuant to Section 2(a)(ii) or the occurrence of the Event set forth in Section 2(a)1(a)(iv)(C) and on each monthly anniversary of such Event Dates (if the Event has not been cured by such date) until the applicable Event is cured, an amount s hall accrue and be payable by the Company to the Investor, as liquidated damages and not as a penalty, equal to one percent of the Purchase Price paid by the Investor; (y) provided however that if the foregoing Events set forth in (x) is cured by the Company within 90 days of the applicable Event Date, all liquidated damages that have accrued and are due and owing by the Company to the Investor shall be payable in Units (to be registered in accordance with the terms of this Agreement), as liquidated damages and not as a penalty; and (z) if an Event is not cured within 90 days of the applicable Event Date, all liquidated damages that have accrued and are owed and continue to accrue to the Investor shall be paid in cash, and any liquidated damages that accrue after one year from the issuance of the Preferred Stock shall not exceed six percent of the Purchase Price paid by the Investor. The liquidated damages pursuant to the terms hereof shall apply on a pro rata basis for any portion of a month prior to the cu re of an Event;

(b) Piggy-Back Registrations. If, at any time after the issuance of the Preferred Stock and prior to the expiration of the Registration Period (as defined in Section 3(a) below) the Company shall file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities (other than on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans), the Company shall send to each Investor written notice of such filing, and if, within 15 days after the date of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered. Notwithstanding the foregoing, in the event that, in connection with any underwritten public offering, the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common


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Stock which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which such Investor has requested inclusion hereunder as the underwriter shall permit; provided, however, that (i) the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not contractually entitled to inclusion of such securities in such Registration Statemen t or are not contractually entitled to pro rata inclusion with the Registrable Securities, (ii) after giving effect to the immediately preceding proviso, any such exclusion of Registrable Securities shall be made pro rata among the Investors seeking to include Registrable Securities and the holders of other securities having the contractual right to inclusion of their securities in such Registration Statement by reason of demand registration rights, in proportion to the number of Registrable Securities or other securities, as applicable, sought to be included by each such Investor or other holder, and (iii) no such reduction shall reduce the amount of Registrable Securities included in the registration below twenty-five (25%) of the total amount of securities included in such registration. No right to registration of Registrable Securities under this Section 2(b) shall be construed to limit any registration required under Section 2(a) hereof. If an offering in connection with which an Investor is entitled to registration under this Section 2(b) is an underwritten offering, then each Investor whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering.

(c) Eligibility for Form SB-2. The Company represents and warrants that it meets the requirements for the use of Form SB-2 for registration of the sale by the Initial Investors and any other Investor of the Registrable Securities and the Company shall file all reports and statements required to be filed by the Company with the SEC in a timely manner so as to thereafter maintain such eligibility for the use of Form SB-2.

3. OBLIGATIONS OF THE COMPANY.

In connection with the registration of the Registrable Securities, the Company shall have the following obligations:

(a) The Company shall respond promptly to any and all comments made by the staff of the SEC to any Registration Statement required to be filed hereunder, and shall submit to the SEC, before the close of business on the business day immediately following the business day on which the Company learns (either by telephone or in writing) that no review of such Registration Statement will be made by the SEC or that the staff of the SEC has no further comments on such Registration Statement, as the case may be, a request for acceleration of the effectiveness of such Registration Statement to a time and date as soon as practicable. The Company shall keep such Registration Statement effective pursuant to Rule 415 at all times until such date as is t he earlier of (i) the date on which all of the Registrable Securities have been sold and (ii) the date on which all of the Registrable Securities may be immediately sold to the public without registration or restriction pursuant to Rule 144(k) under the Securities Act or any successor provision (the


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“Registration Period”), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein and all documents incorporated by reference therein) (A) shall comply in all material respects with the requirements of the Securities Act and the rules and regulations of the SEC promulgated thereunder and (B) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading. The financial statements of the Company included in any such Registration Statement or incorporated by reference therein (x) shall comply as to form in all material respects with the applicable accounting requirements and the published rules and regulations of the SEC applicable with respect thereto, (y) shall be prepared in accordanc e with U.S. generally accepted accounting principles, consistently applied during the periods involved (except as may be otherwise indicated in such financial statements or the notes thereto or, in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed on summary statements) and (z) fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to immaterial year-end adjustments).

(b) The Company shall (i) prepare and file with the SEC such amendments (including post-effective amendments) and supplements to any Registration Statement required to be filed hereunder and the prospectus used in connection with any such Registration Statement as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and (ii) during the Registration Period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by any such Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the event the number of shares available under a Registration Statement filed pursuant to this Agreement is, for any three (3) consecutive trading days (the last of such three (3) trading days being the “Registration Trigger Date”), insufficient to cover 125% of the Registrable Securities then issued or issuable upon conversion of the Preferred Stock (without giving effect to any limitations on conversion contained in the Certificate of Designation) and exercise of the Warrants (without giving effect to any limitations on exercise contained in the Warrants), the Company shall provide each Investor written notice of such Registration Trigger Date within three business days thereafter and shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as t o cover 125% of the Registrable Securities issued or issuable upon conversion of the Preferred Stock (without giving effect to any limitations on conversion contained in the Certificate of Designation) or exercise of the Warrants (without giving effect to any limitations on exercise contained in the Warrants) as of the Registration Trigger Date, in each case, as soon as practicable, but in any event within 15 days after the Registration Trigger Date. The Company shall cause such amendment(s) and/or new Registration Statement(s) to become effective as soon as practicable following the filing thereof.

(c) The Company shall furnish to each Investor whose Registrable Securities are included in a Registration Statement and such Investor’s legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC or received by the Company, as


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applicable, one copy of the Registration Statement and any amendment thereto, each preliminary prospectus and prospectus and each amendment or supplement thereto, and, in the case of the Registration Statement required to be filed pursuant to Section 2(a), each letter written by or on behalf of the Company to the SEC or the staff of the SEC (including, without limitation, any request to accelerate the effectiveness of the Registration Statement or amendment thereto), and each item of correspondence from the SEC or the staff of the SEC, in each case relating to the Registration Statement (other than any portion thereof that contains information for which the Company has sought confidential treatment), (ii) on the date of effectiveness of the Registration Statement or any amendment thereto, a notice stating that the Registration Statement or amendment has been decla red effective, and (iii) such number of copies of a prospectus, including a preliminary prospectus, all amendments and supplements thereto and all such other documents as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor.

(d) The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by any Registration Statement under such other securities or “blue sky” laws of such jurisdictions in the United States as each Investor who holds Registrable Securities being offered reasonably requests, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other acti ons reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (B) subject itself to general taxation in any such jurisdiction, (C) file a general consent to service of process in any such jurisdiction, (D) provide any undertakings that cause the Company undue expense or burden, or (E) make any change in its Certificate of Incorporation or Bylaws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders.

(e) As promptly as practicable after becoming aware of such event, the Company shall (i) notify each Investor by telephone and facsimile of the happening of any event, as a result of which the prospectus included in any Registration Statement that includes Registrable Securities, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request.

(f) The Company shall use its best efforts (i) to prevent the issuance of any stop order or other suspension of effectiveness of any Registration Statement that includes Registrable Securities, and, if such an order is issued, to obtain the withdrawal of such order at the earliest practicable moment (including in each case by amending or supplementing such Registration Statement), and (ii) to notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and


	C-6

the resolution thereof (and if such Registration Statement is supplemented or amended, deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request).

(g) The Company shall permit a single firm of counsel designated by the Initial Investors to review any Registration Statement required to be filed hereunder and all amendments and supplements thereto a reasonable period of time prior to its filing with the SEC, and not file any document in a form to which such counsel reasonably objects.

(h) The Company shall make generally available to its security holders as soon as practicable, but in no event later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a twelve-month period beginning not later than the first day of the Company’s fiscal quarter next following the effective date of the Registration Statement. The Company will be deemed to have complied with its obligations under this Section 3(h) upon the Company’s filing, on an appropriate form, the appropriate report of the Company as required by the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, or any simila r successor statute (collectively, the “Exchange Act”).

(i) The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement that includes such Investor’s Registrable Securities, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement, or (v) such Investor consents to the form and content of any su ch disclosure. The Company shall, upon learning that disclosure of any information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Investor prior to making such disclosure, and cooperate with the Investor, at the Investor’s expense, in taking appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

(j) The Company shall use its best efforts to promptly cause all of the Registrable Securities covered by any Registration Statement to be listed or designated for quotation on the SmallCap Market, the National Market, the NYSE, the AMEX or any other national securities exchange or automated quotation system and on each additional national securities exchange or automated quotation system on which securities of the same class or series issued by the Company are then listed or quoted, if any, if the listing or quotation of such Registrable Securities is then permitted under the rules of such exchange or automated quotation system, and in any event, without limiting the generality of the foregoing, to arrange for or maintain at least two market makers to register wit h the National Association of Securities Dealers, Inc. (the “NASD”) as such with respect to the Registrable Securities.


