United States Securities and Exchange Commission


Washington, D.C. 20549


FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


June 3, 2014

Date of Report



WESTCOTT PRODUCTS CORPORATION

(Exact name of Registrant as specified in its Charter)



Delaware

 

001-10171

 

80-0000245

(State or Other Jurisdiction of

 

(Commission File Number)

 

(I.R.S. Employer Identification No.)

Incorporation)

 

 

 

 


112 Loraine South, Suite 266, Midland, Texas 79701

 (Address of Principal Executive Offices)


(432)695-6997

(Registrant’s Telephone Number, including area code)


8867 South Capella Way

Sandy, Utah 84093

(Former address)


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 (see general instruction A.2. below):


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


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


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


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









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. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Current Report. 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 filed by us with the Securities and Exchange Commission (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.


NAME REFERENCES


Except as otherwise indicated by context, references to the “Company,” “we,” “our,” “us” and words of similar import refer to “Westcott Products Corporation,” a Delaware corporation, and its wholly-owned subsidiary, Dala Petroleum Corp., a Nevada corporation.


DOCUMENTS INCORPORATED HEREIN BY REFERENCE


See Item 9.01 for documents incorporated herein by reference, including our prior reports or registration statements that have been filed by us with the SEC and that contain information, as applicable, to the information required by Item 501(8) of Form 8-K.


Item 1.01 Entry into Definitive Material Agreement.


DESCRIPTION OF THE MERGER


Introduction


Westcott Products Corporation was 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, (“Kilgore”), 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, which resulted in the completion of the acquisition of Dala Petroleum Corp. that is discussed below under the heading “Merger.”


Dala has the rights to engage in oil exploration and development on approximately 300 leases in north central Kansas, with total acreage of approximately 80,000 acres (the “Property”). Dala will operate as an early-stage oil exploration company focused on the Property, which has oil potential at depths of less than 6,000 feet. Additional information on the Company’s new operations as a result of the Merger can be found in the “Business” section below.



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Merger Transaction Documents


The summaries of the Merger Transaction Documents and the other agreements, documents and instruments related to the Transaction Documents or otherwise described herein and filed as Exhibits to this Current Report and which are incorporated herein by reference are believed to be complete in every material respect; however, such referenced Transaction Documents, agreements, documents and instruments that are summarized may be read in their entirety as filed “Exhibits” to our initial Current Report filed with the Securities and Exchange Commission (the “SEC”) on June 3, 2014.  Capitalized terms not otherwise defined herein shall have the meanings ascribed to them under the Merger Agreement or other instrument referenced; and in some instances, for clarity, certain Exhibits to the Merger Agreement or other instruments that are filed herewith as Exhibits are named and defined otherwise than in the Transaction Documents or in those instruments.  See Item 9.01.


Merger


On June 2, 2014, Westcott Products Corp., a Delaware corporation (“Westcott”), its newly formed and wholly-owned subsidiary, Dala Acquisition Corp., a Nevada corporation (“Merger Subsidiary”), and Dala Petroleum Corp., a Nevada corporation (“Dala”), executed and delivered an Agreement and Plan of Merger (the “Merger Agreement”) and all required or necessary documentation to complete the merger (collectively, the “Transaction Documents”), whereby Merger Subsidiary merged with and into Dala, and Dala was the surviving company under the merger and became a wholly-owned subsidiary of Westcott on the closing of the merger (the “Merger”).  Effective June 2, 2014, the respective Boards of Directors of Westcott and Dala, along with Westcott, as the sole stockholder of Merger Subsidiary, and Dala’s sole stockholder Chisholm Partners II, LLC, a Louisiana limited liability company (“Chisholm II”) owning 100% of the outstanding voting securities of Dala approved the Merger by written consent, and the 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 Merger.  Accordingly, Westcott will issue 10,000,000 shares of its common stock in exchange for all of the outstanding shares of common stock of Dala, to be distributed to Dala Petroleum’s sole shareholder that will immediately distribute the shares on a pro rata basis to its members.  Dala had no other outstanding stock options, warrants, preferred stock or securities on the closing of the Merger.  There will then be 12,500,000 outstanding shares of Westcott common stock.  Current Westcott stockholders will own 2,500,000 of these shares or approximately 20% of the outstanding voting securities of Westcott; and Dala stockholders will own approximately 10,000,000 of these shares or approximately 80% of these outstanding voting securities of Westcott. Also, see the following Capitalization Tables for additional information about the Merger, and Item 9.01, where a copy of the Merger Agreement is filed as an Exhibit.


Several conditions precedent as set forth in the Merger Agreement were completed prior to the Merger. One critical condition precedent set forth in the Merger Agreement is that Westcott would raise no less than $2,000,000 (the minimum Offering) from persons who are “accredited investors” in consideration of the issuance (or the conversion) of a minimum of 2,000 shares up to a maximum of 2,500 shares of its Series A 6% Convertible Preferred Stock at the offering price of $1,000 per Unit. As of the date of this Report, the Company sold 2, 025 Units in the Offering. Each Unit consists of one share of Series A 6% Convertible Preferred Stock that is convertible at any time at the option of the Holder into common stock at the conversion price of $0.70 per common share based on the total dollar amount invested (subject to adjustment as set forth in the Company’s Series A 6% Convertible Preferred Stock Certificate of Designation that was filed on May 30, 2014) and 1,429 warrants to purchase common shares of the Company at an exercise price of $1.35 within three years of the “Effective Date” as defined in the Stock Purchase Agreement for the Offering. The Effective Date is defined as the earliest date of the following to occur: (a) the initial registration statement required by the Offering Documents has been declared effective by the Commission, (b) all of the underlying shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of the Closing Date provided that a holder of underlying shares is not an Affiliate of the Company, all of the underlying shares may be sold pursuant to an exemption from registration under Section 4(1) of the Securities Act without volume or manner-of-sale restrictions and Company counsel has delivered to such holders a standing written unqualified opinion that re-sales may then be made by such holders of the underlying shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.




3





Offering Documents


The summaries of the Offering Documents and the other agreements, documents and instruments related to the Transaction Documents or otherwise described herein and filed as Exhibits to this Current Report and which are incorporated herein by reference are believed to be complete in every material respect; however, such referenced Offering Documents, agreements, documents and instruments that are summarized may be read in their entirety as filed “Exhibits” to our initial Current Report filed with the Securities and Exchange Commission (the “SEC”) on June 3, 2014.  Capitalized terms not otherwise defined herein shall have the meanings ascribed to them under the document referenced. See Item 9.01.


The Offering Documents include the following:


·

Private Placement Memorandum

·

Securities Purchase Agreement

·

Registration Rights Agreement

·

Form of Warrant

·

Escrow Agreement for Offering Funds

·

Jenson Services Escrow Agreement

·

Form of Lock-Up Agreement

·

Series A 6% Convertible Preferred Stock Certificate of Designation


Summary of the Offering


Securities Offered

$1,000 per Unit, up to 2,500 Units, each Unit consisting of one share of Series A 6% Convertible Preferred stock and 1,429 warrants for common stock at a purchase price of $1.35 that expires three years from the Effective Date (as defined in the Stock Purchase Agreement for the Offering).

 

 

Proceeds Held in Escrow

The proceeds of this Offering were deposited into our legal counsel’s escrow account and held until the minimum Offering amount was met and the Merger occurred.

