UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 8-KA-1


CURRENT REPORT


PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


Date of earliest event reported: November 15, 2017


DALA PETROLEUM CORP.

(Exact name of registrant as specified in its charter)


 

 

 

 

 

Delaware

 

001-10171

 

80-0000245

(State or Other Jurisdiction

Of Incorporation)

 

(Commission File Number)

 

(I.R.S. Employer

Identification Number)


13601 Preston Road, # E816

Dallas, Texas 75240

(Address of Principal Executive Offices, Including Zip Code)


(214) 323-8410

(Registrant’s Telephone Number, Including Area Code)



Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:


[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) 


[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) 


[ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))


[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter or Rule 12b-2 of the Securities and Exchange Act of 1934 (§240.12b-2 of this chapter).


Emerging growth company [X]

 

Explanatory Note

 

This 8-KA-1 Current Report is being re-filed because the Company has confirmed that the S-1 Registration Statement mentioned in the previous cover page under “Emerging Growth Company” was not declared effective, and accordingly, the Registrant is an “Emerging Growth Company”; and the signature page had the incorrect officer and date on the previously filed 8-KA-1 Current Report.

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]








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FORWARD-LOOKING STATEMENTS


This Current Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “ Securities Act ”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”).  In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. We have based the forward-looking statements contained in this Current Report primarily on our current expectations about future events and trends that we believe may affect our current and proposed business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements are subject to risks, uncertainties, assumptions and other factors, including those described under the caption of this Current Report entitled “Risk Factors” in Item 5.01. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements used herein. Accordingly, we cannot assure you that the forward-looking statements in this Current Report will prove to be accurate, and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Current Report completely, and it should be read and considered with other reports or registration statements filed by us with the SEC. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.


EXPLANATORY NOTES


Except as otherwise indicated by context, references to the “Company,” “we,” “our,” “us” and words of similar import refer to “Dala Petroleum Corp.,” a Delaware corporation, which is the Registrant, and its wholly-owned subsidiary, KonaTel, Inc., a Nevada corporation (“ KonaTel ”).


On the closing of the Merger between our newly formed wholly-owned subsidiary and KonaTel, which is defined and discussed below in Item 1.01, we became the successor to the business operations of KonaTel.  Our current business operations and those of KonaTel are described under the caption entitled “Business” of this Current Report in Item 5.01.


This Current Report is being filed in connection with a series of transactions consummated by us that relate to the Merger, together with certain related actions taken by us, or contemplated to be taken, including the future change of our name to “KonaTel, Inc.” or such other name as our Board of Directors and our shareholders may approve.


The summaries of the Merger Transaction Documents (as defined below) and any other agreements, documents and instruments otherwise described herein and which are incorporated herein by reference, do not purport to be complete and are qualified in their entirety to the complete text of such documents, copies of which are filed as “Exhibits” in Item 9.01 hereof. Further summaries of Merger Transaction Documents are also contained under appropriate headings of applicable captions, as referenced throughout this Current Report. Additional information included in our reports or registration statements that we have previously filed with the SEC and that we believe may be useful in considering the disclosure provided herein, which are also incorporated herein by reference, can be accessed by “Hyperlink” to these reports or registration statements in Item 9.01. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement or other instrument referenced and comprising a part of the Merger Transaction Documents; and in some instances, for clarity, certain Exhibits to the Merger Agreement or other instruments and Merger Transaction Documents that are filed herewith as Exhibits are named and defined otherwise herein than in these documents or instruments.


CAUTIONARY STATEMENTS

We have a limited public float of 1,692,286 shares of our outstanding common stock, and there has been no established trading market in our common stock during the past three years. See generally, the caption “Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters” of Item 5.01 for additional information regarding these matters. These factors, along with our Merger with KonaTel, may result in uncertainty and volatility in the trading price of our common stock that may not have any relation to our current or future



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prospects.  Our common stock is currently quoted on the OTC Markets Group OTC Pink Tier (respectively, the “ OTC Markets ” and the “ OTC Pink Tier ”) under the trading symbol “DALP.”  On or about September 29, 2017, our application for continued quotation of our common stock on the OTC Markets OTCQB Tier (the “ OTCQB Tier ”) was not approved because of our limited public float and the high concentration of the ownership in our common stock in one entity, which is discussed below in Items 1.01 and 5.01.  No further application can be made by us to the OTC Markets for further consideration of quotations of our common stock on the OCTQB Tier for at least six months from the denial of our recent application, or on or about March 31, 2018.

The information contained in this Current Report responds to the following items of Form 8-K: 

 

Item 1.01

Entry into a Material Definitive Agreement.

 

Item 2.01

Completion of Acquisition or Disposition of Assets.

 

Item 3.02

Unregistered Sales of Equity Securities.

 

Item 5.01

Changes in Control of Registrant.

 

Item 5.02

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory

Arrangements of Certain Officers.

 

Item 5.03

Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

 

Item 9.01

Financial Statements and Exhibits.


 




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Item 1.01 Entry into Definitive Material Agreement.


DESCRIPTION OF THE MERGER


Merger


On November 15, 2017, we entered into an Agreement and Plan of Merger (the “ Merger Agreement ”) with Mark Savage, our President, a director and a beneficial shareholder (“ Mr. Savage ”), Matthew Atkinson, our Secretary, a beneficial shareholder and the Manager of our principal shareholder, M2 Equity Partners LLC, a Minnesota limited liability company (respectively, “ Mr. Atkinson ” and “M2”), M2 and Dala Subsidiary Corp., our wholly-owned Nevada merger subsidiary (“ Merger Subsidiary ”); and KonaTel and D. Sean McEwen, KonaTel’s President and sole shareholder (sometimes called “ Mr. McEwen ” or the “ KonaTel Sole Shareholder ”). The Merger was closed on December 18, 2017 (the “ Closing ”), and Articles of Merger were filed on that date with the Secretary of State of the State of Nevada (the “ Effective Time ”) whereby KonaTel was the surviving corporation and became our wholly-owned subsidiary (the “ Merger ”). We issued 13,500,000 shares of our $0.001 mill par value common stock comprised of “restricted securities” as defined in SEC Rule 144 promulgated under the Securities Act, in exchange for all of the outstanding shares of common stock of KonaTel. Post-Merger, and except as discussed below about conditions to the Closing of the Merger, there were approximately 27,192,286 outstanding shares of our common stock, 13,500,000 shares of which are owned by Mr. McEwen; 12,100,000 shares of which are owned by M2 (Messrs. Savage and Atkinson are members of M2 and collectively own approximately 66.1% of M2, which equates to an indirect beneficial ownership of approximately 4,000,000 shares of our common stock each, and with Mr. Atkinson being the sole Manager of M2, he is also the present beneficial owner of all of M2’s shares of our common stock; and 1,692,286 shares, which are owned by public shareholders.  The following additional actions were taken at the Closing of the Merger, through the execution and delivery of various additional agreements among the parties and others, and which were conditions precedent to the Closing (collectively, with the Merger Agreement, the “ Merger Transaction Documents ”):


·

the execution and delivery of a Stock Option Cancellation Agreement by the sole option holder of shares of KonaTel ( Exhibit 5.4(c) to the Merger Agreement);


·

the assumption of the Employment Agreements of two key employees of KonaTel (Section 6.4(b) of the Merger Agreement [for additional information, see the heading “Significant Employees” of the caption “Directors and Executive Officers” of Item 5.01]);


·

the execution and delivery of an Employment Agreement with Mr. McEwen, employing him as the President, Chairman of the Board and a director ( Exhibit 6.4(c) to the Merger Agreement [for additional information, see the heading “McEwen Employment Agreement” of the caption “Executive Compensation” of Item 5.01]);


·

the execution and delivery of a Shareholder Voting Agreement between the Company, Mr. Savage, Mr. Atkinson, M2 and Mr. McEwen whereby Mr. McEwen was granted an irrevocable proxy coupled with an interest from each of the foregoing, together with the following rights, including a right of veto, for a period of two (2) years, on the following matters: (i) an increase in the compensation of any employee of the Company by more than $20,000 in any one calendar year and for these purposes, the term compensation includes any form of remuneration or monetary benefit; (ii) the issuance of stock, the creation of a new class of stock, the grant of options or warrants, modification of any shareholder, option holder or warrant holder’s rights, grants, conversion rights or the taking of any other action that directly or indirectly dilutes the outstanding securities of the Company, excepting a current private placement of common stock of the Company for an equity funding of $1,300,000 through the offer and sale of 6,500,000 shares of the Company’s common stock solely to “accredited investors”; (iii) the issuance of debt in excess of $100,000 in the aggregate in any one calendar year; (iv) the approval of a plan of merger, reorganization or conversion; (v) the sale, transfer or other conveyance of assets of the Company having an aggregate value in excess of $100,000 in any one calendar year, other than in the ordinary course of the business; (vi) the entry into a contract or other transaction having a total aggregate contractual liability for the Company in excess of $100,000 in any one calendar year;



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(vii) any change in the Bylaws of the Company modifying these requirements (all of which are included in our Amended and Restated Bylaws filed herewith [see Item 9.01]); and (viii) that Mr. McEwen be named as a “nominee” to the Board of Directors of the Company at any special or annual meeting of the Company’s shareholders to elect members to the Board of Directors and to vote all proxies provided to management in connection with any such meeting for Mr. McEwen as one of the “nominees” to our Board of Directors, so long as Mr. McEwen owns 5% or more of the outstanding shares of our common stock, among other provisions. The Shareholder Voting Agreement also provides, however, that if Mr. McEwen has been removed as a director for cause by our shareholders and such removal has been confirmed by a Delaware court of competent jurisdiction under Delaware Law, this “nominee” provision shall not be enforceable by Mr. McEwen and shall be void ( Exhibit 6.4(d) to the Merger Agreement [for additional information, see the heading “Shareholder Voting Agreement” of the caption “Security Ownership of Certain Beneficial Owners and Management” of Item 5.01]);


·

the reservation of 5,000,000 shares of our authorized common stock for issuance to directors, executive officers and employees, as incentives or bonuses, and the granting of an aggregate of 3,850,000 of those options at the Closing of the Merger, including grants to Messrs. Savage, Atkinson, Mr. McEwen and the two key employees whose Employment Agreements were assumed by the Company at the Closing of the Merger ( Exhibit 6.4(e) to the Merger Agreement [the “Form of Incentive Stock Option Agreement”]); and for additional information, see the heading “Outstanding Equity Awards” of the caption “Executive Compensation” of Item 5.01;


·

the execution and delivery of a Lock-Up/Leak-Out Agreement by Mr. Savage, Mr. Atkinson, M2 and Mr. McEwen respecting the resale of their respective shares of common stock beneficially owned or subsequently acquired in the Company covering an 18 month period commencing at the Closing of the Merger ( Exhibit 6.4(f) to the Merger Agreement [the “Form of the Lock-Up/Leak-Out Agreement]); and for additional information, see the heading “Lock-Up/Leak-Out Agreements” of the caption “Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters” of Item 5.01; and


·

the adoption of Amended and Restated Bylaws to include the matters outlined in Section 6.4(d) of the Merger Agreement, as discussed above, and to provide for the office of a “Chairman of the Board” (Section 6.4(h)), to which office Mr. McEwen was elected and employed to serve as under his Employment Agreement with the Company, including the office of President and as a member of our Board of Directors (see Exhibit 3(ii) in Item 9.01).


At the Effective Time, we changed our fiscal year from September 30 to a calendar year end of December 31 to coincide with the calendar fiscal year end of KonaTel; and the “S Corporation Election” of KonaTel was terminated. The parties agreed to make all necessary tax elections to achieve a direct tax accounting cut-off as of the date of the S Corporation Election termination for purposes of reporting the applicable short period S and C corporation tax returns, as applicable.


We will use our “best efforts” to complete the above referenced equity funding and to file a registration statement with the SEC within a reasonable time of the availability of the required audited and reviewed financial statements of the Company and KonaTel, to register a reasonable portion of the outstanding shares of our common stock on a pro rata basis for resale by Company shareholders who are non-“affiliates,” with the primary purpose thereof being to increase the public float of our outstanding shares. A portion of our shares of common stock owned by our “affiliates” may also be included in any such registration statement, with all of such shares being subject to pro rata cutbacks by the SEC under SEC Rule 415 or otherwise. Substantially all of these shares are also subject to the Lock-Up/Leak-Out Agreement, though the “Lock-Up Period” for any shares included in an effective registration statement will cease, while the provisions of the “Leak-Out Period” shall continue to apply during its 18 month term.


Item 2.01 Completion of Acquisition or Disposition of Assets.


As described in Item 1.01, we acquired all of the outstanding securities of KonaTel.




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Accounting Treatment of the Merger


The Merger was accounted for as a “reverse acquisition” by reason of the change in control resulting from the Closing of the KonaTel Merger, and the relative increase in our business operations as compared with the business operations conducted by us pre-Merger.  For additional information on the business operations of the Company and KonaTel, see the respective headings “The Company Corporate History and Business” and “The Post-Merger Company” of the caption “Business” of Item 5.01.


Smaller Reporting Company


We will continue to be a “smaller reporting company” as defined in SEC Regulation S-K.


All of the information set forth in Item 1.01 of this Current Report is incorporated in this Item 2.01.


Item 3.02 Unregistered Sales of Equity Securities


See Item 1.01 above.


Item 5.01 Changes in Control of the Registrant.


BUSINESS


The Company Corporate History and Business


We were incorporated as “Light Tech, Inc.” under the laws of the State of Nevada on May 24, 1984. A subsidiary in the name “Westcott Products Corporation” was organized by us under the laws of the State of Delaware on June 24, 1986, for the purpose of changing our name and domicile to the State of Delaware. On June 27, 1986, we merged with the Delaware subsidiary, with the survivor being Westcott Products Corporation, a Delaware corporation.   All of our prior operations were conducted through Lee Building Products and T. A. Kilgore & Company, which owned and operated a home center in League City, Texas, about 30 miles southeast of downtown Houston, Texas. During 1990, we ceased all operations, and the secured lenders took possession of all of its assets.


On March 11, 2000, our Board of Directors began the process of re-entering the development stage with the appointment of new officers and directors, and began the process of seeking the acquisition of new business opportunities. These efforts resulted in the completion of the acquisition of Dala Petroleum Corp., a Nevada Corporation (“ Dala Nevada ”), a transaction that is more specifically described below.


On June 2, 2014, we and our newly formed and wholly-owned subsidiary, Dala Acquisition Corp., a Nevada corporation (“ Dala Acquisition ”), and Dala Nevada, which was wholly-owned by Chisholm Partners II, LLC, a Louisiana limited liability company (“ Chisholm II ”), executed and delivered an Agreement and Plan of Merger (the “ Dala Merger Agreement ”) and all required or necessary documentation to complete the merger (collectively, the “ Dala Merger Transaction Documents ”), whereby Dala Acquisition merged with and into Dala Nevada, with Dala Nevada being the surviving company and becoming our wholly-owned subsidiary on the closing of the merger (the “ Dala Merger ”). Articles of Merger were filed with the Secretary of State of the State of Nevada on such date, which was the effective date of the Dala Merger.  We issued 10,000,000 shares of our common stock in exchange for all of the outstanding shares of common stock of Dala Nevada, to Dala Nevada’s sole shareholder. Following the receipt of the 10,000,000 shares, Chisholm II’s managing director approved the transfer of all of these shares to its members (or its members’ designees), on a pro rata basis. The transfer of shares to the members of Chisholm II occurred on June 8, 2014.  One critical condition precedent to the closing of the Dala Merger was that we would raise no less than $2,000,000 (the “ Offering ”) from persons who were “accredited investors” in consideration of the issuance (or the conversion) of a minimum of 2,000 shares and up to a maximum of 2,500 shares of our Series A 6% Convertible Preferred Stock at the offering price of $1,000 per Unit. Upon the closing of the Offering, we sold 2,025 Units in the Offering, raising $2,025,000, which funds were planned to be utilized in the development of the 300 oil and gas leases we acquired in north central Kansas under the Dala Merger, with total leased acreage of approximately 80,000 acres, more or less. For additional information about the Dala Merger, see our 8-K Current Report dated June 2, 2014, and filed with the SEC on June 3, 2014, which is accessible by Hyperlink in Item 9.01 hereof.




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On July 24, 2014, we filed an S-1 Registration Statement to register shares of common stock underlying the conversion rights of our Series A 6% Convertible Preferred Stock, which became effective on September 12, 2014.


On August 29, 2014, we filed a Certificate of Amendment of Certificate of Incorporation with the State of Delaware changing our name to “Dala Petroleum Corp.,” as approved by a majority of the common shareholders and 67% of the preferred shareholders.


Since the time of the Dala Merger, we have been operating as an early-stage oil exploration company focused on the leased acreage, which has oil potential at depths of less than 6,000 feet. We assigned the rights to explore the leased acreage to Chisholm II, which is an exploration and production company focused on the acquisition of Kansas oil leasehold interests and exploration and development and Dala Nevada’s sole shareholder prior to the Dala Merger.


In June, 2015, we temporarily suspended or exploration program due to the decline in the price of oil and difficult market conditions. During our fiscal year ended September 30, 2016, we did not drill any wells.  


We established a land position over a shallow, conventional oil play in north central Kansas.  The “Play” or exploration concept was located across a four county area and was geographically defined by the boundaries of the productive North American Rift System.  The land position is concentrated over a lightly explored portion of the rift, bordered immediately on the south by productive rift-related oil fields, and to the north by significant new discoveries in southeast Nebraska, where productive rates had then been reported.  This Play concept was developed by a team of highly experienced international geologists, geophysicists and land experts, who applied regional geologic theory, proprietary geophysical databases and high resolution seismic data.


On May 16, 2016, we entered into a Partial Cancellation Agreement (the “PCA”) by and among our subsidiary, Dala Nevada, Chisholm II and certain members of Chisholm II (the “ Chisholm Members ”) through which Chisholm II (after receiving shares from certain of its Chisholm Members) returned a total of 8,567,800 shares of our common stock to us for cancellation.  In exchange for the return of these shares for cancellation, we assigned 55,000 acres of our leased acreage (approximately 68.75% of our total holdings) to Chisholm II.  Additionally, on May 16, 2016, our Board of Directors, as part of a settlement with our Series A 6% Convertible Preferred Stock shareholders, we filed an Amended and Restated Certificate of Designation of our Series A 6% Convertible Preferred Stock (the “ COD ”), which (i) changed the conversion price of such preferred stock from $0.70 per share to $0.05 per share, and (ii) eliminated Section 7 “Certain Adjustments” of the COD. For additional information about the PCA and the settlement with our Series A 6% Convertible Preferred Stock shareholders, see our 8-K Current Report dated May 16, 2016, and filed with the SEC on May 27, 2016, which is accessible by Hyperlink in Item 9.01 hereof.


On May 10, 2016, we terminated our Master Services Agreement with Chisholm II and all amounts due thereunder were released by Chisholm II. For additional information about the termination of this Master Service Agreement, see our 8-K Current Report dated May 10, 2016, and filed with the SEC on May 17, 2016, which is accessible by Hyperlink in Item 9.01 hereof.


On July 20, 2017, pursuant to a Common Stock Purchase Agreement dated July 19, 2017, M2 acquired 12,100,000 shares of our common stock in consideration of the sum of $347,500, which resulted in a change in control of our Company.  As part of this transaction, substantially all of our outstanding liabilities were paid or compromised, and 1,584,200 shares of our common stock, 2008 shares of our Series A 6% Convertible Preferred Stock, comprising all of these outstanding series of preferred stock, and 1,928,571 warrants that were issued in connection with the issuance of such series of preferred stock, were cancelled. For additional information about the closing of this Common Stock Purchase Agreement, see our 8-K Current Report dated July 19, 2017, and filed with the SEC on July 20, 2017, which is accessible by Hyperlink in Item 9.01 hereof.


We estimate that we had leases with landowners on approximately 7,892 acres, more or less, at June 30, 2017; approximately 3,744, acres at September 30, 2017; and presently, approximately 1,290 acres.


Prior to the expiration of the leases on all but approximately 1,290 acres of our leasehold interests in mid-November, 2017, we have been evaluating these leasehold interests for several months to determine their present value and future potential for exploration, with the intention of contacting property owners and oil and gas operators active in the area of our current and expired leasehold interests to determine whether there is potential future value to us in retaining, renewing or acquiring other leasehold interests with the prospect of entering into favorable arrangements



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with oil and gas operators that are active in these areas to develop these properties as part of a coalition of landowners, leaseholders and operators, if and when economically feasible. These activities may include seeking others with an interest in funding the development, extension and renewal of leases or the acquisition of others, either singly or with a joint venture partner or with a working interest, carried or fully funded by any such partner or other oil and gas operator.  We are currently in the process of contacting current and former parties to our leased acreage, as well as oil and gas operators in this area of north Kansas; and we are also reviewing another unrelated oil and gas proposal that will require substantial funding. It is highly likely that that our current oil and gas industry activities will become secondary to those operations assumed by our acquisition of KonaTel; however, management has expressed its intention to maximize the value of our present oil and gas leased acreage and our substantial geologic, proprietary geophysical database and high resolution seismic data information for the mutual benefit of the Company and our shareholders, to the extent that these activities do not adversely affect the benefits of the KonaTel acquisition in any reasonable respect.  Since formulating this plan for a coalition, we have made our initial contacts to approximately 140 landowners with whom we hold or have held oil and gas leases; and depending upon the responses we receive from the pre-paid post cards enclosed with our letters to these landowners, we intend to contact other landowners and oil and gas operators in the northern Kansas of our leased area concerning this planned coalition.


Regardless of the foregoing business activities, we may be deemed to be a “shell company,” which would require that holders of any shares of our outstanding common stock that comprise “restricted securities” may be limited to resales of their respective shares under the provisions of subparagraph (i) of Rule 144 or Section 4(a)(1) of the Securities Act.  For additional information, see the heading “Shell Companies” of the caption “Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters” of Item 5.01.

 

All of our designated series of shares of preferred stock have been converted, reacquired or cancelled. Accordingly, we filed an Amended and Restated Certificate of Incorporation with the State of Delaware on November 13, 2017, which removed all of our designated series of preferred stock from our Certificate of Incorporation, while reserving our 50,000,000 authorized and unissued $0.01 mill par value shares of preferred stock for future issuance as the Board of Directors may designate and approve.  A copy of our Amended and Restated Certificate of Incorporation is filed as an Exhibit to this Current Report.  See Item 9.01.  


On November 29, 2017, we filed a Post-Effective Amendment to our registration statement that became effective on September 12, 2014, regarding the registration of the shares of common stock underlying our Series A 6% Convertible Preferred Stock, withdrawing from registration all shares that had not been converted, amounting to 1,949,333 shares.  Only 17 of our 2025 shares of such series of preferred stock had been converted, and the remaining shares of such series were cancelled under the above referenced Common Stock Purchase Agreement with M2.  This Post-Effective Amendment was declared effective on December 1, 2017.


The Post-Merger Company


Following the Merger, the Company’s primary operations will be those currently carried on by KonaTel.


KONATEL


Introduction


KonaTel was organized under the laws of the State of Nevada on October 14, 2014, by its founder and sole shareholder, D. Sean McEwen, to conduct the business of a full service cellular provider that delivers cellular products and services to individual and business customers in various retail and wholesale markets. Through its sales network, it provides these services nationwide.  In furtherance of its proposed business, on November 1, 2014, it acquired most of the assets of Coast to Coast Cellular, Inc. (“Coast to Coast”), including inventories, property, plant and equipment and goodwill valued at approximately $950,000 net of liabilities in the approximate amount of $415,000; and on November 1, 2016, it acquired the assets of CS Agency LLC (“CS Agency”), consisting of contract rights related to the cellular industry, in consideration of assuming liabilities of CS Agency in the approximate amount of $300,000.


KonaTel’s cellular industry segment operations currently comprise mostly “Wholesale Mobile Voice,” which includes wholesale priced minutes, text and data to mobile resellers; “B2B Mobile Voice (agents),” which includes



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traditional post-paid cellular services, primarily acquired from Verizon Communications, Inc. (“ Verizon ”), sold to small and medium sized businesses and marketed through independent commissioned sales agents; “B2B & B2C Retail,” which comprises one retail location in upstate New York that functions as a Sprint Corporation (“ Sprint ”) reseller of cellular services and products, primarily selling B2C Retail Service, and which also sells Verizon service from that location, mostly consisting of B2B Mobile Service; and “Internet of Things” or wireless data (“IoT”), an untapped area of KonaTel.  The Internet of things is the network of physical devices, vehicles and other items embedded with electronics, software, sensors and network connectivity, which enable these objects to collect and exchange data.  Each “thing” is uniquely identifiable through its embedded computing system, but is able to interoperate within the existing Internet infrastructure. KonaTel plans to devote additional resources to IoT and has direct wholesale mobile data agreements with Verizon and AT&T, Inc. (“ AT&T ”) to provide it with wireless data services.  Many of the services provided by KonaTel are contracted from aggregators or Mobile Virtual Network Enablers (“ MVNEs ”) that are wholesale distributors of these services, like Telispire of Wichita Falls, Texas (“ Telispire ”), which provides nationwide access to trusted wireless networks; and Orbcomm Inc., of Rochelle Park, New Jersey (“ Orbcomm ” [NASDAQ-“ORBC”]), a global provider of IoT solutions.  In addition to KonaTel’s current wholesale mobile data agreements with Verizon, AT&T and others, KonaTel has also developed its own IoT software suite, “CROSS” system, for provisioning or activating and managing mobile devices, which allows it to resell mobile data singly, and which a sub-reseller customer of KonaTel may require in providing these services to customers; and “Lifeline (virtual),” which KonaTel recently commenced marketing as a virtual eligible telecommunications carrier (“ VETC ”) of “Lifeline services” in California under the license of an eligible telecommunications carrier or “ETC.”  This initiative was implemented by KonaTel as a precursor to eventually purchasing a licensed Lifeline ETC so it can market these services directly in various markets where it may be licensed to provide these services. Lifeline is a Federal Communications Commission (“ FCC ”) program that provides subsidized, fixed or mobile, telecommunications services to low-income consumers.  KonaTel primarily distributes its products and services through independent field agents.


KonaTel has facilities in Johnstown, New York (approximately 1,500 square feet), which includes a sales office and store front business, supervised under an Area Sales Manager, with a total of six employees; Johnstown, Pennsylvania (approximately 7,500 square feet [KonaTel’s former Headquarters]), which is primarily used for accounting, engineering, compliance and the customer service departments of KonaTel’s B2B agent program and its wholesale service providers, and having 11 employees; and Dallas, Texas (approximately 3,000 square feet), which is KonaTel’s principal executive offices, and where D. Sean McEwen, the Company’s and KonaTel’s Chairman, and Charles L. Schneider, Jr., KonaTel’s CEO, are located, with three full-time employees and one part-time employee. This office houses the VETC operations of KonaTel.  KonaTel maintains a website at www.konatel.com, for easy access to KonaTel and its products and services


Principal Products or Services and their Markets


KonaTel’s principal products and services include its wholesale priced minutes, text and data to mobile resellers, wireless data services, its Cross System for provisioning or activating and managing mobile devices and its Lifeline (virtual), through which it recently commenced marketing eligible FCC subsidized, fixed or mobile, telecommunications services to low-income consumers through an existing agreement with an ETC in over 20 states.  All of these product offerings are available nationwide, except the Lifeline services, from its three current locations in Johnstown, New York, Johnstown, Pennsylvania and Dallas, Texas.


The following are the principal revenue streams of KonaTel:


·

The first revenue channel is our voice, text and data MVNO channel.  The MVNO, mobile virtual network operator or retail channel, is a wireless communications services provider that does not own the wireless network infrastructure over which the MVNO provides services to its customers.  The MVNO channel provides KonaTel with the greatest ARPU (average revenue per unit) and the highest gross profit per unit.  The products sold are traditional post-paid wireless plans that include voice, text and data, wireless data only plans, and equipment that support the wireless plans. The equipment includes, but is not limited to, phones, tablets and accessories.  We market the MVNO channel products through our retail store in Johnstown, New York, under the “Telecon Wireless” brand.  These current products are sold to consumers, B2C business to consumer, out of the storefront, and to businesses direct, B2B business to business, by our Area Sales Manager.  We also market our products and services through independent (commissioned) sales agents through



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the KonaTel brand.  These agents market to small and medium sized businesses throughout the United States. This type of marketing is also considered B2B.


·

The second revenue channel that provides us the greatest revenue is the voice, text and data MNVE channel.  The MVNE, or mobile virtual network enabler, or wholesale channel, provides network infrastructure and related services, such as network subsystems, business support systems, provisioning, administration and operations support systems to MVNOs.  KonaTel provides a suite of services to the MVNOs.  All of our MVNO customers purchase the wireless network service from us and can choose, if they require, any suite of services KonaTel provides.  The services that KonaTel provides include, but are not limited to, customer service, billing service and equipment procurement.    


·

The third revenue channel is our Sprint commission channel.  This channel is exclusive to the Johnstown, New York, retail location.  It is a consumer product, and the customer is a Sprint direct customer.  KonaTel receives a commission from Sprint for selling the product.  All products that are sold by a direct Sprint store, including their Boost product, are sold at the Johnstown, New York, location.


·

The fourth revenue channel for us is the VETC, virtual eligible telecommunications carrier, our Lifeline service in California. KonaTel operates under the license an ETC or eligible telecommunications carrier.  We currently market through four master agencies that specialize in Lifeline products.  These master agencies support hundreds of agents who market directly to the individuals requesting Lifeline cellular phone service.  KonaTel provides phones and wireless service to the individual requiring Lifeline service.  This channel is currently KonaTel’s fourth largest revenue producer.  


·

Our final revenue channel is relatively new to KonaTel.  It is the IoT or Internet of Things wireless data channel. IoT refers to the ever-growing network of physical objects that feature an IP address for Internet connectivity, and the communication that occurs between these objects and other Internet-enabled devices and systems. KonaTel markets as an IoT B2B MVNO or retailer through the independent agents and an IoT MVNE or distributor.  KonaTel offers the wireless data service to an MVNO or a direct product producer.  The direct product producer may be a company that has developed an IoT product and needs to have a wireless data carrier to make the product work.  Although, this is our newest revenue stream, we expect it to eventually be our largest.        


Distribution methods of the products or services


Almost all of KonaTel’s products and services are primarily sold through agents and resellers, excepting some sales direct to consumers through our single retail location in Johnstown, New York.


In New York, our retail store resells Sprint cellular service (as an agent for Sprint) and sells the Verizon cellular service; we purchase product from Telispire wholesale and repackage the product under our brand name.  Our main business revolves around our Verizon products (Verizon cellular purchased from Telispire and Verizon IoT data purchased directly from Verizon) sold both to consumers, businesses and other resellers.  Recently, KonaTel signed a direct reseller agreement with AT&T to resell their APEX suite of services, a bundle of voice (cellular) and data (IoT) services targeted specifically to businesses (not consumers).


We distribute B2B mobile, IoT and Lifeline services through independent field agents.  Agents are recruited and obtained to market these services via various means such as tradeshows, our website, word of mouth from other agents and cold calling.  Wholesale mobile and B2C retail services are sold and distributed via direct KonaTel employees.  Wholesale mobile customers are solicited and obtained also via tradeshows, our website, word of mouth within the industry and cold calling.  B2C customers are sold products and services at our Johnstown, New York, retail store location.




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Sources and availability of raw materials and the names of principal suppliers


Wholesale cellular services are sourced either directly from the carrier or from wholesalers that sit between KonaTel and the carrier.  Carriers include Verizon and AT&T.  Wholesalers include PWG and Telispire.


Mobile Virtual Network Operator (“MVNOs”) like KonaTel or a wireless communications services provider that does not own the wireless infrastructure over which it provides services to its customers, are not required to have any licenses with any carrier to do business. KonaTel purchases services from the following sources:


·

Telispire: Verizon, Sprint and T-Mobile US, Inc. (“ T-Mobile ”) voice, text or data service.  Telispire, through a contract with KonaTel, has set pricing for voice, text and data wireless services per unit.  Pricing per unit is in the form of a monthly recurring charge (“ MRC ”) that may or may not include minutes of use, text units or data units.  Additional add on pricing per unit is available for additional data units;


·

ATT Apex: ATT voice, text or data service and ATT IoT service.  ATT Apex through a contract with KonaTel has set pricing for voice, text and data and IoT wireless services per unit.  Pricing per unit is in the form of an MRC that may or may not include minutes of use, text units or data units.  Additional add on pricing per unit is available for additional data units;


·

Verizon Wireless VPP, a Verizon IoT product: Verizon VPP, through a contract with KonaTel, has set pricing for IoT wireless services per unit.  Pricing per unit is in the form of an MRC that includes data units with defined over plan use pricing;  


·

Orbcomm, an Orbcomm T-Mobile IoT Product: Orbcomm, through a contract with KonaTel, has set pricing for IoT wireless services per unit.  Pricing per unit is in the form of an MRC that include data units with defined over plan use pricing; and  


·

Global Connection Inc. of America, doing business as “StandUP Wireless”: StandUP Wireless through a contract with KonaTel has set pricing for Lifeline wireless services per unit.


Any patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts, including their duration


KonaTel was recently approved by the United States Patent and Trademark Office for the trademark “Lifeline+” and now needs to demonstrate the use of this trademark to finalize the Trademark.


Its current ETC agreement expires on July 27, 2018, and is automatically renewed for an additional 12 months unless either party provides notice to the other within three month of the end of the term of its intention to terminate the agreement.


We are under contract with all our service providers, some under an initial term, but all with automatic one-year renewals.


All of our MVNOs (Sub-Resellers), under our MVNE model, are under contract with KonaTel, some under an initial term, but all with automatic one-year renewals, unless KonaTel is notified 120 days prior to contract expiration term.


Competition


The wireless telecommunications industry is highly competitive.  Our primary competitors include national carriers, such as AT&T, Verizon, Sprint and T-Mobile. These national providers are facility-based and are significantly larger than us and enjoy trade name and trademark public recognition internationally, as well as greater resources scale and competitive advantages and direct FCC licenses, among other substantial factors, as compared to us. In addition, our competitors include numerous smaller regional carriers, existing MVNOs and ETCs, such as TracFone Wireless, Inc. (“ TracFone ”) and Assurance Wireless, many of which offer or plan to offer Lifeline services, and no-



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contract postpaid and prepaid service plans. Competitive factors within the wireless telecommunications industry include pricing, market saturation, service and product offerings, customer experience, network investment and quality, development and deployment of technologies, and regulatory changes. Some competitors have shown a willingness to use aggressive pricing as a source of differentiation.  Other competitors have sought to add ancillary services, like mobile video, to enhance their offerings. Taken together, the competitive factors we face continue to put pressure on margins as companies compete to retain their current customer base and continue to add new developments, many proprietary or patented, and customers.