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(k) The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement required to be filed pursuant to Section 2(a) hereof.

(l) The Company shall cooperate with any Investor who holds Registrable Securities being offered and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to any Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, and registered in such names, as such Investor or the managing underwriter or underwriters, if any, may reasonably request. Without limiting the generality of the foregoing, within three business days after any Registration Statement that includes Registrable Securities is declared effective by the SEC, the Company shall cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities (with copies to any Investor whose Registrable Securities are included in such Registration Statement), an opinion of such counsel in the form attached hereto as Exhibit A.

(m) At the request of any Investor, the Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to any Registration Statement required to be filed hereunder and the prospectus used in connection with such Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement.

(n) The Company shall comply with all applicable laws related to a Registration Statement and offering and sale of securities and all applicable rules and regulations of governmental authorities in connection therewith (including, without limitation, the Securities Act and the Exchange Act and the rules and regulations thereunder promulgated by the SEC.)

(o) From and after the date of this Agreement, the Company shall not, and shall not agree to, allow the holders of any securities of the Company to include any of their securities which are not Registrable Securities in the Registration Statement required to be filed pursuant to Section 2(a) or 3(b) hereof without the consent of the holders of a majority in interest of the Registrable Securities.

(p) The Company shall make available for inspection by (i) each Investor, (ii) any underwriter participating in any disposition pursuant to any Registration Statement, (iii) one firm of attorneys and one firm of accountants or other agents retained by the Investors, and (iv) one firm of attorneys retained by all such underwriters (collectively, the “Inspectors”) all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector to enable such Inspector to exercise its due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to an Investor) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (A) the disclosure of such Records is


	C-8

necessary to avoid or correct a misstatement or omission in any Registration Statement, (B) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (C) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. Nothing herein shall be deemed to limit any Investor’s ability to sell Registrable Securities in a manner that is otherwise consistent with applicable laws and regulations.

(q) In the case of an underwritten public offering, at the request of any Investor, the Company shall furnish, on the date of effectiveness of the Registration Statement (i) an opinion, dated as of such date, from counsel representing the Company addressed to any such Investor and in form, scope and substance as is customarily given in an underwritten public offering and (ii) a letter, dated such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and any such Investor.

4. OBLIGATIONS OF THE INVESTORS.

In connection with the registration of the Registrable Securities, each Investor shall have the following obligations:

(a) It shall be a condition precedent to the obligations of the Company to effect the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least five trading days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor of the information the Company requires f rom each such Investor.

(b) Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement required to be filed hereunder, unless such Investor has notified the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable Securities from such Registration Statement.

(c) Upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 3(e), 3(f) or 5(a) with respect to any Registration Statement including Registrable Securities, each Investor shall immediately discontinue disposition of Registrable Securities pursuant to such Registration Statement until such Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Sections 3(e), 3(f) and 5(a), as applicable, and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor’s possession of the prospectus covering such Registrable Securities current at t he time of receipt of such notice. Notwithstanding the foregoing or anything to the


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contrary in this Agreement, but subject to compliance with applicable laws, the Company shall cause the transfer agent for the Registrable Securities to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Preferred Stock and Warrants in connection with any sale of Registrable Securities with respect to which any such Investor has entered into a contract for sale prior to receipt of such notice and for which any such Investor has not yet settled.

(d) No Investor may participate in any underwritten distribution hereunder unless such Investor (i) agrees to sell such Investor’s Registrable Securities on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to Section 6 below, and (iv) complies with all applicable laws in connection therewith. Notwithstanding anything in this Section 4 (d) to the contrary, this Section 4(d) is not intended to limit any Investor’s rights under Sections 2(a) or 3(b) hereof.

5. DELAY PERIODS; SUSPENSION OF SALES.

(a) Delay Period. If, at any time prior to the expiration of the Registration Period, the Company’s Board of Directors determines, in its reasonable good faith judgment, that the disposition of Registrable Securities would require the premature disclosure of material non-public information which may reasonably be expected to have an adverse effect on the Company, then the Company shall not be required to maintain the effectiveness of or amend or supplement the Registration Statement for a period (a “Disclosure Delay Period”) expiring upon the earlier to occur of (i) the date on which such material information is disclosed to the public or ceases to be material or (ii) subject to Section 5(b) hereof, up to ten trading days after the date on which the Company provides a notice to the Investors under Section 3(e) hereof stating that the failure to disclose such non-public information causes the prospectus included in the Registration Statement, as then in effect, to include an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (each, a “Disclosure Delay Period Notice”). For the avoidance of doubt, in no event shall a Disclosure Delay Period exceed ten trading days.

(b) The Company shall give prompt written notice, in the manner prescribed by Section 12 hereof, to the Investors of each Disclosure Delay Period, which notice shall, if practicable, estimate the duration of such Disclosure Delay Period. Each Investor shall, upon receipt of a Disclosure Delay Period Notice prior to such Investor’s disposition of all of its Registrable Securities, forthwith discontinue the disposition of such Registrable Securities pursuant to the Registration Statement, and will not deliver any prospectus forming a part thereof in connection with any sale of such Registrable Securities until the expiration of such Disclosure Delay Period. In addition, the provisions of Section 2(b) hereof shall not apply to the Disclos ure Delay Periods. Notwithstanding anything in this Section 5 to the contrary, the Company shall


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not deliver more than two Disclosure Delay Period Notices in any one year period and there shall not be more than an aggregate of 15 calendar days in any 90 calendar day period during which the Company is in a Disclosure Delay Period.

6. EXPENSES OF REGISTRATION.

All expenses incurred by the Company or the Investors in connection with registrations, filings or qualifications pursuant to Sections 2 and 3 above (including, without limitation, all registration, listing and qualification fees, printers and accounting fees, the fees and disbursements of counsel for the Company and the fees and disbursements of one counsel selected by the Investors, and any underwriting discounts and commissions) shall be borne by the Company. In addition, the Company shall pay each Investor’s costs and expenses (including legal fees) incurred in connection with the enforcement of the rights of such Investor hereunder.

7. INDEMNIFICATION.

In the event any Registrable Securities are included in a Registration Statement under this Agreement:

(a) To the extent permitted by law, the Company shall indemnify, hold harmless and defend (i) each Investor who holds such Registrable Securities, and (ii) the directors, officers, partners, members, employees and agents of each such Investor and each person, if any, who controls each such Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, an “Investor Indemnified Person”), against any joint or several losses, claims, damages, liabilities or expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threat ened, in respect thereof, “Claims”) to which any of them may become subject insofar as such Claims arise out of or are based upon: (A) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or the omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, (B) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (C) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any other law (including, without limitation, any state securities law), rule or regulation relating to the offer or sale of the Registrable Securities (the matters in the foregoing clauses (A) through (C), collectively, “Violations”). Subject to the restrictions set forth in Section 7(c) with respect to the number of legal counsel, the Company shall reimburse each Investor and each other Investor Indemnified Person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 7(a): (x) shall not apply to a Claim arising out of or based upon a Violation which occurs in relianc e upon and in conformity with information furnished in writing to the Company by such Investor Indemnified Person expressly for use in the


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Registration Statement or any such amendment thereof or supplement thereto; (y) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (z) with respect to any preliminary prospectus, shall not inure to the benefit of any Investor Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented, if such corrected prospectus was timely made available by the Company pursuant to Section 3(c) hereof, and the Investor Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a Violation and such Investor Indemnified Person, notwithstanding such a dvice, used it. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Investor Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 10 hereof.

(b) In connection with any Registration Statement in which an Investor is participating, (i) each such Investor shall, severally and not jointly, indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 7(a), the Company, each of its directors, each of its officers who signs the Registration Statement, its employees and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder within the meaning of the Securities Act or the Exchange Act (each, a “Company Indemnified Person”), against any Claims to which any of them may become subject insofar as such Claims arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and (ii) subject to the restrictions set forth in Section 7(c), such Investor shall reimburse the Company Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnification oblig ations contained in this Section 7(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; and provided, further, that the Investor shall be liable under this Agreement (including this Section 7(b) and Section 8) for only that amount as does not exceed the net proceeds actually received by such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Company Indemnified Person and shall survive the transfer of the Registrable Securities by the Investor pursuant to Section 10 hereof. Notwithstanding anything to the contrary contained herein, the i ndemnification obligations contained in this Section 7(b) with respect to any preliminary prospectus shall not inure to the benefit of any Company Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented.