 

 

Rights and Preferences of Preferred Stock

Holders of Series A 6% Convertible Preferred Stock are entitled to receive cumulative dividends at the rate per share of 6% per annum, payable quarterly on January 1, April 1, July 1, and October 1, in cash from legally available funds or, at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of common stock.  Each share of Series A 6% Convertible Preferred Stock is convertible at any time at the option of the Holder into common stock at the conversion price of $0.70 per common share based on the total dollar amount invested (subject to adjustment as set forth in the Series A 6% Convertible Preferred Stock Certificate of Designation) Unless waived by the Holder, at no time will the Holder be able to convert the Series A 6% Convertible Preferred Stock into common stock that is equal to more than 4.99% of the total issued and outstanding shares of common stock of the Company (the “Conversion Limitation”). If the Holder gives the Company at least 61 days’ written notice, then the Holder may convert up to 9.99% of the total issued and outstanding shares of common stock of the Company.

 

 

Minimum Investment

$100,000 per investor.  The Company may reduce the minimum investment per investor in its sole discretion.




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Offering Period

The Offering Period will expire on the earlier of (i) the sale of all of the Units, (ii) the date of the Merger, or (iii) June 6, 2014.

 

 

Securities of the Company Outstanding:

 

 

 

Before the Offering

2,500,000 shares of common stock.

 

 

After the Merger

12,500,000 shares of common stock.

 

 

After the Offering (Minimum raise)

18,814,286 shares of common stock, assuming all shares of Series A 6% Convertible Preferred Stock are converted, all stock options are exercised and all warrants are exercised.

 

 

After the Offering (Maximum raise)

20,242,858 shares of common stock, assuming all shares of Series A 6% Convertible Preferred Stock are converted, all stock options are exercised and all warrants are exercised.

 

 

Use of Proceeds

The net proceeds of this Offering will primarily be used for drilling, seismic tests, technical services, and general working capital, including general and administrative expenses.

 

 

Voting Rights

The shares of Series A 6% Convertible Preferred Stock shall not have any voting rights.

 

 

Dividend Rights

The holders of our Series A 6% Convertible Preferred Stock are entitled to receive cumulative dividends at the rate per share of 6% per annum, payable quarterly on January 1, April 1, July 1, and October 1, in cash from legally available funds or in common stock. The holders of our common stock are entitled to receive dividends, if any, as may be declared by our Board of Directors, in its sole discretion; however, we do not intend to pay any dividends in the foreseeable future.

 

 

Registration Rights

Within sixty days of the Closing of the Offering, the Company shall file a Registration Statement registering all Registrable Securities (as defined in the Registration Rights Agreement) including the shares of common stock issuable upon conversion of the shares of Series A 6% Convertible Preferred Stock, the warrant shares offered herein, and any shares that may be paid to the Holder as dividends on the Series A 6% Convertible Preferred Stock. The Company shall cause the Registration Statement to become effective within 180 days following the filing date (in the event of a “full review” by the SEC) or 150 days (if there is not a “full review” by the SEC). All fees associated with the Registration shall be borne by the Company. The Company may incur certain cash liquidated damages if the terms and timelines of the Registration Rights Agreement are not met.


A capitalization table of the Company’s common stock after the Merger and after the Offering is included below.




5





Capitalization Table


Following the Closing of the Merger, the Company will have 12,500,000 shares of common stock issued and outstanding. The following table sets forth the total ownership of our stock after the Offering, assuming that all of the Series A 6% Convertible Preferred Shares offered herein have been converted, all of the warrants offered herein have been exercised, and all of the stock options have been exercised.


 

Post-Merger,

Pre-Offering

 

Assuming

Minimum

Offering

$2,000,000

 

%

Ownership

 

Assuming

Maximum

Offering

$2,500,000

 

%

Ownership

Dala Petroleum

12,500,000

 

12,500,000

 

81.40%

 

12,500,000

 

77.78%

Offering - Post Conversion of Preferred Shares into Common Shares

 

 

2,857,143

 

18.60%

 

3,571,429

 

22.22%

SUB-TOTAL

 

 

15,357,143

 

100%

 

16,071,429

 

100%

 

 

 

 

 

 

 

 

 

 

Fully-Diluted

 

 

 

 

 

 

 

 

 

Dala Petroleum

12,500,000

 

12,500,000

 

66.44%

 

12,500,000

 

61.75%

Offering- Post Conversion of Preferred Shares into Common Shares

 

 

2,857,143

 

15.19%

 

3,571,429

 

17.64%

Offering Warrants

 

 

2,857,143

 

15.19%

 

3,571,429

 

17.64%

Employee Options

400,000

 

400,000

 

2.13%

 

400,000

 

1.98%

Director Options

200,000

 

200,000

 

1.06%

 

200,000

 

0.99%

TOTAL

13,100,00

 

18,814,286

 

100%

 

20,242,858

 

100%


Accounting Treatment of the Merger


For financial reporting purposes, the Merger represents a “reverse merger” rather than a business combination and Dala is deemed to be the accounting acquirer in the transaction.  The Merger is being accounted for as a reverse-merger and recapitalization. Dala is the acquirer for financial reporting purposes and Westcott is the acquired company. Consequently, the assets and liabilities and the operations that will be reflected in the historical financial statements prior to the Share Exchange will be those of Dala and will be recorded at the historical cost basis of Dala, and the consolidated financial statements after completion of the Share Exchange will include the assets and liabilities of Dala and Westcott, and the historical operations of Dala and operations of the Company from the closing date of the Merger Agreement. Dala has not commenced any significant operations and, in accordance with ASC Topic 915, Dala is considered an exploration stage company.


Item 2.01 Completion of Acquisition or Disposition of Assets.


On June 3, 2014, Dala entered into a Master Services Agreement with Chisholm II (the “Master Services Agreement”). Pursuant to the Master Services Agreement, Chisholm II agreed to act as an independent contractor for the Company and provide services and personnel to develop, drill, operate, and maintain oil and gas wells and properties used to produce oil and gas within the State of Kansas for a period of twelve (12) months. The Company will pay Chisholm II $25,000 up front and $25,000 per month for its services and reimburse Chisholm II for any expenses directly incurred during the related operations.


On June 3, 2014, Dala also entered into an Option Participation Agreement with Chisholm II (the “Option Participation Agreement”). Pursuant to the Option Participation Agreement, Chisholm II granted Dala the option, at Dala’s own election, to participate for up to twenty-five percent (25%) of Chisholm’s share of each drilling operation in search for oil or gas in the State of Kansas undertaken by Chisholm II.




6





Item 3.02 Unregistered Sales of Equity Securities


During our past three fiscal years ended September 30, 2013, 2012, and 2011, and since then, we have sold the following unregistered securities:


(i)

Immediately following the Merger described in Item 1.01 above, the Company closed a private placement offering (the “Offering”) to certain accredited and sophisticated investors.


The Company offered, at a price of $1,000 per Unit, up to 2,500 Units (with the option to increase the maximum offering to 2,775 in the case of oversubscription), each Unit consisting of one share of Series A 6% Convertible Preferred Stock and 1,429 warrants for common stock at a purchase price of $1.35 per share that expire three years from the Effective Date as defined in the Stock Purchase Agreement of the Offering Documents.