Need for any governmental approval of principal products or services


The FCC has a number of complex requirements and proceedings that affect our operations and that could increase our costs or diminish our revenues. For example, the FCC has rules regarding provision of 911 and E-911 services, porting telephone numbers, roaming, disabilities access, privacy and cybersecurity, consumer protection, and the universal service and Lifeline programs. Many of these and other issues are being considered in ongoing proceedings, and we cannot predict whether or how such actions will affect our business, financial condition or results of operations. Our ability to provide services and generate revenues could be harmed by adverse regulatory action or changes to existing laws and regulations. In addition, regulation of companies that offer competing services can impact our business indirectly.


KonaTel is pursuing the purchase of a United States Lifeline carrier with an FCC approved Compliance Plan.  Approval for the acquisition of a Lifeline carrier with an approved Compliance Plan rests with the FCC. Without FCC approval, we will be unable to purchase a Lifeline carrier with an FCC approved Compliance Plan.  Lifeline was created 33 years ago under President Ronald Reagan as part of the 1984 Telecommunications Act.  Under President George W. Bush, the program began to allow cell phones, and there was some initial duplication of service.  Unlike a traditional landline phone, a cell phone is not tied to a physical address. Since that time (2010 to 2012), the FCC implemented the National Lifeline Accountability Database (“ NLAD ”) to curb duplications.  Today, a strict process is followed and multiple forms of government issued identification are required to prove eligibility.  For every single Lifeline applicant and before Lifeline eligibility is ever approved, this information is cross-checked, in real time via software and via human oversight, against the FCC’s NLAD database.  Duplications plummeted after implementation of these new FCC procedures. Management believes there are an estimated 39 million Lifeline eligible households in the United States, and only 12 million are believed to be currently served, leaving approximately 27 million unserved/eligible households.  There are only 18 current ETC’s who hold an FCC approved Compliance Plan.  No new Compliance Plans have been approved by the FCC since 2012, so Lifeline is a tightly controlled market.  We anticipate that approximately one-third of out future gross revenues will come from Lifeline services, which will be overseen by Charles L. Schneider, Jr., one of our key personnel, who has over 30 years experience in the Telecom Industry and was the CEO of the nation’s eighth largest Lifeline carrier for five years.  See the heading “Significant Employees” of the caption “Directors and Executive Officers” of this Item, below.


If this purchase is completed, we will be subject to substantial additional FCC rules and regulations that could have an adverse affect on this segment of our business.  


Existing and Probable Government Regulation to Our Current and Intended Business


The FCC has a number of complex requirements and proceedings that affect our operations and that could increase our costs or diminish our revenues. For example, the FCC has rules regarding provision of 911 and E-911 services, porting telephone numbers, roaming, disabilities access, privacy and cyber security, consumer protection, and the universal service and Lifeline programs. Many of these and other issues are being considered in ongoing proceedings, and we cannot predict whether or how such actions will affect our business, financial condition or results of operations. Our ability to provide services and generate revenues could be harmed by adverse regulatory action or changes to existing laws and regulations. In addition, regulation of companies that offer competing services can impact our business indirectly.





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Exchange Act


We are subject to the following regulations of the Exchange Act, and applicable securities laws, rules and regulations promulgated under the Exchange Act by the SEC.  Compliance with these requirements of the Exchange Act increases our legal and accounting costs.


Smaller Reporting Company


We are subject to the reporting requirements of Section 13 of the Exchange Act, and subject to the disclosure requirements of Regulation S-K of the SEC, as a “smaller reporting company.”  That designation will relieve us of some of the informational requirements of Regulation S-K.


Sarbanes/Oxley Act


We are also subject to the Sarbanes-Oxley Act of 2002 (the “ Sarbanes/Oxley Act ”).  The Sarbanes/Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence.  It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, compensation and oversight of the work of public companies’ auditors; management assessment of our internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes/Oxley Act will substantially increase our legal and accounting costs.


Exchange Act Reporting Requirements


Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act like we are to comply with the rules and regulations of the SEC regarding proxy solicitations, as outlined in SEC Regulation 14A.  Matters submitted to shareholders at a special or annual meeting thereof or pursuant to a written consent will require us to provide our shareholders with the information outlined in Schedules 14A (where proxies are solicited) or 14C (where consents in writing of shareholders to the action have already been received or are anticipated to be received) of SEC Regulation 14, as applicable; and preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies are forwarded to our shareholders.


We are also required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; the creation of a material direct financial obligation; the sale of unregistered securities in excess of 5% of our outstanding securities; changes in our certifying auditors; and changes in management, among various other material events outlined in SEC Form 8-K.


Number of Total Employees and Number of Full-Time Employees


We have 21 full time employees, one part time employee.


Reports to Security Holders


You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 (hours are from 10:00 a.m. to 3:00 a.m.), or by calling 1-800-SEC-0330. You may also find all of the reports and registration statements that we have filed electronically with the SEC at their Internet site in their Edgar Archives at: www.sec.gov.







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RISK FACTORS


As we are a “smaller reporting company” as defined by Section 12b-2 of the Exchange Act, we are not required to provide the information under this Item or in our annual or quarterly reports filed with the SEC; however, we believe this information may be of value to our shareholders or potential investors in our Company for this filing. These risk factors should be considered in light of the caption “Forward-Looking Statements” at the forepart of this Current Report. We reserve the right not to provide risk factors in our future filings. Our primary risk factors and other considerations include:


Risks Related to the Company


We have a limited operating history (October, 2014) and cannot ensure the long-term successful operation of our business or the execution of our business plan.

 

We have a limited operating history, and our wireless marketing technology and solutions are an evolving business offering. As a result, investors have a limited track record by which to evaluate our future performance. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by growing companies in new and rapidly evolving markets. We may be unable to successfully accomplish and fund our current endeavors, which would materially impact our ability to implement our business plan, including:


·

establishing and maintaining broad market acceptance of our technology, solutions, services and platforms, and converting that acceptance into direct and indirect sources of revenue;


·

establishing and maintaining adoption of our technology, solutions, services and platforms in and on a variety of environments, experiences and device types;


·

timely and successfully developing new technology, solutions, services and platform features, and increasing the functionality and features of our existing technology, solutions, services and platform offerings;


·

developing technology, solutions, services and platforms that result in a high degree of customer satisfaction and a high level of end-customer usage;


·

successfully responding to competition, including competition from emerging technologies and solutions;


·

developing and maintaining strategic relationships to enhance the distribution, features, content and utility of our technology, solutions, services and platforms;


·

identifying, attracting and retaining talented engineering, network operations, program management, technical services, creative services and other personnel at reasonable market compensation rates in the markets in which we employ such personnel; and


·

integration of potential evolving offerings of products and acquisitions.

 

Our business strategy may be unsuccessful, and we may be unable to address the risks we face in a cost-effective manner, if at all. If we are unable to successfully accomplish these tasks, our business will be harmed and we may fail.


We have experienced minimal net income since our inception in October, 2014, and substantial losses, and there is no assurance that we will not continue to experience losses in our business.


We had unaudited and accountant reviewed gross revenues of approximately $9,740,000 during the year ended December 31, 2016, with cost of revenues being approximately $7,070,000, together with operating and other expenses of approximately $3,090,000, resulting in a net income of approximately $422,000; unaudited and accountant reviewed gross revenues for the year ended December 31, 2015, were approximately $6,925,000, with



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cost of revenues being approximately $4,470,000, along with operating and other expenses of approximately $2,830,000, resulting in a net loss of approximately ($467,000); and unaudited and accountant reviewed gross revenues for the nine month period ended September 30, 2017, of approximately $9,350,000, with cost of revenues being approximately $7,645,000, along with operating and other expenses of approximately $2,630,000, resulting in a net loss of approximately ($925,000) during this fiscal period.  If we cannot eliminate our losses and achieve profitability, our business may fail.  Audited financial statements for the years ended December 31, 2016, and 2015, and reviewed financial statements for the nine month period ended September 30, 2017, all by a PCAOB registered auditing firm, will not be available until on or before 75 days from the Effective Time of the KonaTel Merger. Accordingly, the foregoing amounts should not be relied upon and may change in the referenced audited and reviewed financial statements.

The United States Government’s dissolution or reduction of the Lifeline Program would have a substantial adverse affect on our current and planned business operations. 

·

Considering there are over 10 million current Lifeline recipients or customers, this would be a draconian move, like dissolving Medicare or Social Security, however, it is a possibility.  Government (federal and/or state) could also significantly reduce or delay Lifeline reimbursement payments to Lifeline carriers forcing Lifeline carriers to continue to provide minimum Lifeline services and at a reduced reimbursement rate.  Depending on the reimbursement reduction, a reduction would diminish earnings or even make Lifeline unprofitable.  “ The FCC established the Lifeline program in 1985 to ensure that qualifying low-income consumers could afford phone service and the opportunities and security it provides. Congress supported and strengthened Lifeline in the Telecommunications Act of 1996, requiring that affordable service and advanced communications be available to low-income consumers across the country.”


·

Lifeline requires several factors to be successful.  The impact of negative government change and negative national carrier pricing have been outlined above.  In addition to those two risks, an interruption to the supply of low cost phones and/or a reduction of Lifeline agents (no access to or not enough access to agents) would have a negative impact on Lifeline.


·

Proper equipment financiering and cash resources to pay up-front commission payments (sometimes required) is critical to facilitate Lifeline, B2B and retail sales and would have a negative impact on our business.


A national carrier (Verizon, AT&T, T-Mobile or Sprint) could dissolve, reduce or restrict any wholesale program, agent program or reseller program.  This includes both voice and data IoT, which would adversely affect our business. 


KonaTel, like all voice and data resellers, is dependent on the FCC licensed national carriers to provide services that can be resold for a profit.  The wireless carriers own/control their respective network (towers) and provide the wireless service.  Resellers do not own their own network and are dependent on the national carriers to provide a reseller program.  These carriers could eliminate a reseller program or reduce the profit margins making any applicable program unprofitable.  They could also implement market restorations reducing markets we could sell into and thereby having a direct adverse affect on our current and future prospects.  Similarly, one of these national carriers could reduce their own retail pricing, with no corresponding reduction in their wholesale pricing that in-turn would create a situation where a reseller is unable to make enough profit to sustain operations.  This has happened in the past with Verizon until Verizon’s wholesale (reseller) division finally reduced wholesale prices.


A wireless reseller could gain a significant price advantage over other wireless resellers by entering into a special national carrier pricing agreement not available to other resellers.  


This would in-turn allow that particular reseller to “undercut” all other resellers.  This scenario could also apply to a national wireless carrier acquiring a reseller then allowing that reseller to operate with special wholesale pricing not available to other resellers.  This scenario has happened in the past (i.e., Cricket Communications, Inc. (“ Cricket ”) and Ultra Mobile (“ Ultra ”), resellers acquired by a national carrier).  Any such event could have a substantial adverse impact on our business and revenues. 



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The increase in the number of resellers of services and products that we provide by any national carrier could saturate the markets and market segments that KonaTel targeted customers.


Market saturation could occur when a national carrier allows too many resellers into the market and margins drop so low the reseller business model is unsustainable, and our business may suffer and fail. 


A decrease in the number of wholesale voice from aggregators of these services could cause a substantial reduction in our business and customers.


We purchase IoT directly from national carriers, and purchase some of our wholesale voice from wholesale aggregators or MVNEs like Telispire and Orbcomm.  If one of these aggregators vacated the market, such action could strand many resellers of these services, like us, and could substantially reduce our current and anticipated revenues from this IoT service.


Adequate funds for our current and intended operations may not be available, requiring us to raise additional financing or curtail our current and plan operations significantly.


We will likely be required to raise additional funding through public or private debt or equity financings. Any additional equity financings may be dilutive to shareholders and may be completed at a discount to the then-current market price of our common stock, which common stock currently trades in an ill-liquid market on the OTC Pink Tier. Debt financing, if available, would likely involve restrictive covenants on our operations or pertaining to future debt or equity financing arrangements. Nevertheless, we may not successfully complete any future equity or debt financing. Adequate funds for our operations, whether from financial markets, collaborative or other arrangements, may not be available when needed or on terms attractive to us. If adequate funds are not available, our plans to operate our business may be adversely affected, and we could be required to curtail our activities significantly and/or cease operating.

 

We will be unable to implement our business plan if we cannot raise sufficient capital and may be required to pay a high price for capital based on the current ill-liquid market for our common stock, among other factors.


We anticipate that we will need additional capital to implement our business plan, and if we cannot attract sufficient capital from customary sources, we may be required to pay a high price for capital.

 

We will need to obtain additional capital to implement our business plan and meet our financial obligations as they become due. We may not be able to raise the additional capital needed or may be required to pay a high price for any required capital. Factors affecting the availability and price of capital may include the following:

 

·

the availability and cost of capital generally;

·

our financial results;

·

the experience and reputation of our management team;

·

market interest, or lack of interest, in our industry and business plan;

·

the trading volume of, and volatility in, the market for our common stock, if there is a reasonable trading market for our common stock;

·

our ongoing success, or failure, in executing our business plan;

·

the amount of our capital needs; and

·

the amount of debt, options, warrants and convertible securities that may be outstanding in our Company at any time.


We may be unable to meet our current or future obligations or to adequately exploit existing or future opportunities if we cannot raise sufficient capital. If we are unable to obtain capital for an extended period of time, we may be forced to discontinue or curtail our operations and we may fail.

 

We expect that there will be significant consolidation in our industry. Our failure or inability to lead that consolidation would have a severe adverse impact on our access to financing, customers, technology, and human resources.



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Our industry is currently composed of a small number of substantial entities, and a relatively large number of small businesses, no single one of which is dominant or which provides integrated solutions and product offerings incorporating much of the available technology. Accordingly, we believe that substantial consolidation of the smaller companies may occur in our industry in the near future as has occurred with many larger participants. If we do not play a positive role in that consolidation, either as a leader or as a participant whose capabilities and offerings are merged into a larger entity, we may be left out of this process, with product and service offerings of limited value compared with those of our competitors. Moreover, even if we lead the consolidation process, the market may not validate the decisions we make in that process.

 

Our success depends on our product and service technologies achieving and maintaining widespread acceptance in our targeted markets.


Our success will depend to a large extent on broad market acceptance of our wireless solutions among our current and prospective customers. Our prospective customers may still not use our solutions for a number of other reasons, including preference for static advertising, lack of familiarity with our technology, preference for competing technologies or perceived lack of reliability. We believe that the acceptance of our technologies by prospective customers will depend primarily on the following factors:


·

our ability to demonstrate the economic and other benefits attendant to our products and services;

·

our customers becoming comfortable with using our wireless technologies; and

·

the reliability of these services and technologies.


Because we do not have long-term purchase commitments from our customers, the failure to obtain anticipated orders or the deferral or cancellation of commitments could have adverse effects on our business.

 

Our business is characterized by short-term purchase orders and contracts that do not require that purchases be made. This makes forecasting our sales difficult. The failure to obtain anticipated orders and deferrals or cancellations of purchase commitments because of changes in customer requirements, or otherwise, could have a material adverse effect on our business, financial condition and results of operations. We have experienced such challenges in the past and may experience such challenges in the future.


Most of our contracts are terminable by our customers with limited notice and without penalty payments, and early terminations could have a material adverse affect on our business, operating results and financial condition.

 

Most of our contracts are terminable by our customers following limited notice and without early termination payments or liquidated damages due from them. In addition, each stage of a project often represents a separate contractual commitment, at the end of which the customers may elect to delay or not to proceed to the next stage of the project. We cannot assure you that one or more of our customers will not terminate a material contract or materially reduce the scope of a large project. The delay, cancellation or significant reduction in the scope of a large project or a number of projects could have a material adverse effect on our business, operating results and financial condition.


Our industry is characterized by frequent technological change. If we are unable to adapt our products and services and develop new products and services to keep up with these rapid changes, we will not be able to obtain or maintain market share.

 

The market for our products and services is characterized by rapidly changing technology, evolving industry standards, changes in customer needs, heavy competition and frequent new product and service introductions. If we fail to develop new products and services or modify or improve existing products and services in response to these changes in technology, customer demands or industry standards, our products and services could become less competitive or obsolete.


We must respond to changing technology and industry standards in a timely and cost-effective manner. We may not be successful in using new technologies, developing new products and services or enhancing existing products and



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services in a timely and cost-effective manner. Furthermore, even if we successfully adapt our products and services, these new technologies or enhancements may not achieve market acceptance.


A portion of our business involves the use of software technology that we have developed or licensed. Industries involving the ownership and licensing of software-based intellectual property are characterized by frequent intellectual-property litigation, and we could face claims of infringement by others in the industry. Such claims are costly and add uncertainty to our operational results.

 

A portion of our business involves our ownership and/or licensing of software. This market space is characterized by frequent intellectual-property claims and litigation. We could be subject to claims of infringement of third-party intellectual-property rights resulting in significant expense and the potential loss of our own intellectual-property rights. From time to time, third parties may assert copyright, trademark, patent or other intellectual-property rights to technologies that are important to our business. Any litigation to determine the validity of these claims, including claims arising through our contractual indemnification of our business partners, regardless of their merit or resolution, would likely be costly and time consuming and divert the efforts and attention of our management and technical personnel. If any such litigation resulted in an adverse ruling, we could be required to:


·

pay substantial damages;

·

cease the development, use, licensing or sale of infringing products;

·

discontinue the use of certain technology; or

·

obtain a license under the intellectual property rights of the third party claiming infringement, which license may not be available on reasonable terms or at all.


Our business may be adversely affected by malicious applications that interfere with, or exploit security flaws in, our products and services.

 

Our business may be adversely affected by malicious applications that make changes to our customers’ computer systems and interfere with the operation and use of our products or products that impact our business. These applications may attempt to interfere with our ability to communicate with our customers’ devices. The interference may occur without disclosure to or consent from our customers, resulting in a negative experience that our customers may associate with our products and services. These applications may be difficult or impossible to uninstall or disable, may reinstall themselves and may circumvent other applications’ efforts to block or remove them. The ability to provide customers with a superior interactive marketing technology experience is critical to our success. If our efforts to combat these malicious applications fail, or if our products and services have actual or perceived vulnerabilities, there may be claims based on such failure or our reputation may be harmed, which would damage our business and financial condition.

 

We compete with other companies that have more resources, which means we are at a distinct competitive disadvantage in our chosen industry.

 

The market for products and service solution technologies is generally highly competitive, and we expect competition to increase in the future. Some of our competitors or potential competitors may have significantly greater financial, technical and marketing resources than us. These competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements. They may also devote greater resources to the development, promotion and sale of their products than us.

 

We expect competitors to continue to improve the performance of their current products and to introduce new products, services and technologies. Successful new product and service introductions or enhancements by our competitors could reduce sales and the market acceptance of our products and services, cause intense price competition or make our products and services obsolete. To be competitive, we must continue to invest significant resources in research and development, sales and marketing and customer support. If we do not have sufficient resources to make these investments or are unable to make the technological advances necessary to be competitive, our competitive position will suffer. Increased competition could result in price reductions, fewer customer orders, reduced margins and loss of market share. Our failure to compete successfully against current or future competitors could adversely affect our business and financial condition.




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Our future success depends on key personnel and our ability to attract and retain additional personnel.


Our success is dependent upon attracting and maintaining key personnel, including KonaTel’s founder and current sole owner, D. Sean McEwen, and various key employees, including Charles L. Schneider, Jr., from whom KonaTel acquired CS Agency, and J. William Riner, a former co-owner of Coast to Coast.  Further, if we fail to retain our key personnel or to attract, retain and motivate other qualified employees, our ability to maintain and develop our business may be adversely affected. Our future success depends significantly on the continued service of our key technical, sales and senior management personnel and their ability to execute our growth strategy. The loss of the services of our key employees could harm our business. We may be unable to retain our employees or to attract, assimilate and retain other highly qualified employees who could migrate to other employers who offer competitive or superior compensation packages.


Unpredictability in financing markets could impair our ability to grow our business through acquisitions.

 

We anticipate that opportunities to acquire similar businesses will materially depend on the availability of financing alternatives with acceptable terms. As a result, poor credit and other market conditions or uncertainty in financial markets could materially limit our ability to grow through acquisitions since such conditions and uncertainty make obtaining financing more difficult.

 

Our reliance on information management and transaction systems to operate our business exposes us to cyber incidents and hacking of our sensitive information if our outsourced service provider experiences a security breach.

 

Effective information security internal controls are necessary for us to protect our sensitive information from illegal activities and unauthorized disclosure in addition to denial of service attacks and corruption of our data. In addition, we rely on the information security internal controls maintained by our outsourced service provider. Breaches of our information management system could also adversely affect our business reputation. Finally, significant information system disruptions could adversely affect our ability to effectively manage operations or reliably report results.

 

Because our technology, products, platforms and services are complex and are deployed in and across complex environments, they may have errors or defects that could seriously harm our business.

 

Our technology, proprietary platforms, products and services are highly complex and are designed to operate in and across data centers, large and complex networks, and other elements of the digital media workflow that we do not own or control. On an ongoing basis, we need to perform proactive maintenance services on our platform and related software services to correct errors and defects. In the future, there may be additional errors and defects in our software that may adversely affect our services. We may not have in place adequate reporting, tracking, monitoring, and quality assurance procedures to ensure that we detect errors in our software in a timely manner. If we are unable to efficiently and cost-effectively fix errors or other problems that may be identified, or if there are unidentified errors that allow persons to improperly access our services, we could experience loss of revenues and market share, damage to our reputation, increased expenses and legal actions by our customers.

 

We may have insufficient network or server capacity, which could result in interruptions in our services and loss of revenues.

 

Our operations are dependent in part upon: network capacity provided by third-party telecommunications networks; data center services provider owned and leased infrastructure and capacity; server capacity located at the data center services provider partner or partners; and our own infrastructure and equipment. Collectively, this infrastructure, equipment, and capacity must be sufficiently robust to handle all of our customers’ wireless requirements, particularly in the event of unexpected surges in high-definition video traffic and network services incidents. We may not be adequately prepared for unexpected increases in bandwidth and related infrastructure demands from our customers. In addition, the bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including payment disputes, outages, or such service providers going out of business. Any failure of these service providers or our own infrastructure to provide the capacity we require, due to financial or other reasons, may result in a reduction in, or interruption of, service to our customers, leading to an immediate decline in revenue and possible additional decline in revenue as a result of subsequent customer losses.

 



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We do not have sufficient capital to engage in material research and development, which may harm our long-term growth.

 

In light of our limited resources in general, we have made no material investments in research and development over the past several years. This conserves capital in the short term. In the long term, as a result of our failure to invest in research and development, our technology and product offerings may not keep pace with the market and we may lose any existing competitive advantage. Over the long term, this may harm our revenues growth and our ability to become profitable.

 

Our business operations are susceptible to interruptions caused by events beyond our control.

 

Our business operations are susceptible to interruptions caused by events beyond our control. We are vulnerable to the following potential problems, among others:


·

our platform, technology, products, and services and underlying infrastructure, or that of our key suppliers, may be damaged or destroyed by events beyond our control, such as fires, earthquakes, floods, power outages or telecommunications failures;

·

we and our customers and/or partners may experience interruptions in service as a result of the accidental or malicious actions of Internet users, hackers or current or former employees;

·

we may face liability for transmitting viruses to third parties that damage or impair their access to computer networks, programs, data or information. Eliminating computer viruses and alleviating other security problems may require interruptions, delays or cessation of service to our customers; and

·

the failure of our systems or those of our suppliers may disrupt service to our customers (and from our customers to their customers), which could materially impact our operations (and the operations of our customers), adversely affect our relationships with our customers and lead to lawsuits and contingent liability.


The occurrence of any of the foregoing could result in claims for consequential and other damages, significant repair and recovery expenses and extensive customer losses and otherwise have a material adverse effect on our business, financial condition and results of operations.

 

General global market and economic conditions may have an adverse impact on our operating performance and results of operations.

 

Our business has been and could continue to be affected by general economic and market conditions. Weakness in the United States and worldwide economy could have a negative effect on our operating results. Additionally, in a down-cycle economic environment, we may experience the negative effects of increased competitive pricing pressure, customer loss, slowdown in commerce over the Internet and corresponding decrease in traffic delivered over our network and failures by our customers to pay amounts owed to us on a timely basis or at all. Suppliers on which we rely for equipment, field services, servers, bandwidth, co-location and other services could also be negatively impacted by economic conditions that, in turn, could have a negative impact on our operations or revenues. Flat or worsening economic conditions may harm our operating results and financial condition.

 

The markets in which we operate are rapidly emerging, and we may be unable to compete successfully against existing or future competitors to our business.

 

The markets in which we operate is becoming increasingly competitive. Our current competitors generally include those that offer similar products and services. These competitors, including future new competitors who may emerge, may be able to develop comparable or superior solution capabilities, platforms, services, products and/or a series of services that provide a similar or more robust set of features and functionality than the technology, products and services we offer. If this occurs, we may be unable to grow as necessary to make our business profitable. 

 

Whether or not we have superior products, many of these current and potential future competitors have a longer operating history in their current respective business areas and greater market presence, brand recognition, engineering and marketing capabilities, and financial, technological and personnel resources than we do. Existing



21




and potential competitors with an extended operating history, even if not directly related to our business, have an inherent marketing advantage because of the reluctance of many potential customers to entrust key operations to a company that may be perceived as unproven. In addition, our existing and potential future competitors may be able to use their extensive resources:


·

to develop and deploy new products and services more quickly and effectively than we can;

·

to develop, improve and expand their platforms and related infrastructures more quickly than we can;

·

to reduce costs, particularly hardware costs, because of discounts associated with large volume purchases and longer term relationships and commitments;

·

to offer less expensive products, technology, platform, and services as a result of a lower cost structure, greater capital reserves or otherwise;

·

to adapt more swiftly and completely to new or emerging technologies and changes in customer requirements;

·

to take advantage of acquisition and other opportunities more readily; and

·

to devote greater resources to the marketing and sales of their products, technology, platform, and services.

 

If we are unable to compete effectively in our various markets, or if competitive pressures place downward pressure on the prices at which we offer our products and services, our business, financial condition and results of operations may suffer.


Compliance with the reporting requirements of federal securities laws can be expensive.

We are a public “reporting company” in the United States, and accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act of 2002. The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited and reviewed financial statements in our reports to shareholders are substantial. If we do not provide current information about our Company to those broker-dealers who may trade in our common stock, they will not be able to trade our common stock. Failure to comply with the applicable securities laws could result in private or governmental legal action against us or our officers and directors, which could have a detrimental impact on our business and financial condition, the value of our common stock, and the ability of our shareholders to resell their common stock.

Increased costs as a result of being a public company.

We have incurred, and expect to continue to incur costs associated with becoming and continuing as a public company, including, but not limited to, legal, accounting, filing and other related costs and expenses.

We do not intend to pay dividends on our common stock for the foreseeable future.


All future revenues are anticipated to be utilized for research, development and the furtherance of the business plan of KonaTel, and accordingly, it is highly unlikely that you will receive any dividends from the reorganized KonaTel in the near future, if ever.


We do not intend to provide guidance about future events in the foreseeable future.


Our Board of Directors anticipates adopting a policy that will preclude us from providing guidance about matters that may happen in the foreseeable future, though any such policy will not prohibit our responsibilities to provide forward-looking information to our shareholders and to the public in our Exchange Act filings with the SEC, including our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” required in a number of SEC reports and registration statements.


Risks Related to Our Common Stock

 

Our common stock trades only in an illiquid trading market.

 



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Trading of the Company’s common stock is conducted on the OTC Markets OTC Pink Tier under the trading symbol “DALP.” This has an adverse effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us and the common stock. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock, regardless of whether we are successful in our current and planned business operations.


There is not now and there may not ever be an active market for shares of or common stock.

 

In general, there has been minimal trading volume in the Company’s common stock. The small trading volume will likely make it difficult for shareholders to sell their shares as and when they choose. Furthermore, small trading volumes are generally understood to depress market prices. As a result, you may not always be able to resell shares of the Company’s common stock publicly at the time and prices that you feel are fair or appropriate.


The Company also has a limited public float of approximately 1,629,286 shares, with approximately 1,062,050 of these shares being reflected as “restricted securities,” and there has not been an “established trading market” in the Company’s common stock.  All of the 1,062,050 shares reflected as being “restricted securities” have been held approximately three years and are believed to be freely tradeable under Rule 144 or Section 4(a)(1) of the Securities Act, based upon legal counsel’s advice. Because of the Company’s current limited public float, among other unknown factors, the OTC Markets has refused to allow the Company’s common stock to be listed on its “OTCQB Tier,” and no new application can be filed for such a listing until on or about March 31, 2018.


Furthermore, the Company may be deemed to be a “shell company” by reason of its limited business operations.  If that were the case, and assuming your shareholdings were “restricted securities, you may not be able to sell any common stock in the Company for at least one year from the filing of Form 10 Information, among other factors outlined in subparagraph (i) of SEC Rule 144, and this information would include audited financial statements of KonaTel for the years ended December 31, 2016, and 2015, and reviewed financial statements for the nine month period ended September 30, 2017, which may not be available for 75 days from the Effective Time; and this designation could certainly inhibit the ability of the Company to raise any required funding for planned operations.


If an active market for our common stock develops, there is a significant risk that the Company’s common stock price may fluctuate dramatically in the future in response to any of the following factors, some of which are beyond our control, including, but not limited to:


·

variations in our quarterly operating results;

·

announcements that our revenue or income are below analysts’ expectations;

·

general economic slowdowns;

·

sales of large blocks of our common stock by insiders and others; and

·

announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital raises.


Our common stock is subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for shareholders to sell our common stock.


The SEC has adopted Rule 15g-9, which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.


In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.




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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.


Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of the Company’s common stock if and when such shares are eligible for sale and may cause a decline in the market value of its stock.


Because of increased regulatory efforts of governmental and quasi-governmental agencies regarding the trading of securities in the over-the-counter market, where the Company’s shares of common stock presently are quoted, the cost and expense of depositing and inducing a broker-dealer to effect sales of these shares is very costly, often in excess of price of the shares sought to be sold.


Currently, broker-dealers require legal opinions of shareholders of almost all over-the-counter stocks to deposit and sell these shares, and all of these legal opinions are required to be paid for by the shareholder;  and often, two legal opinions are required, one from the shareholder’s legal counsel and one from the broker-dealer’s legal counsel.  This policy has been required of all over-the-counter shares, regardless of whether the shares have been registered with the SEC, or whether there is no legend on the stock certificate representing the shares and always if the shares are designated as “restricted securities.”  Larger, national broker-dealers will generally not even trade these securities.  The high cost of these types of legal opinions is often more than the value of the shares sought to be sold, and the process can take two to three weeks or more.  Accordingly, shareholders with limited shares of low priced stocks will be unable to economically sell their shares, regardless of whether an “established trading market” for the shares exists, and if they could sell their shares, the required selling process will inhibit their ability to sell the shares when they desire to sell their shares.


Because we became public by means of a reverse acquisition, we may not be able to attract the attention of brokerage firms.


Because we became public through a “reverse acquisition,” securities analysts of brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. Moreover, no assurance can be given that brokerage firms will want to conduct capital raises on our behalf, presently or in the future.


We have granted “piggy-back” registration rights to certain of our shareholders who hold or may purchase shares of our common stock that are “restricted securities,” and the sale of these shares of common stock could have an adverse affect on any market for the Company’s common stock that may develop in the future.


Shares of our common stock registered for resale by other shareholders may create a ceiling on any market that develops for our common stock, and may enable persons to “short” or otherwise cause material adverse affects on any such market; you may not be able to sell your shares and could lose your entire investment in our shares of common stock.


Our investors’ ownership in the Company may be diluted in the future.


In the future, we may issue additional authorized but previously unissued equity securities, resulting in the dilution of ownership interests of our present shareholders. We expect to need to issue a substantial number of shares of common stock or other securities convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, raising additional capital in the future to fund our operations and other business purposes. We currently anticipate offering incentive stock options for our officers, directors and others. Additional shares of common stock issued by us in the future will dilute an investor’s investment in the Company. 


Directors, executive officers, principal shareholders and affiliated entities own a significant percentage of our capital stock, and they may make decisions that our shareholders do not consider to be in their best interests.




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As of the date of this Current Report, our directors, executive officers, principal shareholders and affiliated entities beneficially own, in the aggregate, approximately 94% of our issued and outstanding shares of common stock as of the date hereof, excluding Incentive Stock Options granted and outlined in this Current Report under the heading “Outstanding Equity Awards” of the caption “Executive Compensation” in this Item 5.01, below. Mr. McEwen, our Chairman and Chief Executive Officer beneficially owns approximately 94% of our issued and outstanding common stock by reason of his personal holdings and the irrevocable proxies granted to him under the Shareholder Voting Agreement. As a result this ownership and various other provisions of the Shareholder Voting Agreement, he may have the ability to control the election of our board of directors and the outcome of issues requiring approval by our shareholders. This concentration of ownership may also have the effect of delaying or preventing a change in control of our Company that may be favored by other shareholders. This could prevent transactions in which shareholders might otherwise recover a premium for their shares over current market prices. This concentration of ownership and influence in management and board decision-making could also harm the price of our capital stock by, among other things, discouraging a potential acquirer from seeking to acquire shares of our capital stock, whether by making a tender offer or attempting to obtain control of our Company. For a more detailed discussion of the provisions of the Shareholder Voting Agreement, see the caption “Certain Relationships and Related Party Transactions and Director Independence” set forth in this Item 5.01, below.


If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or detect fraud. Consequently, investors could lose confidence in our financial reporting and this may decrease any trading price of our common stock.


We must maintain effective internal controls to provide reliable financial reports and to detect and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as would be possible with an effective control system in place. We have not performed an in-depth analysis to determine if historical undiscovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.


We have been assessing our internal controls to identify areas that need improvement. We are in the process of implementing changes to internal controls, but have not yet completed implementing these changes. Failure to implement these changes to our internal controls or any others that it identifies as necessary to maintain an effective system of internal controls could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our common stock. 


FINANCIAL INFORMATION


Audited financial statements of KonaTel for the years ended December 31, 2106, and 2015, along with reviewed financial statements for the nine month period ended September 30, 2017, will be filed with the SEC within 75 days of the Effective Time of the Merger.  Additionally, unaudited pro forma financial statements of the Company and KonaTel in the form of a Balance Sheet at September 30, 2017, will be filed with the SEC within 75 days of the Effective Time of the Merger.  See Item 9.01


PROPERTIES


We have leases on the following properties:

 

Our Pennsylvania office and former Headquarters, consisting of approximately 7,500 square feet and located at 1910 Minno Drive, # 210, Johnstown, Pennsylvania 15905, under a lease that commenced on January 1, 2014, and expires on April 30, 2019, at a monthly rent of $5,500.


Our New York retail store, consisting of approximately of 1,500 square feet and located at 299 N Comrie Avenue, Johnstown, New York 12095, under a lease that commenced on January 1, 2003, and expired on January 1, 2007, and which is now leased on a month to month basis, at a monthly rent of $2,200.




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Our Texas and Principal Executive Offices, consisting of approximately 3,000 square feet and located at 13601 Preston, Road, # E816, Dallas, Texas 75240, under a lease that commenced on December 1, 2016, and expires on December 31, 2017, at a monthly rent of $3,759.