(c) Promptly after receipt by any party entitled to indemnification under this Section 7 of notice of the commencement of any action (including any governmental action), such indemnified


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party shall, if a Claim in respect thereof is to made against any indemnifying party under this Section 7, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the indemnified party; provided, however, that such indemnifying party shall not be entitled to assume such defense and an indemnified party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the indemnified party and the indemnifying party would be inappropriate due to actual or potential conflicts of interest between such indemnified party and any other party represented by such counsel in such proceeding or the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and any such indemnified party reasonably determines that there may be legal defenses available to such indemnified party that are in conflict with those available to such indemnifying party. The indemnifying party shall pay for only one separate legal counsel for the indemnified parties, and such legal counsel shall be selected by Investors holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates (if the parties entitled to indemnification hereunder ar e Investor Indemnified Persons) or by the Company (if the parties entitled to indemnification hereunder are Company Indemnified Persons). The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 7, except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action. The indemnification required by this Section 7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable.

8. CONTRIBUTION.

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party shall make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 7 to the fullest extent permitted by law as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other hand, with respect to the Violation giving rise to the applicable Claim; provided, however, that (a) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 7, (b) no person guilty of fr audulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (c) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.


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9. REPORTS UNDER THE EXCHANGE ACT.

With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

(a) file with the SEC in a timely manner and make and keep available all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements and the filing and availability of such reports and other documents is required for the applicable provisions of Rule 144; and

(b) furnish to each Investor so long as such Investor holds Preferred Stock, Warrants or Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit such Investor to sell such securities under Rule 144 without registration.

10. ASSIGNMENT OF REGISTRATION RIGHTS.

The rights of the Investors hereunder, including the right to have the Company register Registrable Securities pursuant to this Agreement, shall be automatically assignable by each Investor to any transferee of all or any portion of the Preferred Stock, the Warrants or the Registrable Securities if: (a) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company after such assignment, (b) the Company is furnished with written notice of (i) the name and address of such transferee or assignee, and (ii) the securities with respect to which such registration rights are being transferred or assigned, (c) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities la ws, (d) the transferee or assignee agrees in writing for the benefit of the Company to be bound by all of the provisions contained herein, and (e) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement, the Certificate of Designation and the Warrants, as applicable. In addition, and notwithstanding anything to the contrary contained in this Agreement, the Securities Purchase Agreement, the Certificate of Designation or the Warrants, the Securities (as defined in the Securities Purchase Agreement) may be pledged, and all rights of the Investor under this Agreement or any other agreement or document related to the transactions contemplated hereby may be assigned, without further consent of the Company, to a bona fide pledgee in connection with an Investor’s margin or brokerage account.

11. AMENDMENT OF REGISTRATION RIGHTS.

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only


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with written consent of the Company, each of the Initial Investors (to the extent such Initial Investor or its affiliates still owns Preferred Stock, Warrants or Registrable Securities) and the Investor(s) who hold a majority in interest of the Registrable Securities or, in the case of a waiver, with the written consent of the party charged with the enforcement of any such provision; provided, however, that (a) no amendment hereto which restricts the ability of an Investor to elect not to participate in an underwritten offering shall be effective against any Investor which does not consent in writing to such amendment; (b) no consideration shall be paid to an Investor by the Company in connection with an amendment hereto unless each Investor similarly affected by such amendment receives a pro rata amount of consideration from the Company; and (c) unless an Investor otherwise agrees, each amendment hereto must similarly affect each Investor. Any amendment or waiver effected in accordance with this Section 11 shall be binding upon each Investor and the Company.

12. MISCELLANEOUS.

(a) A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

(b) Any notices required or permitted to be given under the terms of this Agreement shall be in writing and sent by certified or registered mail (return receipt requested) or delivered personally, by nationally recognized overnight carrier or by confirmed facsimile transmission, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by nationally recognized overnight carrier or confirmed facsimile transmission, in each case addressed to a party as provided herein. The initial addresses for such communications shall be as follows, and each party shall provide notice to the other parties of any change in such party’s address:

(i) If to the Company:

Heartland Oil and Gas Corp.

1360 – 885 West Georgia Street

Vancouver, British Columbia

Canada V6C 3E8

Telephone: 604-693-0177

Facsimile: 604-638-3525

Attention: Richard Coglon

with a copy simultaneously transmitted by like means (which transmittal shall not constitute notice hereunder) to:


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Clark, Wilson, Barristers and Solicitors

800 – 885 West Georgia Street

Vancouver, British Columbia

Canada V6C 3H1

Telephone: 604-687-5700

Facsimile: 604-687-6314

Attention: William Macdonald

(ii) If to any Investor, to such address as such Investor shall have provided in writing to the Company.

(c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

(d) This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada applicable to contracts made and to be performed in the State of Nevada. The Company irrevocably consents to the jurisdiction of the United States federal courts and the state courts located in the State of Nevada in any suit or proceeding based on or arising under this Agreement and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company, mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding in such forum. Nothing herein shall affect any Investor’s right to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

(e) This Agreement and the other Transaction Documents (including any schedules and exhibits hereto and thereto) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the other Transaction Documents supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

(f) Subject to the requirements of Section 10 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

(g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(h) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile


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transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

(i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

(j) Unless other expressly provided herein, all consents, approvals and other determinations to be made by the Investors pursuant to this Agreement shall be made by the Investors holding a majority in interest of the Registrable Securities (determined as if all Preferred Stock and Warrants then outstanding had been converted into or exercised for Registrable Securities) held by all Investors.

(k) The initial number of Registrable Securities included on any Registration Statement filed pursuant to Section 2(a), and each increase to the number of Registrable Securities included thereon, shall be allocated pro rata among the Investors based on the number of Registrable Securities held by each Investor at the time of such establishment or increase, as the case may be. In the event an Investor shall sell or otherwise transfer any of such holder’s Registrable Securities, each transferee shall be allocated a pro rata portion of the number of Registrable Securities included on a Registration Statement for such transferor. Any shares of Common Stock included on a Registration Statement and which remain allocated to any person or entity which does not hold a ny Registrable Securities shall be allocated to the remaining Investors, pro rata based on the number of shares of Registrable Securities then held by such Investors. For the avoidance of doubt, the number of Registrable Securities held by any Investor shall be determined as if all Preferred Stock and Warrants then outstanding were converted into or exercised for Registrable Securities.

(l) Each party to this Agreement has participated in the negotiation and drafting of this Agreement. As such, the language used herein shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement.

(m) For purposes of this Agreement, the term “business day” means any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law, regulation or executive order to close, and the term “trading day” means any day on which the SmallCap or National Market or, if the Common Stock is not then traded on the SmallCap or National Market, the principal national securities exchange, automated quotation system or other trading market where the Common Stock is then listed, quoted or traded, is open for trading.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]


	C-17

IN WITNESS WHEREOF, the undersigned Initial Investor and the Company have caused this Agreement to be duly executed as of the date first above written.

HEARTLAND OIL AND GAS CORP.

By:

Name:

Title:

INITIAL INVESTOR:

(Print or Type Name of Purchaser)

By:

Name:

Title:

(SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT)
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EXHIBIT A

[Date]

[Transfer Agent]

RE: HEARTLAND OIL AND GAS CORP.

Ladies and Gentlemen:

We are counsel to Heartland Oil and Gas Corp., a corporation organized under the laws of the State of Nevada (the “Company”), and we understand that [Name of Investor] (the “Holder”) has purchased from the Company (i) shares of Series A Convertible Preferred Stock that are convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and (ii) warrants to acquire shares of Common Stock. Pursuant to a Registration Rights Agreement, dated as of [_____________ ___, ____], by and among the Company and the signatories thereto (the “ Registration Rights Agreement”), the Company agreed with the Holder, among other things, to register the Registrable Securities (as that term is defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the “Securities Act”), upon the terms provided in the Registration Rights Agreement. In connection with the Company’s obligations under the Registration Rights Agreement, on [_____________ ___, ____], the Company filed a Registration Statement on Form S-___ (File No. 333- _____________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities , which names the Holder as a selling stockholder thereunder. The Registration Statement was declared effective by the SEC on _____________, ____.

In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered into an order declaring the Registration Statement effective under the Securities Act at [time of effectiveness] on [date of effectiveness], and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC.

Based on the foregoing, we are of the opinion that the Registrable Securities are available for resale under the Securities Act pursuant to the Registration Statement.

Very truly yours,

[NAME OF COUNSEL]

cc: [Name of Investor]


	C-19

EXHIBIT D

U.S. SECURITIES LAW QUESTIONNAIRE

All capitalized terms herein, unless otherwise defined, have the meanings ascribed thereto in the Subscription Agreement.