Holders (the “Holder” or “Holders”) of Series A 6% Convertible Preferred Stock are entitled to receive cumulative dividends at the rate per share of 6% per annum, payable quarterly on January 1, April 1, July 1, and October 1, in cash from legally available funds or, at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of common stock.  Each share of Series A 6% Convertible Preferred Stock is convertible at any time at the option of the Holder into common stock at the conversion price of $0.70 per common share based on the total dollar amount invested (subject to adjustment as set forth in the Series A 6% Convertible Preferred Stock Certificate of Designation). Unless waived by the Holder, at no time will the Holder be able to convert the Series A 6% Convertible Preferred Stock into common stock that is equal to more than 4.99% of the total issued and outstanding shares of common stock of the Company. If the Holder gives the Company at least 61 days’ written notice, then the Holder may convert up to 9.99% of the total issued and outstanding shares of common stock of the Company.


Under the Offering, a total of 2,025 Units were placed and $2,025,000 was delivered by thirteen investors to the Company. The sale of the Series A 6% Convertible Preferred Stock was exempt from registration pursuant to Section 4(a)(2) of the Securities Act and Regulation D, Rule 506(b), promulgated thereunder.  There was no general solicitation, and each investor is financially sophisticated.


The Company also entered into a Registration Rights Agreement with the Holders of the Series A 6% Convertible Preferred Stock through which the Company is required to register the common shares underlying the Series A 6% Convertible Preferred Stock and the warrants.


(ii)

On or about February 10, 2014, we offered and sold 1,384,200 shares of our common stock comprised of “restricted securities” in consideration of the sum of $13,842.  These shares were offered and sold pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.  The funds were utilized for partial payment of our expenses incurred in connection with our negotiation and due diligence activities related to the Dala Merger discussed in Item 1.01 above.


Form 10 Disclosure

BUSINESS


Corporate History


Westcott Products Corporation was 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, (“Kilgore”), 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.




7





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, which resulted in the completion of the Dala Merger in 2014.


We have an authorized capital of 100,000,000 shares divided into 50,000,000 shares of common stock of a par value of $0.001 per share and 50,000,000 shares of preferred stock with a par value of $0.01, with 2,775 of the 50,000,000 shares of preferred stock being designated as our Series A 6% Convertible Preferred Stock. With the exception of the Series A 6% Convertible Preferred Stock sold under our Offering described in Item 3.02 above, no other shares of our preferred stock are outstanding. We were formed for the primary purpose of engaging in any and all lawful business.


Copies of the Certificate of Ownership and Merger and our initial Articles of Incorporation, as amended, together with our By-Laws, were filed as Exhibits to our 10-KSB Annual Report for the fiscal year ended September 30, 2003.


On or about November 28, 2006, we filed a Definitive Information Statement on Form 14C with the Securities and Exchange Commission (the “SEC”), whereby we amended our Articles of Incorporation with the State of Delaware;  and we issued common stock to the members of our Board of Directors for compensation of services.  The Amended Articles of Incorporation were unanimously adopted by our Board of Directors and certain shareholders owning approximately 13,800 shares of our common stock or approximately 59.7% of our outstanding voting securities to effect a re-capitalization of our outstanding common stock in the form of a pro rata 250,000 for one reverse split, with all fractional shares being rounded up to the nearest whole share, and an immediate 200 for one pro rata dividend of our outstanding common stock. All share and per share amounts have been retroactively adjusted to reflect this re-capitalization. A copy of the Amended Articles of Incorporation was filed as an Exhibit to our Definitive Information Statement on Form 14C. This re-capitalization and compensation common stock issuance became effective December 20, 2006.


Since the recapitalization, we have been seeking and investigating potential assets, property or businesses to acquire.  Until the Merger, we have had no material business operations for more than 20 years.


As described in Item 1.01 above, on January 8, 2014, we entered into a Letter of Intent with Chisholm II, the sole shareholder of Dala, to complete an Agreement and Plan of Merger.


Pursuant to the Agreement and Plan of Merger, Westcott formed a new, wholly-owned Nevada subsidiary, Dala Acquisition Corp., on May 22, 2014 which merged with and into Dala on June 2, 2014, with Dala being the surviving company and therefore becoming a wholly-owned subsidiary of Westcott upon the closing of the Merger.  According to the terms of the Plan of Merger, Westcott issued 10,000,000 restricted shares of its common stock to the sole shareholder of Dala in exchange for all of the outstanding shares of Dala common stock.  Following the Merger, the Company had a total of 12,500,000 shares of common stock issued and outstanding.


The Post-Merger Company


Following the Merger, the Company’s operations will be those of Dala. Dala has the rights to engage in oil exploration and development on approximately 300 leases in north central Kansas with total acreage of approximately 80,000 acres (the “Property”). The cost of the 300 lease assets was $1,898,946.


Dala will operate as an early-stage oil exploration company focused on the Property, which has oil potential at depths of less than 6,000 feet. Dala was assigned the rights to explore the Property from Chisholm II, and, through a Service Agreement with Chisholm II, will utilize Chisholm II’s existing technical exploration team to further explore and develop the property.




8





Dala’s operations will be focused on shallow oil opportunities. Dala has a ready-to-drill inventory of seismically defined (2-D and 3-D) prospects in and around existing production in central, southern and northwest Kansas.  In addition, Dala has leases to approximately 80,000 net acres along a productive trend of fields (1-17 million barrels of oil) in central Kansas, which will be explored via conventional seismic evaluation and vertical drilling. Dala has a full team of experienced (major oil company trained) technical and land personnel to support its operations.  Its founders and management have a track record of creating shareholder value through early stage oil and gas ventures. In partnership with Chisholm II, an exploration and production company focused on the acquisition of Kansas oil leasehold interests and exploration and development and Dala’s sole shareholder prior to the Merger and the closing of the Offering, Dala has an inventory of drill-ready oil prospects.  Most of the prospects are supported by modern seismic data and are a combination of field extensions, step out locations and offsets to existing production. The initial eight prospects estimated ultimate recovery range in potential from one hundred thousand to one-half million barrels of oil, and are expected to be drilled and tested over the next 12 months.  Another eight plus prospects are currently being developed by Dala and Chisholm II.  Together, the companies will continue to acquire new leases and seismic data in support of their ongoing programs.  This prospect development is being conducted by two teams of geologists and geophysicists in Denver, CO.  One team focuses on western Kansas, where they have 10 years of experience and a successful track record; and the second team focuses on a high potential exploration area where Dala’s 80,000 acres are located.  This team has already generated two field offset prospects for Dala, using high resolution 2-D seismic data.


Dala is establishing a substantial land position over a shallow, conventional oil play in north central Kansas.  The "Play" or exploration concept is located across a four county area and is 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 over 400 million barrels of rift-related oil fields, and to the north by significant new discoveries in southeast Nebraska, where per well productive rates have recently 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 data bases and high resolution seismic.  Based on adjacent productive analogies, the expected field target size in this exploration area is from 1-17 million barrels of recoverable oil, with individual per well rates estimated to be from 200-800 barrels of oil per day, depending upon the reservoir.


In addition to the Play, Dala will begin an eight well drilling program with working interests ranging between 12.5%-25% in order to provide operating income while further validating the thesis of the 80,000 acres.  This additional Kansas non-operated opportunity is provided under the Chisholm II agreement in support of unlocking the value of the separate 80,000 acres.  If successful, this initiative will provide operating capital and data critical to unlocking the potential value of the 80,000 acres.