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


Security Ownership of Certain Beneficial Owners


The following table sets forth the ownership by any person known to us to be the beneficial owner of more than five percent (5%) of any of our outstanding voting securities as of the filing of this Current Report with the SEC.  Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.  The persons named in the table below have sole voting power and investment power with respect to all shares of common stock shown as beneficially owned by them.


Beneficial Owners


Name and Address of Beneficial Owner

 

Title of Class

 

Amount and Nature

of Beneficial Ownership (1), (3)

 

Percent of Class (2), (3)

 

 

 

 

 

 

 

M2 Equity Partners LLC

730 Washington Ave N, #620

Minneapolis, Minnesota 55401

 

Common

 

12,100,000

 

44.5%


Security Ownership of Officers and Directors


Name and Address of Beneficial Owner

 

Title of Class

 

Amount and Nature

of Beneficial Ownership (1), (3)

 

Percent of Class (2), (3)

 

 

 

 

 

 

 

D. Sean McEwen

 

Common

 

13,500,000

 

94%

 

 

 

 

 

 

 

Brian R. Riffle

 

Common

 

0

 

0%

 

 

 

 

 

 

 

Matthew Atkinson

 

Common

 

4,000,000

 

33%

 

 

 

 

 

 

 

Mark Savage

 

Common

 

4,000,000

 

33%

 

 

 

 

 

 

 

All Officers and Directors as a Group

 

Common

 

 

 

94%


(1) The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares, which the individual has the right to acquire within 60 days through the exercise of any stock option or other right. The persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.


(2) Based on 27,192,286 issued (or issuable and fully-paid) and outstanding shares of common stock as of the date of this Current Report. SEC Rule 13d-3 generally provides that beneficial owners of securities include any person who, directly or indirectly, has or shares voting power and/or investment power with respect to such securities, and any person who has the right to acquire beneficial ownership of such security within 60 days.  Any securities not outstanding which are subject to such options, warrants or conversion privileges exercisable within 60 days are treated as outstanding for the purpose of computing the percentage of outstanding securities owned by that person.  Such securities are not treated as outstanding for the purpose of computing the percentage of the class owned by any other person.  At the present time there are no outstanding options or warrants.




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(3) Under the Shareholder Voting Agreement, Messrs. Savage and Atkinson and M2 have granted Mr. McEwen an irrevocable proxy to vote all shares owned by them for a period of two years; accordingly, Mr. McEwen is deemed to be the beneficial owner of approximately 25,600,000 shares of our outstanding 27,192,286 shares of common stock.  


Shareholder Voting Agreement


For a more complete description of the Shareholder Voting Agreement, see the fourth bulleted paragraph of Item 1.01, along with the copy of the Shareholder Voting Agreement that is filed as an Exhibit to this Current Report in Item 9.01.


Lock-Up/Leak-Out Agreement


Subject to compliance with all of the applicable provisions of SEC Rule 144 as now in effect or hereafter amended, including SEC interpretations thereof, or an effective S-1 Registration Statement filed with the SEC under the Securities Act, which is accompanied by a “current” Resale Prospectus that includes shares of Common Stock covered by the Lock-Up/Leak-Out Agreement that are sought to be publicly sold by a covered shareholder through a registered broker-dealer and except as otherwise expressly provided therein, the covered shareholder may only sell his/her/its common stock subject to the following conditions, commencing on the later of six months from (i) the Effective Time of the KonaTel Merger or the date of purchase by any covered shareholder, as applicable; or (ii) the date of the filing of an 8-K Current Report with the SEC under Item 5.01(8), which includes all applicable audited and reviewed financial statements of the Company and KonaTel, as may be required by applicable securities laws and SEC rules and regulations (the “Lock-Up Period” ); provided, however, the Lock-Up Period shall not cover any shares of common stock owned by a covered shareholder that is included in a registration statement, though the provisions of the Leak-Out Period shall continue to be applicable.  Following the Lock-Up Period, a covered shareholder may sell shares of common stock of the Company as follows (the “Leak-Out Period” ):


·

one (1) week, no more than the greater of (5%) of the total shares of the Company publicly traded on any nationally recognized medium of a stature no less than the OTC Pink Tier over the previous ten (10) trading days; or

·

one percent of the total outstanding shares of the Company as reported in the Company’s most recently filed SEC report or registration statement in the Edgar Archives of the SEC, divided by 13 weeks, which number may be updated from time to time, based upon the number of shares reflected as being outstanding in the Company’s SEC filings, on a non-cumulative basis, meaning that if the amount of shares allowed to be sold under this subparagraph are not sold in any specific week, that the unsold amount cannot be accumulated and sold in any subsequent week or weeks with the sale of other shares that are allowed to be sold in a specific week. Any sales made by “affiliates” of the Company during the Leak-Out Period are also subject to the standard volume limitations applicable to any “affiliate” of the Company under SEC Rule 144.

·

Notwithstanding, the Company may allow any covered shareholder the right to sell or transfer shares of common stock in a bona fide private transaction or by gift or for estate planning purposes, subject to receipt of an opinion of legal counsel for the Company that there is an available exemption from registration for any such transaction under the Securities Act, and subject to any transferee’s execution and delivery of a copy of this Agreement; provided, however , in such event, the covered shareholder and any transferee in any such conveyance of shares of common stock shall be required to aggregate their respective sales of shares of common stock during the 18 month term of the Lock-Up/Leak-Out Agreement so that the combined sale of shares of common stock sold by the covered shareholder and any transferee does not exceed the number of shares of common stock that could have been sold by the covered shareholder during the Leak-Out Period as if any such transaction had not occurred; and provided, further, however , these provisions of “aggregation” shall not apply to any disposition by operation of law, including the dissolution of an “entity” covered shareholder and the distribution of shares of common stock to its shareholders or members, pro rata, according to their respective interests in any such entity, or specifically, M2.  Any private transfers of shares of common stock will also require the transferee to agree to be fully bound by the terms and conditions of the Shareholder Voting



27




Agreement, if applicable to the covered shareholder, by delivery of a duly executed copy thereof to the “Shareholder” (as defined therein).

·

Except as otherwise provided, all shares of common stock shall be sold by a covered shareholder in “broker’s transactions” and in compliance with the “manner of sale” requirements as those terms are defined in Rule 144 of the SEC during the Leak-Out Period.

·

An appropriate legend indicating that the Lock-Up/Leak-Out Agreement is in effect shall be imprinted on each stock certificate representing shares of common stock covered thereby, and the transfer records of the Company’s transfer agent shall reflect such resale restrictions.


For a more information about the Lock-Up/Leak-Out Agreement, see the copy of the Shareholder Voting Agreement that is filed as an Exhibit to this Current Report in Item 9.01 and incorporated herein by reference.  The provisions of this Lock-Up/Leak-Out Agreement shall also apply to any participant in the planned $1,300,000 equity funding of the Company.


DIRECTORS AND EXECUTIVE OFFICERS


Identification of Directors and Executive Officers


Our executive officers and directors and their respective ages, positions and biographical information are set forth below.


Name

 

Age

 

Positions Held

 

Since

D. Sean McEwen

 

56

 

Chairman, President and CEO

 

December 2017

Brian R. Riffle

 

57

 

Chief Financial Officer

 

December 2017

Matthew Atkinson

 

35

 

Secretary

 

July 2017

Mark Savage

 

51

 

Director

 

July 2017


Background and Business Experience


Mark Savage


Mr. Savage, age 51, is the founder and owner of M2 Capital Advisors, Inc., a Minnesota corporation (“ M2 Capital ”), which is a corporate advisory company with principal offices in Minnetonka, Minnesota.  For nearly two decades, M2 Capital has pioneered an innovative form of financial consulting that combines introduction to growth capital and access to corporate finance strategy and key business development services critical to the rapid growth and long term success of emerging companies.  These services, provided by M2 Capital staff specialists and representatives, include executive recruiting and team building, human resource planning, securities and contract law, marketing strategies, brand development, strategic industry relationships, marketing communications, investor relations, business plans, white papers and corporate governance (particularly Sarbanes-Oxley, HIPPA, and Gram-Leach-Bliley).  M2 Capital’s consultative approach to early stage investing has proven to be a valuable skill set that enables entrepreneurs and early stage management teams to remain focused on core business issues while accelerating the growth of shareholder value.  M2 Capital has provided early stage services to innovative companies developing new technologies and services in software, biotech, e-commerce and telecom and gaming industries in the United States, Canada and Central and South America.  

 

During these two decades, M2 Capital has specialized in founding, financing and developing growth companies in the United States.  The principal and professionals of M2 Capital have developed a successful track record of combining timely business and market strategies with effective management teams to launch and introduce early-stage funding to publicly-held companies.  M2 Capital has extensive experience in acquiring and merging operating companies into publicly-traded companies with little or no operating history.  It has implemented a format to lay the corporate, financial and regulatory foundation for companies, many of which have gone on to be traded on NASDAQ and other exchanges and that have subsequently successfully completed substantial equity and debt financings and mergers and acquisitions.  







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Matt Atkinson


Mr. Atkinson, age 35, has served as the President and CEO of Elev8 Marketing LLC, a Minnesota limited liability company (“ Elev8 Marketing ”) since April, 2010, and presently.  He also served as Vice President of Sales for Griffin International from August of 2008 to March of 2010.  Mr. Atkinson’s duties as President and CEO of Elev8 Marketing have included being accountable for $500 Million in sales volume of complex product categories; directly managing a team of 19 account managers, business analysts and forecasting analysts; leading a cross functional team of 75 to develop product lines for over 37,000 retail stores; establishing relationships with senior level executives representing brands such as Microsoft, Apple, Nintendo, Disney and Proctor & Gamble; managing profit margins and forecasting in the North American markets, which increased market share from approximately 11% to approximately 72% in value video games; and as Senior Vice President of Sales and Marketing, oversaw all areas of sales, marketing, branding and distribution of the $60 Million Polaroid licensed consumer electronics business.  Mr. Atkinson received a B.S. in sports management from the University of Minnesota in 2005.


Neither Mr. Savage nor Mr. Atkinson has any present compensation arrangements with the Company.


D. Sean McEwen


Mr. McEwen, age 56, founded KonaTel in 2014, a wireless data and voice service reseller and currently focuses his efforts exclusively on KonaTel, which supports wholesale and retail wireless lines of service throughout the United States.  From 2011 to 2013, Mr. McEwen consulted with multiple international Mobile virtual network operators (“MVNOs) in the U.S., Peru, and China.  From 2010 to 2011, he served as a founding board member of One Fund, a NYSE listed (NYSE: ONEF) exchange traded fund.  One Fund pioneered the “ETF of ETFs” concept, and in 2011, came to the attention of Russell Investments, known for their stock indices (i.e., the Russell 2000).  Russell Investments purchased One Fund in 2011.  In 2008, Mr. McEwen became a member of the venture/angel investment group, Sierra Angels (www.sierraangels.com), serving on several high-tech due diligence committees and participating in early stage funding transactions.  In early 1983, after departing college prior to graduation, he co-founded Online Data Corp.  Through a series of acquisitions/mergers, this company was eventually renamed “TriTech Software Systems” (www.tritech.com) “ TriTech ”).  From 1983 to 1990, it developed custom strategic software applications for numerous businesses, including E. F. Hutton Life Insurance, Travel Lodge Hotels, Foodmaker (Jack in the Box restaurants), AT&T, UCSD’s Scripps Institute of Oceanography and Visa’s Plus Systems national ATM network.  


In 1991, TriTech transformed from a custom software development firm to an enterprise software development and systems integration company specializing in mission critical public safety (e.g., police, fire, and EMS) telecom software solutions.  TriTech’s flagship product, VisiCAD, was the world’s first 9-1-1 emergency dispatching system based on Microsoft technology with integrated GPS based tracking and predictive routing technology.  In 1995, TriTech won the Microsoft Most Innovative Windows Application award competing against all Windows applications worldwide.  In 1998, while Mr. McEwen was CEO, TriTech was named to the Inc. 500 as the 344 th fastest growing privately-held company in the United States.  The following year, Bill Gates cited TriTech and VisiCAD in his book Business at the Speed of Thought as an example of a mission critical Windows based telecom system utilizing GPS.


Mr. McEwen served as Vice President of TriTech from 1983 to 1988, President from 1988 to 1996, Chairman/CEO from 1996 to 2000, and finally as a member of the Board of Directors, until controlling interest was sold to Westview Capital Partners in 2006.  In 2017, TriTech celebrated 34 years of continuous operation and today, with over 700 employees and over 1000 mission critical software installations across five (5) countries, is the largest public safety software company in the world.


Brian R. Riffle


Mr. Riffle, age 57, is the founder of CFO Strategies LLC of Johnstown, Pennsylvania (“ CFO Strategies ”), an accounting firm and consulting firm, which he founded in May, 2008. CFO Strategies has 13 employees; approximately 180 small business clients and approximately 650 tax clients. It provides consulting, CFO, accounting, bookkeeping, payroll and tax services, including: CFO for businesses; entire accounting department for businesses; temporary staffing for businesses; complete payroll processing; CFO consulting and small business start-up services; and prepares taxes for corporations, small businesses, non-profits and individuals. Mr. Riffle is the



29




Managing Partner and has extensive experience in various industries, including: Chief Financial Officer, healthcare industry; telecommunications, security, manufacturing and non-profit industries experience; Chief Executive Officer in the financial services industry and healthcare; Assistant Controller in the retail industry; Consultant in non-profit, healthcare and event management arenas; governmental treasurer and board member for over 30 years; and as a college instructor at Mount Aloysius College since 1994.  He is also a Certified Public Accountant (May 1987).

 

Significant Employees


We have two employees who are not executive officers, but who are expected to make a significant contribution to the Company’s business, who are Charles L. Schneider, Jr., as CEO of KonaTel, and J. William Riner, as Vice President of Operations of KonaTel.  Both are employees and have Employment Agreements, which were assumed by the Company and are discussed below.


Charles L. Schneider, Jr.


Charles L. Schneider, Jr., age 52, has been the CEO of KonaTel since September, 2016, and is a significant employee for our Company.  Mr. Schneider had an Employment Agreement with KonaTel whereby Mr. Schneider receives $15,000 a month salary and reimbursement of up to $1,000 per month in health insurance premiums.  We have assumed and will be honoring this Employment Agreement, which is automatically extended on a yearly basis.  A copy of this Employment Agreement is filed as an Exhibit to this Current Report in Item 9.01 hereof.


Mr. Schneider has over 30 years of telecommunication experience at a Fortune 500 company, small/startup companies and other telecom companies in between.  His experience includes executive management, finance, sales, network operations, engineering, and regulatory affairs.  He is responsible for all profit and loss, strategic direction, new product offerings, new market and new technologies.


Prior to his service to KonaTel, he was President and CEO of CS Agency, LLC, from May 2015 to August 2016. CS Agency was a telecom consulting and sales distribution firm specializing in distribution of prepaid and Lifeline mobile services.  Mr. Schneider as the sole owner of CS Agency, assigned five contracts to KonaTel as described in Exhibit B to his Employment Agreement.  From November 2013 to April 2015, Mr. Schneider was President and CEO of TAG Mobile, LLC, a mid-sized Mobile Virtual Network Operator and wireless Lifeline ETC based in the Dallas Metroplex area, serving 20 states.


J. William Riner


J. William Riner, age 65, is the Vice President or Director of Operations of KonaTel, a position he has held since August 1, 2016.   Mr. Riner has an Employment Agreement with KonaTel where Mr. Riner is paid $14,583.33, plus a monthly bonus based upon Monthly Net Income.  If the Monthly Net Income for the preceding calendar month is equal to or less than $40,000, there was no bonus.  For the portion of the Monthly Net Income that is greater than $50,000, the bonus is 10% of the Monthly Net income.  For the portion of the Monthly Net Income is in excess of $1,000,000, there is no additional monthly bonus.  We have assumed and will be honoring this Employment Agreement through December 31, 2017, and then on a year to year basis. The Employment Agreement is attached to this Current Report as Exhibit 10, see Item 9.01.


Prior to working for KonaTel, Mr. Riner was the CEO of Coast to Coast Cellular, Inc., from 1997 to November 2014. Coast to Coast launched as a small MVNO serving only the Johnstown, Pennsylvania, market.  Through the acquisition of four resellers, including Telecon Wireless, Coast to Coast grew from a small regional MVNO to a national MVNO and MVNE by 2004.  Mr. Riner’s efforts resulted in Coast to Coast’s growing to over $36.6 million in annual revenue by 2012.  In November, 2014, Mr. Riner sold the assets of Coast to Coast to KonaTel.  Since that time, Mr. Riner has worked for KonaTel as the Vice President or Director of Operations, where he is responsible for the operational and financial-management of the Johnstown, Pennsylvania, and the Johnstown, New York, facilities of KonaTel.  In this position, he is responsible for all pricing of the reseller products, and all operational, customer service and financial personnel report directly to him.




30




Family Relationships


There are no family relationships between any of our officers and directors.


Involvement in Other Public Companies


None of our officers and directors is an “affiliate” of any other public companies.


Involvement in Certain Legal Proceedings


During the past 10 years, none of our present or former directors, executive officers or persons nominated to become directors or executive officers (or those in similar positions with us) has been the subject of any of the following:


(1) A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;


(2) Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);


(3) Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:


(i) Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;


(ii) Engaging in any type of business practice; or


(iii) Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;


(4) Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;


(5) Such person was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;


(6) Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;


(7) Such person was the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:


(i) Any federal or state securities or commodities law or regulation; or




31




(ii) Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or


(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or


(8) Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.


Compliance with Section 16(a) of the Exchange Act


The common stock of the Company is registered under the Exchange Act, and therefore, the officers, directors and holders of more than 10% of our outstanding shares are subject to the provisions of Section 16(a) which requires them to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and our other equity securities.  Officers, directors and greater than 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file.  Based solely upon review of the copies of such forms furnished to us during the fiscal year ended September 30, 2017, and based upon a review of the filings contained in the Edgar Archives, all such required reports were timely filed.


Code of Ethics


We have adopted a Code of Ethics in our fiscal year ended September 30, 2013, for our principal executive and financial officers, a copy of which is filed as an Exhibit to this Current Report in Item 9.01 hereof.  


Corporate Governance


Nominating Committee


We have not established a Nominating Committee because and until our Closing of the KonaTel Merger outlined herein, we have one director and two executive officers; accordingly, we believed that we were able to effectively manage the issues normally considered by a Nominating Committee.  Now that the KonaTel Merger has been completed, a further review of this issue will no doubt be necessitated and undertaken by new management.


If we do establish a Nominating Committee, we will disclose this change to our procedures in recommending nominees to our Board of Directors.


Audit Committee


We have not established an Audit Committee because and until our Closing of the KonaTel Merger outlined herein, we have one director and two executive officers; accordingly, we believed that we were able to effectively manage the issues normally considered by an Audit Committee.  Now that the KonaTel Merger has been completed, a further review of this issue will no doubt be necessitated and undertaken by new management.




32




EXECUTIVE COMPENSATION


All Compensation


Our chief executive officer will be compensated according to the terms of his Employment Agreement that is filed as an Exhibit to the Current Report and is discussed below under this caption. There are no other employment contracts, compensatory plans or arrangements, including payments to be received from us with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with the Company, or its subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of the Company.


Summary Compensation Table


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

and

 

All Other

 

 

 

Name and

 

 

 

 

 

 

Compen-

 

 

 

 

Stock

 

Warrant

 

Compen-

 

 

 

Principal Position

 

 

 

Salary

 

sation

 

Bonus

 

Awards

 

Awards

 

sation

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

D. Sean McEwen (1)

 

2017

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brian R. Riffle (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Matt Atkinson (3)

 

2017

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Savage (4)

 

2017

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Perman (5)

 

2017

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2016

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2015

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel Ryweck (6)

 

2017

 

$

-

 

$

-

 

$

-

 

$

2,500

 

$

-

 

$

-

 

$

2,500

 

 

2016

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2015

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thomas Howells (7)

 

2017

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2016

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2015

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

William Gumma (8)

 

2017

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2016

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2015

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jon Wimbish (9)

 

2017

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2016

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

20,000

 

$

20,000

 

 

2015

 

$

-

 

$

-

 

$

-

 

$

-

 

$

70,000

 

$

10,000

 

$

80,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clancy Cottman (10)

 

2017

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2016

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2015

 

$

-

 

$

-

 

$

-

 

$

-

 

$

70,000

 

$

10,000

 

$

80,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

E. Will Gray II (11)

 

2017

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2016

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

 

2015

 

$

73,077

 

$

-

 

$

-

 

$

-

 

$

280,000

 

$

-

 

$

353,077


(1) Mr. D. Sean McEwen was appointed as Director at the Effective Time of the KonaTel Merger.

(2) Mr. Riffle was appointed as the Chief Financial Officer at the Effective Time of the KonaTel Merger.

(3) Mr. Atkinson was appointed as Secretary on July 20, 2017.



33




(4) Mr. Savage was appointed as Director on July 20, 2017.

(5) Mr. Perman was appointed as Director on May 10, 2016, and as CEO and CFO on November 1, 2016.

(6) Mr. Ryweck was appointed as Director on July 6, 2016, and resigned on August 31, 2017. He was issued 50,000 shares valued at $0.05 per share on July 25, 2017, for services rendered and in consideration of a general release.

(7) Mr. Howells was appointed as CEO, CFO and Director on May 10, 2016, and resigned on November 1, 2016.

(8) Mr. Gumma was appointed as CEO, CFO and Director on August 24, 2015, and resigned on June 30, 2016.

(9) Mr. Wimbish was appointed in June 2014, and resigned on May 10, 2016.

(10) Mr. Cottman was appointed in June 2014, and resigned on May 10, 2016.

(11) Mr. Gray was appointed in June 2014, and resigned on August 21, 2015.


Outstanding Equity Awards


Name

Option awards

Stock awards

 

Number of securities underlying unexercised options (#) exercisable

Number of securities underlying unexercised options (#) unexercisable

Equity incentive plan awards; number of securities underlying unexercised unearned options (#)

Option exercise price ($)

Option expiration date

Number of shares or units of stock that have not vested (#)

Market value of shares or units of stock that have not vested (#)

Equity incentive plan awards; number of unearned shares, units or other rights that have not vested (3)

Equity incentive plan awards; market or payout value of unearned shares, units or other rights that have not vested (3)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

Mark Savage (1)

0

250,000

250,000

$0.22

(1)

0

 

0

 

Matthew Atkinson (2)

0

250,000

250,000

$0.22

(2)

0

 

0

 

D. Sean McEwen (3)

0

1,500,000

1,500,000

$0.22

(3)

0

 

0

 

J. William Riner (4)

0

300,000

300,000

$0.20

(4)

0

 

0

 

Charles L. Schneider Jr. (5)

0

1,500,000

1,500,000

$0.20

(5)

0

 

0

 

John Shadek (6)

0

50,000

50,000

$0.20

(6)

0

 

0

 

(1)

These options vest on the following dates and are exercisable in the following tranches, as vested, and do not expire for a period of five years from vesting: 31,250 shares exercisable March 18, 2018, June 18, 2018, September 18, 2018, December 18, 2018, March 18, 2019, June 18, 2019, September 18, 2019 and December 18, 2019.


(2)

 These options vest on the following dates and are exercisable in the following tranches, as vested, and do not expire for a period of five years from vesting: 31,250 shares exercisable March 18, 2018, June 18, 2018, September 18, 2018, December 18, 2018, March 18, 2019, June 18, 2019, September 18, 2019 and December 18, 2019.


(3)

 These options vest on the following dates and are exercisable in the following tranches, as vested, and do not expire for a period of five years from vesting: 187,250 shares exercisable March 18, 2018, June 18, 2018, September 18, 2018, December 18, 2018, March 18, 2019, June 18, 2019, September 18, 2019 and December 18, 2019.




34




(4)

These options all vest on the December 31, 2018, and do not expire for a period of five years from vesting.


(5)

These options vest on the following dates and are exercisable in the following tranches, as vested, and do not expire for a period of five years from vesting: 500,000 shares exercisable December 18, 2018, December 18, 2019, and December 18, 2020.


(6)

These options vest on the date of grant, which was the Effective Time of the KonaTel Merger or December 18, 2017, and do not expire for a period of five years.


Employment Agreement of D. Sean McEwen


At the Effective Time of the KonaTel Merger, we entered into an Employment Agreement with Mr. McEwen for a term of two years, under which he will serve as the Chairman and CEO of our Company, with customary duties applicable to these positions, which are described in Exhibit A thereof.  His acceptance of these positions and the actual effective date of this Employment Agreement are subject to our having secured a binding commitment for D & O Insurance for the protection of the Company and its directors and officers. Mr. McEwen will receive the following compensation under his Employment Agreement: $1,000 per month base salary; and inclusion in the Company’s healthcare plan for employees, including medical, dental and vision, which coverage also includes his spouse. He will also receive a monthly bonus, computed as follows: If the combined EBITDA (“Combined EBITDA”) exceeds $85,000 in any calendar month, where Combined EBITDA is defined to mean the combined earnings (net profits) of the Company and all of its subsidiaries or other companies owned, and from all other sources before subtracting all interest expense, all income tax, all depreciation expense, and all amortization expense, on an accrual accounting basis according to GAAP as calculated by the regular account for the Company, the Company shall pay the employee, within 20 days after the end of the calendar month, a bonus equal to 10% of the monthly Combined EBITDA.


The Employment Agreement has customary termination, trade secret and dispute resolution clauses, among others.  For additional information, see his Employment Agreement, a copy of which is attached hereto and incorporated herein by reference, in Item 9.01.


Compensation of Directors


Currently, our non-executive directors do not receive any compensation other than the incentive stock options outlined above under the heading “Outstanding Equity Awards.


Transactions with Related Persons


Except as indicated below, none.


We suspended our Master Service Agreement with Chisholm II, giving us the rights to use Chisholm II’s existing technical exploration team to further explore and develop our leased oil and gas properties. This arrangement may be resumed when the market conditions related to oil prices improve.  See the heading “The Company History and Business” at the beginning of Item 5.01 hereof.


The Company had several promissory notes with Mill City Ventures III, LLC, which Daniel Ryweck, a former Director of the Company, is a member of Mill City Ventures III, LLC.  These obligations were all cancelled, paid or compromised under the Common Stock Purchase Agreement with M2 on July 19, 2017.  See the heading “The Company History and Business” at the beginning of Item 5.01 hereof.


Promoters and Certain Control Persons


See the heading “Transactions with Related Persons” above.


Parents of the Smaller Reporting Company


We have no parents.




35




CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE


Director Independence


For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The OTCQB, on which shares of our common stock are quoted, does not have any director independence requirements. The NASDAQ definition of “Independent Officer” means, among other considerations, a person other than an “Executive Officer” or an employee or any other individual having a relationship, which in the opinion of the Company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.


According to the NASDAQ definition, no director is an independent director because they are also executive officers of the Company and a director.


Related Party Transactions


See the heading “Transactions with Related Persons” above.


LEGAL PROCEEDINGS


Except as indicated below, we are not a party to any pending legal proceeding. To the knowledge of our management, no federal, state or local governmental agency is presently contemplating any proceeding against us. No director, executive officer or affiliate of ours or owner of record or beneficially of more than 5% of our common stock is a party adverse to us or has a material interest adverse to us in any legal proceeding.


On November 1, 2014, KonaTel purchased most of the assets of Coast to Coast Cellular, Inc.  Approximately 10 months following this purchase, Coast to Coast filed for bankruptcy protection, and the bankruptcy Trustee for Coast to Coast filed legal proceedings in the United States Bankruptcy Court for the Western District of Pennsylvania on September 23, 2016, Case No. 15-70602-JAD, known as Eric E. Bononi as Trustee to Coast to Coast Cellular, Inc. v. KonaTel, Inc. et. al.  The bankruptcy Trustee alleges that KonaTel acquired the assets of Coast to Coast for less than their fair market value in its November, 2014, purchase, and is seeking damages against the owners of Coast to Coast, as well as KonaTel.  KonaTel has retained legal counsel to represent it in this matter and has aggressively defended this action. KonaTel’s expert report establishes that the assets were, if anything, overvalued at date of sale, and KonaTel’s counsel anticipates that this may lead to a resolution of this case in the short term. 


MARKET PRICE OF AND DIVIDEND ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


Market Information


Our common stock was listed on the OTC Bulletin Board of the National Association of Securities Dealers (“NASD,” now “FINRA”) on June 14, 2007, under the symbol “WSPD.” Beginning September 2014, our common stock was listed under the symbol “DALP” on the OTCQB of OTC Markets.  Presently, our common stock is quoted on the OTC Pink Tier under the symbol “DALP.” No assurance can be given that any market for our common stock will develop or be maintained.


For any market that develops for our common stock, the sale of “restricted securities” (common stock) pursuant to Rule 144 of the SEC by members of management or any other person to whom any such securities may be issued in the future may have a substantial adverse impact on any such public market.  For information regarding the requirements of resales under Rule 144, see the heading “Rule 144” of this item below.


We have a limited public float of approximately 1,629,286 shares, with approximately 1,062,050 of these shares being reflected as “restricted securities,” and there has not been an “established trading market” in the Company’s common stock for many years.  All of the 1,062,050 shares reflected as being “restricted securities” have been held approximately three years and are believed to be freely tradeable under Rule 144 or Section 4(a)(1) of the Securities



36




Act, based upon legal counsel’s advice. Because of our current limited public float, among other unknown factors (see the heading “Risk Related to Our Common Stock” of the caption “Risk Factors” herein), the OTC Markets has refused to allow the Company’s common stock to be listed on its “OTCQB Tier,” and no new application can be filed for such a listing until on or about March 31, 2018.


The following table sets forth, for the periods indicated over the last two years, the high and low closing bid quotations, as reported by the OTC Markets, and represents prices between dealers, does not include retail markups, markdowns or commissions, and may not represent actual transactions:


 

For the Years Ended September 30,

 

2016

 

2015

 

High

 

Low

 

High

 

Low

First Quarter

$

0.12

 

$

0.03

 

$

0.0015

 

$

0.0015

Second Quarter

$

0.10

 

$

0.03

 

$

1.34

 

$

1.15

Third Quarter

$

0.03

 

$

0.03

 

$

1.40

 

$

1.10

Fourth Quarter

$

0.03

 

$

0.02

 

$

1.40

 

$

0.11


These prices were obtained from OTC Markets Group (www.OTCMarkets.com) and do not necessarily reflect actual transactions, retail markups, mark downs or commissions.


Rule 144


The following is a summary of the current requirements of Rule 144:


Securities

Affiliate or Person Selling on Behalf of an Affiliate

Non-Affiliate (and has not been an Affiliate During the Prior Three Months)

Restricted Securities of Reporting Issuers

During six-month holding period – no resales under Rule 144 Permitted.  


After Six-month holding period – may resell in accordance with all Rule 144 requirements including:

·

Current public information,

·

Volume limitations,

·

Manner of sale requirements for equity securities, and

·

Filing of Form 144.

During six- month holding period – no resales under Rule 144 permitted.


After six-month holding period but before one year – unlimited public resales under Rule 144 except that the current public information requirement still applies.


After one-year holding period – unlimited public resales under Rule 144; need not comply with any other Rule 144 requirements.

Restricted Securities of Non-Reporting Issuers

During one-year holding period – no resales under Rule 144 permitted.


After one-year holding period – may resell in accordance with all Rule 144 requirements including:

·

Current public information,

·

Volume limitations,

·

Manner of sale requirements for equity securities, and

·

Filing of Form 144.

During one-year holding period – no resales under Rule 144 permitted.


After one-year holding period – unlimited public resales under Rule 144; need not comply with any other Rule 144 requirements.


Shell Companies


The following is an excerpt from Rule 144(i) regarding resales of securities of shell companies:


“(i)  Unavailability to securities of issuers with no or nominal operations and no or nominal non-cash assets .



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(1)

This section is not available for the resale of securities initially issued by an issuer defined below:


(i)  An issuer, other than a business combination related shell company, as defined in §230.405, or an asset-backed issuer, as defined in Item 1101(b) of Regulation AB (§229.1101(b) of this chapter), that has:


(A)

No or nominal operations; and


(B)

Either:


(1)  No or nominal assets;

(2)  Assets consisting solely of cash and cash equivalents; or

(3)  Assets consisting of any amount of cash and cash equivalents and nominal other assets; or


(ii)

An issuer that has been at any time previously an issuer described in paragraph (i)(1)(i).


(2)

Notwithstanding paragraph (i)(1), if the issuer of the securities previously had been an issuer described in paragraph (i)(1)(i) but has ceased to be an issuer described in paragraph (i)(1)(i); is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act; has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issue was required to file such reports and materials), other than Form 8-K reports (§249.308 of this chapter); and has filed current “Form 10 information” with the Commission reflecting its status as an entity that is no longer an issuer described in paragraph (i)(1)(i), then those securities may be sold subject to the requirements of this section after one year has elapsed from the date that the issuer filed “Form 10 information” with the Commission.


(3)

The term “Form 10 information” means the information that is required by Form 10 or Form 20-F (§249.220f of this chapter), as applicable to the issuer of the securities, to register under the Exchange Act each class of securities being sold under this rule.  The issuer may provide the Form 10 information in any filing of the issuer with the Commission.  The Form 10 information is deemed filed when the initial filing is made with the Commission.”


Securities of a “shell company” cannot be publicly sold under Rule 144 in the absence of compliance with subparagraph (i) of Rule 144, though the SEC has implied that these restrictions would not be enforced respecting securities issued by a “shell company” prior to it having been determined to be a “shell company.” The filing of this Current Report is intended to satisfy the filing of the “Form 10 Information” and commence the one year holding period of Rule 144(i).


If we are deemed to be a “shell company” by reason of our limited business operations, and assuming your shareholdings are “restricted securities, you may not be able to sell any common stock in the Company for at least one year from the filing of Form 10 Information, among other factors outlined in subparagraph (i) of SEC Rule 144, and this information would include audited financial statements of KonaTel for the years ended December 31, 2016, and 2015, and reviewed financial statements for the nine month period ended September 30, 2017, which may not be available for 75 days from the Effective Time; and this designation could certainly inhibit the ability of the Company to raise any required funding for planned operations.


Holders


We currently have 559 shareholders, not including an indeterminate number who may hold shares in “street name.”


Dividends


We have not declared any cash dividends with respect to our common stock, and do not intend to declare dividends in the foreseeable future. Our future dividend policy cannot be ascertained with any certainty, and if and until we complete any acquisition, reorganization or merger, no such policy will be formulated. There are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our securities.




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Securities Authorized for Issuance under Equity Compensation Plans


None; not applicable; however, 5,000,000 shares have been reserved for issuance as incentives or bonuses for directors, officers and employees, 3,850,000 of which have been granted under Incentive Stock Option Agreements referenced under the heading “Outstanding Equity Awards” of the caption “Executive Compensation,” above.


Use of Proceeds of Registered Securities


Not applicable.


Purchases of Equity Securities by Us and Affiliated Purchasers


None; not applicable.


Lock-Up/Leak-Out Agreements


See the heading entitled Lock-Up/Leak-Out Agreements of the caption “Security Ownership of Certain Beneficial Owners and Management” above.