1. The Purchaser covenants, represents and warrants to the Company that:

(a) the Purchaser is a U.S. Person;

(b) the Purchaser has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the transactions detailed in the Subscription Agreement and it is able to bear the economic risk of loss arising from such transactions;

(c) the Purchaser is acquiring the Securities for investment only and not with a view to resale or distribution and, in particular, it has no intention to distribute either directly or indirectly any of the Securities in the United States or to U.S. Persons; provided, however, that the Purchaser may sell or otherwise dispose of any of the Securities pursuant to registration thereof pursuant to the Securities Act of 1933 (the "1933 Act") and any applicable State securities laws unless an exemption from such registration requirements is available or registration is not required pursuant to Regulation S under the 1933 Act or registration is otherwise not required under the 1933 Act;

(d) the Purchaser satisfies one or more of the categories indicated below (please check the appropriate box):

Category 1 An organization described in Section 501(c)(3) of the United States Internal Revenue Code, a corporation, a Massachusetts or similar business trust or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of US $5,000,000;

Category 2 A natural person whose individual net worth, or joint net worth with that person’s spouse, on the date of purchase exceeds US $1,000,000;

Category 3 A natural person who had an individual income in excess of US $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of US $300,000 in each of


	D-1

those years and has a reasonable expectation of reaching the same income level in the current year;

Category 4 A "bank" as defined under Section (3)(a)(2) of the 1933 Act or savings and loan association or other institution as defined in Section 3(a)(5)(A) of the 1933 Act acting in its individual or fiduciary capacity; a broker dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934 (United States); an insurance company as defined in Section 2(13) of the 1933 Act; an investment company registered under the Investment Company Act of 1940 (United States) or a business development company as defined in Section 2(a)(48) of such Act; a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958 (United States); a plan with total assets in excess of $5,000,000 established and maintained by a state, a political subdivision thereof, or an agency or instrumentality of a state or a political subdivision thereof, for the benefit of its employees; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 (United States) whose investment decisions are made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000, or, if a self-directed plan, whose investment decisions are made solely by persons that are accredited investors;

Category 5 A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940 (United States);

Category 6 A director or executive officer of the Company;

Category 7 A trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the 1933 Act; or


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Category 8 An entity in which all of the equity owners satisfy the requirements of one or more of the foregoing categories; and

(e) the Purchaser is not acquiring the Securities as a result of any form of general solicitation or general advertising including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio, or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising.

2. The Purchaser acknowledges and agrees that:

(a) if the Purchaser decides to offer, sell or otherwise transfer any of the Securities, it will not offer, sell or otherwise transfer any of such securities directly or indirectly, unless:

(i) the Securities have been registered,

(ii) the sale is to the Company;

(iii) the sale is made outside the United States in a transaction meeting the requirements of Rule 904 of Regulation S under the 1933 Act and in compliance with applicable local laws and regulations;

(iv) the sale is made pursuant to the exemption from the registration requirements under the 1933 Act provided by Rule 144 thereunder if available and in accordance with any applicable state securities or "Blue Sky" laws; or

(v) the Securities are sold in a transaction that does not require registration under the 1933 Act or any applicable U.S. state laws and regulations governing the offer and sale of securities, and it has prior to such sale furnished to the Company an opinion of counsel reasonably satisfactory to the Company;

(b) any of the Warrants may not be exercised in the United States or by or on behalf of a U.S. Person unless registered under the 1933 Act and any applicable state securities laws unless an exemption from such registration requirements is available;

(c) the Purchaser has not acquired the Securities as a result of, and will not itself engage in, any "directed selling efforts" (as defined in Regulation S under the 1933 Act) in the United States in respect of the Securities which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of any of the Securities; provided, however, that the Purchaser may sell or otherwise dispose of any of the Securities pursuant to registration of any of the Securities pursuant to the 1933 Act and any applicable state securities laws or under an exemption from such registration requirements and as otherwise provided herein; ‘


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(d) upon the issuance thereof, and until such time as the same is no longer required under the applicable requirements of the 1933 Act or applicable U.S. State laws and regulations, the certificates representing any of the Securities will bear a legend in substantially the following form:

"THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS."

(e) the Company may make a notation on its records or instruct the registrar and transfer agent of the Company in order to implement the restrictions on transfer set forth and described herein; and

(f) the Purchaser, if an individual, is a resident of the state or other jurisdiction in its address on the Purchaser’s execution page of the Subscription Agreement, or if the Purchaser is not an individual, the office of the Purchaser at which the Purchaser received and accepted the offer to acquire the Securities is the address listed on the Purchaser’s execution page of the Subscription Agreement.

IN WITNESS WHEREOF, the undersigned has executed this Questionnaire as of the ________ day of __________________, 2003.

If a Corporation, Partnership or Other Entity: If an Individual:


Signature	Print or Type Name of Entity

Print or Type Name	Signature of Authorized Signatory

Type of Entity	Social Security/Tax I.D. No.


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EXHIBIT E

MULTILATERAL INSTRUMENT 45-103

ACCREDITED INVESTOR QUESTIONNAIRE

The purpose of this Questionnaire is to assure Heartland Oil and Gas Corp. (the "Company") that the undersigned (the "Subscriber") will meet certain requirements for the registration and prospectus exemptions provided for under Multilateral Instrument 45-103 ("MI 45-103"), as adopted by the British Columbia Securities Commission and the Alberta Securities Commission, in respect of a proposed private placement of securities by the Company (the "Transaction"). The Company will rely on the information contained in this Questionnaire for the purposes of such determination.

The undersigned Subscriber covenants, represents and warrants to the Company that:

1. the Subscriber has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the Transaction and the Subscriber is able to bear the economic risk of loss arising from such Transaction;

2. the Subscriber satisfies one or more of the categories of "accredited investor" (as that term is defined in MI 45-103) indicated below (please check the appropriate box):

an individual who beneficially owns, or who together with a spouse beneficially own, financial assets (as defined in MI 45-103) having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds CDN.$1,000,000;

an individual whose net income before taxes exceeded CDN.$200,000 in each of the two more recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of those years and who, in either case, has a reasonable expectation of exceeding the same net income level in the current year;

an individual registered or formerly registered under the Securities Act (British Columbia), or under securities legislation in another jurisdiction of Canada, as a representative of a person or company registered under the Securities Act (British Columbia), or under securities legislation in another jurisdiction of Canada, as an adviser or dealer, other than a limited market dealer registered under the Securities Act (Ontario);


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a Canadian financial institution as defined in National Instrument 14-101, or an authorized foreign bank listed in Schedule III of the Bank Act (Canada);
the Business Development Bank of Canada incorporated under the Business Development Bank Act (Canada);
an association under the Cooperative Credit Associations Act (Canada) located in Canada;
a subsidiary of any company referred to in any of the foregoing categories, where the company owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary;
a person or company registered under the Securities Act (British Columbia), or under securities legislation of another jurisdiction of Canada, as an adviser or dealer, other than a limited market dealer registered under the Securities Act (Ontario);
a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission or similar regulatory authority;
an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in any of the foregoing categories in form and function;

the government of Canada or a province, or any crown corporation or agency of the government of Canada or a province;

a municipality, public board or commission in Canada;

a national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency thereof;

a registered charity under the Income Tax Act (Canada);

a corporation, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least CDN.$5,000,000 as reflected on its most recently prepared financial statements;

a mutual fund or non-redeemable investment fund that, in British Columbia, distributes it securities only to persons or companies that are accredited investors;


	E-2

a mutual fund or non-redeemable investment fund that, in British Columbia, distributes its securities under a prospectus for which a receipt has been issued by the executive director of the British Columbia Securities Commission; or

a person or company in respect of which all of the owners of interests, direct or indirect, legal or beneficial, are persons or companies that are accredited investors.

The Subscriber acknowledges and agrees that the Subscriber may be required by the Company to provide such additional documentation as may be reasonably required by the Company and its legal counsel in determining the Subscriber’s eligibility to acquire the Shares under relevant Legislation.

IN WITNESS WHEREOF, the undersigned has executed this Questionnaire as of the _____ day of _______________ 2003.


Signature	Print or Type Name of Entity

Print or Type Name	Signature of Authorized Signatory

Type of Entity	Social Security/Tax I.D. No.


	E-3

EXHIBIT F

RISK FACTORS

As used in this Exhibit, the terms "we", "us", "our" and "Heartland" mean Heartland Oil and Gas Corp., unless otherwise indicated. All dollar amounts refer to US dollars unless otherwise indicated. The following discussion should be read in conjunction with our financial statements and the related notes.

Much of the information included in our Public Record includes or is based upon estimates, projections or other "forward looking statements". Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Those forward-looking statements also involve certain risks and uncertainties. Factors, risks and uncertainties that could cause or contribute to such differences include those specific risks and uncertainties discussed below and those discussed in our Form 10-KSB Annual Report for the year ended December 31, 2002. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in our Public Record.

Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out below.

We have a limited operating history which raises substantial doubt about our ability to continue as a going concern.