Business Strategy


Our business strategy is to create value for our shareholders by growing reserves, production and cash flow on a cost-efficient basis.  Key elements of our business strategy will include:


·

Development and exploration of our existing oil and gas leases in the North American Rift System is our primary objective.  Our current acreage position consists of 100% working interest and will require the Company to register as a licensed Oil and Gas Operator within the state of Kansas;

·

To selectively participate, on a non-operated basis, in seismically driven prospects that correspond geologically with our existing footprint within the state of Kansas;

·

Our goal is to remain financially strong, yet flexible, through the prudent management of our current limited cash resources;

·

To complement our organic growth strategy, we will seek to aggregate existing production in order to accelerate the Company’s production and reserve profile;

·

Once the Company has reached a set level of daily production, we will seek to use a variety of derivatives to lock in current value and hedge against any potential downturn in crude pricing;

·

Retaining qualified personnel to carry out the Company’s growth strategy.





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Industry Operating Environment


The oil and natural gas industry is affected by many factors that we generally cannot control. Government regulations, particularly in the areas of taxation, energy, climate change and the environment, can have a significant impact on operations and profitability.  Significant factors that will impact oil prices in the current fiscal year and future periods include: political and social developments in the Middle East; demand in Asian and European markets; and the extent to which members of OPEC and other oil exporting nations manage oil supply through export quotas.  Additionally, natural gas prices continue to be under pressure due to concerns over excess supply of natural gas due to the high productivity of emerging shale development in the United States and continued lower product demand caused by a weakened economy.  Natural gas prices are generally determined by North American supply and demand and are also affected by imports of liquefied natural gas.  Weather also has a significant impact on demand for natural gas since it is a primary heating source.


Development


We will primarily engage in oil and natural gas exploration and production singly on the Property using a technical exploration team to further explore and develop the Property. Dala has a full team of experienced (major oil company trained) technical and land personnel to support its operations, which is provided under the Chisholm II Master Service Agreement. Dala has an inventory of drill-ready oil prospects.  Most of the prospects are supported by modern seismic data and are a combination of field extensions, step out locations and offsets to existing production. The initial eight prospects estimated ultimate recovery range in potential from one hundred thousand to one-half million barrels of oil, and are expected to be drilled and tested over the next 12 months.  Another eight plus prospects are currently being developed by Dala and Chisholm II.  Together, the companies will continue to acquire new leases and seismic data in support of their ongoing programs.  This prospect development is being conducted by two teams of geologists and geophysicists in Denver, CO.  One team focuses on western Kansas, where they have 10 years of experience and a successful track record; and the second team focuses on a high potential exploration area where Dala’s 80,000 acres are located.  This team has already generated two field offset prospects for Dala, using high resolution 2-D seismic data.


Dala is assembling a substantial land position over a shallow, conventional oil play in north central Kansas.  The "Play" or exploration concept is located across a four county area and is 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 over 400 million barrels of rift-related oil fields, and to the north by significant new discoveries in southeast Nebraska, where per well productive rates of 400-600 barrels per day have recently 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 data bases and high resolution seismic.  Based on adjacent productive analogies, the expected field target size in this exploration area is from 1-17 million barrels of recoverable oil, with individual per well rates estimated to be from 200-800 barrels of oil per day, depending upon the reservoir.





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[WSPD8K052914002.GIF]


In addition to the Play, Dala will begin an eight well drilling program with working interests ranging between 12.5% - 25% in order to provide operating income while further validating the thesis of the 80,000 acres.  This additional Kansas non-operated opportunity is provided under the Chisholm II agreement in support of unlocking the value of the separate 80,000 acres.    If successful, this initiative will provide operating capital and data critical to unlocking the potential value of the 80,000 acres.


Competition


The oil and natural gas industry is intensely competitive, and we will be competing with numerous other oil and natural gas exploration and production companies.  Most of these companies have substantially greater resources than we have.  Not only do they explore for and produce oil and natural gas, but also many carry on midstream and refining operations and market petroleum and other products on a regional, national or worldwide basis.  The operations of other companies will be able to pay more for exploratory prospects and productive oil and natural gas properties.  They will also have substantially more resources to define, evaluate, bid for and purchase a greater number of properties and prospects than our limited financial or human resources permit.


Our larger or integrated competitors will have the resources to be better able to absorb the burden of existing, and any changes to federal, state, and local laws and regulations more easily than we can, which will adversely affect our competitive position.  Our ability to discover reserves and acquire additional properties in the future will be dependent upon our ability and resources to evaluate and select suitable properties and to consummate transactions in this highly competitive environment.  In addition, we will be at a disadvantage in producing oil and natural gas properties and bidding for exploratory prospects, because we have substantially fewer financial and human resources than other companies in our industry.  Should a larger and better financed company decide to directly compete with us, and be successful in its efforts, our business model and any business operations could be adversely affected.





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Marketing and Customers


The market for oil and natural gas that may be produced from our properties depends on factors beyond our control, including the extent of domestic production and imports of oil and natural gas, the proximity and capacity of natural gas pipelines and other transportation facilities, demand for oil and natural gas, the marketing of competitive fuels and the effects of state and federal regulation. The oil and natural gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers.


Our oil production, if any, is expected to be sold at prices tied to the spot oil markets.  Our natural gas production, if any, is expected to be sold under short-term contracts and priced based on first of the month index prices or on daily spot market prices.  We will rely on any operating partners to market and sell our production, where we contract with such operators in drilling prospects.  We currently have a Management Services Agreement with Chisholm II and an Option Participation Agreement with Chisholm II.


Principal Agreements Affecting Our Ordinary Business


We do not own any physical real estate, but, instead, our acreage is comprised of leasehold interests subject to the terms and provisions of lease agreements that provide us the right to explore and develop the Property in specific geographic areas.  All lease arrangements that comprise our current acreage positions are established using industry-standard terms that have been established and used in the oil and natural gas industry for many years, and our leases are with the State of Kansas. All of our current leases were assigned to us by Chisholm II, our majority shareholder, that obtained the original leasehold interest prior to the assignment.


We have entered into a Master Services Agreement with Chisholm. Pursuant to the Master Service Agreement, Chisholm agreed to act as an independent contractor for the Company and provide services and personnel to develop, drill, operate, and maintain oil and gas wells and properties used to produce oil and gas within the State of Kansas for a period of twelve (12) months. The Company will pay Chisholm $25,000 per month for its services and reimburse Chisholm for any expenses directly incurred during the related operations.


We have also entered into an Option Participation Agreement with Chisholm. Pursuant to the Option Participation Agreement, Chisholm granted Dala the option, at Dala’s own election, to participate for up to twenty-five percent (25%) of Chisholm’s share of each drilling operation in search for oil or gas in the State of Kansas undertaken by Chisholm.

 

In general, our current lease agreements have a term of five years from the effective date with an option to extend for an additional three years. The effective dates of the leases vary lease to lease. The oldest effective date is October 3, 2011, and the most recent effective date is March 13, 2013.  There are over 300 lease agreements that have been assigned to Dala by Chisholm II. Royalty rates will be negotiated on a case-by-case basis consistent with industry standard pricing.  Once a well is drilled and production established, the leased acreage in the applicable spacing unit is customarily considered developed acreage and is held by production.  Other locations within the drilling unit created for a well may also be drilled at any time with no time limit as long as the lease is held by production.  We do not believe lease expiration issues will materially affect our current leasehold acreage position.