DESCRIPTION OF REGISTRANT’S SECURITIES


We have an authorized capital of 100,000,000 shares divided into 50,000,000 shares of common stock with a par value of $0.001 per share and 50,000,000 shares of preferred stock with a par value of $0.01. No shares of preferred stock are presenting designated in any “series” or are outstanding.  


Common Stock


Each share is entitled to one vote at all meetings of shareholders, and there are no preemptive, cumulative voting rights or other rights not customary to standard issued common stock.  However, our Amended and Restated Certificate of Incorporation grants the Board of Directors the following powers respecting our authorized common stock, which are in addition to any additional powers granted under the Delaware General Corporation Act:

(1) Dividends . Subject to the provisions of any Preferred Stock Series Resolution, the Board of Directors may, in its discretion, out of funds legally available for the payment of dividends and at such times and in such manner as determined by the Board of Directors, declare and pay dividends on the common stock of the corporation.

No dividend (other than a dividend in capital stock ranking on a parity with the common stock or cash in lieu of fractional shares with respect to such stock dividend) shall be declared or paid on any share or shares of any class of stock or series thereof ranking on a parity with the common stock in respect of payment of dividends for any dividend period unless there shall have been declared, for the same dividend period, like proportionate dividends on all shares of common stock then outstanding.

(2) Liquidation . In the event of any liquidation, dissolution or winding up of the corporation, whether voluntary of involuntary, after payment or provision for payment of the debts and other liabilities of the corporation and payment or setting aside for payment of any preferential amount due to the holders of any other class or series of stock, the holders of the common stock shall be entitled to receive ratably any or all assets remaining to be paid or distributed.

(3) Voting Rights . Subject to any special voting rights set forth in any Preferred Stock Series Resolution, the holders of the common stock of the corporation shall be entitled at all meetings of shareholders to one vote for each share of such common stock held by them.

Prior, Parity or Junior Stock .

Whenever reference is made in this Article V to shares “ranking prior to” another class of stock or “on a parity with” another class of stock, such reference shall mean and include all other shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of



39




a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation are given preference over, or rank on an equality with, as the case may be, the rights of the holders of such other class of stock. Whenever reference is made to shares “ranking junior to” another class of stock, such reference shall mean and include all shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation are junior and subordinate to the rights of the holders of such class of stock.

Except as otherwise provided herein or in any Preferred Stock Series Resolution, each series of preferred stock ranks on a parity with each other and each ranks prior to the common stock. Common stock ranks junior to the preferred stock.

Liquidation .

For the purposes of Section 2 of Section B of this Article V and for the purpose of the comparable sections of any Preferred Stock Series Resolution, the merger or consolidation of the corporation, or the sale, lease or conveyance of all or substantially all the assets, property or business of the corporation, shall not be deemed to be a liquidation, dissolution or winding up of the corporation.

Reservation and Retirement of Shares .

The corporation shall at all times reserve and keep available, out of its authorized but unissued shares of common stock or out of shares of common stock held in its treasury, the full number of shares of common stock into which all shares of any series of preferred stock having conversion privileges from time to time outstanding are convertible.

Unless otherwise provided in a Preferred Stock Series Resolution with respect to a particular series of preferred stock, all shares of preferred stock redeemed or acquired (as a result of conversion or otherwise) shall be retired and restored to the status of authorized but unissued shares.

Repurchases of Capital Stock .

The corporation may, without shareholder approval, purchase, directly or indirectly, its own shares to the extent of the aggregate of its unrestricted capital surplus and unrestricted reduction surplus.


Preferred Stock


We have no outstanding series of designated preferred stock. Our Amended and Restated Certificate of Incorporation provides our Board of Directors with the following powers of designation of any series our authorized preferred stock, which are in addition to any additional powers granted under the Delaware General Corporation Act:

(1) The number of shares constituting that series and the distinctive designation of that series, or any increase or decrease (but not below the number of shares thereof then outstanding) in such number;

(2) The dividend rate on the shares of that series, whether such dividends, if any, shall be cumulative, and, if so, the date or dates from which dividends payable on such shares shall accumulate, and the relative rights of priority, if any, of payment of dividends on shares of that series;

(3) Whether that series shall have voting rights, in addition to the voting rights provided by law and, if so, the terms of such voting rights;

(4) Whether that series shall have conversion privileges with respect to shares of any other class or classes of stock or of any other series of any class of stock, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rates upon occurrence of such events as the Board of Directors shall determine;



40




(5) Whether the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including their relative rights of priority, if any, of redemption, the date or dates upon or after which they shall be redeemable, provisions regarding redemption notices, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;

(6) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund;

(7) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series;

(8) The conditions or restrictions upon the creation of indebtedness of the corporation or upon the issuance of additional preferred stock or other capital stock ranking on a parity therewith, or prior thereto, with respect to dividends or distribution of assets upon liquidation;

(9) The conditions or restrictions with respect to the issuance of, payment of dividends upon, or the making of other distributions to, or the acquisition or redemption of, shares ranking junior to the preferred stock or to any series thereof with respect to dividends or distribution of assets upon liquidation; and

(10) Any other designations, powers, preferences and rights, including, without limitation, any qualifications, limitations or restrictions thereof allowed by applicable law.

Any of the Series Terms, including voting rights of any series, may be made dependent upon facts ascertainable outside the Certificate of Incorporation and the Preferred Stock Series Resolution, provided that the manner in which such facts shall operate upon such Series Terms is clearly and expressly set forth in the Certificate of Incorporation or in the Preferred Stock Series Resolution.

Subject to the provisions of this Article V, shares of one or more series of preferred stock may be authorized or issued from time to time as shall be determined by and for such consideration as shall be fixed by the Board of Directors or a designated committee thereof, in an aggregate amount not exceeding the total number of shares of preferred stock authorized by this Certificate of Incorporation. Except in respect of series particulars fixed by the Board of Directors or its committee as permitted hereby, all shares of preferred stock shall be of equal rank and shall be identical. All shares of one series of preferred stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative.


See the Amended and Restated Certificate of Incorporation filed herewith as an Exhibit in Item 9.01.


INDEMNIFICATION OF DIRECTORS AND OFFICERS


We are prohibited from indemnifying our “affiliates” for liabilities resulting from violations or alleged violations of the Securities Act or any state securities laws in connection with the issuance or sale of the shares of common stock, except in the case of successful defense of an action in which such violations are alleged, and then only if a court approves such indemnification after being appraised of relevant regulatory positions on indemnification.


Specifically, each director or officer of ours will be indemnified against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the director or officer in connection with the defense or settlement of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, in which he is involved by reason of the fact that he is or was a director or officer of our Company; such indemnification, of course, is conditioned upon such officer or director having acted in good faith and in a manner that he or she reasonably believed to be in the best interests of the Company and, with respect to any criminal action or proceeding, if he or she had no reasonable cause to believe that his or her conduct was unlawful.  If, however, any threatened, pending or completed action, suit or proceeding is by or in the right of the Company, the director or officer shall not be indemnified in respect to any claim, issue or matter as to which he or she is adjudged to be liable to us unless a court determines otherwise.




41




The foregoing summary is qualified in its entirety by reference to the complete text of any statutes referred to below and the Articles of Incorporation and the Bylaws of the Registrant.


Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent to the Company. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise. Article VI of the Registrant's bylaws provides for indemnification by the Company of its directors, officers and employees to the fullest extent permitted by the Delaware General Corporation Law.


Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions or (iv) for any transaction from which the director derived an improper personal benefit.  The Company’s Amended and Restated Certificate of Incorporation provides for such limitation of liability to the fullest extent permitted by the Delaware General Corporation Law.


The Company expects to maintain standard policies of insurance under which coverage is provided (a) to its directors and officers against loss arising from claims made by reason of breach of duty or other wrongful act, and (b) to the Registrant with respect to payments that may be made by the Registrant to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law.


Article VIII of the Company’s Amended and Restated Bylaws and Article VIII of the Company’s Amended and Restated Certificate of Incorporation provides for the indemnification of its directors and officers to the fullest extent permitted by law.


See the Amended and Restated Bylaws and the Amended and Restated Certificate of Incorporation filed herewith as an Exhibit in Item 9.01.


CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


On September 30, 2015, we engaged Green & Company CPA’s (“Green”) of Tampa, Florida, as our new independent registered public accounting firm. During the year ended September 30, 2014, and prior to September 30, 2015 (the date of the new engagement), we did not consult with Green regarding (i) the application of accounting principles to a specified transaction, (ii) the type of audit that might be rendered on the Company’s financial statements by Green, in either case where written or oral advice provided by Green would be an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issues or (iii) any other matter that was the subject of a disagreement between us and our former auditor or was a reportable event (as described in Item 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K, respectively).


FINANCIAL STATEMENTS AND EXHIBITS


Our audited financial statements for the fiscal years ended September 30, 2017, and 2016, along with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” will be contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, which is required to be filed with the SEC on December 29, 2017.  


Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.


See the caption “Directors and Executive Officers” above.



42





Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.


See Item 1.01 above regarding our Amended and Restated Bylaws ( Exhibit 3(ii) hereto) and our change from a fiscal year ended September 30, 2017, to a calendar year end; and other than deleting all series of designated preferred stock, as none are presently designated in a “series,” issued or outstanding, there were no changes in our Certificate of Incorporation, as Amended and Restated.  See Exhibit 3(i) hereto.


Item 9.01 Financial Statements and Exhibits.


(a)

Financial Statements of Business Acquired


Audited financial statements of KonaTel for the years ended December 31, 2106, and 2015, along with reviewed financial statements for the nine month period ended September 30, 2017, will be filed with the SEC within 75 days of the Effective Time of the Merger.


(b)

Pro Forma financial statements.


Unaudited pro forma financial statements of the Company and KonaTel in the form of a Balance Sheet at September 30, 2017, will be filed with the SEC within 75 days of the Effective Time of the Merger.


(c)

Shell company transactions.


Not Applicable.


(d)

Exhibits


2.1

Agreement and Plan of Merger between the Company and KonaTel, Inc. and others

2.2

Articles of Merger

3(i)

Amended and Restated Articles of Incorporation

3(ii)

Amended and Restated Bylaws

9

Shareholder Voting Agreement

10.1

Charles L. Schneider, Jr. Stock Option Cancellation Agreement

10.2

D. Sean McEwen Employment Agreement with the Company

10.3

Charles L. Schneider, Jr. Employment Agreement with KonaTel, Inc.

10.4

J. William Riner Employment Agreement with KonaTel, Inc.

10.5

Form of Incentive Stock Option Agreement

10.6

Form of Lock-Up/Leak-Out Agreement

14

Code of Ethics

19

Shareholder Post Card


Exhibits incorporated by reference:


8-K Current Report dated November 15, 2017, and filed with the SEC on November 17, 2017 (Execution of the Agreement and Plan of Merger between the Company, KonaTel, Inc. and others).

Agreement and Plan of Merger

KonaTel Disclosure Schedule-Not attached ( Exhibit 2.1 ).

Company Disclosure Schedule-Not attached ( Exhibit 3.1 ).

Joint Board of Directors and KonaTel Written Consent to Merger-Not attached ( Exhibit 5.4(b)) .

Schneider Stock Option Cancellation Agreement-( Exhibit 5.4(c) ) (See Item 9.01 above).

D. Sean McEwen Employment Agreement-( Exhibit 6.4(c) ) (See Item 9.01 above).

Shareholder Voting Agreement-( Exhibit 6.4(d) ) (See Item 9.01 above).

Form of Incentive Stock Option-( Exhibit 6.4(e) ) (See Item 9.01 above).

Form of Lock-Up/Leak-Out Agreement-( Exhibit 6.4(f) ) (See Item 9.01 above).


8-K Current Report dated July 19, 2017, filed with the SEC on July 20, 2017 (Common Stock Purchase Agreement between the Company, M2 Equity Capital LLC and others).




43




8-K Current Report dated May 16, 2016, and filed with the SEC on May 27, 2016 (Partial Cancellation Agreement between the Company and Chisholm Partners II, LLC, whereby the Company transferred 55,000 acres of its leased oil and gas properties in consideration of Chisholm II delivering 8,567,800 shares of the Company’s common stock for cancellation, among other matters).


8-K Current Report dated May 10, 2016, and filed with the SEC on May 17, 2016 (Termination of Master Service Agreement with Chisholm Partners II, LLC).


8-K Current Report dated June 3, 2014, and filed with the SEC on June 3, 2014 (Agreement and Plan of Merger between the Company, its wholly-owned Nevada subsidiary and Dala Petroleum Corp., whereby Dala Nevada became a wholly-owned subsidiary of the Company, members of Chisholm Partners II, LLC acquired shares of the Company’s common stock transferred from Chisholm II and the Company raised $2,025,000 through the sale of 2025 shares of its Series A 6% Convertible Preferred Stock for use in the development of the 300 oil and gas leases it acquired in north central Kansas under the Dala Merger, with total leased acreage of approximately 80,000 acres, more or less).








44




SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 

 

 

  

DALA PETROLEUM CORP.  

 

 

Date: December 19, 2017

By:

/s/ D. Sean McEwen

  

  

D. Sean McEwen

 

  

President, Chairman, Chief Executive Officer, and Director





45


AGREEMENT AND PLAN OF MERGER



THIS AGREEMENT AND PLAN OF MERGER (the “Agreement” ) is made as of November 15, 2017, by and among Dala Petroleum Corp., a Delaware corporation ( “Parent” ), Mark Savage, Parent’s President, a director and a beneficial shareholder ( “Mr. Savage” ), Matthew Atkinson, Parent’s Secretary and a beneficial shareholder ( “Mr. Atkinson” ), M2 Equity Partners LLC, a Minnesota limited liability company and principal shareholder of Parent ( “M2” ), and Dala Subsidiary Corp., a Nevada corporation and wholly-owned subsidiary of Parent ( “Merger Subsidiary” ); and KonaTel, Inc., a Nevada corporation ( “Company” ), and D. Sean McEwen, Company’s Chairman and sole shareholder ( “Company Shareholder” ).  The foregoing are sometimes singly referred to as a “Party” or collectively as the “Parties , or respectively as the “Parent Parties” or the “Company Parties .


RECITALS:


WHEREAS, Company, through its network, is a full service cellular provider that delivers cellular products and services to individual and business customers in various retail and wholesale markets nationwide (the “Business” ); and


WHEREAS, the Boards of Directors of Parent, Merger Subsidiary and Company, and Parent, as Merger Subsidiary’s sole shareholder, and Company Shareholder, have approved the merger of the Merger Subsidiary with and into Company (the “Merger” ) upon the terms and subject to the conditions set forth herein; and


WHEREAS, the Parties desire to execute and deliver this Agreement and all related or necessary documentation that may be reasonably required or necessary to complete the Merger as contemplated by the Parties under the Nevada Revised Statutes (the “NRS” ) or otherwise (collectively, the “Transaction Documents” );


WHEREAS, for federal income tax purposes, it is intended that the Merger will qualify as a reorganization within the meaning of Section 368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of 1986, as amended (the “Code” ); and


WHEREAS, the Parties desire to make certain representations, warranties and agreements in connection with the Merger and to prescribe various conditions to the Merger;


NOW, THEREFORE, in consideration of the foregoing premises and the mutual representations, warranties, covenants and agreements contained herein, the Parties hereto do hereby agree as follows:


ARTICLE 1
THE MERGER; CONVERSION OF SHARES

1.1

The Merger .  Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.2 hereof), Merger Subsidiary will be merged with and into Company in accordance with the provisions of the NRS, whereupon the separate corporate



1



existence of Merger Subsidiary will cease, and Company will continue as the surviving corporation (the  “Surviving Corporation” ).  From and after the Effective Time, the Surviving Corporation will possess all the rights, privileges, powers and franchises and be subject to all the restrictions, disabilities and duties of Company and Merger Subsidiary, all as more fully described in the NRS.

1.2

Effective Time .  As soon as practicable after each of the conditions set forth in Article 5 and Article 6 have been satisfied or waived, Company and Merger Subsidiary will file, or cause to be filed, with the Nevada Secretary of State, Articles of Merger for the Merger, which Articles will be in the form required by and executed in accordance with the applicable provisions of the NRS.  The Merger will become effective at the time such filing is made, or if agreed otherwise by the Parties, such later time or date as may be set forth in the Articles of Merger (the “Effective Time” ).

1.3

Closing .  Unless this Agreement has been terminated and the transactions contemplated herein have been abandoned pursuant to Article 8 hereof, the closing of the Merger (the “Closing” ) will take place at a time and on a date (the “Closing Date” ) to be specified by the Parties, which will be no later than December 31, 2017 (the “ Termination Date ”), subject, however, to the satisfaction or waiver of all of the conditions provided for in Articles 5 and 6 hereof by such date.  The Closing will be held at the offices of Leonard W. Burningham, Esq., 2150 South 1300 East, Suite 500, Salt Lake City, Utah 84106, or at such other place as the Parties may agree, at which time and place duly executed copies of the Transaction Documents necessary or appropriate to effect the Merger and the transactions contemplated herein or thereby will be exchanged by the Parties.  Except as otherwise provided herein, all actions taken at the Closing will be deemed to be taken simultaneously.

1.4

Conversion of Interests .  Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Company and/or Merger Subsidiary:

(a)

One hundred percent (100%) of the shares of common stock of Company ( “Company Common Stock” ) issued and outstanding immediately prior to the Effective Time will be converted into 13,500,000 shares of common stock of Parent, par value $0.001 per share ( “Parent Common Stock” ).  The amount of Parent Common Stock into which shares of Company Common Stock shall be converted is referred to herein as the “Merger Consideration .

(b)

All stock options, warrants, convertible debt other convertible securities or other rights to acquire shares or securities of any kind of Company (collectively, “Company Convertible Securities” ) outstanding at the Effective Time, whether or not exercisable and whether or not vested (all of which are listed in Company Disclosure Schedule in Section 2.3 thereof) shall be cancelled at the Effective Time, provided, however, any amounts due under documents related to convertible debt shall continue as debt of Company and shall be assumed by Parent.  

 (c)

Except as expressly set forth herein, each share of any other equity interest or right related to any other equity interest of Company (other than Company Common



2




Stock) shall be cancelled, without payment of any consideration therefor and without any conversion thereof.

(d)

Each share of common stock of Merger Subsidiary, par value $0.001 per share ( “Merger Subsidiary Common Stock” ) issued and outstanding immediately prior to the Effective Time, shall be cancelled as of the Effective Time.

(e)

Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time that is then owned beneficially or of record by Parent, Merger Subsidiary or any direct or indirect subsidiary of Parent or Merger Subsidiary, shall be cancelled, without payment of any consideration therefor and without any conversion thereof.  Furthermore, at the Effective Time, one (1) share of Company Common Stock shall be issued to Parent.

1.5

Exchange of Company Common Stock .

(a)

At the Closing, Company and Company Shareholder shall cause the delivery of all Company Common Stock outstanding immediately prior to the Effective Time to Parent ( “Company Shareholder Company Certificates”) , together with appropriate duly executed assignments of Company Shareholder, in exchange for the number of whole shares of Parent Common Stock into which such interests have been converted as provided in Section 1.4(a), and Company Shareholder Company Certificates so surrendered shall be cancelled.  Company Common Stock outstanding shall be exchanged for Parent Common Stock in accordance with Section 1.4(a) on delivery by Company Shareholder of Company Shareholder Common Stock Certificates ( “Company Certificates” ) to Parent.

(b)

All shares of Parent Common Stock issued upon the surrender for exchange of shares of Company Common Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such Company Common Stock.

(c)

As of the Effective Time, Company Shareholder’s Company Certificates representing shares of Company Common Stock shall cease to have any rights as Company shareholders, except such rights, if any, as they may have pursuant to the NRS.  Except as provided above, until such Company Certificates are surrendered for exchange, each such Company Certificate shall, after the Effective Time, represent for all purposes only the right to receive certificates representing the number of whole shares of Parent Common Stock into which Company Common Stock shall have been converted pursuant to the Merger as provided in Section 1.4(a).  

(d)

No fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Company Certificates; no dividend or other distribution of Parent shall relate to any fractional share; and any such fractional share shall not entitle the holder thereof to vote or to any rights of a shareholder of Parent.  

1.6

Articles of Incorporation of the Surviving Corporation .  The Articles of Incorporation of Company as in effect immediately prior to the Effective Time will be the



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Articles of Incorporation of the Surviving Corporation until thereafter amended in accordance with applicable law.

1.7

Bylaws of the Surviving Corporation .  The Bylaws of Company, as in effect immediately prior to the Effective Time, will be the Bylaws of the Surviving Corporation until thereafter amended in accordance with applicable law.

1.8

Directors and Officers of the Surviving Corporation and Parent.

(a)

Directors and Officers of the Surviving Corporation .  The directors and officers of Company, as of the Effective Time, shall continue as the directors of the Surviving Corporation.  

(b)

Directors of the Parent .  The directors of Parent immediately prior to the Effective Time shall appoint D. Sean McEwen to Parent’s Board of Directors and as Chairman of the Board of Directors in accordance with Parent’s Amended Bylaws; and the officers of the Surviving Corporation shall be appointed as officers of Parent by the then serving Board of Directors or new directors, as follows: D. Sean McEwen, Chairman, President and CEO; and Brian R. Riffle, Chief Financial Officer.  All other directors and executive officers of Parent, with the exception of Mark Savage, who shall remain as a director of Parent, and Matthew Atkinson, who shall remain as the Secretary of Parent, shall resign, in seriatim, at the Closing.

1.9

Change of Fiscal Year and Termination of Company “S Corporation Election .”  At the Effective Time, Parent shall change its fiscal year from September 30 to a calendar year end of December 31 of each year to coincide with the calendar fiscal year end of Company; the “S Corporation Election” of Company shall terminate; and the Parties agree to make all necessary tax elections to achieve a direct tax accounting cut-off as of the date of such termination for purposes of reporting the applicable short period S and C corporation tax returns of the Parties.


1.10

Total Outstanding Shares of Parent Common Stock at Closing .  Not taking into account 5,000,000 shares that shall be reserved for issuance to directors, executive officers and employees as incentives or otherwise as outlined in Section 6.4(e) and the 6,500,000 shares reserved for funding in Section 6.4(g), on the Closing of the Merger, there shall be 27,192,286 outstanding shares of Parent Common Stock.


ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Company and Company Shareholder hereby represent and warrant to Parent and Merger Subsidiary as is set forth below.  These representations and warranties shall be limited to the actual knowledge of Company and D. Sean McEwen/Company Shareholder without any duty to investigate.


2.1

Disclosure Schedule .  The disclosure schedule attached hereto and incorporated herein by reference as Exhibit 2.1 ( “Company Disclosure Schedule” ) is divided into sections



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that correspond to the sections of this Article 2.  Company Disclosure Schedule comprises a list of all exceptions to the truth and accuracy of, and of all disclosures or descriptions required by, the representations and warranties set forth in the remaining sections of this Article 2.  

2.2

Corporate Organization, etc .  Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada with the requisite corporate power and authority to carry on its business as it is now being conducted and to own, operate and lease its properties and assets, is duly qualified or licensed to do business as a foreign corporation in good standing in every other jurisdiction in which the character or location of the properties and assets owned, leased or operated by it or the conduct of its business requires such qualification or licensing, except in such jurisdictions in which the failure to be so qualified or licensed and in good standing would not, individually or in the aggregate, have a Material Adverse Effect (as defined below) on Company. Company Disclosure Schedule contains a list of all jurisdictions in which Company is qualified or licensed to do business and includes complete and correct copies of Company’s articles of incorporation and bylaws.  Company does not own or control any capital stock of any corporation or any interest in any partnership, joint venture or other entity.

2.3

Capitalization .  The authorized capital securities of Company is set forth in the Company Disclosure Schedule.  The number of shares of Company Common Stock outstanding as of the date of this Agreement and as set forth in Company Disclosure Schedule represent all of the issued and outstanding capital securities of Company.  All issued and outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid and nonassessable and are without, and were not issued in violation of, preemptive rights.  There are no shares of Company Common Stock or other equity securities of Company outstanding or any securities convertible into or exchangeable for such interests, securities or rights.  Other than as set forth on Company Disclosure Schedule and pursuant to this Agreement, there is no subscription, option, warrant, call, right, contract, agreement, commitment, understanding or arrangement to which Company is a party, or by which it is bound, with respect to the issuance, sale, delivery or transfer of the capital securities of Company, including any right of conversion or exchange under any security or other instrument.  Company has no subsidiaries.  

2.4

Authorization, etc .  Company has all requisite corporate power and authority to enter into, execute, deliver and perform its obligations under this Agreement.  This Agreement has been duly and validly executed and delivered by Company and is the valid and binding legal obligation of Company enforceable against Company in accordance with its terms, subject to bankruptcy, moratorium, principles of equity and other limitations limiting the rights of creditors generally.  

2.5

Non-Contravention .  Except as set forth in Company Disclosure Schedule, neither the execution, delivery nor performance of this Agreement, and each other agreement to be entered into in connection with this Agreement, nor the consummation of the transactions contemplated herein will:

(a)

violate, contravene or be in conflict with any provision of the articles of incorporation or bylaws of Company;



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(b)

be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to any right of termination, cancellation, imposition of fees or penalties under any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which Company is a party or by which Company or any of Company’s properties or assets is or may be bound;

(c)

result in the creation or imposition of any pledge, lien, security interest, restriction, option, claim or charge of any kind whatsoever (“ Encumbrances ”) upon any property or assets of Company under any debt, obligation, contract, agreement or commitment to which Company is a party or by which Company or any of Company’s assets or properties are bound; or

(d)

materially violate any statute, treaty, law, judgment, writ, injunction, decision, decree, order, regulation, ordinance or other similar authoritative matters (referred to herein individually as a “Law” and collectively as “Laws” ) of any foreign, federal, state or local governmental or quasi-governmental, administrative, regulatory or judicial court, department, commission, agency, board, bureau, instrumentality or other authority (referred to herein individually as an “Authority” and collectively as “Authorities” ).

2.6

Consents and Approvals .  Except as set forth in Company Disclosure Schedule, with respect to Company, no consent, approval, order or authorization of or from, or registration, notification, declaration or filing with ( “Consent” ) any individual or entity, including without limitation any Authority, is required in connection with the execution, delivery or performance of this Agreement by Company or the consummation by Company of the transactions contemplated herein.  

2.7

Financial Statements .  Company Disclosure Schedule contains a copy of the financial statements of Company for the years ended December 31, 2016 (unaudited), and 2015 (a compilation), and interim financial statements for the period ended September 30, 2017 (reviewed”) ( “Company Financial Statements” ).  Except as disclosed therein or in Company Disclosure Schedule, Company Financial Statements: (i) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements); and (ii) fairly present, in all material respects, the consolidated financial position of Company as of the respective dates and for the periods thereof and the results of operations of Company for the periods covered thereby.  All adjustments considered necessary for a fair presentation of Company Financial Statements have been included.

2.8

Absence of Undisclosed Liabilities .  Company does not have any material liabilities, obligations or claims of any kind whatsoever, whether secured or unsecured, accrued or unaccrued, fixed or contingent, matured or unmatured, known or unknown, direct or indirect, contingent or otherwise and whether due or to become due (referred to herein individually as a “Liability” and collectively as “Liabilities” ), other than: (i) Liabilities that are fully reflected or reserved for in Company Financial Statements; (ii) Liabilities that are set forth on Company



6




Disclosure Schedule; (iii) Liabilities incurred by Company in the ordinary course of business after the date of Company Financial Statements and consistent with past practice; (iv) Liabilities in an amount not to exceed $5,000 individually or in the aggregate unless such amounts are disclosed on Company Disclosure Schedule; or (v) Liabilities for express executory obligations to be performed after the Closing under the contracts described in Section 2.14 of Company Disclosure Schedule.

2.9

Absence of Certain Changes .  Except as set forth in Company Disclosure Schedule, since September 30, 2017, Company has owned and operated its assets, properties and business in the ordinary course of business and consistent with past practice.  Without limiting the generality of the foregoing, subject to the aforesaid exceptions:

(a)

Company has not experienced any change that has had or could reasonably be expected to have a Material Adverse Effect on Company; and

(b)

Company has not suffered (i) any loss, damage, destruction or other property or casualty (whether or not covered by insurance) or (ii) any loss of officers, employees, dealers, distributors, independent contractors, customers or suppliers, which had or may reasonably be expected to result in a Material Adverse Effect on  Company.

2.10

Assets . Except as set forth in Company Disclosure Schedule, Company has good and marketable title to all of its assets and properties, whether or not reflected in Company Financial Statements or acquired after the date thereof (except for properties sold or otherwise disposed of since the date thereof in the ordinary course of business and consistent with past practices), that relate to or are necessary for Company to conduct its business and operations as currently conducted and intended to be conducted (collectively, the “Assets” ), free and clear of any mortgage, pledge, lien, security interest, conditional or installment sales agreement, encumbrance, claim, easement, right of way, tenancy, covenant, encroachment, restriction or charge of any kind or nature (whether or not of record) (a “Lien” ), other than (i) liens securing specific Liabilities shown in Company Financial Statements with respect to which no breach, violation or default exists; (ii) mechanics’, carriers’, workers’ or other like liens arising in the ordinary course of business; (iii) minor imperfections of title that do not individually or in the aggregate, impair the continued use and operation of the Assets to which they relate in the operation of Company as currently conducted and intended to be conducted; and (iv) liens for current taxes not yet due and payable or being contested in good faith by appropriate proceedings ( “Permitted Liens” ).  

2.11

Receivables and Payables .

(a)

Except as set forth on Company Disclosure Schedule, all accounts receivable of Company represent sales in the ordinary course of business and, to  Company’s knowledge, are current and collectible net of any reserves shown in Company Financial Statements and none of such receivables is subject to any Lien other than a Permitted Lien.



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(b)

Except as set forth on Company Disclosure Schedule, all payables of  Company arose in bona fide transactions in the ordinary course of business and no such payable is delinquent by more than sixty (60) days beyond the due date in its payment.

2.12

Intellectual Property Rights .  Company owns or has the unrestricted right to use, and Company Disclosure Schedule contains a detailed listing of, all patents, patent applications, patent rights, registered and unregistered trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, internet domain names, computer programs and other computer software, inventions, know-how, trade secrets, technology, proprietary processes, trade dress, software and formulae (collectively, “Intellectual Property Rights” ) used in, or necessary for, the operation of its business as currently conducted or intended to be conducted.  Except as set forth on Company Disclosure Schedule, to Company’s knowledge, the use of all Intellectual Property Rights necessary or required for the conduct of the business of Company as presently conducted and as intended to be conducted does not infringe or violate the Intellectual Property Rights of any person or entity.  Except as described on Company Disclosure Schedule, to Company’s knowledge: (i) Company does not own or use any Intellectual Property Rights pursuant to any written license agreement; (ii) Company has not granted any person or entity any rights, pursuant to a written license agreement or otherwise, to use the Intellectual Property Rights; and (iii) Company owns, has unrestricted right to use and has sole and exclusive possession of and has good and valid title to, all of the Intellectual Property Rights, free and clear of all Liens and Encumbrances.  All license agreements relating to Intellectual Property Rights are binding and there is not, under any of such licenses, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default, or would constitute a basis for a claim on non-performance) on the part of Company or, to the knowledge of Company, any other party thereto.

2.13

Litigation .  Except as set forth in Company Disclosure Schedule, there is no legal, administrative, arbitration, or other proceeding, suit, claim or action of any nature or investigation, review or audit of any kind, or any judgment, decree, decision, injunction, writ or order pending, noticed, scheduled, or, to the knowledge of Company, threatened or contemplated by or against or involving Company, its assets, properties or business or its directors, officers, agents or employees (but only in their capacity as such), whether at law or in equity, before or by any person or entity or Authority, or which questions or challenges the validity of this Agreement or any action taken or to be taken by the Parties hereto pursuant to this Agreement or in connection with the transactions contemplated herein.

2.14

Contracts and Commitments; No Default .

(a)

Except as set forth in Company Disclosure Schedule, Company is not a party to, nor are any of the Assets bound by, any written or oral:

(i)

employment, non-competition, consulting or severance agreement, collective bargaining agreement, or pension, profit-sharing, incentive compensation, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay or retirement plan or agreement;



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(ii)

indenture, mortgage, note, installment obligation, agreement or other instrument relating to the borrowing of money by Company;

(iii)

contract, agreement, lease  (real or personal property) or arrangement that (A) is not terminable on less than 30 days’ notice without penalty, (B) is not over one year in length of obligation of Company, or (C) involves an obligation of more than $50,000 over its term;

(iv)

contract, agreement, commitment or license relating to Intellectual Property Rights or contract, agreement or commitment of any other type, whether or not fully performed, not otherwise disclosed pursuant to this Section 2.14;

(v)

obligation or requirement to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any person or entity; or

(vi)

outstanding sales or purchase contracts, commitments or proposals that will result in any material loss upon completion or performance thereof after allowance for direct distribution expenses, or bound by any outstanding contracts, bids, sales or service proposals quoting prices that are not reasonably expected to result in a normal profit.

(b)

True and complete copies (or summaries, in the case of oral items) of all agreements disclosed pursuant to this Section 2.14 ( “Company Contracts” ) have been provided to Parent for review. Except as set forth in Company Disclosure Schedule, all of Company Contracts items are valid and enforceable by and against Company in accordance with their terms, and are in full force and effect.  Company is not in breach, violation or default, however defined, in the performance of any of its obligations under any of Company Contracts, and no facts and circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such breach, violation or default thereunder or thereof, and, to the knowledge of Company, no other parties thereto are in a breach, violation or default, however defined, thereunder or thereof, and no facts or circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a breach, violation or default thereunder or thereof.  

2.15

Compliance with Law; Permits and Other Operating Rights .  Except as set forth in Company Disclosure Schedule, the Assets, properties, business and operations of Company are and have been in compliance in all respects with all Laws applicable to Company’s assets, properties, business and operations, except where the failure to comply would not have a Material Adverse Effect. Company possesses all material permits, licenses and other authorizations from all Authorities necessary to permit it to operate its business in the manner in which it presently is conducted and the consummation of the transactions contemplated by this Agreement will not prevent Company from being able to continue to use such permits and operating rights.  Company has not received notice of any violation of any such applicable Law, and is not in default with respect to any order, writ, judgment, award, injunction or decree of any Authority.  



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2.16

Brokers .  Except as otherwise set forth in Section 2.16 of Company Disclosure Schedule, neither Company nor Company Shareholder, has employed any broker, finder, investment banker or financial advisor or incurred any liability for any brokerage fee or commission, finder’s fee or financial advisory fee, in connection with the transactions contemplated hereby, nor is there any basis known to Company or Company Shareholder for any such fee or commission to be claimed by any person or entity.

2.17

Books and Records .  The books of account, minute books, stock record books and other material records of Company, all of which have been made available to Parent, are complete and correct in all material respects and have been maintained in accordance with reasonable business practices.  The minute books of Company contain accurate and complete records of all formal meetings held of, and corporate action taken by, the directors, officers, managers, director committees and manager committees of Company.  