Our company has a limited operating history and must be considered in the development stage. The success of the company is significantly dependent on a successful drilling, completion and production program. Our company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. No assurance can be given that we may be able to operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. There can be no assurance that our business plan will prove successful, and no assurance that we may be able to operate profitably, if at all.

Because of the early stage of development and the nature of our business, our securities are considered highly speculative.

Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of its development. We are engaged in the business of exploring and, if warranted, developing commercial reserves of oil and gas. Our properties are in the


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exploration stage only and are without known reserves of oil and gas. Accordingly, we have not generated any revenues nor have we realized a profit from our operations to date and there is little likelihood that we will generate any revenues or realize any profits in the short term. Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any revenues, we will have to raise additional monies through the sale of our equity securities or debt in order to continue our business operations.

A portion of our interest in our properties may be lost if we are unable to obtain significant additional financing.

Our ability to continue exploration and, if warranted, development of our properties will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, a portion of our interest in our properties may be lost to exploration partners or our properties may be lost entirely. We have limited financial resources and limited cash flow from operations and we are dependent for funds on our ability to sell our common shares, primarily on a private placement basis. There can be no assurance that we will be able to obtain financing on that basis in light of factors such as the market demand for our securities, the state of financial markets generally and other relevant factors. The method of financing employed by us to date results in increased dilution to the existing shareholders each time a private placement is conducte d.

We anticipate that we may need to obtain additional bank financing or sell additional debt or equity securities in future public or private offerings. There can be no assurance that additional funding will be available to us for exploration and development of our projects or to fulfill our obligations under any applicable agreements. Although historically we have announced additional financings to proceed with the development of some of our previous properties, there can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of our projects with the possible loss of such properties.

Due to the losses incurred since inception, our stockholders’ deficiencies and lack of revenues, there is substantial doubt about our ability to continue as a going concern.

There is substantial doubt about our ability to continue as a going concern due to the losses incurred since inception, our stockholders’ deficiency, and lack of revenues.

There can be no assurance that, if required, any such financing will be available upon terms and conditions acceptable to us, if at all. Our inability to obtain additional financing in a sufficient amount when


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needed and upon terms and conditions acceptable to us could have a materially adverse effect upon our company. Although we believe that we have funds sufficient to meet our immediate needs, we require further funds to finance the development of our company. There can be no assurance that such funds will be available or available on terms satisfactory to us. If additional funds are raised by issuing equity securities, further dilution to existing or future shareholders is likely to result. If adequate funds are not available on acceptable terms when needed, we may be required to delay, scale back or eliminate the development of our company. Inadequate funding could also impair our ability to compete in the marketplace, which may result in the dissolution of our company.

We will require substantial funds to enable us to decide whether our properties contain commercial oil and gas deposits and whether they should be brought into production, and if we cannot raise the necessary funds we may never be able to realize the potential of our properties.

Our decision as to whether our properties contain commercial oil and gas deposits and should be brought into production will require substantial funds and depend upon the results of exploration programs and feasibility studies and the recommendations of duly qualified engineers, geologists, or both. This decision will involve consideration and evaluation of several significant factors including but not limited to: (1) costs of bringing a property into production, including exploration and development work, preparation of production feasibility studies, and construction of production facilities; (2) availability and costs of financing; (3) ongoing costs of production; (4) market prices for the oil and gas to be produced; (5) environmental compliance regulations and restraints; and (6) political climate, governmental regulation and control. If we are unable to raise the funds necessary to properly evaluate our properties, then we may not be able to realize any potential of our properties.

We have obtained title reports, but our properties may be subject to prior unregistered agreements, native land claims or transfers which have not been recorded or detected through title searches, resulting in a possible claim against any future revenues generated by such properties.

We have obtained title reports with respect to our oil and gas properties and believe our interests are valid and enforceable; however, these reports do not guarantee title against all possible claims. The properties may be subject to prior unregistered agreements, native land claims or transfers which have not been recorded or detected through title research. Additionally, the land upon which we hold oil and gas leases may not have been surveyed; therefore, the precise area and location of such interests may be subject to challenge. If the interests in our properties is challenged, we may have to expend funds defending any such claims and may ultimately lose some or all of any revenues generated from the properties if we lose our interest in such properties.

Our accounts are subject to currency fluctuations which may materially affect our financial position and results.

We maintain our accounts in US and Canadian currencies and are therefore subject to currency fluctuations and such fluctuations may materially affect our financial position and results. We do not engage in currency hedging activities.

We may not be able to manage the significant strains that future growth may place on our administration infrastructure, systems and controls.

In the event our properties commence production, we could experience rapid growth in revenues, personnel, complexity of administration and in other areas. There can be no assurance that we


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will be able to manage the significant strains that future growth may place on our administrative infrastructure, systems, and controls. If we are unable to manage future growth effectively, our business, operating results and financial condition may be materially adversely affected.

The loss of Richard Coglon and Donald Sharpe would have an adverse impact on future development and could impair our ability to succeed.

We are dependent on our ability to hire and retain highly skilled and qualified personnel, including our President, Mr. Coglon, and Mr. Donald Sharpe, one of our directors. We face competition for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to attract and retain qualified personnel on acceptable terms. We do not have key man insurance on any of our employees. The loss of service of any of our key personnel could have a material adverse effect on our operations or financial condition.

Our management currently engages in other oil and gas businesses and, as a result, conflicts could arise.

In addition to their interest in our company, our management currently engages, and intends to engage in the future, in the oil and gas business independently of our company. As a result, conflicts of interest between us and management of our company might arise.

Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.

Our shares of common stock are subject to rules promulgated by the Securities and Exchange Commission relating to "penny stocks," which apply to companies whose shares are not traded on a national stock exchange or on the NASDAQ system, trade at less than $5.00 per share, or who do not meet certain other financial requirements specified by the Securities and Exchange Commission. These rules require brokers who sell "penny stocks" to persons other than established customers and "accredited investors" to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the risks of trading in the such penny stocks. These rules may discourage or restrict the ability of brokers to sell our shares of common stock and may affect the secondary market for our shares of common stock. These rules could also ha mper our ability to raise funds in the primary market for our shares of common stock.

Since our shares are thinly traded, and trading on the OTC Bulletin Board may be sporadic because it is not an exchange, stockholders may have difficulty reselling their shares.

Our shares of common stock are currently publicly traded on the OTC Bulletin Board service of the National Association of Securities Dealers, Inc. The trading price of our shares of common stock has been subject to wide fluctuations. Trading prices of our shares of common stock may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our shares of common stock will be matched or maintained. These


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broad market and industry factors may adversely affect the market price of our shares of common stock, regardless of our operating performance.

In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management’s attention and resources.

Investors’ interests in our company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.

Our constating documents authorize the issuance of 100,000,000 shares of common stock, each with a par value of $0.001. In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors’ interests in our company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we issue any such additional shares, such issuances also will cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change in our control.

Risks Relating to the Industry

As our properties are in the exploration and development stage there can be no assurance that we will establish commercial discoveries on our properties.

Exploration for economic reserves of oil and gas is subject to a number of risk factors. While the rewards to an investor can be substantial if an economically viable discovery is made, few of the properties that are explored are ultimately developed into producing oil and/or gas wells. Our properties are in the exploration and development stage only and are without proven reserves of oil and gas. There can be no assurance that we will establish commercial discoveries on any of our properties.

The potential profitability of oil and gas ventures depends upon factors beyond the control of our company

The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to world-wide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.


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marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. The extent of these factors cannot be accurately predicted but the combination of these factors may result in our company not receiving an adequate return on invested capital.

Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring the leases.

The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. There can be no assurance that the necessary funds can be raised or that any projected work will be completed. Our budget anticipates our acquisition of additional acreage in the Forest City basin. There is no assurance that this acreage will become available or if it is available for leasing, that we will be successful in acquiring the leases. There are other competitors that have operations in the Forest City basin and the presence of t hese competitors could adversely affect our ability to acquire additional leases.

The marketability of nature resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.

Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.


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would not have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which it may elect not to insure against due to prohibitive premium costs and other reasons.

Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations.

We believe that our operations comply, in all material respects, with all applicable environmental regulations.

Our operating partners maintain insurance coverage customary to the industry; however, it is not fully insured against all environmental risks.

Risks Associated with Drilling

Exploratory drilling involves many risks and we may become liable for pollution or other liabilities which may have an adverse effect on our financial position.

Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.

There is no assurance that the laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, will not be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business.


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EXHIBIT G

DISCLOSURE SCHEDULE

The following is Exhibit G to the Securities Purchase Agreement (the “Agreement”) dated as of _________, 2003 between Heartland Oil and Gas Corp. (“Heartland”) and certain Purchasers. The disclosures set out in this Schedule shall qualify sections of the Agreement where it is reasonably apparent that such information qualifies the representations and warranties of Heartland under the Agreement

1. Convertible Securities and Shares Reserved for Issuance

(a) Stock Options

The following shares of common stock of Heartland are reserved for issuance pursuant to Heartland’s stock option plans:

– 500,000 shares of common stock pursuant to the 2001 Stock Option Plan;

– 600,000 shares of common stock pursuant to the 2002 Stock Option Plan; and

– 500,000 shares of common stock pursuant to the 2002 Additional Stock Option Plan.