Governmental Regulation and Environmental Matters


Our operations are subject to various rules, regulations and limitations impacting the oil and natural gas exploration and production industry as whole.




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Regulation of Oil and Natural Gas Production


Oil and natural gas exploration, production and related operations, when developed, are subject to extensive rules and regulations promulgated by federal, state, tribal and local authorities and agencies.  For example, Kansas requires permits for drilling operations, drilling bonds and reports concerning operations and imposes other requirements relating to the exploration and production of oil and natural gas.  Kansas may also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from wells, and the regulation of spacing, plugging and abandonment of such wells.  Failure to comply with any such rules and regulations can result in substantial penalties.  The regulatory burden on the oil and natural gas industry will most likely increase our cost of doing business and may affect our profitability.  Although we believe we are currently in substantial compliance with all applicable laws and regulations, because such rules and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws.  Significant expenditures may be required to comply with governmental laws and regulations and may have a material adverse effect on our financial condition and results of operations.


Environmental Matters


Our operations and properties are subject to extensive and changing federal, state and local laws and regulations relating to environmental protection, including the generation, storage, handling, emission, transportation and discharge of materials into the environment, and relating to safety and health. The recent trend in environmental legislation and regulation generally is toward stricter standards, and this trend will likely continue. These laws and regulations may:


·

require the acquisition of a permit or other authorization before construction or drilling commences and for certain other activities;

·

limit or prohibit construction, drilling and other activities on certain lands lying within wilderness and other protected areas; and

·

impose substantial liabilities for pollution resulting from such operations.


The permits required for our operations may be subject to revocation, modification and renewal by issuing authorities.  Governmental authorities have the power to enforce their regulations, and violations are subject to fines or injunctions, or both.  In the opinion of management, we anticipate that we will be in substantial compliance with current applicable environmental laws and regulations, and we have no material commitments for capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulations or in interpretations thereof could have a significant impact on us, as well as the oil and natural gas industry in general.


The Comprehensive Environmental, Response, Compensation, and Liability Act (“CERCLA”) and comparable state statutes impose strict, joint and several liability on owners and operators of sites and on persons who have disposed of or have arranged for the disposal of “hazardous substances” found at such sites. It is not uncommon for the neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.  The Federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes govern the disposal of “solid waste” and “hazardous waste” and authorize the imposition of substantial fines and penalties for noncompliance. Although CERCLA currently excludes petroleum from its definition of “hazardous substance,” state laws affecting our operations may impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil field wastes as “non-hazardous,” such exploration and production wastes could be reclassified as hazardous wastes thereby making such wastes subject to more stringent handling and disposal requirements.




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The Endangered Species Act (“ESA”) seeks to ensure that activities do not jeopardize endangered or threatened animal, fish and plant species, nor destroy or modify the critical habitat of such species.  Under ESA, exploration and production operations, as well as actions by federal agencies, may not significantly impair or jeopardize the species or its habitat.  ESA provides for criminal penalties for willful violations of ESA.  Other statutes that provide protection to animal and plant species and that may apply to our operations include, but are not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation and Management Act, the Migratory Bird Treaty Act and the National Historic Preservation Act.  Although we believe that our operations will be in substantial compliance with such statutes, any change in these statutes or any reclassification of a species as endangered could subject us (directly or indirectly through any operating partners) to significant expenses to modify our operations or could force discontinuation of certain operations altogether.


On April 17, 2012, EPA finalized rules proposed on July 28, 2011, which establish new air emission controls for oil and natural gas production and natural gas processing operations. Specifically, the EPA’s rule package includes New Source Performance Standards to address emissions of sulfur dioxide and volatile organic compounds (“VOCs”) and a separate set of emission standards to address hazardous air pollutants frequently associated with oil and natural gas production and processing activities. The rules establish specific new requirements regarding emissions from compressors, dehydrators, storage tanks and other production equipment. In addition, the rules revise leak detection requirements for natural gas processing plants. These rules may require a number of modifications to our planned operations and those of any of our potential third-party operating partners, including the installation of new equipment to control emissions from compressors. Although we cannot predict the cost to comply with these new requirements at this point, compliance with these new rules could result in significant costs, including increased capital expenditures and operating costs, and could adversely impact our business.


These new regulations and proposals and any other new regulations requiring the installation of more sophisticated pollution control equipment could have a material adverse impact on our business model and business, results of operations and financial condition.


The Federal Water Pollution Control Act of 1972, or the Clean Water Act (the “CWA”), imposes restrictions and controls on the discharge of produced waters and other pollutants into navigable waters. Permits must be obtained to discharge pollutants into state and federal waters and to conduct construction activities in waters and wetlands. The CWA and certain state regulations prohibit the discharge of produced water, sand, drilling fluids, drill cuttings, sediment and certain other substances related to the oil and gas industry into certain coastal and offshore waters without an individual or general National Pollutant Discharge Elimination System discharge permit. In addition, the Clean Water Act and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Some states also maintain groundwater protection programs that require permits for discharges or operations that may impact groundwater conditions. Costs may be associated with the treatment of wastewater and/or developing and implementing storm water pollution prevention plans. The CWA and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of oil and other pollutants and impose liability on parties responsible for those discharges, for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release.


The underground injection of oil and natural gas wastes are regulated by the Underground Injection Control program authorized by the Safe Drinking Water Act.  The primary objective of injection well operating requirements is to ensure the mechanical integrity of the injection apparatus and to prevent migration of fluids from the injection zone into underground sources of drinking water.  All of leased acreage in which we have interest may be required to be developed from unconventional sources that require hydraulic fracturing as part of the completion process.  Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the formation to stimulate gas production.  Legislation to amend the Safe Drinking Water Act to repeal the exemption for hydraulic fracturing from the definition of “underground injection” and require federal permitting and regulatory control of hydraulic fracturing, as well as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing process, were proposed in recent sessions of Congress.  The U.S. Congress continues to consider legislation to amend the Safe Drinking Water Act to subject hydraulic fracturing operations to regulation under the Act’s Underground Injection Control Program to require disclosure of chemicals used in the hydraulic fracturing process.



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Scrutiny of hydraulic fracturing activities continues in other ways.  The federal government is currently undertaking several studies of hydraulic fracturing’s potential impact.  Several states, including Kansas, where our current leased properties are located, have also proposed or adopted legislative or regulatory restrictions on hydraulic fracturing.  We cannot predict whether any other legislation will ever be enacted and if so, what its provisions would be.  If additional levels of regulation and permits were required through the adoption of new laws and regulations at the federal or state level, it could lead to delays, increased operating costs and process prohibitions that would materially adversely affect our revenue and results of operations.


The National Environmental Policy Act, or NEPA, establishes a national environmental policy and goals for the protection, maintenance and enhancement of the environment and provides a process for implementing these goals within federal agencies.  A major federal agency action having the potential to significantly impact the environment requires review under NEPA.  Many of our planned activities and those of any of our potential third-party operating partners are covered under categorical exclusions which results in a shorter NEPA review process.  The Council on Environmental Quality has announced an intention to reinvigorate NEPA reviews and on March 12, 2012, issued final guidance that may result in longer review processes that could lead to delays and increased costs that could materially adversely affect our revenues and results of operations.