2.18

Business Generally; Accuracy of Information .  No representation or warranty made by Company in this Agreement, Company Disclosure Schedule or in any document, agreement or certificate furnished or to be furnished to Parent at the Closing by or on behalf of Company or Company Shareholder in connection with any of the transactions contemplated by this Agreement contains or will contain any untrue statement of material fact or omit to state any material fact necessary in order to make the statements herein or therein not misleading in light of the circumstances in which they are made, and all of the foregoing completely and correctly presents the information required or purported to be set forth herein or therein.

2.19

Company Shareholder .  Company Shareholder: (i) has all requisite corporate power and authority to enter into, execute, deliver and perform his obligations under this Agreement, and this Agreement has been duly and validly executed and delivered by him and is the valid and binding legal obligation of Company Shareholder enforceable against him in accordance with its terms, subject to bankruptcy, moratorium, principles of equity and other limitations limiting the rights of creditors generally; (ii) is the lawful owner of 100% of the outstanding Company Common Stock, free and clear of any lien or encumbrance of any type or nature whatsoever; (iii) is an “accredited investor” as defined in United States Securities and Exchange Commission (the “SEC” ) Rule 506 promulgated under the Securities Act of 1933, as amended (the “Securities Act” ), and understands the meaning of the term “accredited investor”; (iv) has had access to all filings of Parent in the Edgar Archives of the SEC; (v) has had the opportunity to ask questions of the directors and executive officers of Parent regarding Parent, and to the extent Company Shareholder utilized this opportunity, all questions asked by him have been answered to his total satisfaction; (vi) is acquiring Parent Common Stock for “investment purposes” and knows and understands the meaning of this term; (vii) understands that Parent Common Stock he will receive as Merger Consideration hereunder comprise “restricted securities” as defined in SEC Rule 144, and that the resale of such shares of Parent Common Stock will be required to be registered with the SEC and sold by him under an “effective” registration statement filed with the SEC and a resale prospectus or in full compliance with SEC Rule 144 as currently in effect or as amended from time to time or another available exemption from registration under the Securities Act, and that as a result thereof, an investment in Parent Common Stock is illiquid, and Company Shareholder may be required to hold these shares of Parent Common Stock for a long period of time, to or including in excess of one (1) year from the Closing and the filing of an 8-K Current Report that includes all audited and reviewed



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financial statements of Company prior to any sale or disposition of these shares; and (viii) is fully capable of assuming the risk of loss of any investment in Parent resulting from the Closing of the Merger or otherwise.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUBSIDIARY

 Parent and Mr. Savage, Mr. Atkinson and M2, hereby represent and warrant to Company and Company Shareholder as is set forth below.  These representations and warranties shall be limited to the actual collective knowledge of Parent, Mr. Savage, Mr. Atkinson and M2 without any duty to investigate.


3.1

Disclosure Schedule .  The disclosure schedule attached hereto and incorporated herein by reference as Exhibit 3.1 ( “Parent Disclosure Schedule” ) is divided into sections that correspond to the sections of this Article 3.  Parent Disclosure Schedule comprises a list of all exceptions to the truth and accuracy of, and of all disclosures or descriptions required by, the representations and warranties set forth in the remaining sections of this Article 3.  

3.2

Corporate Organization, Standing and Power .  Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; and Merger Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada.  Each of Parent and Merger Subsidiary has all corporate power and authority to own its properties and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect on Parent and Merger Subsidiary.  Parent owns all of the outstanding capital stock of Merger Subsidiary.  Parent does not own or control any capital stock of any corporation or any interest in any partnership, joint venture or other entity, other than Merger Subsidiary.

3.3

Authorization .  Each of Parent and the Merger Subsidiary has all the requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated herein. The Boards of Directors of Parent and the Merger Subsidiary, and Parent as the sole shareholder of the Merger Subsidiary, have taken all action required by law, their respective articles of incorporation and bylaws or otherwise to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein.  This Agreement is the valid and binding legal obligation of Parent and the Merger Subsidiary enforceable against each of them in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws that affect creditors’ rights generally.

3.4

Capitalization .  The authorized capital securities of Parent and Merger Subsidiary are set forth in the Parent Disclosure Schedule.  The number of shares of Parent Common Stock outstanding as of the date of this Agreement and as set forth in Parent Disclosure Schedule, represent all of the issued and outstanding capital securities of the Parent.  All issued and outstanding shares of Parent Common Stock are duly authorized, validly issued, fully paid and nonassessable and are without, and were not issued in violation of, preemptive rights.  There are



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no shares of Parent Common Stock or other equity securities of Parent outstanding or any securities convertible into or exchangeable for such interests, securities or rights.  Other than as set forth on the Parent Disclosure Schedule and pursuant to this Agreement, there is no subscription, option, warrant, call, right, contract, agreement, commitment, understanding or arrangement to which Parent is a party, or by which it is bound, with respect to the issuance, sale, delivery or transfer of the capital securities of Parent, including any right of conversion or exchange under any security or other instrument.  

3.5

Non-Contravention .  Neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated herein will:

(a)

violate any provision of the articles of incorporation or bylaws of Parent or the Merger Subsidiary; or

(b)

be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to, any right of termination, cancellation, imposition of fees or penalties under, any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which Parent or Merger Subsidiary is a party or by which Parent or Merger Subsidiary or any of their respective properties or assets is or may be bound;

(c)

result in the creation or imposition of any Encumbrance upon any property or assets of Parent or Merger Subsidiary under any debt, obligation, contract, agreement or commitment to which Parent or Merger Subsidiary is a party or by which Parent or Merger Subsidiary or any of their respective assets or properties is or may be bound; or

(d)

violate any Law of any Authority.

3.6

Consents and Approvals .  No Consent is required by any person or entity, including without limitation any Authority, in connection with the execution, delivery and performance by Parent or Merger Subsidiary of this Agreement, or the consummation of the transactions contemplated herein, other than any Consent which, if not made or obtained, will not, individually or in the aggregate, have a Material Adverse Effect on the business of Parent or Merger Subsidiary.

3.6

Valid Issuance .  Parent Common Stock to be issued in connection with the Merger will be duly authorized and, when issued, delivered and paid for as provided in this Agreement, will be validly issued, fully paid and non-assessable.

3.7

Financial Statements .  The financial statements of Parent consisting of audited financial statements for the fiscal years ended September 30, 2016, and 2015, and reviewed interim financial statements for the period ended June 30, 2017 (the “Parent Financial Statements” ): (i) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements); and (ii) fairly present, in all material respects, the consolidated financial position of Parent and its consolidated subsidiaries as of the respective dates thereof and the consolidated



12




results of operations of Parent and its consolidated subsidiaries for the periods covered thereby.  All adjustments considered necessary for a fair presentation of the Parent Financial Statements have been included.

3.8

No Liabilities .  Parent does not have any Liabilities, except for (i) Liabilities expressly stated in the most recent balance sheet and as amended by the Subsequent Event footnotes to such balance sheet, or (ii) other Liabilities which do not exceed $10,000 in the aggregate, except as set forth in Parent Disclosure Schedule in Section 3.9 thereof.  

3.9

No Assets .  As of the Closing, Parent will have the assets and operations identified in the most recent balance sheet and notes thereto of Parent Financial Statements and as included in Parent Disclosure Schedule.  

3.10

Absence of Certain Changes .  Parent has owned and operated its assets, properties and business in the ordinary course of business and consistent with past practice.  Without limiting the generality of the foregoing, subject to the aforesaid exceptions, Parent has not experienced any change that has had or could reasonably be expected to have a Material Adverse Effect on the Parent.

3.11

Litigation .  There is no legal, administrative, arbitration, or other proceeding, suit, claim or action of any nature or investigation, review or audit of any kind, or any judgment, decree, decision, injunction, writ or order pending, noticed, scheduled, or, to the knowledge of Parent or Merger Subsidiary, threatened or contemplated by or against or involving the Parent, its assets, properties or business or its directors, officers, agents or employees (but only in their capacity as such), whether at law or in equity, before or by any person or entity or Authority, or which questions or challenges the validity of this Agreement or any action taken or to be taken by the Parties hereto pursuant to this Agreement or in connection with the transactions contemplated herein.

3.12

Contracts and Commitments; No Default .  Parent is not a party to, nor are any of its Assets bound by, any contract (a “ Parent Contracts ”) that is not disclosed in Parent Disclosure Schedule.  None of Parent Contracts contains a provision requiring the Consent of any party with respect to the consummation of the transactions contemplated by this Agreement.  Parent is not in breach, violation or default, however defined, in the performance of any of its obligations under any of Parent Contracts, and no facts and circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such breach, violation or default thereunder or thereof, and, to the knowledge of  Parent, no other parties thereto are in a breach, violation or default, however defined, thereunder or thereof, and no facts or circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a breach, violation or default thereunder or thereof.  

3.13

No Broker or Finder .  No broker, finder or investment banker is entitled to any brokerage, finders or other fee or commission in connection with the Merger or any of the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent.  



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3.14

Intercompany and Affiliate Transactions; Insider Interests .  Except as expressly identified in the reports and registration statements of Parent filed with the SEC ( “Parent SEC Reports and Registration Statements” ) and in the Consent of the Board of Directors of Parent approving the Merger, there are, and during the last two (2) years, there have been, no transactions, agreements or arrangements of any kind, direct or indirect, between Parent, on the one hand, and any director, officer, employee, shareholder, or affiliate of Parent, on the other hand, including, without limitation, loans, guarantees or pledges to, by or for the Parent or from, to, by or for any of such persons, that are effected with all corporate consents and approvals necessary under controlling law, and currently in effect.

3.15

Business Generally; Accuracy of Information .  No representation or warranty made by Parent in this Agreement, Parent Disclosure Schedule, or in any document, agreement or certificate furnished or to be furnished to Company at the Closing by or on behalf of Parent in connection with any of the transactions contemplated by this Agreement contains or will contain any untrue statement of material fact or omit to state any material fact necessary in order to make the statements herein or therein not misleading in light of the circumstances in which they are made, and all of the foregoing completely and correctly present the information required or purported to be set forth herein or therein.

3.16

SEC Reports and Registration Statements .  Parent is a “reporting issuer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act” ), and has timely filed all reports required to be filed by it under Section 13 of the Exchange Act.  Parent SEC Reports and Registration Statements do not contain any untrue statement of material fact or omit to state any material fact necessary in order to make the statements herein or therein not misleading in light of the circumstances in which they are made.

ARTICLE 4
COVENANTS OF THE PARTIES

4.1

Conduct of Business .  Except as contemplated by this Agreement, during the period from the date of this Agreement to the Closing Date, Company and Parent will each conduct its business and operations according to its ordinary and usual course of business consistent with past practices.  Without limiting the generality of the foregoing, and, except as otherwise expressly provided in this Agreement or as otherwise disclosed in Parent Disclosure Schedule or Company Disclosure Schedule, respectively, prior to the Closing Date, without the prior written consent of the other Parties, not to be unreasonably delayed, Parent and Company each will not:

(a)

amend its articles of incorporation or bylaws;

(b)

issue, reissue, sell, deliver or pledge or authorize or propose the issuance, reissuance, sale, delivery or pledge of shares of capital stock of any class, or securities convertible into capital stock of any class, or any rights, warrants or options to acquire any convertible securities or capital stock;



14




(c)

adjust, split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any shares of its capital stock or any of its other securities;

(d)

declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, redeem or otherwise acquire any shares of its capital stock or other securities, alter any term of any of its outstanding securities;

(e)

(i) except as required under any employment agreement, increase in any manner the compensation of any of its directors, officers or other employees; (ii) pay or agree to pay any pension, retirement allowance or other employee benefit not required or permitted by any existing plan, agreement or arrangement to any such director, officer or employee, whether past or present; or (iii) commit itself to any additional pension, profit-sharing, bonus, incentive, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay, retirement or other employee benefit plan, agreement or arrangement, or to any employment agreement or consulting agreement (arising out of prior employment ) with or for the benefit of any person, or, except to the extent required to comply with applicable law, amend any of such plans or any of such agreements in existence on the date of this Agreement;

(f)

hire any additional personnel except in the ordinary course of business;

(g)

incur, assume, suffer or become subject to, whether directly or by way of guarantee or otherwise, any Liabilities which, individually or in the aggregate, exceed $10,000 in the case of Parent or $50,000 in the case of Company;

(h)

make or enter into any commitment for capital expenditures in excess of $10,000 in the case of Parent or $50,000 in the case of Company;

(i)

pay, lend or advance any amount to, or sell, transfer or lease any properties or assets (real, personal or mixed, tangible or intangible) to, or enter into any agreement or arrangement with, any of its officers or directors or any affiliate or associate of any of its officers or directors;

(j)

terminate, enter into or amend in any material respect any contract, agreement, lease, license or commitment, or take any action or omit to take any action which will cause a breach, violation or default (however defined) under any contract, except in the ordinary course of business and consistent with past practice;

(k)

acquire any of the business or assets of any other person or entity;

(l)

permit any of its current insurance (or reinsurance) policies to be cancelled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies providing coverage equal to or greater than coverage remaining under those cancelled, terminated or lapsed are in full force and effect;



15




(m)

enter into other material agreements, commitments or contracts not in the ordinary course of business or in excess of current requirements;

(n)

settle or compromise any suit, claim or dispute, or threatened suit, claim or dispute (other than any settlement or compromise having no Material Adverse Effect upon its assets, operations or financial position); or

(o)

agree in writing or otherwise to take any of the foregoing actions or any action which would make any representation or warranty in this Agreement untrue or incorrect in any material respect.

Nothing herein shall prevent each Party from operating its business in the ordinary course and consistent with past practice.

4.2

Full Access .  Throughout the period prior to Closing, each Party has and will afford to the other and its directors, officers, employees, counsel, accountants, investment advisors and other authorized representatives and agents, reasonable access to the facilities, properties, books and records of the other Party in order that the other may have full opportunity to make such investigations as it will desire to make of the affairs of the disclosing Party.  Each Party will furnish such additional financial and operating data and other information as the other will, from time to time, reasonably request, including without limitation access to the working papers of its independent certified public accountants; provided, however , that any such investigation will not affect or otherwise diminish or obviate in any respect any of the representations and warranties of the disclosing Parties.

4.3

Confidentiality .  Each Party hereto agrees that it will not use, or permit the use of, any of the information relating to any other Party hereto furnished to it in connection with the transactions contemplated herein ( “Information” ) in a manner or for a purpose detrimental to such other Party or otherwise than in connection with the transactions, and that they will not disclose, divulge, provide or make accessible (collectively, “Disclose” or “Disclosure” ), or permit the Disclosure of, any of the Information to any person or entity, other than their respective directors, officers, employees, investment advisors, accountants, counsel and other authorized representatives and agents, except as may be required by judicial or administrative process or, in the opinion of such Party’s counsel, by other requirements of Law; provided, however, that prior to any Disclosure of any Information permitted hereunder, the disclosing Party will first obtain the recipients’ undertaking to comply with the provisions of this Section with respect to such Information.  The term “Information” as used herein will not include any information relating to a Party that the Party disclosing such information can show: (i) to have been in its possession prior to its receipt from another Party hereto; (ii) to be now or to later become generally available to the public through no fault of the disclosing Party; (iii) to have been available to the public at the time of its receipt by the disclosing Party; (iv) to have been received separately by the disclosing Party in an unrestricted manner from a person entitled to disclose such information; or (v) to have been developed independently by the disclosing Party without regard to any information received in connection with this transaction or related transactions contemplated herein.  Each Party hereto also agrees to promptly return to the Party from whom it originally received such Information all original and duplicate copies of written materials containing Information should the transactions contemplated herein not occur.  All



16




Parties hereto will be deemed to have satisfied each’ obligations to hold the Information confidential if each exercises the same care as each takes with respect to each Party’s similar information.

4.4

Filings; Consents; Removal of Objections .  Subject to the terms and conditions herein provided, the Parties hereto will use their best efforts to take or cause to be taken all actions and do or cause to be done all things necessary, proper or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable, the transactions contemplated hereby, including without limitation obtaining all Consents of any person or entity, whether private or governmental, required in connection with the consummation of the transactions contemplated herein.  In furtherance, and not in limitation of the foregoing, it is the intent of the Parties to consummate the transactions contemplated herein at the earliest practicable time, and they respectively agree to exert commercially reasonable efforts to that end, including without limitation: (i) the removal or satisfaction, if possible, of any objections to the validity or legality of the transactions contemplated herein; and (ii) the satisfaction of the conditions to consummation of the transactions contemplated hereby.

4.5

Further Assurances; Cooperation; Notification .

(a)

Each Party hereto will, before, at and after Closing, execute and deliver such instruments and take such other actions as the other Party may reasonably require in order to carry out the intent of this Agreement.  Without limiting the generality of the foregoing, at any time after the Closing, at the reasonable request of Parent and without further consideration, Company will execute and deliver such instruments of sale, transfer, conveyance, assignment and confirmation and take such action as Parent may reasonably deem necessary or desirable in order to more effectively consummate the transactions contemplated hereby.

(b)

At all times from the date hereof until the Closing, each Party will promptly notify the other in writing of the occurrence of any event which it reasonably believes will or may result in a failure by such Party to satisfy the conditions specified in this Article 4.

4.6

Supplements to Disclosure Schedule .  Prior to the Closing, each Party will supplement or amend each Party’s respective Disclosure Schedule with respect to any event or development which, if existing or occurring at or prior to the date of this Agreement, would have been required to be set forth or described in each Party’s Disclosure Schedule or which is necessary to correct any information in such Disclosure Schedules or in any representation and warranty of Parent or Company which has been rendered inaccurate by reason of such event or development.  For purposes of determining the accuracy as of the date hereof of the representations and warranties of Company contained in Article 2 hereof or Parent in Article 3 hereof in order to determine the fulfillment of the conditions set forth herein, the Disclosure Schedule of each Party will be deemed to exclude any information contained in any supplement or amendment hereto delivered after the delivery of the Parties respective Disclosure Schedules, except to the extent such information is delivered prior to Closing.



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4.7

Public Announcements .  No Party hereto will make any public announcement with respect to the transactions contemplated herein without the prior written consent of the other Party, which consent will not be unreasonably withheld or delayed; provided , however , that any Party hereto may at any time make any announcement that is required by applicable Law so long as the Party so required to make an announcement promptly upon learning of such requirement notifies the other Party of such requirement and discusses with the other Party in good faith the exact proposed wording of any such announcement.  

4.8

Satisfaction of Conditions Precedent .  Each Party will use commercially reasonable efforts to satisfy or cause to be satisfied all the conditions precedent that are applicable to them, and to cause the transactions contemplated by this Agreement to be consummated, and, without limiting the generality of the foregoing, to obtain all material consents and authorizations of third parties and to make filings with, and give all notices to, third parties that may be necessary or reasonably required on its part in order to effect the transactions contemplated hereby.

4.9

Resignation of Officers And Directors .  At the Closing, the pre-Closing directors and officers of Parent, to the extent outlined in Section 1.8(b) only, shall submit their written resignations from such offices effective as of the Closing, in seriatim.  Prior to their resignations, the pre-Closing directors of Parent shall appoint to the Board of Directors of Parent and elect those officers to the positions indicated in Section 1.8(b), effective as of the Closing.  

4.10

8-K Current Report .  Within four (4) business days of the execution and delivery of the Agreement, Parent will cause the required 8-K Current Report on SEC Form 8-K to be filed with the SEC (the “8-K Current Report” ), and within four (4) business days of the Effective Time of the Merger, Parent will amend any such Current Report and file it with the SEC, and subsequently, file such further amendments as may be required or necessary.

ARTICLE 5
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT
AND MERGER SUBSIDIARY

Notwithstanding any other provision of this Agreement to the contrary, the obligation of Parent and Merger Subsidiary to effect the transactions contemplated herein will be subject to the satisfaction at or prior to the Closing, or waiver by Parent, of each of the following conditions:

5.1

Representations and Warranties True .  The representations and warranties of  Company contained in this Agreement, including without limitation in Company Disclosure Schedule initially delivered to Parent as Exhibit 2.1 (and not including any changes or additions delivered to Parent pursuant to Section 4.6, unless delivered prior to Closing), will be true, complete and accurate in all material respects as of the date when made and at and as of the Closing Date as though such representations and warranties were made at and as of such time, except for changes specifically permitted or contemplated by this Agreement, and except insofar as the representations and warranties relate expressly and solely to a particular date or period, in which case they will be true and correct at the Closing with respect to such date or period.



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5.2

Performance .  Company will have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be performed or complied with by the Company on or prior to the Closing.

5.3

Required Approvals and Consents .

(a)

All action required by law and otherwise to be taken by the Company Shareholder to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will have been duly and validly taken.

(b)

All Consents of or from all Authorities or others required hereunder to consummate the transactions contemplated herein, will have been delivered, made or obtained, and Parent will have received copies thereof.

5.4

Agreements and Documents .  Parent and Merger Subsidiary will have received the following agreements and documents, each of which will be in full force and effect:

(a)

a certificate executed on behalf of Company by its Chief Executive Officer confirming that the conditions set forth in Sections 5.1, 5.2, 5.3, 5.5, 5.6, 5.7 and 5.8 have been duly satisfied;  

(b)

a Joint Company Board of Directors and Company Shareholder Written Consent to Merger in the form of Exhibit 5.4(b) attached hereto and incorporated herein by reference, among other provisions thereof, executed by all members of Company Board of Directors and Company  Shareholder; and

(c)

a duly executed agreement cancelling the Stock Option Agreement in the form of Exhibit 5.4(c) attached hereto and incorporated herein by reference and held by Charles L. Schneider, Jr. under date of July 1, 2016, to acquire an equity interest in Company (the “Schneider Stock Option Cancellation Agreement” );  

5.5

Adverse Changes .  No material adverse change will have occurred in the business, financial condition, prospects, assets or operations of Company since September 30, 2017, except as set forth in Company Disclosure Schedule or incurred in the ordinary course of business and consistent with past practice.

5.6

No Proceeding or Litigation .  Except as set forth in Company Disclosure Schedule, no suit, action, investigation, inquiry or other proceeding by any Authority or other person or entity will have been instituted or threatened which delays or questions the validity or legality of the transactions contemplated hereby or which, if successfully asserted, would, in the reasonable judgment of Parent, individually or in the aggregate, otherwise have a Material Adverse Effect on Company’s business, financial condition, prospects, assets or operations or prevent or delay the consummation of the transactions contemplated by this Agreement.

5.7

Legislation .  No Law will have been enacted which prohibits, restricts or delays the consummation of the transactions contemplated hereby or any of the conditions to the consummation of such transactions.



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5.8

Appropriate Documentation .  Parent will have received, in a form and substance reasonably satisfactory to Parent, dated the Closing Date, all certificates and other documents, instruments and writings to evidence the fulfillment of the conditions set forth in this Article 5 as Parent may reasonably request, along with duly executed copies of the Transaction Documents by the Parties and the Company Certificates.

ARTICLE 6
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF COMPANY

Notwithstanding anything in this Agreement to the contrary, the obligation of Company to effect the transactions contemplated herein will be subject to the satisfaction at or prior to the Closing of each of the following conditions:

6.1

Representations and Warranties True .  The representations and warranties of Parent contained in this Agreement will be true, complete and accurate in all material respects as of the date when made and at and as of the Closing, as though such representations and warranties were made at and as of such time, except for changes permitted or contemplated in this Agreement, and except insofar as the representations and warranties relate expressly and solely to a particular date or period, in which case they will be true and correct at the Closing with respect to such date or period.

6.2

Performance .  Parent will have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be performed or complied with by Parent at or prior to the Closing, including the obligations of the pre-Closing officers and directors of Parent set forth in Section 4.9.

6.3

Required Approvals and Consents .

(a)

All action required by law and otherwise to be taken by the directors and shareholders of the Parent to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will have been duly and validly taken.

(b)

All Consents of or from all Authorities required hereunder to consummate the transactions contemplated herein, will have been delivered, made or obtained, and Company will have received copies thereof.

6.4

Agreements and Documents .  Company will have received the following agreements and documents, each of which will be in full force and effect:

(a)

a certificate executed on behalf of Parent by its Chief Executive Officer confirming that the conditions set forth in Sections 6.1, 6.2, 6.3, 6.5, 6.6, 6.7 and 6.8 have been duly satisfied;

(b)

resolutions of the Boards of Directors of Parent and of Merger Subsidiary, certified by the Secretary of Parent, approving the transactions contemplated by this Agreement (by Parent as a Party and as the sole shareholder of Merger Subsidiary), including the Merger, the issuance of the Merger Consideration and the matters referred



20




to in Section 1.8(b) of this Agreement or as otherwise required to complete the transactions contemplated hereby, including the guarantee of the respective Employment Agreements between Company and Charles L. Schneider, Jr. and J. William Riner;

(c)

a duly executed Employment Agreement of Company Shareholder in the form of Exhibit 6.4(c) attached hereto and incorporated herein by reference ( “Company Shareholder Employment Agreement” ), among other employment agreements as Parent and Company may agree in writing prior to or at the Closing, which other employment agreements will contain customary confidentiality and non-competition, non-solicitation of customers and employees and assignment of invention provisions, together with agreed upon severance provisions in the event of termination without cause, among other provisions, with such employment agreements to supersede any currently existing employment agreements of such persons (the “Other Employment Agreements” ).  Company Shareholder Employment Agreement shall also provide for him to serve as Chairman of the Board of Directors and CEO of Parent for not less than two (2) years from the Closing Date;

(d)

a duly executed Shareholder Voting Agreement in the form of Exhibit 6.4(d) attached hereto and incorporated herein by reference between Company Shareholder, Parent, Mr. Savage, Mr. Atkinson and M2 (along with appropriate amendments to the Bylaws of Parent) that will grant Company Shareholder the right to veto, for a period of two (2) years, with respect to the matters covered thereby, including, but not limited to: (i) increase the compensation of any employee of Parent by more than $20,000 in any one calendar year and for these purposes, the term compensation includes any form of remuneration or monetary benefit; (ii) issue stock, create a new class of stock, grant options or warrants, modify any shareholder, option holder or warrant holder right, grant conversion rights, or take any other action that directly or indirectly dilutes the outstanding stock of Parent; excepting the issuance of stock pursuant to Section 6.4(e) of the Merger Agreement; (iii) issue debt in excess of $100,000 in aggregate in any one calendar year; (iv) approve a plan of merger, reorganization, or conversion; (v) sell, transfer or otherwise convey assets of Parent having an aggregate value in excess of $100,000 in any one calendar year, other than in ordinary course of the business of Parent; (vi) enter into a contract or other transaction having a total aggregate contractual liability in excess of $100,000 in any one calendar year;  (vii) change the Bylaws modifying this shareholder consent requirement; and (viii) to include Company Shareholder as a “nominee” to the Board of Directors of  Parent in any special or annual meeting of Parent’s shareholders to elect members of the Board of Directors of Parent and to vote all proxies provided to management in connection with any such meeting for the Shareholder as one of the “nominees” to the Board of Directors so long as the Shareholder owns 5% or more of the outstanding shares of the Company Common Stock; provided, however, if the Shareholder has been removed as a director for cause by the Parent shareholders and such removal has been confirmed by a Delaware court of competent jurisdiction under Delaware Law, this “nominee” provision shall not be enforceable by the Shareholder and shall be void;


(e)

reserve 5,000,000 shares of authorized Parent Common Stock for issuance to directors, executive officers and employees as incentives or otherwise as provided by



21




resolution of the Board of Directors or any committee appointed for this purpose by the Board of Directors for the granting of any such stock options up to 5,000,000 shares under any of the aforesaid Employment Agreements or otherwise and grant, effective at the Closing, an aggregate of 3,850,000 incentive stock options to acquire shares of Parent Common Stock in the form of Exhibit 6.4(e) attached hereto and incorporated herein by reference from such reserved shares, to: D. Sean McEwen (1,500,000 shares), Mark Savage (250,000 shares), Matthew Atkinson (250,000 shares), John Shadek (50,000 shares), Charles L. Schneider, Jr. (1,500,000 shares) and J. William Riner (300,000 shares). along with such other incentive stock options from such reserved shares as the Parties may agree in writing at or prior to the Closing, up to the number of such reserved shares only;


(f)

Company Shareholder, Mr. Savage, Mr. Atkinson and M2 shall execute and deliver the Lock-Up/Leak-Out Agreement in the form of Exhibit 6.4(f) at the Closing;

 

(g)

Subsequent to the Closing, Parent will use its “best efforts” to complete an equity funding of not less than $1,300,000 through the sale of not more than 6,500,000 shares of Parent Common Stock; and

(h)

The Bylaws of the Company shall be amended as provided in the form of Exhibit 6.4(h) attached hereto and incorporated herein by reference; and

(i)

Subject to full payment of Parent expenses outlined in Schedule 3.9 and Schedule 3.13 of Parent Disclosure Schedule, Company Shareholder will be paid $150,000 for advances loaned to Company.

(j)

Parent, in its sole discretion, and subject to the unanimous approval of the Board of Directors, and the availability of all required or necessary audited and reviewed financial statements of Parent and Company, as applicable, that may be required for any such registration statement, will file a registration statement with the SEC within a reasonable time of the Closing to register a portion of the outstanding shares of Parent Common Stock for resale in a secondary offering by Parent shareholders whose shares are included therein and will use its “best efforts” to have such registration statement declared effective by the SEC (a “Registration Statement ”), with the primary purpose of such Registration Statement being to increase the “public float” of the outstanding shares of Parent Common Stock.  No registration rights of any kind have been granted to anyone by Parent, and it is anticipated that any registration of shares of Parent Common Stock will be completed on a pro rata basis among selling shareholders who may be granted any registration rights for their respective shares of Parent Common Stock in the future, though pro rata registration is not a condition to which the Board of Directors shall be subject.   

6.5

Adverse Changes .  No material adverse change will have occurred in the business, financial condition, prospects, assets or operations of Parent since September 30, 2017, except as set forth in Parent Disclosure Schedule or incurred in the ordinary course of business and consistent with past practice.



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6.6

No Proceeding or Litigation .  No suit, action, investigation, inquiry or other proceeding by any Authority or other person or entity will have been instituted or threatened which delays or questions the validity or legality of the transactions contemplated hereby or which, if successfully asserted, would, in the reasonable judgment of Company, individually or in the aggregate, otherwise have a Material Adverse Effect on Parent’s business, financial condition, prospects, assets or operations or prevent or delay the consummation of the transactions contemplated by this Agreement.

6.7

Legislation .  No Law will have been enacted which prohibits, restricts or delays the consummation of the transactions contemplated hereby or any of the conditions to the consummation of such transactions.  


6.8

Appropriate Documentation .  Company will have received, in a form and substance reasonably satisfactory to Company, dated the Closing Date, all certificates and other documents, instruments and writings to evidence the fulfillment of the conditions set forth in this Article 6 as Company may reasonably request, along with duly executed copies of the Transaction Documents by the Parties.


ARTICLE 7

INDEMNIFICATION

7.1

Indemnification by the Parties .   From and after the Closing and subject to the limitations in Section 7.2 and Section 9.2, the Parent Parties on the one hand and Company Parties on the other hand (each an “Indemnifying Party”), shall indemnify, defend and hold harmless each other Party (each an “Indemnitee” and collectively, the “Indemnitees” ) from and against any and all claims, losses or liability (the “Damages” ), directly or indirectly, asserted against or incurred by an Indemnitee by reason of or resulting from a material (i) breach of any representation, warranty or covenant contained herein, or (ii) breach of any representation, warranty or covenant in any Exhibit executed and delivered at the Closing; provided, however, that the Damages shall not exceed the aggregate $100,000 (the “Cap” ).


7.2

Claims Period .  The Indemnitees shall have a twelve (12) month period during which a claim of Damages for indemnification may be asserted under this Agreement.


7.3

Indemnification Proceedings .  Promptly after receipt by any Indemnitee of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 7.1, such Indemnitee shall promptly notify the Indemnifying Party in writing and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnitee, and shall assume the payment of all fees and expenses; provided, however, that the failure of any Indemnitee so to notify the Indemnifying Party shall not relieve the Indemnifying Party of any obligations hereunder except to the extent that the Indemnifying Party is actually and materially prejudiced by such failure to notify. In any such proceeding, any Indemnitee shall have the right to retain Indemnitee’s own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnitee unless: (i) the Indemnifying Party and the Indemnitee shall have mutually agreed to the retention of such counsel; (ii) the Indemnifying Party shall have failed promptly to assume the defense of



23




such proceeding and to employ counsel reasonably satisfactory to such Indemnitee in such proceeding; or (iii) in the reasonable judgment of counsel to such Indemnitee, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without the Indemnitee’s written consent, which consent shall not be unreasonably withheld, delayed or conditioned. Without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld, delayed or conditioned, the Indemnifying Party shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnitee is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnitee from all liability arising out of such proceeding.


ARTICLE 8
TERMINATION AND ABANDONMENT

8.1

Termination by Mutual Consent .  This Agreement may be terminated at any time prior to the Closing by the written consent of Company and Parent.

8.2

Termination by Either Company or Parent .  This Agreement may be terminated by either Company or Parent if the Closing is not consummated by the Termination Date (provided that the right to terminate this Agreement under this Section 8.2 will not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such date).

8.3

Termination by Parent .  This Agreement may be terminated at any time prior to the Closing by Parent if any of the conditions provided for in Article 5 have not been met or waived by Parent in writing prior to the Closing.

8.4

Termination by the Company .  This Agreement may be terminated prior to the Closing by action of Company if any of the conditions provided for in Article 6 have not been met or waived by Company in writing prior to the Closing.

8.5

Procedure and Effect of Termination .  In the event of termination of this Agreement and abandonment of the transactions contemplated hereby by Company or Parent pursuant to this Article 8, written notice thereof will be given to all other Parties and this Agreement will terminate and the transactions contemplated hereby will be abandoned, without further action by any of the Parties hereto. If this Agreement is terminated as provided herein:

(a)

Each of the Parties will, upon request, redeliver all documents, work papers and other material of the other Parties relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the Party furnishing the same;

(b)

No Party will have any liability for a breach of any representation, warranty, agreement, covenant or the provision of this Agreement, unless such breach was due to a willful or bad faith action or omission of such Party or any representative, agent, employee or independent contractor thereof; and



24




(c)

All filings, applications and other submissions made pursuant to the terms of this Agreement will, to the extent practicable, be withdrawn from the agency or other person to which made.

ARTICLE 9
MISCELLANEOUS  PROVISIONS

9.1

Expenses .  Parent and Company will each bear their own costs and expenses relating to the transactions contemplated hereby, including without limitation, fees and expenses of legal counsel, accountants, investment bankers, brokers or finders, printers, copiers, consultants or other representatives for the services used, hired or connected with the transactions contemplated hereby.

9.2

Survival .  The representations and warranties of the Parties shall survive the Closing for a period of one (1) year.

9.3

Amendment and Modification .  Subject to applicable Law, this Agreement may be amended or modified by the Parties hereto at any time with respect to any of the terms contained herein; provided , however , that all such amendments and modifications must be in writing duly executed by all of the Parties hereto.