The following shares of common stock of Heartland are issuable upon the exercise of outstanding stock options:

- 185,000 shares of common stock which may be issued upon the exercise of stock options pursuant to the 2001 Stock Option Plan;

- 564,000 shares of common stock which may be issued upon the exercise of stock options pursuant to the 2002 Stock Option Plan; and

- 500,000 shares of common stock which may be issued upon the exercise of stock options pursuant to the 2002 Additional Stock Option Plan.

(b) Share Purchase Warrants

The following shares of common stock of Heartland are reserved for issuance and issuable upon the exercise of outstanding share purchase warrants:

- 1,678,766 shares of common stock which may be issued upon the exercise of certain share purchase warrants issued in connection with private placements in June and August of 2003;


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- 162,958 shares of common stock which may be issued upon the exercise of certain share purchase warrants issued in partial payment of placement fees;

- 1,000,000 shares of common stock which may be issued upon the exercise of certain share purchase warrants issued in connection with a private placement that closed on April 16, 2003; and

- 571,361 shares of common stock which may be issued upon the exercise of certain share purchase warrants, which were issued upon conversion of outstanding convertible debentures.

2. Outstanding Preemptive Rights

The following shares of common stock of Heartland have pre-emptive rights attached, which right expires on December 31, 2003, and which rights have been exercised or waived by such shareholders in regards to the offering set forth in the Agreement:

- 602,836 shares of common stock which were issued on June 24 and June 30, 2003 in a private placement.

3. Outstanding Registration Rights

Heartland is obligated to register 5,199,255 shares of its common stock, which are the subject of a registration statement on Form SB-2 to be filed on or before August 29, 2003, in connection with the resale of:

- 602,836 shares of common stock which were issued on June 24 and June 30, 2003 in a private placement;

- 2,754,695 shares of common stock which were issued on August 19, 2003 in a private placement;

- 1,678,766 shares of common stock which may be issued upon the exercise of certain share purchase warrants issued in connection with the foregoing private placements; and

- 162,958 shares of common stock which may be issued upon the exercise of certain share purchase warrants issued in partial payment of placement fees.


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EXHIBIT H

, 2003

BY COURIER

C. K. Cooper & Company, Inc.
18300 Von Karman Avenue, Suite 440
Irvine, California 92612

and

To Those Investors Listed On Schedule "A"

Dear /Mesdames:

Re: Private Placement of Securities of Heartland Oil and Gas Corp.

This opinion is furnished to those purchasers listed on Schedule "A" (the "Investors") and C. K. Cooper & Company, Inc. as managing dealer to Heartland Oil and Gas Corp., a Nevada corporation (the "Company"), pursuant to Section 6(a) of that certain Managing Dealer Agreement dated July 29, 2003 (the "Agency Agreement"), by and between the Company and C. K. Cooper & Company, Inc.

We have acted as counsel to the Company in connection with the proposed issuance and sale of up to $3,000,000 of its Series A Convertible Preferred Stock (the "Preferred Stock") and stock purchase warrants (the "Warrants") (the Preferred Stock and the Warrants are collectively referred to as the "Securities") to be offered and sold to the Investors. Capitalized terms used in this opinion, unless specifically defined in this opinion, have the meanings given them in the Agency Agreement.

Documents Reviewed

In connection with rendering the opinions set forth herein, we examined the Company’s Articles of Incorporation and its By-Laws, each as amended to date, and the proceedings of the Company’s Board of Directors and shareholders taken in connection with issuing the Securities, and the following additional documents:

The Agency Agreement;
The form of Subscription Agreement (the "Subscription Agreement") by and among the Company and each of the Investors who purchased the Securities; and
Good Standing Certificate, dated June 17, 2003 (the "Good Standing Certificate"), issued by the Nevada Secretary of State.


	H-1

In expressing the opinions set forth in paragraph 1 below, we have relied exclusively upon the Certificate of Good Standing issued in respect of the Company (a copy of such certificate having been delivered to you).

In expressing the opinion set forth in paragraph 4 below with respect to the number of issued and outstanding shares of common stock in the capital of the Company, we have relied entirely on the advice of Registrar and Transfer Company in its capacity as the Company’s registrar and transfer agent.

Assumptions

In conducting our examination, we have assumed the following: (i) that any agreement relating to the issuance of the Securities, including, without limitation, the Agency Agreement and the Subscription Agreement, has been executed by each of the parties thereto, other than the Company, in the same form as the forms which we have examined, (ii) the genuineness of all signatures, other than the Company’s, the legal capacity of natural persons, the authenticity and accuracy of all documents submitted to us as originals, and the conformity to originals of all documents submitted to us as copies, and (iii) that each of the Agreements has been duly and validly authorized, executed, and delivered by the party or parties thereto other than the Company.

Opinions

Based upon and subject to the assumptions, qualifications and limitations set forth in this letter, we are of the opinion that:

1. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Nevada. To our knowledge, the Company does not, directly or indirectly, own or control or have any interest in, any corporation, partnership, limited liability company, association or other entity other than its wholly-owned subsidiary Heartland Oil and Gas Inc. To our knowledge, neither the Certificate of Incorporation nor the By-Laws of the Company are in violation of Nevada law.

2. The Company has the corporate power and authority to own, lease and operate its properties and to conduct its business.

3. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification except to the extent that failure to so qualify would not have a material adverse effect on the Company.

4. The authorized capital of the Company consists of 100,000,000 shares of common stock with a par value of $0.001 per share, of which 24,268,320 shares of common stock are issued and outstanding as at September 1, 2003. To our knowledge: (i) there are no outstanding securities or instruments of the Company which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company, and (ii) the Company


	H-2

does not have any shareholder rights plans, "poison pills", or any other anti-takeover plans or similar arrangements.

5. When delivered to the Investors against payment of the agreed consideration therefor in accordance with the provisions of the Subscription Agreement, the Securities, as described in the Agreements, will be duly authorized and validly issued, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issue thereof and will not have been issued in violation of or subject to any pre-emptive right, co-sale right, registration right, right of first refusal or other similar right, except as described in the Disclosure Schedule attached hereto as Schedule "B". A number of shares of common stock sufficient to meet the Company’s obligations to issue common stock upon full conversion of the preferred shares and full exercise of the warr ants has been duly reserved.

6. The Company has the requisite corporate power and authority to execute, deliver and perform the Agreements and to issue, sell and deliver to the Investors the Securities and the Stock to be issued upon the conversion or exercise of the Securities.

7. The Subscription Agreement, the Agency Agreement and the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company, and have been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by the other parties thereto, each is a valid and binding agreement of the Company, enforceable in accordance with its respective terms, except as rights to indemnification thereunder may be limited by applicable law and except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally or by equitable principles. No further consent or authorization of the Company, its board of di rectors or directors or its shareholders is required.

8. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body or any governmental agency or self-regulatory organization pending or, to our knowledge, threatened against or affecting the Company or any of its subsidiaries, or any of their respective directors or officers in their capacities as such wherein an unfavorable decision, ruling or finding would have a material adverse effect.

9. The performance of the Agreements and the consummation of the transactions, therein contemplated, including, without limitation, the issuance of the Securities and the Common Stock to be issued upon conversion of the Preferred Stock or upon exercise of the Warrants do not (a) violate any provision of the Company’s Articles of Incorporation or By-Laws or (b) result in a breach or violation of any of the terms and provisions of, or constitute a default under, any bond, debenture, note or other evidence of indebtedness, or any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument known to us to which the Company is a party or by which its properties are bound the effect of which would have a material ad verse effect on the business of the Company or the consummation of the transaction contemplated by the Subscription Agreement or the Agency Agreement, or any applicable statute, rule or regulation known to us, or, to our knowledge, any order, writ or decree of any court, government or governmental agency or body having jurisdiction over the Company or over any of their properties or operations, or (c) result in the creation of any lien, security


	H-3

interest or encumbrance on the assets or properties of the Company pursuant to any contract, agreement, instrument, judgment or decree binding upon the Company of which we are aware which, individually or in the aggregate, would have a material adverse effect.

10. No consent, approval, authorization or order of or qualification with any court, government or governmental agency or body, regulatory agency, self-regulatory organization or stock exchange or market, having jurisdiction over the Company, or over any of their properties or operations, or the shareholders of the Company, or, to our knowledge, any third party, is necessary in connection with the consummation by the Company of the transactions contemplated in the Subscription Agreement or the Agency Agreement, including, without limitation, the issuance of the Securities and the Common Stock to be issued upon conversion of the Preferred Stock or upon exercise of the Warrants, except such as may be required under state or other securities or Blue Sky laws in connection with the purchase and the distribution of the Securities by the Company.