Climate Change


Significant studies and research have been devoted to climate change and global warming, and climate change has developed into a major political issue in the United States and globally.  Certain research suggests that greenhouse gas emissions contribute to climate change and pose a threat to the environment.  Recent scientific research and political debate has focused in part on carbon dioxide and methane incidental to oil and natural gas exploration and production.


In the United States, legislative and regulatory initiatives are underway to limit greenhouse gas emissions. The U.S. Congress has considered legislation that would control GHG emissions through a “cap and trade” program and several states have already implemented programs to reduce GHG emissions.  The U.S. Supreme Court determined that GHG emissions fall within the federal Clean Air Act, or the CAA, definition of an “air pollutant,” and in response the EPA promulgated an endangerment finding paving the way for regulation of GHG emissions under the CAA. In 2010, the EPA issued a final rule, known as the “Tailoring Rule,” that makes certain large stationary sources and modification projects subject to permitting requirements for greenhouse gas emissions under the Clean Air Act.


In addition, in September 2009, the EPA issued a final rule requiring the reporting of GHGs from specified large GHG emission sources in the United States beginning in 2011 for emissions in 2010.  On November 30, 2010, the EPA published a final rule expanding its existing GHG emissions reporting to include onshore and offshore oil and natural gas systems beginning in 2012.  We and any of our potential third party operating partners are required to report their greenhouse gas emissions under these rules.  Because regulation of GHG emissions is relatively new, further regulatory, legislative and judicial developments are likely to occur.  Such developments may affect how these GHG initiatives will impact us.  Moreover, while the U.S. Supreme Court held in its June 2011 decision American Electric Power Co. v. Connecticut that, with respect to claims concerning GHG emissions, the federal common law of nuisance was displaced by the federal Clean Air Act, the Court left open the question of whether tort claims against sources of GHG emissions alleging property damage may proceed under state common law.  There thus remains some litigation risk for such claims.  Due to the uncertainties surrounding the regulation of and other risks associated with GHG emissions, we cannot predict the financial impact of related developments on us.


Legislation or regulations that may be adopted to address climate change could also affect the markets for our products by making our products more or less desirable than competing sources of energy.  To the extent that our products are competing with higher greenhouse gas emitting energy sources, our products would become more desirable in the market with more stringent limitations on greenhouse gas emissions.  To the extent that our products are competing with lower greenhouse gas emitting energy sources such as solar and wind, our products would become less desirable in the market with more stringent limitations on greenhouse gas emissions.  We cannot predict with any certainty at this time how these possibilities may affect our operations.




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The majority of scientific studies on climate change suggest that stronger storms may occur in the future in the areas where we operate, although the scientific studies are not unanimous.  Although operators may take steps to mitigate physical risks from storms, no assurance can be given that future storms will not have a material adverse effect on our business.


Existing and Probable Government Regulation to Our Current and Intended Business


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 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; and bankruptcy) in Current Reports on Form 8-K.


Number of Total Employees and Number of Full-Time Employees


We have one full-time employee, E. Will Gray II, our Chief Executive Officer and director.


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. You may also find all of the reports that we have filed electronically with the SEC at their Internet site www.sec.gov.



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RISK FACTORS


As we are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information under this item; however, we believe this information may be of value to our shareholders for this filing. 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


You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities.   If any of the following risks actually occur, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.


In any business venture, there are substantial risks specific to the particular enterprise which cannot be ascertained until a potential acquisition, reorganization or merger candidate has been identified ; however, at a minimum, the Company s present and proposed business operations will be highly speculative and be subject to the same types of risks inherent in any new or unproven venture, and will include those types of risk factors outlined below.


Extremely Limited Assets ; No Source of Revenue


The Company has virtually no assets and has had no revenue for over the past twenty years or to the date hereof.  The Company can provide no assurance that any acquired business, including the business acquired in the Merger with Dala, will produce any material revenues for the Company or its stockholders or that any such business will operate on a profitable basis.


Auditor’s ‘Going Concern’ Opinion


The Independent Auditor’s Report issued in connection with the audited financial statements of our Company for the last fiscal year expresses “substantial doubt about its ability to continue as a going concern,” due to our Company s status as a start up and our lack of profitable operations.


No Established Market for Common Stock ; No Market for Shares


On June 14, 2007, our common stock was approved for trading on the OTC Bulletin Board of the NASD under the symbol WSPD.” Since that time, there have been few trades and a limited volume of shares sold on the OTC Bulletin Board. Since September 30, 2013 only two hundred shares have traded on the OTC Bulletin Board. There is currently no established trading market for such shares and there can be no assurance that such a market will ever develop or be maintained. Any market price for shares of common stock of our Company is likely to be very volatile, and numerous factors beyond the control of our Company may have a significant effect. In addition, the stock markets generally have experienced, and continue to experience, extreme price and volume fluctuations which have affected the market price of many small capital companies and which have often been unrelated to the operating performance of these companies. These broad market fluctuations, as well as general economic and political conditions, may adversely affect the market price of our Company’s common stock in any market that may develop. Sales of “restricted securities” under Rule 144 may also have an adverse effect on any market that may develop.





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Risks of “Penny Stock”


Our Company’s common stock may be deemed to be “penny stock” as that term is defined in Section 240.3a51­1 of the Exchange Act. Penny stocks are stocks (i) with a price of less than five dollars per share ; (ii) that are not traded on a recognized national exchange ; (iii) whose prices are not quoted on the NASDAQ automated  quotation system (NASDAQ­listed stocks must still meet requirement (i) above) ; or (iv) in issuers with net tangible  assets  less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than $6,000,000 for the last three years.


Section 15(g) of the Exchange Act and Rule 15g­2 of the Securities and Exchange Commission require broker­dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account. Potential investors in our Company’s common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.”


Moreover, Rule 15g­9 of the Securities and Exchange Commission requires broker­dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker­dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives ; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions ; (iii) provide the investor with a written statement setting forth the basis on which the broker­dealer made the determination in (ii) above ; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in our Company’s common stock to resell their shares to third parties or to otherwise dispose of them.


There has been no “established public market” for the Company’s common stock. On June 14, 2007, our Company obtained a trading symbol “WSPD” on the OTC Bulletin Board of the NASD. At such time as our Company completes a merger or acquisition transaction, if at all, we may attempt to qualify for quotation on either NASDAQ or a national securities exchange. However, at least initially, any trading in our common stock will most likely be conducted in the over­the­counter market in the pink sheets, the OTCQB or the OTC Bulletin Board.


Need for any Governmental Approval of Principal Products of Services


Because our Company currently produces no products or services, we are not presently subject to any governmental regulation in this regard. However, as a result of the Merger, , we will become subject to all governmental approval requirements to which the merged or acquired entity is subject. The oil exploration industry, the industry the Company will be engaged in post-Merger, is a highly-regulated industry, and the Company will need to obtain certain government approvals for its operations.


We May Not be Able to Effectively Manage Our Growth.


Our strategy envisions growing our business.  Any growth in or expansion of our business is likely to continue to place a strain on our management and administrative resources, infrastructure and systems.  As with other growing businesses, we expect that we will need to further refine and expand our business development capabilities, our systems and processes and our access to financing sources.  We also will need to hire, train, supervise and manage new employees.  These processes are time consuming and expensive, will increase management responsibilities and will divert management attention.  We cannot assure you that we will be able to:


·

expand our products effectively or efficiently or in a timely manner;


·

allocate our human resources optimally;


·

meet our capital needs;



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·

identify and hire qualified employees or retain valued employees; or


·

incorporate effectively the components of any business or product line that we may acquire in our effort to achieve growth.