9.4

Waiver of Compliance; Consents .  Any failure of a Party to comply with any obligation, covenant, agreement or condition herein may be expressly waived in writing by the Party entitled hereby to such compliance, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.  No single or partial exercise of a right or remedy will preclude any other or further exercise thereof or of any other right or remedy hereunder. Whenever this Agreement requires or permits the consent by or on behalf of a Party, such consent will be given in writing in the same manner as for waivers of compliance.

9.5

No Third Party Beneficiaries .  Nothing in this Agreement will entitle any person or entity (other than the Parties hereto and his, her or its respective successors and assigns permitted hereby) to any claim, cause of action, remedy or right of any kind.

9.6

Notices .  All notices, requests, demands and other communications required or permitted hereunder will be made in writing and will be deemed to have been duly given and effective: (i) on the date of delivery, if delivered personally; (ii) on the earlier of the fourth (4th) day after mailing or the date of the return receipt acknowledgement, if mailed, postage prepaid, by certified or registered mail, return receipt requested; or (iii) on the date of transmission, if sent by facsimile, telecopy, telegraph, telex or other similar telegraphic communications equipment, or to such other person or address as the Company will furnish to the other Parties hereto in writing in accordance with this Section 9.6.

If to Company or Company Majority Shareholders Prior to the Merger:

With a copy to:

KonaTel, Inc.

D. Sean McEwen, President

1910 Minno Drive, Suite 210

Johnstown, Pennsylvania 15905

Email: sean@konatel.com

Susanna Truax Kintz, Esq.

Reese Kintz, LLC

916 Southwood Blvd., Suite 3A

Incline Village, Nevada 89451

Email: SKitz@reesekintz.com

  

      

or to such other person or address as either Company or Company Shareholders will furnish to the other Parties hereto in writing in accordance with this Section 9.6.


If to Parent or Merger Subsidiary Prior to the Merger:

With a copy to:

Dala Petroleum Corp.

Mark Savage, President

P.O. Box 947

Crosslake, Minnesota 56442

Email: msavagem2@gmail.com

Leonard W. Burningham, Esq.

2150 South 1300 East, Suite 500

Salt Lake City, Utah  84106

Email: lwb@burninglaw.com

  

     

or to such other person or address as Parent will furnish to the other Parties hereto in writing in accordance with this Section 9.6.

  

9.7

Assignment .  This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned (whether voluntarily, involuntarily, by operation of law or otherwise) by any of the Parties hereto without the prior written consent of the other Parties.

9.8

Governing Law .  This Agreement and the legal relations among the Parties hereto will be governed by and construed in accordance with the internal substantive laws of the State of Nevada (without regard to the laws of conflict that might otherwise apply) as to all matters, including without limitation matters of validity, construction, effect, performance and remedies; provided, however , provisions in ancillary agreements or documents executed and delivered as a condition to the Closing of the Agreement that provide for the governing law of one or more other states of the United States shall be excepted from this Section, and the governing law provided therein shall be the governing law of each such ancillary agreement or document.

9.9

Counterparts .  This Agreement may be executed simultaneously in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

9.10

Headings .  The table of contents and the headings of the sections and subsections of this Agreement are inserted for convenience only and will not constitute a part hereof.

9.11

Entire Agreement .  This Agreement, the Disclosure Schedules and the exhibits and other writings referred to in this Agreement or in the Disclosure Schedules or any such exhibit or other writing are part of this Agreement, together they embody the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated by this Agreement and together they are referred to as this Agreement or the Transaction Documents.  



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There are no restrictions, promises, warranties, agreements, covenants or undertakings, other than those expressly set forth or referred to in this Agreement.  This Agreement supersedes all prior agreements and understandings between the Parties with respect to the transaction or transactions contemplated by this Agreement.  Provisions of this Agreement will be interpreted to be valid and enforceable under applicable Law to the extent that such interpretation does not materially alter this Agreement; provided, however , that if any such provision becomes invalid or unenforceable under applicable Law such provision will be stricken to the extent necessary and the remainder of such provisions and the remainder of this Agreement will continue in full force and effect.

9.12

Definition of Material Adverse Effect .   “Material Adverse Effect” with respect to a Party means a material adverse change in or effect on the business, operations, financial condition, properties or liabilities of that Party taken as a whole; provided, however, that a Material Adverse Effect will not be deemed to include (i) changes as a result of the announcement of this transaction or related transactions contemplated herein, (ii) events or conditions arising from changes in general business or economic conditions or (iii) changes in generally accepted accounting principles.









(Signature Page Follows)























27







SIGNATURE PAGE


IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the day and year first above written.


DALA PETROLEUM CORP.


By:  /s/ Mark Savage

Mark Savage, President

KONATEL, INC.


By:  /s/ D. Sean McEwen 

 

   D. Sean McEwen, President

 

DALA SUBSIDIARY CORP.


By:  /s/ Mark Savage

        Mark Savage, President

 

COMPANY SHAREHOLDER


/s/ D. Sean McEwen

D. Sean McEwen, 100% Shareholder

 

MARK SAVAGE


/s/ Mark Savage

Mark Savage, Individually

 

 

MATTHEW ATKINSON


/s/ Matthew Atkinson

Matthew Atkinson, Individually

 

 

M2 EQUITY PARTNERS LLC.


By: /s/ Matthew Atkinson  

Matthew Atkinson, Manager

 




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EXHIBIT 2.1


Company Disclosure Schedule




29




EXHIBIT 3.1


Parent Disclosure Schedule




30




EXHIBIT 5.4(b)


Joint Board of Directors and Company Shareholder Written Consent to Merger



31




EXHIBIT 5.4(c)


Schneider Stock Option Cancellation Agreement




 

32




EXHIBIT 6.4(c)


D. Sean McEwen Employment Agreement



33




 Exhibit 6.4(d)


Shareholder Voting Agreement



 



34




Exhibit 6.4(e)


Form of Incentive Stock Option




 

35




Exhibit 6.4(f)


Form of Lock-Up/Leak-Out Agreement




 

36




Exhibit 6.4(h)


Amended Bylaws



37



ARTICLES OF MERGER


OF


DALA SUBSIDIARY CORP.

(a Nevada corporation)


WITH AND INTO


KONATEL, INC.

(a Nevada corporation)



Pursuant to the provisions of Section 92A.100 of the Nevada Revised Statutes (the “NRS”), it is hereby certified that:


ARTICLE I

Surviving Corporation


1.

The name of the corporation surviving the merger is KonaTel, Inc., whose address is 1910 Minno Drive, Suite 210, Johnstown, Pennsylvania 15905.


2.

The surviving corporation is a domestic corporation existing pursuant to the provisions of the NRS incorporated effective October 14, 2014.


3.

The effective date of the merger described herein shall be the filing date with the Nevada Secretary of State.


ARTICLE II

Non-Surviving Corporation


The non-surviving corporation, Dala Subsidiary Corp., is a domestic corporation existing pursuant to the provisions of the NRS incorporated on November 13, 2017.


ARTICLE III

Plan of Merger


The Agreement and Plan of Merger containing such information as required by Section 92A.200 of the NRS is set forth in Exhibit A attached hereto and made a part hereof.


ARTICLE IV

Manner of Adoption and Vote of Surviving Corporation


A Joint Unanimous Consent of Directors and Sole Shareholder of KonaTel, Inc., the surviving corporation, was executed by the Board of Directors and the sole shareholder entitled to vote on November 15, 2017.


ARTICLE V

Manner of Adoption and Vote of Non-Surviving Corporation


A Joint Written Consent Resolutions of the Board of Directors and the Sole Shareholder of Dala Subsidiary Corp., the non-surviving corporation, was executed by the Board of Directors and the sole shareholder on November 15, 2017.




IN WITNESS WHEREOF, the undersigned, being the President of the surviving corporation, has executed these Articles of Merger and hereby verifies, subject to penalties of perjury, that the statements contained herein are true, as of this 18th day of December, 2017.


/s/ D. Sean McEwen            

D. Sean McEwen, President

KonaTel, Inc.

























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Exhibit A


Agreement and Plan of Merger




3


AMENDED AND RESTATED


CERTIFICATE OF INCORPORATION


OF


DALA PETROLEUM CORP.


Dala Petroleum Corp., which was organized under the laws of the State of Delaware on June 24, 1986, under the name “Westcott Products Corporation,” desires to amend and restate its Certificate of Incorporation as follows pursuant to the provisions of Sections 242 and 245 of the Delaware General Corporation Code.


ARTICLE I


The name of the corporation is Dala Petroleum Corp.


ARTICLE II


The registered office of the corporation in the State of Delaware is located at 251 Little Falls Drive, in the city of Wilmington, County of New Castle, Zip Code, 19808.  The name of the registered agent at such address is Corporation Service Company.


ARTICLE III


The corporation is to have perpetual existence.


ARTICLE IV


The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.


ARTICLE V


The total number of shares of all classes of capital stock, which the corporation shall have authority to issue, shall be 100,000,000 shares, consisting of 50,000,000 shares of common stock, par value one mill ($0.001) per share, and 50,000,000 shares of preferred stock, par value one cent ($0.01) per share.

The following is a statement fixing certain of the designations and powers, voting powers, preferences and relative, participating, optional or other rights of the preferred stock and the common stock of the corporation, and the qualifications, limitations or restrictions thereof, and the authority with respect thereto expressly granted to the Board of Directors of the corporation to fix any such provisions not fixed by this Certificate of Incorporation:




A.

Preferred Stock

The Board of Directors is hereby expressly vested with the authority to adopt a resolution or resolutions providing for the issue of authorized but unissued shares of preferred stock, which shares my be issued from time to time in one or more series and in such amounts as may be determined by the Board of Directors in such resolution or resolutions. The powers, voting powers, designations, preferences and relative, participating, optional or other rights, if any, of each series of preferred stock and the qualifications, limitations or restrictions, if any, of such preferences and/or rights (collectively, the “Series Terms”), shall be such as are stated and expressed in a resolution or resolutions providing for the creation or revision of such Series Terms (a “Preferred Stock Series Resolution”) adopted by the Board of Directors or a committee of the Board of Directors to which such responsibility is specifically and lawfully delegated. The powers of the Board with respect to the Series Terms of a particular series (any of which powers, other than voting powers, may by resolution of the Board of Directors be specifically delegated to one or more of its committees, except as prohibited by law) shall include, but not be limited to, determination of the following:

(1) The number of shares constituting that series and the distinctive designation of that series, or any increase or decrease (but not below the number of shares thereof then outstanding) in such number;

(2) The dividend rate on the shares of that series, whether such dividends, if any, shall be cumulative, and, if so, the date or dates from which dividends payable on such shares shall accumulate, and the relative rights of priority, if any, of payment of dividends on shares of that series;

(3) Whether that series shall have voting rights, in addition to the voting rights provided by law and, if so, the terms of such voting rights;

(4) Whether that series shall have conversion privileges with respect to shares of any other class or classes of stock or of any other series of any class of stock, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rates upon occurrence of such events as the Board of Directors shall determine;

(5) Whether the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including their relative rights of priority, if any, of redemption, the date or dates upon or after which they shall be redeemable, provisions regarding redemption notices, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;

(6) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund;

(7) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series;



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(8) The conditions or restrictions upon the creation of indebtedness of the corporation or upon the issuance of additional preferred stock or other capital stock ranking on a parity therewith, or prior thereto, with respect to dividends or distribution of assets upon liquidation;

(9) The conditions or restrictions with respect to the issuance of, payment of dividends upon, or the making of other distributions to, or the acquisition or redemption of, shares ranking junior to the preferred stock or to any series thereof with respect to dividends or distribution of assets upon liquidation; and

(10) Any other designations, powers, preferences and rights, including, without limitation, any qualifications, limitations or restrictions thereof allowed by applicable law.

Any of the Series Terms, including voting rights of any series, may be made dependent upon facts ascertainable outside the Certificate of Incorporation and the Preferred Stock Series Resolution, provided that the manner in which such facts shall operate upon such Series Terms is clearly and expressly set forth in the Certificate of Incorporation or in the Preferred Stock Series Resolution.

Subject to the provisions of this Article V, shares of one or more series of preferred stock may be authorized or issued from time to time as shall be determined by and for such consideration as shall be fixed by the Board of Directors or a designated committee thereof, in an aggregate amount not exceeding the total number of shares of preferred stock authorized by this Certificate of Incorporation. Except in respect of series particulars fixed by the Board of Directors or its committee as permitted hereby, all shares of preferred stock shall be of equal rank and shall be identical. All shares of one series of preferred stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative.

B.

Common Stock

(1) Dividends . Subject to the provisions of any Preferred Stock Series Resolution, the Board of Directors may, in its discretion, out of funds legally available for the payment of dividends and at such times and in such manner as determined by the Board of Directors, declare and pay dividends on the common stock of the corporation.

No dividend (other than a dividend in capital stock ranking on a parity with the common stock or cash in lieu of fractional shares with respect to such stock dividend) shall be declared or paid on any share or shares of any class of stock or series thereof ranking on a parity with the common stock in respect of payment of dividends for any dividend period unless there shall have been declared, for the same dividend period, like proportionate dividends on all shares of common stock then outstanding.

(2) Liquidation . In the event of any liquidation, dissolution or winding up of the corporation, whether voluntary of involuntary, after payment or provision for payment of the debts and other liabilities of the corporation and payment or setting aside for payment of any preferential amount due to the holders of any other class or series of stock, the holders of the common stock shall be entitled to receive ratably any or all assets remaining to be paid or distributed.



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(3) Voting Rights . Subject to any special voting rights set forth in any Preferred Stock Series Resolution, the holders of the common stock of the corporation shall be entitled at all meetings of shareholders to one vote for each share of such common stock held by them.

C.

Prior, Parity or Junior Stock .

Whenever reference is made in this Article V to shares “ranking prior to” another class of stock or “on a parity with” another class of stock, such reference shall mean and include all other shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation are given preference over, or rank on an equality with, as the case may be, the rights of the holders of such other class of stock. Whenever reference is made to shares “ranking junior to” another class of stock, such reference shall mean and include all shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation are junior and subordinate to the rights of the holders of such class of stock.

Except as otherwise provided herein or in any Preferred Stock Series Resolution, each series of preferred stock ranks on a parity with each other and each ranks prior to the common stock. Common stock ranks junior to the preferred stock.

D.

Liquidation .

For the purposes of Section 2 of Section B of this Article V and for the purpose of the comparable sections of any Preferred Stock Series Resolution, the merger or consolidation of the corporation, or the sale, lease or conveyance of all or substantially all the assets, property or business of the corporation, shall not be deemed to be a liquidation, dissolution or winding up of the corporation.

E.

Reservation and Retirement of Shares .

The corporation shall at all times reserve and keep available, out of its authorized but unissued shares of common stock or out of shares of common stock held in its treasury, the full number of shares of common stock into which all shares of any series of preferred stock having conversion privileges from time to time outstanding are convertible.

Unless otherwise provided in a Preferred Stock Series Resolution with respect to a particular series of preferred stock, all shares of preferred stock redeemed or acquired (as a result of conversion or otherwise) shall be retired and restored to the status of authorized but unissued shares.

F.

Repurchases of Capital Stock .

The corporation may, without shareholder approval, purchase, directly or indirectly, its own shares to the extent of the aggregate of its unrestricted capital surplus and unrestricted reduction surplus.



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ARTICLE VI

Anything else in this Certificate of Incorporation to the contrary notwithstanding, cumulative voting for the election of directors or for any other purpose is prohibited.

ARTICLE VII

No stockholder of the corporation shall by reason of the holding of shares of any class of stock have any preemptive or preferential right to purchase or subscribe to any shares of any class of stock of this corporation, now or hereafter to be authorized, or any notes, debentures, bonds or other securities convertible into or carrying options or warrants to purchase shares of any class, now or hereafter to be authorized, whether or not the issuance of any such shares, or such notes, debentures, bonds or voting rights of such stockholder, other than such rights, if any, as the board of directors in its discretion may fix.


ARTICLE VIII


(a) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.


(b) This corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the



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case, such person is fairly and reasonably entitled to indemnity for such expenses, which the Court of Chancery or such other court shall deem proper.


(c) To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceedings referred to in subsections (a) and (b), or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith.


(d) Any indemnification under subsections (a) and (b) (unless ordered by an applicable court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in subsections (a) and (b). Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders.


(e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding only upon a vote of a majority of disinterested directors after their receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation as authorized by this Article VIII.


(f)

The indemnification provided by this Article VIII shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.


(g)

This corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of this Article VIII.


ARTICLE IX


Whenever a compromise or arrangement is proposed between the corporation and its creditors or any class of them and/or between the corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in



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a summary way of the corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the corporation under the provision of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, to be summoned in such manner as the said court directs.  If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors and/or on all the stockholders or class of stockholders of the corporation, as the case may be, and also on the corporation.


ARTICLE X

The Board of Directors is expressly authorized to make, alter, or repeal the Bylaws of the corporation or to adopt new Bylaws.

IN WITNESS WHEREOF, said corporation has caused this Amended and Restated Certificate of Incorporation to be signed this 13th day of November, 2017.


 

By:

/s/ Mark Savage

  

  

Mark Savage

 

  

President, Chief Executive Officer, Treasurer, Chief Financial Officer and the sole Director





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DALA PETROLEUM CORP.


AMENDED AND RESTATED BYLAWS


ARTICLE I  -  STOCKHOLDERS


Section 1:  Annual Meeting .


An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen (13) months of the last annual meeting of stockholders or, if no such meeting has been held, the date of incorporation.


Section 2:  Special Meetings .


Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called by the Board of Directors or the chief executive officer and shall be held at such place, on such date, and at such time as they or he or she shall fix.


Section 3:  Notice of Meetings .


Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation).


When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith.  At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.


Section 4:  Quorum .


At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law.  Where a separate vote by a class or classes is required, a majority of the shares of such class or classes present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.





If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time.


Section 5:  Organization .


Such person as the Board of Directors may have designated or, in the absence of such a person, the chief executive officer of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting.  In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints.


Section 6:  Conduct of Business .


The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in

order.  The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.


Section 7:  Proxies and Voting .


At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting.  Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.


All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken.  Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting.  The Corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof.  The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act.  If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting.  Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.  Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting.



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All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively.


Section 8:  Stock List .


A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held.


The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.


Section 9:  Consent of Stockholders in Lieu of Meeting .


Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested.


Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the date the earliest dated consent is delivered to the Corporation, a written consent or consents signed by a sufficient number of holders to take action are delivered to the Corporation in the manner prescribed in the first paragraph of this Section.


ARTICLE II  -  BOARD OF DIRECTORS


Section 1:  Number and Term of Office .


The number of directors who shall constitute the whole Board shall be such number as the Board of Directors shall from time to time have designated, except that in the absence of any such designation, such number shall be three (3).  Each director shall be elected for a term of one year and until his or her successor is elected and qualified, except as otherwise provided herein or required by law.



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Whenever the authorized number of directors is increased between annual meetings of the stockholders, a majority of the directors then in office shall have the power to elect such new directors for the balance of a term and until their successors are elected and qualified.  Any decrease in the authorized number of directors shall not become effective until the expiration of the term of the directors then in office unless, at the time of such decrease, there shall be vacancies on the board which are being eliminated by the decrease.


Section 2:  Vacancies .


If the office of any director becomes vacant by reason of death, resignation, disqualification, removal or other cause, a majority of the directors remaining in office, although less than a quorum, may elect a successor for the unexpired term and until his or her successor is elected and qualified.


Section 3:  Regular Meetings .


Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors.  A notice of each regular meeting shall not be required.


Section 4:  Special Meetings .


Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number) or by the chief executive officer and shall be held at such place, on such date, and at such time as they or he or she shall fix.  Notice of the place, date, and time of each such special meeting shall be given each director by whom it is not waived by mailing written notice not less than five (5) days before the meeting or by telegraphing or telexing or by facsimile transmission of the same not less than twenty-four (24) hours before the meeting.  Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.


Section 5:  Quorum .


At any meeting of the Board of Directors, a majority of the total number of the whole Board shall constitute a quorum for all purposes.  If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.


Section 6:  Participation in Meetings By Conference Telephone .


Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting.



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Section 7:  Conduct of Business .


At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law.  Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors.


Section 8:  Powers .


The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power:


(1)  To declare dividends from time to time in accordance with law;


(2)  To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine;


(3)  To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith;


(4)  To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being;


(5)  To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents;


(6)  To adopt from time to time such stock option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine;


(7)  To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and


(8)  To adopt from time to time regulations, not inconsistent with these By-laws, for the management of the Corporation’s business and affairs.


Section 9:  Compensation of Directors .


Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.



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ARTICLE III  -  COMMITTEES


Section 1:  Committees of the Board of Directors .


The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee.  Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide.  In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.


Section 2:  Conduct of Business .


Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law.  Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present.  Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.


ARTICLE IV  -  OFFICERS


Section 1:  Generally .


The officers of the Corporation shall consist of a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers as may from time to time be appointed by the Board of Directors.  Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders.  Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.  Any number of offices may be held by the same person.  The Board of Directors shall elect from among its members a Chairman of the Board, who shall serve a minimum term of two (2) years; and if desired, and a Vice Chairman of the Board.



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Section 2:  Chairman of the Board and Vice Chairman of the Board .


Unless otherwise provided by the Board of Directors, the Chairman of the Board of Directors, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors. The Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.


Unless otherwise provided by the Board of Directors, in the absence of the Chairman of the Board, the Vice Chairman of the Board, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors.  The Vice Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.


Section 3:  President .


The President shall be the chief executive officer of the Corporation.  Subject to the provisions of these By-laws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him or her by the Board of Directors.  He or she shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation.


Section 4:  Vice President .


Each Vice President shall have such powers and duties as may be delegated to him or her by the Board of Directors.  One (1) Vice President shall be designated by the Board to perform the duties and exercise the powers of the President in the event of the President’s absence or disability.


Section 5:  Treasurer .


The Treasurer shall have the responsibility for maintaining the financial records of the Corporation. He or she shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions and of the financial condition of the Corporation.  The Treasurer shall also perform such other duties as the Board of Directors may from time to time prescribe.


Section 6:  Secretary .


The Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the stockholders and the Board of Directors.  He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe.




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Section 7:  Delegation of Authority .


The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.


Section 8:  Removal .


Any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors.


Section 9:  Action with Respect to Securities of Other Corporations .


Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.


ARTICLE V  -  STOCK


Section 1:  Certificates of Stock .


Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her.  Any or all of the signatures on the certificate may be by facsimile.


Section 2:  Transfers of Stock .


Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these By-laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.


Section 3:  Record Date .


In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided,



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however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto.


A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.


In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall be not more than ten (10) days after the date upon which the resolution fixing the record date is adopted.  If no record date has been fixed by the Board of Directors and no prior action by the Board of Directors is required by the Delaware General Corporation Law, the record date shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in the manner prescribed by Article I, Section 9 hereof.  If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the Delaware General Corporation Law with respect to the proposed action by written consent of the stockholders, the record date for determining stockholders entitled to consent to corporate action in writing shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.


Section 4:  Lost, Stolen or Destroyed Certificates .


In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity.


Section 5:  Regulations .


The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.


ARTICLE VI  -  NOTICES


Section 1:  Notices .


Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram or mailgram.  Any



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such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation.  The time when such notice is received, if hand delivered, or dispatched, if delivered through the mails or by telegram or mailgram, shall be the time of the giving of the notice.


Section 2:  Waivers .


A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent.  Neither the business nor the purpose of any meeting need be specified in such a waiver.


ARTICLE VII  -  MISCELLANEOUS


Section 1:  Facsimile Signatures .


In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By-laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.


Section 2:  Corporate Seal .


The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary.  If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer.


Section 3:  Reliance upon Books, Reports and Records .


Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.


Section 4:  Fiscal Year .


The fiscal year of the Corporation shall be as fixed by the Board of Directors.


Section 5:  Time Periods .


In applying any provision of these By-laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a



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specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.


ARTICLE VIII  -  INDEMNIFICATION OF DIRECTORS AND OFFICERS


Section 1:  Right to Indemnification .


Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section 3 of this ARTICLE VIII with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.


Section 2:  Right to Advancement of Expenses .


The right to indemnification conferred in Section 1 of this ARTICLE VIII shall include the right to be paid by the Corporation the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an “advancement of expenses”); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this Section 2 or otherwise.  The rights to indemnification and to the advancement of expenses conferred in Sections 1 and 2 of this ARTICLE VIII shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.




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Section 3:  Right of Indemnitee to Bring Suit .


If a claim under Section 1 or 2 of this ARTICLE VIII is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim.  If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit.  In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law.  Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit.  In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this ARTICLE VIII or otherwise shall be on the Corporation.


Section 4:  Non-Exclusivity of Rights .


The rights to indemnification and to the advancement of expenses conferred in this ARTICLE VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation’s Certificate of Incorporation, By-laws, agreement, vote of stockholders or disinterested directors or otherwise.


Section 5:  Insurance .


The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.




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Section 6:  Indemnification of Employees and Agents of the Corporation.


The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.


ARTICLE IX -  LIMITATION OF BOARD OF DIRECTOR AUTHORITY


Shareholder Consent Requirement .


For a period of two (2) years beginning on the date of the Closing (as defined therein) of the Agreement and Plan of Merger (respectively, the “Merger Agreement” and the “Merger”) dated November 15, 2017, the following actions require the vote or consent of a majority of the outstanding voting securities of the Corporation, unless unanimously approved by the Board of Directors:


Increase the compensation of any employee of the Corporation in excess of $20,000 in any one calendar year.  For these purposes, the term compensation includes any form of remuneration or monetary benefit.


Issue stock, create a new class of stock, grant options or warrants, modify any shareholder, option holder or warrant holder right, grant conversion rights, or take any other action that directly or indirectly dilutes the outstanding stock of the Corporation; excepting the issuance of stock pursuant to the Merger Agreement, and including, without limitation, stock underlying incentive stock options issued under Section 6.4(e) thereof and stock contemplated to be sold pursuant to Section 6.4(g) thereof, which issuances shall all be deemed to have been consented to by the Key Holders and McEwen as of the Closing of the Merger;


Issue debt in excess of $100,000 in aggregate in any one calendar year;


Approve a plan of merger, reorganization, or conversion;


Sell, transfer or otherwise convey the assets of the Corporation other than in ordinary course of the business of the Corporation;


Enter into a contract or other transaction having a total aggregate contractual liability in excess of $100,000 in any one calendar year; and


Modify this Article IX.


ARTICLE X -  AMENDMENTS


Except as otherwise provided herein, these By-laws may be amended or repealed by the majority of the Board of Directors at any Director meeting, except that any amendment to Article IX shall require unanimous approval by the Board of Directors,  or by the vote of a majority of the



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outstanding voting securities of the Corporation at any shareholder meeting or by written consent of a majority of the shareholders pursuant to Article 1, Section 9 hereof.


Dated: December 18, 2017.

/s/ Matthew Atkinson

Matthew Atkinson, Secretary



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DALA PETROLEUM CORP.

SHAREHOLDER VOTING AGREEMENT

This Shareholder Voting Agreement (the “Agreement” ) is made and entered into as of this 18th day of December, 2017, by and among Dala Petroleum Corp., a Delaware corporation (the “Company” ), D. Sean McEwen ( McEwen” ), M2 Equity Partners, LLC, a Minnesota limited liability company ( “M2” ); Mark Savage ( “Savage” ), and Matthew Atkinson ( “Atkinson ”).


RECITALS


WHEREAS, McEwen owns 100% of the outstanding common voting stock of KonaTel, Inc., a Nevada corporation (respectively, the “KonaTel Common Stock” and “KonaTel” ), and is the founder, President and sole director of KonaTel;


WHEREAS, KonaTel and the Company intend to inter into an Agreement and Plan of Merger (the “Merger Agreement ”) pursuant to which a wholly-owned subsidiary of the Company will merge with and into KonaTel, McEwen will exchange all of his shares of KonTel Common Stock for shares of $0.001 par value common voting stock of the Company (the “Company Common Stock” ), and KonaTel will become a wholly-owned subsidiary of the Company (the “Merger” );


WHEREAS, M2 owns 12,100,000 shares of the Company Common Stock, and Savage and Atkinson collectively own approximately 66.1% of the membership interest of M2 of which Atkinson is the sole Manager;


WHEREAS, Atkinson as Manager intends to dissolve M2 and cause M2 to distribute M2’s Company Common Stock to Savage, Atkinson and the other members of M2 in accordance with their respective membership interest percentages;


WHEREAS following the Merger and the dissolution of M2, McEwen, Savage and Atkinson will collectively own approximately 21,500,000 shares of the Company Common Stock;


WHEREAS, the primary operations of the Company following the Merger will be the operations presently carried on by KonaTel, and the parties believe that McEwen is the most knowledgeable and best suited person to manage the Company and its KonaTel operations after the Merger;


WHEREAS McEwen has made a significant investment in KonaTel, and as a condition of his agreeing to the Merger, McEwen requires that for the first two (2) years following the closing of the Merger that he be granted a limited “veto power” over certain Company actions so that McEwen can preserve and protect his investment, and ensure that he will have the authority he needs to manage the Company and its KonaTel operations as the Company Chairman and CEO effectively and profitably;




Shareholder Voting Agreement

Page 1




WHEREAS the parties believe that the limited veto power McEwen requires is reasonable both in scope and duration and is beneficial to the Company, and that it is in the best interest of the Company and its shareholders to enter into the Merger Agreement subject to that veto power;


NOW, THEREFORE, in consideration of these premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


AGREEMENT


1.

TERM


This Agreement shall remain in force for a period of two (2) consecutive years following the Effective Date of the Merger as defined in the Merger Agreement (the “Term” ).


2.

SHAREHOLDER VOTING


Key Holder Shares . M2 (and its members, if M2 is dissolved and its shares of Company Common Stock are distributed to its members), Savage, and Atkinson (collectively the “Key Holders” ) each agree to hold all shares of voting capital stock of the Company registered in their respective names, or beneficially owned by them as of the date hereof, and any and all other securities of the Company legally or beneficially acquired by each of the Key Holders after the date hereof (hereinafter collectively referred to as the “Key Holder Shares” ) subject to, and to vote the Key Holder Shares in accordance with, the provisions of this Agreement; provided , that the term “Key Holder Shares” shall not include shares of Company Common Stock sold publicly by the Key Holders in accordance with that certain Lock-Up/Leak-Out Agreement executed and delivered as of the Effective Date of the Merger.


2.1

Election of Directors .   On all matters relating to the election of directors of the Company, for the Term of this Agreement and so long as McEwen owns 5% or more of outstanding stock of the Company, the Key Holders shall: (i) vote all the Key Holder Shares so as to elect McEwen as a member of the board of directors of the Company (the “Board” ); (ii) nominate McEwen as a “nominee” to the Board in any special or annual meeting of the Company to elect members of the Board and vote all Key Holders’ Shares and other proxies provided to management in connection with any such meeting for McEwen as one of the “nominees” to the Board; provided, however, if the Shareholder has been removed as a director for cause by the shareholders of the Company and such removal has been confirmed by a Delaware court of competent jurisdiction under Delaware Law, this provision shall not be enforceable and shall be void.


2.2

Proposed Actions.


(a)

On all matters relating to Consent Actions (as defined below) that are approved by McEwen, the Key Holders agree to be present, in person or by proxy, at all meetings of shareholders for the vote thereon, to vote all the Key Holder Shares in favor of the proposed action, or in connection with any solicitation of written consents from the stockholders



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of the Company, to consent to the proposed action, and raise no objections to the proposed action, and to waive and refrain from exercising any dissenters rights, appraisal rights or similar rights in connection with such proposed action.  


(b)

On all matters relating to Consent Actions that are not approved by McEwen, the Key Holders agree to be present, in person or by proxy, at all meetings for the vote thereon, to vote all the Key Holder Shares against the proposed action, or in connection with any solicitation of written consents from the stockholders of the Company, to object to the proposed action.  


McEwen shall provide the Key Holders with written notice of his approval or non-approval of any Consent Action within (i) five (5) business days of the date the Board approves the Consent Action if McEwen participates in the vote or written consent approving the Consent Action; or (ii) five (5) business days of the date McEwen receives written notice of the Board’s approval of the Consent Action if McEwen did not participate in the vote or written consent.  The Key Holders covenant to inform McEwen of any Consent Action approved by the Board within three (3) days of the Key Holder’s receipt of such information.  


2.3

Irrevocable Proxy .   To secure the Key Holder’s obligations to vote the Key Holder Shares in accordance with this Agreement, each Key Holder hereby appoints McEwen, as such Key Holder’s true and lawful proxy and attorney, with the power to act alone and with full power of substitution, to vote all of such Key Holder’s Key Holder Shares as set forth in this Agreement and to execute all written consents or objections and other appropriate instruments consistent with this Agreement on behalf of such Key Holder.  The proxy and power granted by each Key Holder pursuant to this Section are coupled with an interest and are given to secure the performance of such party’s duties under this Agreement and are irrevocable for the Term of this Agreement.  The proxy and power, so long as any party hereto is an individual, will survive the death, incompetency and disability of such party or any other individual holder of the Key Holder Shares and, so long as any party hereto is an entity, will survive the merger, reorganization or dissolution of such party or any other entity holding Key Holder Shares.


2.4

Legend .


(a)

Concurrently with the execution of this Agreement, there shall be imprinted or otherwise placed, on certificates representing the Key Holder Shares the following restrictive legend (the “Legend” ):


“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A SHAREHOLDER VOTING AGREEMENT WHICH PLACES CERTAIN RESTRICTIONS ON THE VOTING OF THE SHARES REPRESENTED HEREBY.  ANY PERSON ACCEPTING ANY INTEREST IN SUCH SHARES SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SUCH AGREEMENT.  A COPY OF SUCH VOTING AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER OF THIS



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CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS.”


(b)

Subject to the limitations on public sale set forth in the first paragraph in Section 2 above, the Company agrees that, during the term of this Agreement, it will not remove, and will not permit to be removed (upon registration of transfer, reissuance of otherwise), the Legend from any such certificate and will place or cause to be placed the Legend on any new certificate issued to represent Key Holder Shares theretofore represented by a certificate carrying the Legend.  If at any time or from time to time any Key Holder holds any certificate representing shares of the Company’s capital stock not bearing the aforementioned legend, such Key Holder or Investor agrees to deliver such certificate to the Company promptly to have such legend placed on such certificate; provided, however , this provision shall not prohibit any Key Holder from depositing such Key Holder’s Key Holder Shares for public sale with a Broker (as defined in the referenced Lock-Up/Leak-Out Agreement and allowing such Broker to transfer such Key Holder’s Key Holder Shares into “street name” for deposit with the Depository Trust Company; and provided, further , however, so long as such Key Holder’s Key Holder Shares have not been publicly-sold by such Key Holder, such Key Holder’s Key Holder Shares shall remain subject to this Agreement, regardless of transfer without the Legend.


2.5

Successors .  The provisions of this Agreement shall be binding upon the successors in interest to any of the Key Holder Shares, unless the Key Holder Shares have been publicly sold under the referenced Lock-Up/Leak-Out Agreement, at which time this Agreement shall no longer apply to the Key Holder Shares that have been publicly sold.  Subject to Section 2.4(b), the Company shall not permit the transfer of any of the Key Holder Shares on its books or issue a new certificate representing any of the Key Holder Shares unless and until the person to whom such security is to be transferred shall have executed a written agreement, substantially in the form of this Agreement, pursuant to which such person becomes a party to this Agreement and agrees to be bound by all the provisions hereof as if such person were a Key Holder.