11. Assuming the representations and warranties of the Investors in the Subscription Agreement are true, the offer and sale of the Securities by the Company in accordance with the terms of the Subscription Agreement and the Agency Agreement is exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "Securities Act").

12. To our knowledge, there are no legal or governmental proceedings pending or threatened against the Company.

13. To our knowledge, the Company is not presently (a) in violation of its Articles of Incorporation or By-Laws, or (b) in breach of any applicable statute, rule or regulation known to such counsel or, to our knowledge, any order, writ or decree of any court or governmental agency or body having jurisdiction over the Company, or over any of its properties or operations.

In connection with our review of the Subscription Agreement and the Agency Agreement, we participated in conferences with the President and Chief Executive Officer of the Company, at which we made inquiries of such officer and discussed the contents of the Subscription Agreement and related matters, and performed such other examinations as we deemed necessary; without taking further action to verify independently the statements made in the Subscription Agreement, nothing has come to our attention that would lead us to believe that the Subscription Agreement or any amendment or supplement thereto made by the Company prior to the date hereof, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that in connection with the opinion s et forth in this sentence, we express no opinion as to financial statements and related schedules and other financial or statistical data therein.

Whenever a statement herein is qualified by "known to us," "to our knowledge," or similar phrase, it is intended to indicate that, during the course of our representation of the Company, no information that would give us current actual knowledge of the inaccuracy of such statement has come to the attention of the attorneys in this firm who have rendered legal services


	H-4

in connection with the transaction described in the first two paragraphs of this letter. However, we have not undertaken any independent inquiry to determine the accuracy of such statement, and any limited inquiry undertaken by us should not be regarded as such an investigation. No inference as to our knowledge of any matters bearing on the accuracy of such statement should be drawn from the fact of our representation of the Company.

Limitations

We have attorneys admitted to practice in California, Florida, New York, Washington, Virginia and the District of Columbia, but not admitted to practice in the State of Nevada. However, we are generally familiar with the General Corporation Law of the State of Nevada (the "NGCL") as presently in effect and we have made such inquiries with respect thereto as we consider necessary to render this opinion with respect to a Nevada corporation. This opinion letter is limited to the current federal laws of the United States and, to the limited extent set forth above, the NGCL, as such laws presently exist and to the facts as they presently exist. We express no opinion with respect to the effect or applicability of the laws of any other jurisdiction.

This opinion is rendered as of the date set forth above solely for your benefit and the benefit of your counsel and may not be reviewed, relied upon, used, circulated, referred to or quoted to any party without our prior written consent.

We make no undertaking to supplement this opinion if, after the date hereof, facts or circumstances come to our attention or changes in the law occur which could affect such opinion.

Yours truly,

Attachment


	H-5

SCHEDULE "A"

List of Investors

Name and Address	Number of Shares

EX-14.1 3 heartland10ksbaexhibit141.htm HEARTLAND10KSBAEXHIBIT14.1 heartland10ksbaexhibit14.1

Return to Heartland Form 10KSB/A

HEARTLAND OIL & GAS CORP.

CODE OF BUSINESS CONDUCT AND ETHICS AND COMPLIANCE PROGRAM

Adopted March 25, 2004

The upholding of a strong sense of ethics and integrity is of the highest importance to Heartland Oil & Gas Corp. (the “Company”) and critical to its success in the business environment. The Company’s Code of Business Conduct and Ethics and Compliance Program embodies the Company’s commitment to such ethical principles and sets forth the responsibilities of the Company to its shareholders, employees, customers, lenders and other stakeholders. The Company’s Code of Business Conduct and Ethics and Compliance Program addresses general business ethical principles, conflicts of interests, special ethical obligations for employees with financial reporting responsibilities, insider trading laws, reporting of any unlawful or unethical conduct, political contri butions and other relevant issues.

GENERAL PRINCIPLES

It is the Company’s firm belief that effective business relationships can only be built on mutual trust and fair dealing. The Company and all its directors, officers and employees, to whom the Company’s Code of Business Conduct and Ethics and Compliance Program is applicable, will conduct themselves in accordance with the standards established herein.

The Company’s Code of Business Conduct and Ethics and Compliance Program outlines the fundamental principles of legal and ethical business conduct as adopted by the Board of Directors of the Company. It is not intended to be a comprehensive list addressing all legal or ethical issues which may confront the Company’s personnel. Hence, it is essential that all personnel subject to the Company’s Code of Business Conduct and Ethics and Compliance Program employ good judgment in the application of the principles contained herein.

CONFLICTS OF INTEREST

Directors, officers and employees of the Company are expected to make decisions and take actions based on the best interests of the Company, as a whole, and not based on personal relationships or benefits. Generally, a “conflict of interest” is an activity that it inconsistent with or opposed to the best interest of the Company or one which gives the appearance of impropriety. As conflicts of interest can compromise the ethical behavior of Company personnel, they should be avoided.

Employees should avoid any relationship which would create a conflict of interest. Employees are expected to disclose such relationships and conflicts to their immediate supervisors. Conflicts of interest involving those with whom the Company does business should also be disclosed in writing to such third parties. Any waivers of conflicts of interest must be approved by the Board of Directors or an appropriate committee.

Members of the Board of Directors are to disclose any conflicts of interest and potential conflicts of interest to the entire Board of Directors as well as the committees on which they serve. Directors are to recluse themselves from participation in any decision of the Board or a committee thereof in any matter in which there is a conflict of interest or potential conflict of interest.

Set forth below is specific guidance in respect to certain conflicts of interest situations. As it is not possible to list all conflicts of interest situations, it is the responsibility of the individual, ultimately, to avoid and properly address any situation involving a conflict of interest or potential conflict of interest. Company personnel who wish to obtain clarification of the Company’s conflicts of interest principles or further guidance with respect to the proper handling of any specific situation should consult his or her immediate supervisor, the Company’s corporate secretary or the Company’s outside legal counsel.

Interest in Other Businesses: All Company’s directors, officers and employees and their family members must avoid any direct or indirect financial relationship with third parties with whom the Company has relationships which would involve a conflict of interest or a potential conflict of interest or compromise the individual’s loyalty to the Company. Permission must be obtained from the Company’s president before any such individual commences an employment, business or consulting relationship with third parties with whom the Company has relationships.

Outside Directorships: All Company’s directors, officers and employees may serve on the boards of directors of other profit-making organizations so long as those other companies are not in direct competition with the Company.. Direct competition does not include being in the same type of resource industry business as the Company, and directors, officers and employees are not obliged to refer to the Company every opportunity they may have in the Company’s area of the resource industry.

Individuals who serve as directors of other companies may retain any compensation earned from that outside directorship without accounting for same to the Company. Individuals may receive compensation (whether in the form of cash, stock or options) for service on a board of director of another business organization if such service is at the request of the Company or in connection with the investment of the Company in such business organization, so long as the individual discloses the compensation to the Company. All individuals must recluse themselves from any matters pertaining to the Company and the business organization of which they are directors.


	2

Proper Payments: All individuals should pay for and receive only that which is proper. Company personnel should not make improper payments for the purposes of influencing another’s acts or decisions and should not receive any improper payments or gifts from others for the purposes influencing the decisions or actions of Company’s personnel. No individual should give gifts beyond those extended in the context of normal business circumstances. Company personnel must observe all government restrictions on gifts and entertainment.

Supervisory Relationships: Supervisory relationships with family members present special workplace issues. Accordingly, Company personnel should where possible avoid a direct reporting relationship with a family member .If such a relationship exists or occurs, the individuals involved must report the relationship in writing to the Board of Directors.

FINANCIAL REPORTING RESPONSIBILITIES

As a public company, it is of critical importance that the Company’s filings with the Securities and Exchange Commission and other relevant regulatory authorities be accurate and timely. Hence, all Company personnel are obligated to provide information to ensure that the Company’s publicly filed documents be complete and accurate. All Company personnel must take this responsibility seriously and provide prompt and accurate answers and responses to inquiries related to the Company’s public disclosure requirements.