Our inability or failure to manage our growth and expansion effectively could harm our business and materially and adversely affect our operating results and financial condition.


We Will be Required to Attract and Retain Top Quality Talent to Compete in the Marketplace.


We believe our future growth and success will depend in part on our ability to attract and retain highly skilled managerial, operational, and finance personnel.  There can be no assurance of success in attracting and retaining such personnel.  Shortages in qualified personnel could limit our ability to drill for oil and continue the exploration of the Property.


We Will be Subject to Evolving and Expensive Corporate Governance Regulations and Requirements.  Our Failure to Adequately Adhere to These Requirements or the Failure or Circumvention of Our Controls and Procedures Could Seriously Harm our Business.


As a publicly traded company, we are subject to various federal, state and other rules and regulations, including applicable requirements of the Sarbanes-Oxley Act of 2002.  Compliance with these evolving regulations is costly and requires a significant diversion of management time and attention, particularly with regard to our disclosure controls and procedures and our internal control over financial reporting.  Our internal controls and procedures may not be able to prevent errors or fraud in the future.  Faulty judgments, simple errors or mistakes, or the failure of our personnel to adhere to established controls and procedures may make it difficult for us to ensure that the objectives of the control system are met.  A failure of our controls and procedures to detect other than inconsequential errors or fraud could seriously harm our business and results of operations.


Risks Related to Our Operations Post-Merger


Oil and Gas Price Fluctuations in the Market May Adversely Affect the Results of Our Operations.


Our profitability, cash flows and the carrying value of our oil and natural gas properties are highly dependent upon the market prices of oil and natural gas. Substantially all of our sales of oil and natural gas, if any, are made in the spot market, or pursuant to contracts based on spot market prices, and not pursuant to long-term, fixed-price contracts.  Accordingly, the prices received for our oil and natural gas production are dependent upon numerous factors beyond our control. These factors include the level of consumer product demand, governmental regulations and taxes, the price and availability of alternative fuels, the level of foreign imports of oil and natural gas and the overall economic environment.


Historically, the oil and natural gas markets have proven cyclical and volatile as a result of factors that are beyond our control.  Any additional declines in oil and natural gas prices or any other unfavorable market conditions could have a material adverse effect on our financial condition and on the carrying value of our proved reserves.


Actual Quantities of Recoverable Oil and Gas Reserves and Future Cash Flows from those Reserves Most Likely Will Vary from Our Estimates.


Estimating accumulations of oil and gas is complex. The process relies on interpretations of available geological, geophysical, engineering and production data. The extent, quality and reliability of this data can vary. The process also requires certain economic assumptions, some of which are mandated by the SEC, such as oil and gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The accuracy of a reserve estimate is a function of:


·

the quality and quantity of available data;




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·

the interpretation of that data;


·

the accuracy of various mandated economic assumptions; and


·

the judgment of the persons preparing the estimate.


Estimates of proved reserves prepared by others might differ materially from our estimates.  Actual quantities of recoverable oil and gas reserves, future production, oil and gas prices, revenues, taxes, development expenditures and operating expenses most likely will vary from our estimates.  Any significant variance could materially affect the quantities and net present value of our reserves.  In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development and prevailing oil and gas prices. Our reserves also may be susceptible to drainage by operators on adjacent properties.


Our Operations Will Require Significant Expenditures of Capital that May Not be Recovered.


We will require significant expenditures of capital in order to locate and develop producing properties and to drill exploratory and exploitation wells.  In conducting exploration, exploitation and development activities from a particular well, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause our exploration, exploitation, development and production activities to be unsuccessful, potentially resulting in abandonment of the well.  This could result in a total loss of our investment.  In addition, the cost and timing of drilling, completing and operating wells is difficult to predict.


Compliance with, or Breach of, Environmental Laws Can be Costly and Could Limit Our Operations.


Our operations will be subject to numerous and frequently changing laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection.  Any properties we might own for the exploration and production of oil and gas and the wastes disposed on these properties may be subject to the Comprehensive Environmental Response, Compensation and Liability Act, the Oil Pollution Act of 1990, the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act and analogous state laws.  Under such laws, we could be required to remove or remediate previously released wastes or property contamination.  Laws and regulations protecting the environment have generally become more stringent and may, in some cases, impose “strict liability” for environmental damage.  Strict liability means that we may be held liable for damage without regard to whether we were negligent or otherwise at fault.  Environmental laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts that were in compliance with all applicable laws at the time they were performed.  Failure to comply with these laws and regulations may result in the imposition of administrative, civil and criminal penalties.


Although we believe that our operations are in substantial compliance with existing requirements of governmental bodies, our ability to conduct continued operations is subject to satisfying applicable regulatory and permitting controls. Our current permits and authorizations and ability to get future permits and authorizations may be susceptible on a going forward basis, to increased scrutiny, greater complexity resulting in increased costs, or delays in receiving appropriate authorizations.


We are Subject to Changing Laws and Regulations and Other Governmental Actions that Can Significantly and Adversely Affect Our Business.


Federal, state, local, territorial and foreign laws and regulations relating to tax increases and retroactive tax claims, disallowance of tax credits and deductions, expropriation or nationalization of property, mandatory government participation, cancellation or amendment of contract rights, and changes in import and export regulations, limitations on access to exploration and development opportunities, as well as other political developments may affect our operations.





20





Because of the speculative nature of oil and gas exploration, there is risk that we will not find commercially exploitable oil and gas and that our business will fail.


The search for commercial quantities of oil and natural gas as a business is extremely risky. We cannot provide investors with any assurance that any properties in which we obtain a mineral interest will contain commercially exploitable quantities of oil and/or gas.  The exploration expenditures to be made by us may not result in the discovery of commercial quantities of oil and/or gas.  Problems such as unusual or unexpected formations or pressures, premature declines of reservoirs, invasion of water into producing formations and other conditions involved in oil and gas exploration often result in unsuccessful exploration efforts. If we are unable to find commercially exploitable quantities of oil and gas, and/or we are unable to commercially extract such quantities, we may be forced to abandon or curtail our business plan, and as a result, any investment in us may become worthless.


We May Not Produce Any Oil or Gas.


We are an exploratory company and although the Property has been thoroughly explored and tested, we may not actually discover or produced any oil or gas.


The Oil and Gas we Produce May Not be Readily Marketable at the Time of Production.


Crude oil, natural gas, condensate and other oil and gas products are generally sold to other oil and gas companies, government agencies and other industries.  The availability of ready markets for oil and gas that we might discover and the prices obtained for such oil and gas depend on many factors beyond our control, including:


·

the extent of local production and imports of oil and gas,


·

the proximity and capacity of pipelines and other transportation facilities,


·

fluctuating demand for oil and gas,


·

the marketing of competitive fuels, and


·

the effects of governmental regulation of oil and gas production and sales.


Natural gas associated with oil production is often not marketable due to demand or transportation limitations and is often flared at the producing well site.  Pipeline facilities do not exist in certain areas of exploration and, therefore, we intend on utilizing trucks to transport any oil that is discovered.