2.6

Other Rights .  Except as provided by this Agreement, each Key Holder shall exercise the full rights of a holder of capital stock of the Company with respect to the Key Holder Shares.


3.

BOARD OF DIRECTOR VOTING.


The M2 Holders, as applicable, each agree to exercise their voting power as an elected member of the Board ( “Director” ) consistently with the terms of this Agreement; provided that nothing in this Agreement shall obligate a Director to exercise his or her voting authority in a manner that is inconsistent with his or her duties as a Director to the Company and its shareholders.


3.1

Amended Bylaws .  By their execution of this Agreement, the Key Holders, as applicable, acknowledge and understand that the Board, effective as of the date of the Closing of the Merger, in the Consent of Directors of the Board attached hereto as Exhibit A (the “Written Consent” ), which Written Consent adopts the Dala Petroleum Corp. Amended and Restated Bylaws dated as of the Closing of the Merger attached hereto as Exhibit B (the “Amended Bylaws” ).  The Key Holders have no objection whatsoever to the Board’s Written Consent



4




adopting the Amended Bylaws, and the Key Holders acknowledge that McEwen is relying upon the Key Holders’ acknowledgment and understanding of the matters outlined in this Section 3.1 as one of his conditions to the Closing of the Merger.


3.2

Consent Actions . The Key Holders hereby acknowledge and agree that the Amended Bylaws require the unanimous vote of the Directors or the consent of majority of the shareholders of the Company for the Company to take the following specific actions (the “Consent Actions” ) during the Term of this Agreement:


(a)

Increase the compensation of any employee of the Company in excess of $20,000 in any one calendar year.  For these purposes, the term compensation includes any form of remuneration or monetary benefit.


(b)

Issue stock, create a new class of stock, grant options or warrants, modify any shareholder, option holder or warrant holder right, grant conversion rights, or take any other action that directly or indirectly dilutes the outstanding stock of the Company; excepting the issuance of stock pursuant to Section 6.4(f) of the Merger Agreement, which issuance shall be deemed to have been consented to by the Key Holders and McEwen as of the Closing of the Merger;


(c)

Issue debt in excess of $100,000 in aggregate in any one calendar year;


(d)

Approve a plan of merger, reorganization, or conversion;


(e)

Sell, transfer or otherwise convey the assets of the Company other than in ordinary course of the business of the Company;


(f)

Enter into a contract or other transaction having a total aggregate contractual liability in excess of $100,000 in any one calendar year; and


(g)

Change the Bylaws modifying this shareholder consent requirement.


3.3

Chairman of the Board . On all matters relating to the election or appointment of the Chairman of the Board, the Key Holders agree to vote so as to elect McEwen as the Chairman of the Board.


4.

MISCELLANEOUS


4.1

Further Action .  If and whenever any Key Holder Shares are sold, the Key Holders or the personal representative of the Key Holders shall do all things and execute and deliver all documents and make all transfers, and cause any transferee of the Key Holder Shares to do all things and execute and deliver all documents, as may be necessary to consummate such sale consistent with this Agreement.


4.2

Specific Performance and/or Injunctive Relief .  The parties declare that it is impossible to measure in money the damages which will accrue to a party or to their heirs, personal representatives, or assigns by reason of another party’s failure to perform any of the



5




obligations under this Agreement, and agree that, in addition to damages and remedies at law, the parties shall be entitled to seek and obtain specific performance and/or injunctive relieve without the posting of a bond for the purpose of enforcing the terms of this Agreement.  If any party hereto or his heirs, or his or its personal representatives, or assigns institutes any action or proceeding to specifically enforce the provisions hereof and/or obtain injunctive relieve, any person against whom such action or proceeding is brought hereby waives the claim or defense therein that such party or such personal representative has an adequate remedy at law, and such person shall not offer in any such action or proceeding the claim or defense that such remedy at law exists.


The parties specifically agree that in the event of any failure of a Key Holder (or its/his successor or assign) to perform any of its/his obligations under this Agreement, McEwen shall have the right to: (i) call a special meeting, directly, of the shareholders of the Company, to enjoin any action on the part of the Company and the Board that was the subject of a Consent Action that was not approved by McEwen, and enjoin any action on the part of the Company and the Board that is inconsistent with any Consent Action that was approved by McEwen; (ii) without surety bond and at the cost and expense of the Company, to have any court of competent jurisdiction enjoin any such action pending the holding of the subject special meeting of the shareholders of the Company, if the Company and the Board do not agree to await shareholder approval/disapproval of any such action; and (iii) to seek all damages resulting from the breach of the terms and provisions of this Agreement in law or equity, with attorney’s fees and costs to be awarded against the Key Holder (or its/his successor or assign) who failed to perform its/his obligations under this Agreement. Any required proxy or information statement required to be filed by McEwen and mailed to shareholders of the Company in connection with any such special meeting shall be at the sole cost and expense of the Company, and the Company shall cooperate fully with McEwen in the preparation, filing and mailing of any proxy or information statement to the extent reasonably required by McEwen.


4.3

Governing Law .  This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, and shall be binding upon the parties hereto in the United States and worldwide.  Each of the parties hereto irrevocably consents to the exclusive jurisdiction and venue of any federal or state court within Washoe County, Nevada, in connection with any matter based upon or arising out of this Agreement, agrees that process may be served upon it in any manner authorized by the laws of the State of Nevada for such persons and waives and covenants not to assert or plead any objection that they might otherwise have to jurisdiction, venue and such process.  Each party agrees not to commence any legal proceedings based upon or arising out of this Agreement except in such courts.


4.4

Severability .  In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.




6




4.5

Successors and Assigns .  The provisions hereof shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors, assigns, heirs, executors and administrators and other legal representatives.


4.6

Additional Shares .  Subject to the limitations on public sale set forth in the first paragraph of Section 2 above, in the event that subsequent to the date of this Agreement any shares or other securities are issued on, or in exchange for, any of the Key Holder Shares by reason of any stock dividend, stock split, combination of shares, reclassification or the like, such shares or securities shall be deemed to be Key Holder Shares for purposes of this Agreement.


4.7

Costs and Attorney’s Fees .  In the event that any action, suit or other proceeding is instituted based upon or arising out of this Agreement or the matters contemplated herein or any other matter relating to the equity interests of the Investors in the Company (whether based on breach of contract, tort, breach of duty or any other theory), the prevailing party shall recover all of such party’s costs (including, but not limited to expert witness costs) and reasonable attorneys’ fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions therefrom.


4.8

Notices.  All notices required in connection with this Agreement shall be in writing and shall be deemed effectively given:  (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written notification of receipt.  









( Signature Page Follows )




7




SHAREHOLDER VOTING AGREEMENT SIGNATURE PAGE



SHAREHOLDER:


/s/ D. Sean McEwen

Date: December 18, 2017

D. Sean McEwen



DALA PETROLEUM CORP.:


By /s/ Mark Savage

Date: December 18, 2017

      Mark Savage, President



KONATEL, INC.:


By /s/ D. Sean McEwen

Date: December 18, 2017

      D. Sean McEwen, President



MARK SAVAGE:


/s/ Mark Savage

Date: December 18, 2017

Mark Savage



MATTHEW ATKINSON:


/s/ Matthew Atkinson

Date: December 18, 2017

Matthew Atkinson



M2 EQUITY PARTNERS LLC:


By /s/ Matthew Atkinson

Date: December 18, 2017

      Matthew Atkinson, Manager






8





STOCK OPTION

CANCELLATION AGREEMENT



KonaTel, Inc.

1910 Minno Drive, Suite 210

Johnstown, Pennsylvania 15905


Re:

Stock Option Cancelation Agreement pursuant to the Agreement and Plan of Merger (the “Merger Agreement” ), by and among Dala Petroleum Corp., a Delaware corporation ( “Parent” ), Mark Savage, Parent’s President, a director and a beneficial shareholder (“Mr. Savage”), Matthew Atkinson, Parent’s Secretary and a beneficial shareholder (“Mr. Atkinson”), and Dala Subsidiary Corp., a Nevada corporation and wholly-owned subsidiary of Parent ( “Merger Subsidiary” ); and KonaTel, Inc., a Nevada corporation ( “Company” ), and D. Sean McEwen, Company’s Chairman and sole shareholder ( “Company Shareholder” )


Gentlemen:


In consideration of the completion and closing of the Merger Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby cancels that certain Stock Option Agreement by and between the undersigned and the Company dated July 1, 2016, together with the option to purchase 2,000 shares of Company common stock at $500 per share, which, among other things, is the subject of such Stock Option Agreement.



Dated: December 18, 2017.

/s/ Charles L. Schneider, Jr.

Charles L. Schneider, Jr.





MCEWEN EMPLOYMENT AGREEMENT

DALA, INC.

EMPLOYMENT AGREEMENT


This Agreement (“Agreement”) is made as of the 1st day of December 2017, by and between David Sean McEwen, an individual (“Employee”), and Dala Petroleum Corp., a Delaware corporation (“Employer”), with reference to the following facts and objectives:


RECITALS


A.

Employee desires employment to provide services as the Chairman of the Board and Chief Executive Officer (CEO) of the Employer and related activities as an employee of the Employer; and


B.

Employer is a corporation organized and in good standing under the laws of the State of Nevada, qualified to do business in the state of Nevada, and desires to employ the Employee in the State of Nevada under the terms and conditions of this Agreement;


NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:


1.0

DUTIES AND STATUS AS OFFICER .  Employee shall serve as Chairman/CEO of Employer for the term and upon the requirements as more specifically set forth herein and in conformance with the governing documents of the Corporation.  Employee’s powers and duties in this capacity to be determined by the Board of Directors.  Those duties shall be described in Exhibit A, attached hereto.


2.0

COMPENSATION.  Employer shall pay Employee, as full compensation for services rendered to Employer as a regular employee in any capacity a monthly base salary of $1,000 plus inclusion in the Company’s healthcare plan for Employee and spouse (including medical, dental, and vision).  In addition, Employer will pay Employee a monthly bonus based upon the following criteria:


(i)

If the Combined EBITDA (Combined EBITDA) exceeds $85,000 in any calendar month, where Combined EBITDA is defined to mean the combined earnings (profits) of all Dala companies, subsidiaries, and from all other sources before subtracting all interest expense, all income tax, all depreciation expense, and all amortization expense, on an accrual accounting basis according to GAAP as calculated by the regular account for Employer, Employer shall pay Employee within twenty days after the end of the calendar month, a bonus equal to 10% of the monthly Combined EBITDA.


3.0

TERM AND TERMINATION.


3.1

Employee’s employment by Employer shall be for an initial term of 24 months, commencing December 1, 2017.  Thereafter, unless earlier terminated below, the term shall be extended on a year by year basis. The agreement may be terminated, however, after the expiration of the initial 24 month term upon thirty days’ notice from either party.


3.2

Employee may only be terminated for cause.  A “for cause” termination includes, but is not limited to:





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Proprietary & Confidential



(i)

Failure to follow the directives of the Board of Directors;

(ii)

Committing a breach of this Agreement (or any other Bylaw or resolution of the Employer) which is not corrected within 10 days following notice from the Board;

(iii)

Conviction of a felony or a misdemeanor involving moral turpitude;

(iv)

Any action of the Employee which will tend to bring the Employer into disrepute;

(v)

Employee becomes unable to adequately perform his duties herein due to medical or physical disability (in such event, Employee shall be provided six months’ severance pay following termination);

(vi)

Failure to meet the minimum performance requirements set forth in Exhibit A; or,

(vii)

Death of the Employee.


4.0

TRADE SECRETS.


4.1.

Employee specifically agrees that he will not at any time,  whether during or subsequent to the term of Employee's employment by Employer, in any fashion, form, or manner, unless specifically consented to in writing by Employer, either directly or indirectly use or divulge, disclose, or communicate to any person, firm, or corporation, in any manner whatsoever, any confidential information of any kind, nature, or description concerning any matters affecting or relating to the business of Employer, including, without limiting the generality of the foregoing, the names or addresses of any of the shareholders of Employer, the prices it obtains or has obtained or in which it will sell or has sold its inventory or services, the names, buying habits or practices of any of its customers, lists or other written records used in Employer’s business, compensation paid to employees and other terms of employment, business systems, computer programs, or any other confidential information of, about, or concerning the business of Employer, its manner of operation, or other confidential data of any kind, nature, or description.  The parties to this Agreement stipulate that, as between them, the foregoing items are important, material, and confidential trade secrets and affect the successful conduct of Employer's business and its goodwill.  Any breach of any term of this paragraph is a material breach of this Agreement.


The Employee further covenants that he shall hold in strictest confidence any information, whether written or oral, which, if revealed to third parties, would impair or damage the reputation or business of the Employer.  Any violation of the foregoing shall constitute grounds for immediate dismissal.


4.2

From time to time during the term of this Agreement, additional confidential information or knowledge of whatever kind, nature or description concerning matters affecting or relating to Employer's business may be developed or obtained.  Employee specifically agrees that all such additional and confidential information or knowledge shall be deemed by the parties to this Agreement to be included within the terms of this paragraph and to constitute important, material and confidential trade secrets that affect the successful conduct of Employer's business and its goodwill.  Any breach of any terms in this paragraph relating to such additional confidential information or knowledge is a material breach of this Agreement.


4.3

All equipment, notebooks, documents, memorandums, reports, files, auto records, samples, books, correspondence, lists, other written, electronic, and graphic records, and the like, affecting or relating to the business of Employer, which Employee shall prepare, use, construct, observe, possess or control shall be and remain Employer's sole property.





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Proprietary & Confidential



4.4

If any confidential information or other matter described in this section is sought by legal process, Employee will promptly notify Employer and will cooperate with Employer in preserving its confidentiality in connection with any legal proceeding.


4.5

Any and all inventions, ideas, and discoveries, including improvements, original works of authorship, copyrights, designs, formulas, processes, computer programs or portions thereof, databases, trade secrets and proprietary information, documentation, and materials made, created, conceived or reduced to practice by Employee during Employee’s employment with Employer, whether alone or jointly with others, belongs to and is the property of Employer.


5.0

Disputes . In the event of disagreement or dispute between the parties arising out of or connected with this Agreement that cannot be adjusted by and between the parties involved, the disputed matter shall be resolved as follows:


5.1.

Mediation. The parties agree to mediate any dispute or claim arising between them out of this contract or any resulting transaction before resorting to arbitration or court action. Mediation fees, if any, shall be divided equally among the parties involved. If any party commences an arbitration or court action based on a dispute or claim to which this paragraph applies without first attempting to resolve the matter through mediation, then that party shall not be entitled to recover attorney's fees, even if they would otherwise be available to that party in any such arbitration or court action.


5.2.

Arbitration . The Parties agree that any dispute or claim in law or equity arising between them out of this Agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration and not by court action. The arbitration shall be conducted by a retired judge or justice, or an attorney with not less than five years substantial experience with business or employment law, unless the parties mutually agree to a different arbitrator, who shall render an award in accordance with substantive Pennsylvania law. In all other respects, the arbitration shall be conducted in accordance with and enforcement shall be subject to the Federal Arbitration Act. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction. The parties shall have the right to discovery to the extent authorized by the law and regulations of the State of Nevada.


5.3.

Exclusions from Mediation and Arbitration. The following matters are excluded from mediation and arbitration hereunder:

(i)

any matter which is within the jurisdiction of a probate or small claims court; and

(ii)

an action for bodily injury or wrongful death.


6.0

EMPLOYEE’S DUTIES ON TERMINATION. In the event of termination of employment with Employer, Employee agrees to deliver promptly to Employer all equipment, notebooks, documents, memorandums, reports, files, samples, books, correspondence, lists or other written, electronic, or graphic records, and the like, relating to Employer’s business, and all copies of such materials which are or have been in Employee’s possession or under Employee’s control.


7.0

CONTINUING OBLIGATIONS.  Employee’s obligations shall continue in effect beyond Employee’s term of employment, and the obligation shall be binding upon Employee’s assigns, heirs, executors, administrators and other legal representatives.


8.0

SEVERABLE PROVISIONS.  The provisions of this Agreement are severable.   If one or more provisions should be determined to be judicially unenforceable, in whole or in part, the remaining provisions shall




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Proprietary & Confidential



never the less be binding and enforceable.  The provisions of this Agreement shall be construed as separate provisions covering their subject matter in each of the separate counties and states of the United States in which Employer transacts its business.  To the extent that any provision shall be judicially unenforceable in any one or more of those counties or states, the provisions shall not be affected with respect to each other county or state, each provision with respect to each county and state being construed as severable and independent.


9.0

EMPLOYEE’S REPRESENTATIONS.  Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants contained herein and Employer represents and warrants that Employee is not restricted or prohibited, contractually or otherwise, from entering into this Agreement, and that Employee’s execution and performance of this Agreement is not a violation or breach of any other Agreement between Employee and any other person or entity.


10.0

GOVERNING LAW.  The validity, construction, performance and effect of this Agreement shall be governed by the laws of the State of Nevada.


11.0

TIME OF ESSENCE . Time is of the essence of all obligations contemplated in this Agreement.


12.0

ASSIGNMENT. This Agreement shall inure to the benefit of, and shall be binding upon, the Employer, its successors or assigns.  This Agreement may not be assigned by Employee.


13.0

ENTIRE AGREEMENT .  This Agreement supersedes all arrangements previously made between the parties relating to its subject matter.  There are no other understandings or agreements.


IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the day and year first above written.


Employee:

Employer:

Dala Petroleum Corp., a Delaware corporation



/s/ D. Sean McEwen

By: /s/ Mark Savage

D. Sean McEwen

       Mark Savage, President




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Proprietary & Confidential




Exhibit A


Duties of Chairman/CEO


Responsibilities of Chairman of Board

Chairman of the Board will manage and to provide leadership to the Board of Directors of the Company. The Chairman is accountable to the Board and acts as a direct liaison between the Board and the management of the Company.


1.

Leader

A.

Advises the Board

B.

Advocates / promotes organization and stakeholder change related to organization mission

C.

Supports motivation of employees in organization products/programs and operations

2.

Visionary / Information Bearer

A.

Ensures staff and Board have sufficient and up-to-date information

B.

Looks to the future for change opportunities

C.

Interfaces between Board and employees

D.

Interfaces between organization and community

3.

Decision Maker

A.

Formulates policies and planning recommendations to the Board

B.

Decides or guides courses of action in operations by staff

4.

Manager

A.

Oversee operations of organization

B.

Implements Plans

C.

Manages human resources of organization

D.

Manages financial and physical resources

5.

Board Developer

A.

Assists in the selection and evaluation of board members

B.

Makes recommendations, supports Board during orientation and self-evaluation

C.

Supports Board's evaluation of Chief Executive


Responsibilities of Chief Executive Officer


1.

Board Administration and Support

Supports operations and administration of Board by advising and informing Board members, interfacing between Board and staff, and supporting Board's evaluation of chief executive


2.

Program, Product and Service Delivery

Oversees design, marketing, promotion, delivery and quality of programs, products and services


3.

Financial, Tax, Risk and Facilities Management

Recommends yearly budget for Board approval and prudently manages organization's resources within those budget guidelines according to current laws and regulations


4.

Human Resource Management

Effectively manages the human resources of the organization according to authorized personnel policies and procedures that fully conform to current laws and regulations




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Proprietary & Confidential


 

SCHNEIDER EMPLOYMENT AGREEMENT


KONATEL, INC.




This Agreement ("Agreement") is made effective as of the first day of July, 2016, by and between Charles L. Schneider, Jr., an individual ("Employee"),and KonaTel, Inc., a StateplaceNevada corporation ("Employer"),with reference to the following facts and objectives:


RECITALS



A.    Employee desires employment to provide services as the Chief Executive Officer of Employer and related activities as an employee of the Employer; and


B.   Employer is a corporation organized and in good standing under the laws of the State of Nevada, qualified to do business in the state of Pennsylvania, and desires to employ the Employee in the State of Texas under the terms and conditions of this Agreement;


NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:


1.    DUTIES AND STATUS AS OFFICER. Employee shall serve as Chief Executive Officer of Employer for the term and upon the requirements as more specifically set forth herein and in conformance with the documents of the Corporation.   Employee's powers and duties in this capacity to be determined by the Board of Directors. Those duties shall be described in Exhibit A , attached hereto.


2.   COMPENSATION .   Employer shall pay Employee , as full compensation for services rendered to Employer as a regular full-time employee in any capacity a monthly base salary shall be the sum of $15,000 per month for employment commencing on the first day of July , 2016 , payable bi-monthly in arrears. Employee shall also receive reimbursement for his health insurance premiums up to $1,000 per month.


3.   TERM AND TERMINATION . Employee's employment by Employer shall be for an initial term of one year , commencing July 1, 2016. Thereafter , unless earlier terminated below , the term shall be extended on a year by year basis , unless earlier terminated, as set forth below.

Employee may only be terminated for cause. A "for cause" termination includes, but is not limited to:

      (i)      Failure to follow the directives of the Board of Directors;

(ii)      Committing a breach of this Agreement (or any other Bylaw or resolution of the Employer )

        which is not corrected within 10 days following notice from the Board;

(iii)     Conviction of a felony or a misdemeanor involving moral turpitude;

(iv)    Any action of the Employee which will tend to bring the Employer into disrepute;

(v)     Employee becomes unable to adequately perform his duties herein due to medical or physical disability (in such event, Employee shall be provided six months' severance pay following termination);

(vi)     Failure to meet the performance requirements set forth in Exhibit A;

(vii)    Failure to complete the assignment to Employer of the five (5) contracts from CS Agency LLC, as is set forth in Exhibit B below; or

(viii)   The sale of more than 50% of the issued and outstanding shares of the Company and/or a merger of the Company.




     (ix)

Death of the Employee.


4.    TRADE SECRETS.


4.1 Employee specifically agrees that  he will not at any time,  whether during or subsequent to the term of Employee's employment by Employer, in any fashion, form, or manner, unless specifically consented to in writing by Employer, either  directly or indirectly use or divulge, disclose, or communicate to any person, firm, or corporation, in any manner  whatsoever, any confidential information of any kind, nature, or description concerning any matters affecting or relating to the business of Employer, including, without  limiting the generality of the foregoing, the names or addresses of any of the shareholders of Employer, the prices it obtains or has obtained or in which it will sell or has sold its inventory or services, the names, buying habits or practices of any of its customers, lists or other written records used in Employer's business, compensation paid to employees and other terms of employment, business systems, computer programs, or any other confidential information of, about, or concerning the business of Employer, its manner of operation, or other confidential data of any kind, nature, or description.  The parties to this Agreement stipulate that, as between them, the foregoing items are important, material, and confidential trade secrets and affect the successful conduct of Employer's business and its goodwill. Any breach of any term of this paragraph is a material breach of this Agreement.


The Employee further covenants that he shall hold in strictest  confidence any information, whether written  or oral, which, if revealed to third parties, would impair or damage the reputation or business of the Employer.  Any violation of the foregoing shall constitute grounds for immediate dismissal.


4.2 From time to time during the term of this Agreement, additional confidential information or knowledge of whatever kind, nature or description concerning matters affecting or relating to Employer's business may be developed or obtained.  Employee specifically agrees that all such additional and confidential information or knowledge shall be deemed by the parties to this Agreement to be included within the terms of this paragraph and to constitute important, material and confidential trade secrets that affect the successful conduct of Employer's business and its goodwill.  Any breach of any terms in this paragraph relating to such additional confidential information or knowledge is a material  breach of this Agreement.


4.3 All equipment, notebooks, documents, memorandums, reports, files, auto records, samples, books, correspondence, lists, other written, electronic, and graphic records, and the like, affecting or relating to the business of Employer, which Employee shall prepare, use, construct, observe, possess or control shall be and remain Employer's sole property.


4.4 If any confidential information or other matter described in this section is sought by legal process, Employee will promptly notify Employer and will cooperate with Employer in preserving its confidentiality in connection with any legal proceeding.


4.5 Any and all inventions, ideas, and discoveries, including improvements, original works of authorship, copyrights, designs, formulas, processes, computer programs or portions thereof, databases, trade secrets and proprietary information, documentation, and materials made, created, conceived or reduced to practice by Employee during Employee's employment with Employer, whether alone or jointly with others, belongs to and is the property of Employer.




5.    Disputes. In the event of disagreement or dispute between the parties arising out of or connected with this Agreement that cannot  be adjusted by and between the parties involved, the disputed matter shall be resolved as follows:


5.1 Mediation. The parties agree to mediate any dispute or claim arising between them out of this contract or any resulting transaction before resorting to arbitration or court action.  Mediation fees, if any, shall be divided equally among the parties involved.  If any party commences an arbitration or court action based on a dispute or claim to which this paragraph applies without first attempting to resolve the matter through mediation, then that party shall not be entitled  to recover attorney's fees, even if they would otherwise be available to that party in any such arbitration or court action.


5.2  Arbitration. The Parties agree that any dispute or claim in Jaw or equity arising between them out of this Agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration and not by court action.  The arbitration shall be conducted by a retired judge or justice, or an attorney with not Jess than five year's substantial experience with business or employment law, unless the parties mutually agree to a different arbitrator, who shall render an award in accordance with substantive Pennsylvania law.  In all other respects, the arbitration shall be conducted in accordance with and enforcement shall be subject to the Federal Arbitration Act.  Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction.  The parties shall have the right to discovery to the extent authorized by the law and regulations of the State of placeplaceTexas.


5.3 Exclusions from Mediation and Arbitration . The following matters are excluded from mediation and arbitration hereunder:

(i)

any matter which is within the jurisdiction of a probate  or small claims court; and

(ii)

an action for bodily injury or wrongful death.


6.    EMPLOYEE'S DUTIES ON TERMINATION . In the event  of termination of employment with Employer, Employee agrees to deliver promptly to Employer all equipment, notebooks, documents, memorandums, reports, files, samples, books, correspondence, lists or other written, electronic, or graphic records, and the like, relating to Employer's business, and all copies of such materials which are or have been in Employee's possession or under Employee's control.


7.    CONTINUING OBLIGATIONS . Employee's obligations shall continue in effect beyond Employee's term of employment, and the obligation shall be binding upon Employee's assigns, heirs, executors, administrators and other legal representatives.


8.    CONDITION PRECEDENT/ ASSIGNMENT OF CONTRACTS . As a condition precedent to the employment of Employee herein, Employee agrees (as the sole owner of CS Agency, LLC ("CSA")), to cause CSA to assign to Employer all of CSA's benefits and burdens under those certain five (5) contracts (including amendments and certain currently unsigned prospective contracts upon their completion) as set forth in Exhibit B, attached hereto, with the written consent of all other parties to said contracts. The failure to obtain all such assignments and consents on or before December 1, 2016, shall be deemed a material breach of this Agreement by Employee.


9.    SEVERABLE PROVISIONS . The provisions of this Agreement are severable.  If one or more provisions should be determined to be judicially unenforceable, in whole or in part, the remaining provisions shall never the less be binding and enforceable. The provisions of this Agreement shall be construed as separate provisions covering their subject matter in each of the separate counties and states of the placeplaceUnited States in which Employer transacts its business.  To the extent that any provision shall be




judicially unenforceable in any one or more of those  counties or states, the provisions shall not be affected with respect to each other  county or state, each provision with respect to each county and state being construed as severable and independent.


10.   EMPLOYEE'S REPRESENTATIONS.   Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants contained herein and Employer represents and warrants that Employee is not restricted or prohibited, contractually or otherwise, from entering into this Agreement, and that Employee's execution and performance of this Agreement is not a violation or breach of any other Agreement between Employee and any other person or entity.


11. GOVERNING LAW .   The validity, construction, performance and effect of this Agreement shall be governed by the laws of the State of placeplaceTexas.


12. TIME OF ESSENCE. Time is of the essence of all obligations contemplated in this Agreement.


13. ASSIGNMENT.   This Agreement may not be assigned by Employee.


14.   ENTIRE AGREEMENT .     This Agreement supersedes all arrangements previously made between the parties relating to its subject matter.  There are no other understandings or agreements.




IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the day and year first above written.


Employee:

Employer:

                                                                                      KonaTel, Inc., a Nevada corporation

  /s/Charles L. Schneider, Jr.                                                     /s/ D. Sean McEwen

   Charles L. Schneider; Jr.                                                          D. Sean McEwen, Chairman of the Board



                                                                            






Exhibit A


Duties of Chief Executive Officer


Responsible for presiding over the entire workforce; oversees budgets and ensures resources are properly allocated; follows all legal directives of the Board of Directors; ensures departments meet individual goals; and participates in development of long-range strategic plans, goals and strategies for the Company


Primary responsibilities



Oversee all other executives and staff within the organization.

Oversee budgets.

Direct the organization's financial goals, objectives, and budgets as set by the Board.

Implement the organization's guidelines on a day-to-day basis.

Develop and implement strategies and set the overall direction of a certain area of the Company or organization.

Direct staff, including organizational structure, professional development, motivation, performance evaluation, discipline, compensation, personnel policies, and procedures

Participates in recruitment and retention of professional and nonprofessional staff.

Resolves problems related to staffing.

Evaluates performance and recommends merit increases, promotion, and disciplinary actions.

Participates in establishment and implementation of organizational policies and procedures.

Interprets policies, objectives and operational procedures.

Resolves problems related to staffing, utilization of facilities, equipment and supplies for the Center.

Undertakes special projects as directed by the Board of Directors.





PERFORMANCE REQUIREMENTS



Knowledge of organization policies, procedures, systems and objectives.  Knowledge of fiscal management and human resource management techniques.  Excellent leadership skills with demonstrated ability to effectively lead in a changing environment.  Knowledge of wireless industry and related governmental regulations and compliance requirements.  Knowledge of computer systems and applications.  Skill in planning, organizing, prioritizing, delegating and supervising.  Skill in exercising initiative, judgment, problem-solving, decision-making.  Skill in identifying and resolving problems.  Skill in developing and maintaining effective relationships with administrative staff, vendors and customers.  Skill in developing comprehensive reports.  Ability to analyze and interpret complex data.





Amended Exhibit B


Dated as of October 2, 2016


Contracts to be Assigned



CS Agency, a Texas limited liability company, shall assign to KonaTel, Inc., all of its rights and obligations arising under the following contracts:


1.    CS Agency's Independent Sales Organization Wireless Handset Distribution and Subscriber Acquisition

       Agreement dated October 1, 2016, with PTM Marketing & Consulting, Inc., a Connecticut corporation.

2.    CS Agency's Independent Sales Organization Wireless Handset Distribution and Subscriber Acquisition

       Agreement dated September 14, 2016, with Op Sales 2000, LLC, a California limited liability company.

3.   CS Agency's Independent Sales Organization Wireless Handset Distribution and Subscriber Acquisition Agreement dated September 1, 2015 and amended by Amendment No.1and Amendment No.2  dated December 14, 2015 and May 1, 2016, respectively, with Future Direct, Inc., a Florida corporation.

4.    CS Agency's Independent Sales Organization Wireless Handset Distribution and Subscriber Acquisition

Agreement dated July 27, 2015 and amended by Amendment No. 1 and Amendment No. 2 dated December 10, 2015 and May 1, 2016, respectively, with Global Connection, Inc.,of America,d/b/a Standup Wireless.

5.   CS Agency's Independent Sales Organization Wireless Handset Distribution and Subscriber Acquisition

Agreement dated August 7, 2015, and amended by Amendment No. 1and Amendment No. 2 dated






                              /s/CS                                                                       /s/DSM



Employee Initials

Employer Initials









 

RINER EMPLOYMENT AGREEMENT


KONATEL,INC. EMPLOYMENT AGREEMENT


This Agreement  ("Agreement") is made as of the 1st day of August, 2016, by and between J. William Riner, an individual ("Employee"), and KonaTel,Inc.,a Nevada corporation ("Employer"), with reference to the following facts and objectives:


RECITALS



A.   Employee desires employment to provide services as the Chief Operation Officer of the Telecon.Mobi

Corporation and related activities as an employee of the Employer;and



B.   Employer is a corporation organized and in good standing under the laws of the State of Nevada, qualified to do business in the state of Pennsylvania,  and desires to employ  the Employee in the State of Pennsylvania under the terms and conditions of this Agreement;


NOW,THEREFORE,in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt  and sufficiency of which is hereby acknowledged, the Parties agree as follows:


1.0

DUTIES AND STATUS AS OFFICER. Employee shall serve as Chief Operation Officer of the Telecon.Mobi Corporation for the term  and upon the requirements as more specifically  set forth herein and in conformance with  the governing documents of the Corporation. Employee's powers and duties in this capacity to be determined by the Board of Directors. Those duties shall be described in Exhibit A, attached hereto.


2.0

COMPENSATION. Employer shall pay Employee, as full compensation for services rendered to Employer

as a regular full-time employee in any capacity a monthly base salary for the balance of the year 2017 shall be $14,583.33, plus a monthly bonus based upon the following:


(i)

If the Monthly Net Income of the Employer for the preceding calendar month is equal to or less than $40,000, there shall be no bonus.

(ii)

For that portion of the Monthly Net Income which is greater  than $50,000, the following

bonus table  will10% of Monthly Net Income

(iii)

For that portion of the Monthly Net Income which is in excess of $1,000,000, there  shall be no additional monthly bonus.


As used herein,the term  "Monthly Net Income" shall mean the amount on the "Net Income (loss)" line of the KonaTellncome Statement by Month as generated from the CFO Strategies lntacct accounting software for the Telecon.Mobi and Telecon Wireless Divisions of the Employer according to GAAP as calculated by the regular  accountant for the Employer.


3.0

TERM AND TERMINATION.



3.1

Employee's employment by Employer shall be for an initial term  of 17 months,, commencing August

1, 2016. Thereafter, unless earlier  terminated below,the term shall be extended on a year by year basis. The agreement may be terminated, however, after the expiration of the initial 17 months' term upon thirty days' notice  from either party.




3.2

Employee  may only be terminated for cause.  A "for cause" termination includes,  but is not limited to:


(i)

Failure to follow the directives of the  Board of Directors;

(ii)

Committing a breach  of this Agreement (or any other  Bylaw or resolution of the  Employer) 

         which is not corrected within 10 days following  notice from  the  Board;    

(iii)     Conviction  of a felony or a misdemeanor involving moral  turpitude;

(iv)

Any action of the Employee  which will tend  to bring the  Employer  into disrepute;

(v)

Employee  becomes unable  to adequately perform  his duties herein  due to medical or physical disability (in such  event, Employee  shall be provided  six months' severance pay following termination);

(vi)

Failure to meet the minimum  performance requirements set forth  in Exhibit A;

         or,

(vii)    Death of the  Employee


4.0

TRADE SECRETS.


4.1.