The Chief Executive Officer and the Chief Financial Officer of the Company have the ultimate responsibilities of ensuring the integrity of the filings and disclosure made by the Company as required by the rules and regulations of the Securities and Exchange Commission and other relevant regulatory authorities. In the performance of their duties relating to the Company’s public disclosure obligations, the Chief Executive Officer, the Chief Financial Officer and all Company personnel must:

Act with honesty and integrity
Provide information that is accurate, complete, objective, fair and timely
Comply with rules and regulations of federal, state and local governments and other relevant public and private regulatory authorities
Act in good faith with due care, competence and due diligence
Respect the confidentiality of information acquired in the course of the performance of one’s duties
Promote ethical and proper behavior in the work environment
Report to the Chairman of the Audit Committee any conduct that the individual believes to be a violation of law of the Company’s Code of Business Conduct and Ethics


	3

INSIDER TRADING

It is the policy of the Company to prohibit the unauthorized disclosure of any nonpublic information acquired in the workplace and the misuse of material nonpublic information in securities trading. It is not possible to define all categories of material information. However, information should be regarded as material if there is a reasonable likelihood that it would be considered important to an investor in making an investment decision regarding the purchase or sale of the Company’s securities. Nonpublic information is information that has not been previously disclosed to the general public and is otherwise not available to the general public. While it may be difficult to determine whether particular information is material, there are various categories of information that are par ticularly sensitive and, as a general rule, should always be considered material. In addition, material information may be positive or negative. Examples of such information may include:

Financial results
Projections of future earnings or losses
Major contract awards, cancellations or write-offs
Joint ventures with third parties
Research, exploration or development milestones
News of a pending or proposed merger or acquisition
News of the disposition of material assets
Impending bankruptcy or financial liquidity problems
Gain or loss of a substantial customer or supplier
New product announcements or resource discoveries of a material nature
Significant pricing changes
Stock splits
New equity or debt offerings
Significant litigation exposure due to actual or threatened litigation
Changes in senior management
Capital investment plans
Changes in dividend policy

Trading on Material Nonpublic Information: With certain limited exceptions, no officer or director of the Company, no employee of the Company or its subsidiaries and no consultant or contractor to the Company or any of its subsidiaries and no members of the immediate family or household of any such person, shall engage in any transaction involving a purchase or sale of the Company’s securities, including any offer to purchase or offer to sell, during any period commencing with the date that he or she possesses material nonpublic information concerning the Company, and ending at the close of business on the second trading day following the date of public disclosure of that information, or at such time as such nonpublic information is no longer material. The term “trading day” shall mean a day on which nat ional stock exchanges and the NASDAQ National Market are open for trading.


	4

Tipping: No insider shall disclose (“tip”) material nonpublic information to any other person (including family members) where such information may be used by such person to his or her profit by trading in the securities of companies to which such information relates, nor shall such insider or related person make recommendations or express opinions on the basis of material nonpublic information as to trading in the Company’s securities.

Regulation FD (Fair Disclosure) implemented by the Securities and Exchange Commission provides that when the Company, or person acting on its behalf, discloses material nonpublic information to certain enumerated persons (in general, securities market professionals and holders of the Company’s securities who may well trade on the basis of the information), it must make public disclosure of that information. The timing of the required public disclosure depends on whether the selective disclosure was intentional or unintentional; for an intentional selective disclosure, the Company must make public disclosures simultaneously; for a non-intentional disclosure the Company must make public disclosure promptly. Under the regulation, the required public disclosure may be made by filing or furnishing a Form 8-K, or by another method or combination of methods that is reasonably designed to effect broad, non-exclusionary distribution of the information to the public.

It is the policy of the Company that all communications with the press be handled through the Company president.

Confidentiality of Nonpublic Information: Nonpublic information relating to the Company is the property of the Company and the unauthorized disclosure of such information is strictly forbidden.

Applicability of Insider Trading Regulations to Securities of Other Companies: The insider trading guidelines described herein also apply to material nonpublic information relating to other companies, including the Company’s customers, vendors or suppliers (“business partners”), when that information is obtained in the course of employment with, or other services performed on behalf of the Company. All employees should treat material nonpublic information about the Company’s business partners with the same care as is required with respect to information relating directly to the Company.

Duty to Report Inappropriate and Irregular Conduct

All employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within the Company, consistent with generally accepted accounting principles and both federal and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to their immediate supervisor and to the Company’s Audit Committee. Any failure to report in appropriate or irregular conduct of others is a severe disciplinary matter. It is against Company policy to retaliate against any individual who reports in good faith the violation


	5

or potential violation of the Company’s Code of Business Conduct and Ethics and Compliance Program of another.

Please refer to the Company’s Insider Trading Compliance Manual. Any further inquiries relating to insider trading laws should be directed to the Company’s corporate secretary or the Company’s outside counsel.

POLITICAL CONTRIBUTIONS

No assets of the Company, including the time of Company personnel, the use of Company premises or equipment and direct or indirect monetary payments, may be contributed to any political candidate, political action committees, political party or ballot measure without the written permission of the president of the Company.

COMPLIANCE PROGRAM

In order to implement the principles of the Company’s Code of Business Conduct and Ethics and to establish a Compliance Program, the Company has adopted the following policies:

Size of the Board: The Board will periodically review the appropriate size of the Board.

Independent Directors: It is the policy of the Company that at least two of the directors will be non-employees and non-officers of the Company and will otherwise meet the appropriate standards of independence. In determining independence, the Board will consider the definition of “independence” under the relevant rules and regulations of the Securities and Exchange Commission and the stock exchange or market on which the Company’s shares are listed for trading.

Management Directors: The Board anticipates that the Company’s Chief Executive Officer will be nominated annually to serve on the Board. The Board may also nominate other members of management.

Chair; Lead Independent Director: The Board will periodically appoint a Chair. Both independent and management directors, including the CEO, are eligible for appointment as the Chair. The Chair or one of the independent directors (if the Chair is not an independent director) may be designated by the Board to be the “lead independent director.” The lead independent director may periodically help schedule or conduct separate meetings of the independent directors.

Selection of Board Nominees: The Board will be responsible for the selection of candidates for the nomination of all Board members. The Nominating and Corporate Governance Committee, if constituted, shall recommend candidates for election to the Board.


	6

Board Membership Criteria: The Board’s policy is to encourage selection of directors who will contribute to the Company’s overall corporate goals of responsibility to its shareholders and other stakeholders.

Independent Directors’ Discussions: It is the policy of the Board that the independent directors, under the direction of the lead independent director, may meet separately without management directors at least once per year to discuss such matters as the independent directors may consider appropriate. The Company’s independent auditors, outside legal counsel, finance staff, legal staff and other employees may be invited to attend.

Access to Information: The Board encourages the presentation at meetings by managers who can provide additional insight into matters being discussed. The Company’s executive management will afford each Board member full access to the Company’s records, information, employees, outside auditors and outside counsel.

Board Committees: The Board shall have three standing committees: the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee. From time to time, the Board may establish additional committees.

Committee Member Selection: The Board will designate the members and Chairs of each committee. The membership of the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee shall meet all applicable criteria of the rules and regulations of the Securities and Exchange Commission and the stock exchange or market on which the Company’s shares are listed for trading.

Committee Functions: The Board of Directors shall adopt a Committee Charter for each of the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee which shall provide the structure and guiding principles of such committees. The full authority and responsibilities of each committee are fixed by resolution of the full Board of Directors and the Committee Charter. The following is a brief summary of the authority of each committee:

Audit Committee. Review the Company’s financial procedures and controls; monitor financial reporting and select and meet with independent auditors.
Compensation Committee. Review and approve compensation arrangements for the Company’s executive officers and awards under employee benefit plans, including the Company’s stock option plans.
Nominating and Corporate Governance Committee. Recommend to the full Board candidates for election to the Board and changes to governance policies.

Insider Trading Compliance: The Board of Directors shall adopt an Insider Trading Compliance Program for the purposes of educating and ensuring the all subject persons are fully aware of the rules and regulations of the Securities and Exchange Commission


	7

with respect to insider trading. The Company will, within reason, endeavor to make the Company’s outside legal counsel available to Company personnel with respect to any insider trading questions or issues.

Financial Reporting; Legal Compliance and Ethics: The Board’s governance and oversight functions do not relieve the Company’s executive management of its primary responsibility of preparing financial statements which accurately and fairly present the Company’s financial results and condition, the responsibility of each executive officer to fully comply with applicable legal and regulatory requirements or the responsibility of each executive officer to uphold the ethical principles adopted by the Company.

Corporate Communications: Management has the primary responsibility to communicate with investors, the press, employees and other stakeholders on a timely basis and to establish policies for such communication.

Access to Outside Counsel: The Company will, within reason, endeavor to provide Company personnel access to the Company’s outside legal counsel with respect to any matter which may arise relating to the Company’s Code of Business Conduct and Ethics and Compliance Program.


	8

-----END PRIVACY-ENHANCED MESSAGE-----

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Heartland Oil and Gas Corp. (formerly Adriatic Holdings Limited) (name of small business issuer in its charter)
Nevada (State or other jurisdiction of incorporation or organization)		91-1918326 (I.R.S. Employer Identification No.)
Suite 1925, 200 Burrard Street Vancouver, British Columbia, Canada (Address of principal executive offices)		V6C 3L6 (Zip Code)