Employee specifically  agrees that  he will not at any time,  whether during  or subsequent to the term of Employee's employment  by Employer, in any fashion, form,  or manner, unless specifically consented to in writing  by Employer, either directly or indirectly  use or divulge, disclose, or communicate to any person, firm, or corporation, in any manner whatsoever, any confidential information of any kind, nature, or description concerning any matters affecting or relating to the business of Employer,  including, without limiting the generality of the foregoing, the names or addresses of any of the shareholders of Employer, the  prices it obtains or has obtained or in which it will sell or has sold its inventory or services,  the  names, buying habits  or practices of any of its customers, lists or other written records used in Employer's business, compensation paid to employees and other terms of employment, business  systems, computer programs, or any other confidential information of, about, or concerning the  business of Employer,  its manner of operation, or other confidential data  of any kind, nature, or description. The parties  to this Agreement stipulate that, as between them, the foregoing items are important, material, and confidential trade secrets and affect  the successful conduct of Employer's  business and its goodwill.   Any breach of any term  of this paragraph is a material breach  of this Agreement.


The Employee further covenants that  he shall hold in strictest confidence any information, whether written  or oral, which,  if revealed to third  parties, would  impair  or damage the reputation or business of the  Employer.   Any violation  of the foregoing shall constitute grounds for immediate dismissal.


4.2

From time  to time during the  term  of this Agreement, additional confidential information or knowledge of whatever kind, nature or description concerning matters affecting  or relating  to Employer's  business may  be developed or obtained.  Employee specifically agrees that  all such additional and confidential information or knowledge shall be deemed by the parties  to this Agreement to be included within the terms of this paragraph and to constitute important, material and confidential trade secrets that  affect  the successful  conduct of Employer's business and its goodwill.  Any breach  of any terms in this paragraph relating  to such additional confidential information or knowledge is a material breach of this Agreement.


4.3

All equipment, notebooks, documents, memorandums, reports, files, auto  records,  samples, books, correspondence, lists, other written, electronic, and graphic  records, and  the  like, affecting  or relating to the business of Employer, which Employee shall prepare, use, construct, observe, possess or control  shall be and  remain Employer's sole property.




4.4

If any confidential information or other matter described in this section  is sought by legal process, Employee will promptly  notify Employer and will cooperate with Employer in preserving its confidentiality in connection with any legal proceeding.


4.5

Any and all inventions, ideas, and discoveries, including improvements, original  works of authorship, copyrights, designs, formulas, processes, computer programs or portions thereof, databases, trade secrets and  proprietary information, documentation, and materials made,  created, conceived or reduced to practice  by Employee  during  Employee's employment with Employer, whether alone or jointly with others, belongs  to and  is the property of Employer.

 

  5.0     Disputes. In the event  of disagreement or dispute between the parties arising out  of or connected

with this Agreement that  cannot be adjusted by and between the  parties involved, the disputed matter shall be resolved  as follows:


5.1.   Mediation. The parties  agree to mediate any dispute or claim arising  between them  out of this contract or any resulting  transaction before  resorting to arbitration or court  action.  Mediation fees, if any, shall be divided equally  among the  parties involved.  If any party commences an arbitration or court action  based  on a dispute or claim to which this paragraph applies  without first attempting to resolve the  matter through mediation, then  that  party shall not be entitled to recover attorney's even  if they  would otherwise be available to that party  in any such arbitration or court  action.



5.2.   Arbitration. The Parties agree that  any dispute or claim in law or equity  arising  between them out of this Agreement or any resulting transaction, which is not settled through mediation, shall be decided  by neutral, binding arbitration and not  by court  action. The arbitration shall  be conducted by a retired  judge or justice, or an attorney with not less than  five years substantial experience with business or employment law, unless the  parties mutually agree to a different arbitrator, who shall render an award  in accordance with substantive Pennsylvania law. In all other respects, the arbitration shall be conducted in accordance with and  enforcement shall be subject to the  Federal Arbitration Act. Judgment upon the  award  rendered by the arbitrator(s) may be entered in any court having jurisdiction. The parties shall have the  right to discovery  to the extent authorized by the law and regulations of the State of Pennsylvania.

5.3.   Exclusions from  Mediation and  Arbitration. The following  matters are excluded from  mediation and arbitration hereunder:

(i)

any matter which is within the  jurisdiction  of a probate or small claims court; and

(ii)

an action  for bodily injury or wrongful  death.


6.0

EMPlOYEE'S  DUTIES ON TERMINATION. In the event of termination of employment with  Employer, Employee agrees to deliver  promptly to Employer all equipment, notebooks, documents, memorandums, reports,  files, samples, books, correspondence, lists or other written, electronic, or graphic  records, and the like, relating  to Employer's business, and all copies  of such materials which are or have been  in Employee's  possession or under  Employee's control.


7.0

CONTINUING OBliGATIONS. Employee's obligations shall continue in effect  beyond  Employee's term  of employment, and the  obligation shall  be binding upon  Employee's assigns,  heirs, executors, administrators and other  legal representatives.




8.0

SEVERABLE PROVISIONS.  The provisions of this Agreement are severable.    If one or more provisions should be determined to be judicially unenforceable,in whole  or in part, the remaining provisions shall never the less be binding and enforceable. The provisions of this Agreement shall be construed as

separate provisions  covering their  subject matter in each of the separate counties and states of the United States in which Employer transacts its business.  To the extent that  any provision shall be judicially unenforceable in any one or more of those counties or states,the provisions  shall not be affected with respect to each other county  or state, each provision with respect to each county and state being construed as severable and independent.


9.0

EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that Employee is free to enter into this Agreement  and to perform each of the terms and covenants contained herein  and Employer represents  and warrants that  Employee is not restricted or prohibited, contractually or otherwise, from entering  into this Agreement, and that Employee's execution and performance of this Agreement is not a violation or breach of any other  Agreement between Employee and any other person or entity.


10.0 GOVERNING LAW. The validity, construction,performance and effect of this Agreement  shall be governed by the laws of the State of Pennsylvania.


11.0  TIME OF ESSENCE. Time is of the essence of all obligations contemplated in this Agreement..


12.0    ASSIGNMENT. This Agreement shall inure to the benefit of, and shall be binding upon, the Employer, its successors or assigns. This Agreement may not be assigned by Employee.


13.0   ENTIRE AGREEMENT. This Agreement supersedes all arrangements previously made between the parties relating to its subject matter. There are no other understandings or agreements.




IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the day and year first above written.


Employee:

Employer:

                                                                                                    KonaTel, Inc., a Nevada corporation

[RINEREMPLOYMENTAGREEMENT002.GIF]

/s/ D. Sean McEwen
D. Sean McEven, President


 




Exhibit  A



Duties of Chief Operating Officer



Responsible for  presiding over  the entire workforce. Oversees budgets and  ensures resources are  properly allocated. Ensures departments meet individual goals Participates in development of long-range strategic plans, goals  and  strategies


Primary responsibilities



Oversee all other executives and  staff  within the  organization.

Oversee budgets.

Direct the organization's financial goals, objectives, and  budgets.

Implement the organization's guidelines on a day-to-day basis.

Develop and  implement strategies and  set  the overall direction of a certain area ofthe company or organization.

Direct staff,  including organizational structure, professional development, motivation, performance evaluation, discipline, compensation, personnel policies, and  procedures

Participates in recruitment and  retention of professional and  nonprofessional staff.

Resolves problems related to staffing

Evaluates performance and  recommends merit increases, promotion, and  disciplinary actions

Participates in establishment and  implementation of organizational policies and  procedures.

Interprets policies, objectives and  operational procedures.

Resolves problems related to staffing, utilization of facilities, equipment and  supplies for the Center.

Evaluates performance and  recommends merit increases, promotion, and  disciplinary actions.

Undertakes special projects as directed by the President/CEO





PERFORMANCE REQUIREMENTS

Knowledge, skills and  abilities:

Knowledge of organization policies, procedures, systems and  objectives. Knowledge of fiscal  management

and  human resource management techniques. Excellent leadership skills with  demonstrated  ability to effectively lead  in a changing environment. Knowledge of wireless industry, governmental  regulations and  compliance requirements. Knowledge of computer systems and  applications.  Skill in planning, organizing, prioritizing, delegating and  supervising. Skill in exercising initiative, judgment, problem-solving, decision-making. Skill in identifying and  resolving problems. Skill in developing and  maintaining effective relationships with  administrative staff, vendors and  customers. Skill in developing comprehensive reports. Ability to analyze and  interpret complex data.



DALA PETROLEUM CORP.



FORM OF INCENTIVE STOCK OPTION AGREEMENT


Name of Optionee:  

 

No. of Common Shares Covered:

Date of Grant:

Exercise Price Per Common Share:

Expiration Date:

Exercise Schedule:

 

 

 

Date(s) of

Exercisability

No. of Common Shares as to which the

Option becomes Exercisable

 

 

 

 

 

 


This is an Incentive Stock Option Agreement (the “Agreement”) between Dala Petroleum Corp. (the “Company”), and the optionee identified above (the “Optionee”), effective as of the Date of Grant specified above.


Recitals:


WHEREAS, the Company has entered into an Agreement and Plan of Merger (the “Merger Agreement”) with KonaTel, Inc., a Nevada corporation, as of the Date of Grant listed above; and


WHEREAS, Pursuant to the Merger Agreement, the Board of Directors of the Company (the “Board”) and any Committee of the Board authorized by the Board with the responsibility of determining the grants of Options on the Shares (the “Committee”) hereby grants the Option to the Optionee to purchase the number of shares of $0.001 par value common stock of the Company (the “Shares”) specified at the beginning of this Agreement under the following terms and conditions:


1.   Grant .  The Optionee is granted the Option to purchase the number of Shares specified at the beginning of this Agreement.


2.   Exercise Price .  The price to the Optionee of each Share subject to the Option will be the exercise price specified at the beginning of this Agreement (which price may not be less than the Fair Market Value as of the date of grant or, if the Optionee owns or is deemed to own stock possessing more than 10% of the combined voting power of all classes of stock of the Company, 110% of the Fair Market Value as of the Date of Grant).


3.   Incentive Stock Option .  The Option is intended to be an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), provided that to the extent the Option or part thereof fails to qualify as an incentive stock option, it will be treated as a non-statutory stock option.


4.   Exercise Schedule .  The Option will vest and become exercisable as to the number of Shares and on the dates specified in the Exercise Schedule at the beginning of this Agreement. The Exercise Schedule will be cumulative; thus, to the extent the Option has not already been exercised and has not expired, terminated or been cancelled, the Optionee or the person otherwise entitled to exercise the Option as provided herein may at any time, and from time to time, purchase all or any portion of the Shares then purchasable under the exercise schedule.


The Option may also be exercised in full (notwithstanding the Exercise Schedule) under the circumstances described in Section 8 of this Agreement if it has not expired prior thereto.


5.   Expiration .


(a)   Timing . The Option will expire at 5:00 p.m. Eastern Time on the earliest of:



1





(1)  The Expiration Date specified at the beginning of this Agreement;


(2)  The expiration of the period after the termination of employment of the Optionee within which the Option can be exercised (as specified in Section 7 of this Agreement); or


(3)  Upon termination of the Optionee’s employment for cause, or if it is determined by the Company within ten (10) days after termination of the Optionee’s employment by the Optionee that cause existed for termination by the Company, the date of such determination.

 

(b)   Expiration Final .  In no event may anyone exercise the Option, in whole or in part, after it has expired, notwithstanding any other provision of this Agreement.


(c)   Rescission .  If the Option is exercised, and prior to the delivery of the certificate representing the Shares so purchased, it is determined that cause for termination existed, then the Company, in its sole discretion, may rescind the Option exercise by the Optionee and terminate the Option.


6.   Procedure to Exercise Option .


(a)   Notice of Exercise .  The Option may be exercised by delivering written notice of exercise to the Company at the principal executive office of the Company, to the attention of the Company’s Secretary, in the form attached to this Agreement. The notice shall state the number of Shares to be purchased, and shall be signed by the person exercising the Option. If the person exercising the Option is not the Optionee, he/she also must submit appropriate proof of his/her right to exercise the Option.


(b)   Tender of Payment .  Upon giving notice of any exercise hereunder, the Optionee shall provide for payment of the Exercise Price of the Shares being purchased through one or a combination of the following methods:


(1)  Cash (including check, bank draft or money order);


(2)  To the extent permitted by law, through a broker assisted cashless exercise in which the Optionee simultaneously exercises the Option and sells all or a portion of the Shares thereby acquired pursuant to a brokerage or similar relationship and uses the proceeds from such sale to pay the Exercise Price of such Shares; or


(3)  By delivery to the Company of unencumbered Shares having an aggregate Fair Market Value on the date of exercise equal to the Exercise Price of such Shares.


(c)   Limitation on Payment by Shares .  Notwithstanding Section 6(b) hereof, the Option may not be exercised through payment of any portion of the Exercise Price with Shares if, in the opinion of the Board, payment in such manner could have adverse financial accounting consequences for the Company that were not applicable at the time of the Date of Grant.


(d)   Delivery of Certificates .  As soon as practicable after the Company receives the notice and payment of the Exercise Price provided for above, it shall deliver to the person exercising the Option, in the name of such person, a certificate or certificates representing the Shares being purchased. The Company shall pay any original issue or transfer taxes with respect to the issue or transfer of the Shares and all fees and expenses incurred by it in connection therewith. All Shares so issued shall be fully-paid and nonassessable. Notwithstanding anything to the contrary in this Agreement, no certificate for Shares distributable under this Agreement shall be issued and delivered unless the issuance of such certificate complies with all applicable legal requirements including, without limitation, compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the General Rules and Regulations of the United States Securities and Exchange Commission (the “SEC”) promulgated under the Securities Act and the Exchange Act, including published interpretations thereof by the SEC.




2




7.   Employment Requirement .  The Option may be exercised only while the Optionee remains employed with the Company or a parent or subsidiary thereof, and only if the Optionee has been continuously so employed since the date the Option was granted; provided that:


(a)   Post-Employment .  The Option may be exercised for three (3) months after termination of the Optionee’s employment, if such cessation of employment is for a reason other than death or disability, but only to the extent that it was exercisable immediately prior to termination of employment, provided, however, that if termination of the Optionee’s employment shall have been for cause, the Option shall expire, and all rights to purchase Shares hereunder shall terminate, immediately upon such termination.


(b)   Death or Disability .  The Option may be exercised to the extent that the Option was vested and exercisable as of the date of the death or disability of the Optionee, for one (1) year after termination of the Optionee’s employment if such termination of employment is because of death or disability of the Optionee.


8.   Acceleration of Vesting .


(b)   Change in Control .  If a change in control (as defined below) of the Company or buyout of the operations of the Company shall or is to occur, then the Option, if not already exercised in full or otherwise terminated, expired or cancelled, shall become immediately vested and exercisable in full and shall remain exercisable for a period of thirty (30) days following the completion of the change in control.


(c)   Discretionary Acceleration .  Notwithstanding any other provisions of this Agreement to the contrary, the Board or any Committee may, in its sole discretion, declare at any time that the Option shall be immediately exercisable.


9.   Limitation on Transfer .  During the lifetime of the Optionee, only the Optionee or his/her guardian or legal representative may exercise the Option.  The Option may not be assigned or transferred by the Optionee otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder.


10.   No Shareholder Rights Before Exercise .  No person shall have any of the rights of a shareholder of the Company with respect to any Share subject to the Option until the Share actually is issued to him/her upon exercise of the Option.


11.   Discretionary Adjustment .  In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, or extraordinary dividend or divestiture (including a spin off), or any other change in the corporate structure or Shares of the Company, the Board or the Committee (or if the Company does not survive any such transaction, a comparable committee of the Board of Directors of the surviving corporation) may, without the consent of the Optionee, make such adjustment as it determines in its discretion to be appropriate as to the number and kind of securities granted herein and, in order to prevent dilution or enlargement of rights of the Optionee, the number and kind of securities issuable upon exercise of the Option and the exercise price hereof.


12.   Tax Effect of Transfer of Shares .  The Optionee hereby acknowledges that if any Shares received pursuant to the exercise of any portion of the Option are sold within two (2) years from the Date of Grant or within one (1) year from the effective date of exercise of the Option, or if certain other requirements of the Code are not satisfied, such Shares will be deemed under the Code not to have been acquired by the Optionee pursuant to an “incentive stock option” as defined in the Code; and that the Company shall not be liable to the Optionee in the event the Option for any reason is deemed not to be an “incentive stock option” within the meaning of the Code. Furthermore, the Optionee will promptly notify the Company, in writing, of any sale of Shares received through the exercise of any portion of the Option within two (2) years from the Date of Grant or within one (1) year from the effective date of exercise of the Option.


13.   Interpretation of This Agreement .  All decisions and interpretations made by the Board or the Committee, if there is a Committee, with regard to any question arising hereunder shall be binding and conclusive upon the Company and the Optionee.



3





14.   Discontinuance of Employment .  This Agreement shall not give the Optionee a right to continued employment with the Company or any parent or subsidiary of the Company, and the Company or any such parent or subsidiary employing the Optionee may terminate his/her employment at any time and otherwise deal with the Optionee without regard to the effect it may have upon him/her under this Agreement.


15.   Option Subject to Articles of Incorporation and Bylaws .  The Optionee acknowledges that the Option and the exercise thereof is subject to the Articles of Incorporation, as amended from time to time, and the Bylaws, as amended from time to time, of the Company, and any applicable federal or state laws, rules or regulations.


16.   Obligation to Reserve Sufficient Shares .  The Company shall at all times during the term of the Option reserve and keep available a sufficient number of Shares to satisfy this Agreement.


17.   Binding Effect . This Agreement shall be binding in all respects on the heirs, representatives, successors and assigns of the Optionee.


18.   Choice of Law .  This Agreement is entered into under the laws of the State of Delaware and shall be construed and interpreted thereunder without regard to its conflict of law principles for all matters, including fundamental or procedural laws.


19.    Change in Control .  For all purposes of this Agreement, “Change in Control” shall mean: (i)  the completion of one or more transactions by which any person or entity (and his, her or its affiliates) becomes the beneficial owner 50.1% or more of the voting power of the Company’s securities; or (ii)  any merger, consolidation or liquidation of the Company in which the Company is not the continuing or surviving company or pursuant to which stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the shares stock immediately before the merger have the same proportionate ownership of the Common Stock of the surviving company immediately after the merger; or (iii)  substantially all of the assets of the Company are sold or otherwise to parties that are not within a “controlled group of corporations” (as defined in Section 1563 of the Internal Revenue Code of 1986, as amended) in which the Company is a member at the time of such sale or transfer.


The Optionee and the Company have executed this Agreement as of the ___ day of November, 2017.



OPTIONEE:


_______________________________________

      

       

DALA PETROLEUM CORP.:

       

By ____________________________________

     Its __________________________________
















4




NOTICE OF STOCK OPTION EXERCISE



Dala Petroleum Corp.

__________________

__________________

__________________


Attention: Board of Directors


Dear Sir or Madam:


I am the holder of ____________ Stock Options, granted to me under the Dala Petroleum Corp. (the “Company”) 2017 Incentive Stock Option Agreement, granted on _____________________(date of grant) for the purchase of ___________shares of $0.001 par value Common Stock of the Company (“shares”) at a purchase price of $0.20 per share.

 

I hereby exercise my option to purchase ___________shares, for which I have enclosed: please either enter (“cash,” “personal check,” or “Stock Certificate No.(s)) ____________________________in the total aggregate amount of __________________.  Please register my stock certificate as follows:


Name(s):____________________________________


Street Address:_______________________________


City, State & Zip Code_________________________


Social Security No. : __________________________


In connection with your acceptance of this Notice of Stock Option Exercise, I hereby represent, warrant and covenant as follows:

I am purchasing the Shares for my own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the “Securities Act”), or any rule or regulation under the Securities Act.

I have had such opportunity as I have deemed adequate to obtain from representatives of the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company.

I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.

I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period.

I understand that (i) the Shares have not been registered under the Securities Act and are “restricted securities” within the meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) in any event, the exemption from registration under Rule 144 will not be available for at least one year and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) there is now no registration statement on file with the Securities and Exchange Commission with respect to any stock of the Company and the Company has no obligation or current intention to register the Shares under the Securities Act.


Very truly yours,



 ___________________________________________

Signature)



5



FORM OF LOCK-UP/LEAK-OUT AGREEMENT


THIS LOCK-UP/LEAK-OUT AGREEMENT (the “Agreement” ) is made and entered into between Dala Petroleum Corp., a Delaware corporation (the “Company” ), and the undersigned person or entity listed on the Counterpart Signature Page hereof (the “Shareholder” ), effective as of the earlier of the date indicated on the Counterpart Signature Page or the delivery of this duly executed Agreement to the Company, in the event no date is indicated (the “Effective Date” ).  For all purposes of this Agreement, “Shareholder” includes any “affiliate,” controlling person of Shareholder, agent, representative or other person with whom Shareholder is or may be deemed to be acting in concert in connection with any sales of Common Stock (as defined below) of the Company.


RECITALS:


WHEREAS, the Company, Dala Subsidiary Corp., a Nevada corporation and wholly-owned subsidiary of the Company ( “Merger Sub” ), and Kona Tel, Inc., a Nevada corporation ( “KonaTel” ), intend to complete an Agreement and Plan of Merger (respectively, the “Merger Agreement” and the “Merger” ) in which KonaTel will be the surviving corporation and become a wholly-owned subsidiary of the Company; and


WHEREAS, there is a “best efforts” funding requirement in the Merger Agreement (the “Merger Funding” ) that is not a condition to the closing of the Merger Agreement; and


WHEREAS, it is intended that the shares of common stock of the Company covered by this Agreement shall include the common stock currently owned by the Shareholder and represented by the stock certificate(s) (or any successor stock certificate(s) issued on the transfer of such stock certificate(s) described on the Counterpart Signature Page hereof or otherwise; any shares acquired under the Merger Agreement; any shares acquired in the Merger Funding; and any shares of $0.001 mill par value common stock of the Company acquired by the Shareholder subsequent to the Effective Date hereof (the “Common Stock” ); and


WHEREAS, the execution and delivery of this Agreement is a condition to the closing of the Merger Agreement and/or the Merger Funding, if the Shareholder acquired the Common Stock subject to this Agreement in the Merger Funding; and


WHEREAS, the Company and the Shareholder understand that the Shareholder’s failure to comply with the terms and conditions of this Agreement could have substantial adverse consequences to the Company, its shareholders and any public trading market for the Company’s  Common Stock that cannot be reasonably measured or determined at this time; and


WHEREAS, except as otherwise provided herein, to the extent that any shares of the Common Stock covered hereby are subject to that certain Shareholder Voting Agreement made to be entered into as of the closing of the Merger, by and among the Company, D. Sean McEwen (“ McEwen” ), M2 Equity Partners, LLC, a Minnesota limited liability company ( “M2” ); Mark Savage ( “Savage” ), and Matthew Atkinson






( “Atkinson” ), such shares of Common Stock shall remain subject to such Shareholder Voting Agreement;


NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:


1.

Subject to compliance with all of the applicable provisions of the United States Securities and Exchange Commission (the “SEC” ) Rule 144 as now in effect or hereafter amended, including SEC interpretations thereof, or an effective S-1 Registration Statement filed with the SEC under the Securities Act of 1933, as amended (the “Securities Act” ), which is accompanied by a “current” Resale Prospectus that includes shares of Common Stock covered hereby that are sought to be publicly sold by a Shareholder through a registered broker-dealer (respectively, a “Registration Statement” and the Shareholder Broker” ), and except as otherwise expressly provided herein, the Shareholder may only sell the Common Stock subject to the following conditions, commencing on the later of six (6) months from (i) the Effective Date of the Company’s Merger Agreement (as defined therein) or Merger Funding (date of purchase by any participant), as applicable; or (ii) the date of the filing by the Company of an 8-K Current Report with the SEC under Item 5.01(8), which includes all applicable audited and reviewed financial statements of the Company and KonaTel, as may be required by applicable securities laws and SEC rules and regulations (the “Lock-Up Period” ); provided, however, the Lock-Out Period shall not cover any Common Stock owned by the Shareholder that is included in a Registration Statement, though the provisions of the Leak-Out Period (as defined below) shall continue to be applicable to the Shareholder and the Common Stock.  Following the Lock-Up Period, the Shareholder may sell the Common Stock as follows (the “Leak-Out Period” ):


1.1

The Shareholder shall be allowed to sell in one (1) week, no more than the greater of (i) (5%) of the total shares of the Company publicly traded on any nationally recognized medium of a stature no less than the Pink OTC Markets, Inc. (the “OTC Pink”) over the previous ten (10) trading days, or (ii) one percent (1%) of the total outstanding shares of the Company as reported in the Company’s most recently filed SEC report or registration statement in the Edgar Archives of the SEC, divided by thirteen (13) weeks, which number may be updated from time to time, based upon the number of shares reflected as being outstanding in the Company’s SEC filings, on a non-cumulative basis, meaning that if the amount of shares allowed to be sold under this subparagraph are not sold in any specific week, that the unsold amount cannot be cumulated and sold in any subsequent week or weeks with the sale of other shares that are allowed to be sold in a specific week. Any sales made by “affiliates” of the Company during the Leak-Out Period are also subject to the standard volume limitations applicable to any “affiliate” of the Company under SEC Rule 144. Notwithstanding, the Company may allow any Shareholder the right to sell or transfer Common Stock in a bona



2






fide private transaction or by gift or for estate planning purposes, subject to receipt of an opinion of legal counsel for the Company that there is an available exemption from registration for any such transaction under the Securities Act, and subject to any transferee’s execution and delivery of a copy of this Agreement; provided, however , in such event, the Shareholder and any transferee in any such conveyance of Common Stock shall be required to aggregate their respective sales of Common Stock during the term of this Agreement so that the combined sale of shares of Common Stock sold by the Shareholder and any transferee does not exceed the number of shares of Common Stock that could have been sold by the Shareholder during the Leak-Out Period as if any such transaction had not occurred; provided, further, however , these provisions of “aggregation” shall not apply to any disposition by operation of law, including the dissolution of an “entity” Shareholder and the distribution of Common Stock to its shareholders or members, pro rata, according to their respective interests in any such entity, or specifically, M2.  Any private transfers of shares of Common Stock will also require the transferee to agree to be fully bound by the terms and conditions of the Shareholder Voting Agreement ( Exhibit 6.4(d) to the Merger Agreement), if applicable to the Shareholder, by delivery of a duly executed copy thereof to the “Shareholder” (as defined therein).


1.2

Except as otherwise provided herein (or by operation of law), all Common Stock shall be sold by the Shareholder in “broker’s transactions” and in compliance with the “manner of sale” requirements as those terms are defined in Rule 144 of the SEC during the Leak-Out Period.


1.3

An appropriate legend describing this Agreement shall be imprinted on each stock certificate representing Common Stock covered hereby, and the transfer records of the Company’s transfer agent shall reflect such resale restrictions.


2.

The delivery of a duly executed copy of this Agreement, with the Shareholder’s Broker’s Acknowledgement duly signed by the Shareholder’s Broker, which Broker’s Acknowledgement is contained on the Counterpart Signature Page hereof, shall be satisfactory evidence for all purposes of this Agreement that the Shareholder and the Broker shall comply with the “brokers’ transactions,” “manner of sale” and limitations on the number of shares of Common Stock that can be sold in any applicable period outlined in Section 1.1 hereof and in compliance with all of the terms and conditions of this Agreement, and no further evidence thereof will be required of the Shareholder; provided, however, the Company shall have the right to confirm such compliance with any Shareholder and the Shareholder’s Broker, to the extent that it deems reasonably required or necessary to assure compliance with this Agreement; and provided, however , that the Shareholder can otherwise provide satisfactory evidence to the Company of such compliance, subject to the Company’s acceptance of any



3






such alternative compliance evidence.  Failure by the Shareholder or the Shareholder’s Broker to provide the Company with reasonable evidence of compliance with the terms and provisions of this Agreement on written request by the Company and within ten (10) business days of such written request shall result in the withdrawal of any legal opinion rendered by legal counsel respecting the lawful sale of the Shareholder’s Common Stock, with advice thereof to the Shareholder and the Shareholder’s Broker, and if any of the shares of Common Stock then being sold by the Shareholder are being sold in reliance on a Registration Statement, at the option of the Company, such shares of Common Stock may be withdrawn from the Registration Statement,  In any such event, “stop transfer” instructions shall be provided to the Company’s transfer and registrar agent regarding the Shareholder’s Common Stock,


3.

Notwithstanding anything to the contrary set forth herein, the Company may, in its sole discretion and in good faith, at any time and from time to time, waive any of the conditions or restrictions contained herein to increase the liquidity of the Common Stock or if such waiver would otherwise be in the best interests of the development of the public trading market for the Company’s Common Stock.  Unless otherwise agreed, all such waivers shall be pro rata, as to all Shareholders who have executed a Lock-Up/Leak-Out Agreement with the Company in connection with the Merger Agreement, the Merger Funding or are otherwise subject to the Lock-Up/Leak-Out Agreement, and all such shares of Common Stock shall be subject to sale in accordance will all applicable securities laws, rules and regulations.  


4.

In the event of: (a) a completed tender offer to purchase all or substantially all of the Company’s issued and outstanding securities (at least 50.1% or more of the Company’s voting securities); or (b) a merger, consolidation or other reorganization of the Company with or into an unaffiliated entity that results in a change in control of the Company (excluding the Merger Agreement and resulting in a change in control of 50.1% or more of the Company), then this Agreement shall terminate as of the closing of such event, and the Common Stock restrictions on the resale of the Common Stock pursuant hereto shall terminate, though the requirement that all shares of Common Stock shall be subject to sale in accordance will all applicable securities laws, rules and regulations shall continue.


5.

Except as otherwise provided in this Agreement, the Shareholder Voting Agreement, if applicable, or any other agreements between the parties or otherwise, the Shareholder shall be entitled to the beneficial rights of ownership of the Common Stock, including the right to vote the Common Stock for any and all purposes.


6.

The number of shares of Common Stock included in any allotment that can be sold by the Shareholder hereunder shall be appropriately adjusted should the Company declare and effect a dividend or distribution, undergo a forward split or a reverse split or otherwise reclassify its shares of Common Stock.


7.

This Agreement may be executed in any number of counterparts with the same force and effect as if all parties had executed the same document.




4






8.

All notices, instructions or other communications required or permitted to be given pursuant to this Agreement shall be given in writing and delivered by certified mail, return receipt requested, overnight delivery or hand-delivered to all parties to this Agreement, to the Company, at 730 Washington Ave. N, #620, Minneapolis, MN 55401 (or the current address of the Company in the SEC Archives as listed in its most recently filed report or registration statement respectively filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act” ) or the Securities Act, and to the Shareholder or the Shareholder’s Broker, at the addresses in the Counterpart Signature Page.  All notices shall be deemed to be given on the same day if delivered by hand or on the following business day if sent by overnight delivery or the second business day following the date of mailing.


9.

The resale restrictions on the Common Stock set forth in this Agreement shall be in addition to all other restrictions on transfer imposed by applicable United States and state securities laws, rules and regulations.


10.

The Company or the Shareholder who fails to fully adhere to the terms and conditions of this Agreement shall be liable to every other party to this Agreement for any damages suffered by any party by reason of any such breach of the terms and conditions hereof.  The Shareholder agrees that in the event of a breach of any of the terms and conditions of this Agreement by the Shareholder, that in addition to all other remedies that may be available in law or in equity to the non-defaulting parties, a preliminary and permanent injunction, without bond or surety, and an order of a court requiring such Shareholder to cease and desist from violating the terms and conditions of this Agreement and specifically requiring the Shareholder to perform his/her/its obligations hereunder is fair and reasonable by reason of the inability of the parties to this Agreement to presently determine the type, extent or amount of damages that the Company or any non-defaulting Shareholder may suffer as a result of any breach of the terms and provisions of this Agreement or the continuation thereof.


11.

This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof, and may not be amended except by a written instrument executed by the parties hereto and approved by a majority of the members of the Board of Directors of the Company.


12.

This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts entered into and to be performed wholly within said State; and the Company and the Shareholder agree that any action based upon this Agreement may be brought in the United States federal and state courts situated in Delaware only, and that each shall submit to the jurisdiction of such courts for all purposes hereunder.


13.

In the event of default hereunder, the non-defaulting parties shall be entitled to recover reasonable attorney’s fees incurred in the enforcement of this Agreement.


14.

This Agreement shall be binding upon any successors or assigns of the Common Stock, without qualification.



5







15.

This Agreement shall terminate on the earlier of: (i) eighteen (18) months from its Effective Date; (ii) the listing on a nationally recognized exchange of no less significance than the New York Stock Exchange or NASDAQ; or (iii) on the completion of any event specified in Section 4 hereof.


IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as of the respective dates indicated below.


DALA PETROLEUM CORP.


Date: _______________.

By:  ___________________________

        

       Mark Savage



6






LOCK-UP/LEAK-OUT AGREEMENT

COUNTERPART SIGNATURE PAGE


This Counterpart Signature Page for that certain Lock-Up/Leak-Out Agreement (the “Agreement” ) effective as of the earlier of the signature date hereof or delivery of this Agreement (the Effective Date” ), among Dala Petroleum Corp., a Delaware corporation (the “Company” ); and the undersigned, by which the undersigned, through execution and delivery of this Counterpart Signature Page, intends to be legally bound by the terms of the Agreement, as a Shareholder, of the number of shares of the Company set forth below and represented by the stock certificate(s) described below (or otherwise) or any Common Stock acquired after the Effective Date.


SHAREHOLDER:


______________________________________________

(Print Name)

__________________________________

(Street Address)


______________________________________________

(City and State)

 

(Stock Certificate No. and Number of Shares)


Date: _____________.

______________________________________________

(Signature)

 (Representative Capacity, if Applicable)



                  BROKER ACKNOWLEDGEMENT:


______________________________________________

(Print Name)

____________________________

(Street Address)


______________________________________________

(City and State)

 

(Stock Certificate No. and Number of Shares)


Date: _____________.

______________________________________________

(Signature)

  (Representative Capacity, if Applicable)




7



Exhibit 14


DALA PETROLEUM CORP.

CODE OF CONDUCT


Introduction.


This Code of Conduct (this “Code”) is applicable to the (1) President and Chief Executive Officer, (2) Chief Financial Officer, (3) Chief Accounting Officer or Controller and (4) other persons performing similar functions (collectively, the “Covered Executives”) of Dala Petroleum Corp. (“Dala”).  As used in this Code, “we”, “our” or “us” means Dala, and “you” means a Covered Executive.  The Covered Executives hold an important and elevated role in corporate governance, and are uniquely positioned and empowered to ensure that Dala’s interests are appropriately balanced, protected and preserved.  Dala’s Board of Directors (the “Board”) has adopted this Code to deter wrongdoing and to promote honest and ethical conduct, proper disclosure of financial information in Dala’s periodic reports and compliance with applicable laws, rules and regulations by Dala’s senior officers who have financial responsibilities.


General obligations.


In performing your duties, we expect you to:


·

Conduct yourself honestly and ethically, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.


·

Refrain from using your position for personal gain or competing directly or indirectly with Dala.


·

Provide, or cause to be provided, full, fair, accurate, timely and understandable disclosures in (i) reports and documents that we file with the Securities and Exchange Commission (the “SEC”) and (ii) in other public communications made by us.