The price of oil and natural gas has historically been volatile.  If it were to decrease substantially, our projections, budgets and revenues would be adversely affected, potentially forcing us to make changes in our operations.


Our future financial condition, results of operations and the carrying value of any oil and natural gas interests we acquire will depend primarily upon the prices paid for oil and natural gas production. Oil and natural gas prices historically have been volatile and likely will continue to be volatile in the future, especially given current world geopolitical conditions. Our cash flows from operations are highly dependent on the prices that we receive for oil and natural gas. This price volatility also affects the amount of our cash flows available for capital expenditures and our ability to borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of additional factors that are beyond our control. These factors include:


·

the level of consumer demand for oil and natural gas;


·

the domestic and foreign supply of oil and natural gas;


·

the ability of the members of the Organization of Petroleum Exporting Countries ("OPEC") to agree to and maintain oil price and production controls;


·

the price of foreign oil and natural gas;



21






·

domestic governmental regulations and taxes;


·

the price and availability of alternative fuel sources;


·

weather conditions;


·

market uncertainty due to political conditions in oil and natural gas producing regions, including the Middle East; and


·

worldwide economic conditions.


These factors as well as the volatility of the energy markets generally make it extremely difficult to predict future oil and natural gas price movements with any certainty. Declines in oil and natural gas prices affect our revenues, and could reduce the amount of oil and natural gas that we can produce economically.  Accordingly, such declines could have a material adverse effect on our financial condition, results of operations, oil and natural gas reserves and the carrying values of our oil and natural gas properties. If the oil and natural gas industry experiences significant price declines, we may be unable to make planned expenditures, among other things. If this were to happen, we may be forced to abandon or curtail our business operations, which would cause the value of an investment in us to decline in value, or become worthless.


Because of the inherent dangers involved in oil and gas operations, there is a risk that we may incur liability or damages as we conduct our business operations, which could force us to expend a substantial amount of money in connection with litigation and/or a settlement.


The oil and natural gas business involves a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to us from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, we may be liable for environmental damages caused by previous owners of property purchased and leased by us. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for exploration, development or acquisitions or result in the loss of our properties and/or force us to expend substantial monies in connection with litigation or settlements. We currently have no insurance to cover such losses and liabilities, and even if insurance is obtained, there can be no assurance that it will be adequate to cover any losses or liabilities. We cannot predict the availability of insurance or the availability of insurance at premium levels that justify our purchase. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect our financial condition and operations. We may elect to self-insure if management believes that the cost of insurance, although available, is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations, which could lead to any investment in us becoming worthless.


We May Encounter Operating Hazards that May Result in Substantial Losses.


We will be subject to operating hazards normally associated with the exploration and production of oil and gas, including hurricanes, blowouts, explosions, oil spills, cratering, pollution, earthquakes, labor disruptions and fires.  The occurrence of any such operating hazards could result in substantial losses to us due to injury or loss of life and damage to or destruction of oil and gas wells, formations, production facilities or other properties.  We maintain insurance coverage limiting financial loss resulting from certain of these operating hazards.  We do not maintain full insurance coverage for all matters that may adversely affect our operations, including war, terrorism, nuclear reactions, government fines, treatment of waste, blowout expenses, wind damage and business interruptions.  Losses and liabilities arising from uninsured or underinsured events could reduce our revenues or increase our costs. There can be no assurance that any insurance will be adequate to cover losses or liabilities associated with operational hazards.  We cannot predict the continued availability of insurance, or its availability at premium levels that justify its purchase.




22





We Face Strong Competition From Larger Oil and Gas Companies, which Could Result in Adverse Effects on Our Business.


The exploration and production business is highly competitive.  Many of our competitors have substantially larger financial resources, staffs and facilities.  Our competitors in the United States include numerous major oil and gas exploration and production companies.  Additionally, other companies engaged in our line of business may compete with us from time to time in obtaining capital from investors.  Competitors include larger companies which, in particular, may have access to greater resources, may be more successful in the recruitment and retention of qualified employees and may conduct their own refining and petroleum marketing operations, which may give them a competitive advantage.  Actual or potential competitors may be strengthened through the acquisition of additional assets and interests.  Additionally, there are numerous companies focusing their resources on creating fuels and/or materials which serve the same purpose as oil and gas, but are manufactured from renewable resources.


Our estimates of the volume of reserves could have flaws, or such reserves could turn out not to be commercially extractable. As a result, our future revenues and projections could be incorrect.


Estimates of reserves and of future net revenues prepared by different petroleum engineers may vary substantially depending, in part, on the assumptions made and may be subject to adjustment either up or down in the future. Our actual amounts of production, revenue, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas reserves may vary substantially from the estimates.  Oil and gas reserve estimates are necessarily inexact and involve matters of subjective engineering judgment. In addition, any estimates of our future net revenues and the present value thereof are based on assumptions derived in part from historical price and cost information, which may not reflect current and future values, and/or other assumptions made by us that only represent our best estimates. If these estimates of quantities, prices and costs prove inaccurate, we may be unsuccessful in expanding our oil and gas reserves base with our acquisitions. Additionally, if declines in and instability of oil and gas prices occur, then write downs in the capitalized costs associated with any oil and gas assets we obtain may be required. Because of the nature of the estimates of our reserves and estimates in general, we can provide no assurance that reductions to our estimated proved oil and gas reserves and estimated future net revenues will not be required in the future, and/or that our estimated reserves will be present and/or commercially extractable. If our reserve estimates are incorrect, the value of our common stock could decrease and we may be forced to write down the capitalized costs of our oil and gas properties.


Our business will suffer if we cannot obtain or maintain necessary licenses.


Our operations will require licenses, permits and in some cases renewals of licenses and permits from various governmental authorities.  Our ability to obtain, sustain or renew such licenses and permits on acceptable terms is subject to change in regulations and policies and to the discretion of the applicable governments, among other factors.  Our inability to obtain, or our loss of or denial of extension of, any of these licenses or permits could hamper our ability to produce revenues from our operations.


Our Operations are Subject to Various Litigation that Could Have an Adverse Effect on Our Business.


From time to time we may become a defendant in various litigation matters.  The nature of our operations expose us to further possible litigation claims in the future.  There is risk that any matter in litigation could be adversely decided against us regardless of our belief, opinion and position, which could have a material adverse effect on our financial condition and results of operations.  Litigation is highly costly and the costs associated with defending litigation could also have a material adverse effect on our financial condition.


We May be Affected by Global Climate Change or by Legal, Regulatory, or Market Responses to Such Change.


The growing political and scientific sentiment is that increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere are influencing global weather patterns.  Changing weather patterns, along with the increased frequency or duration of extreme weather conditions, could impact the availability or increase the cost to produce our products.  Additionally, the sale of our products can be impacted by weather conditions.




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Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting the greenhouse gas emissions.  For example, proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered by policy makers in the territories we operate.  Laws enacted that directly or indirectly affect our oil and gas production could impact our business and financial results.


Risks Related to our Securities


Our Stock Price May be Volatile, which May Result in Losses to Our Shareholders.


The stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies listed on the over-the-counter Bulletin Board quotation system in which shares of our common stock are listed, have been volatile in the past and have experienced sharp share price and trading volume changes. The trading price of our common stock is likely to be volatile and could fluctuate widely in response to many factors, including the following, some of which are beyond our control:


·

variations in our operating results;


·

changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;


·

changes in operating and stock price performance of other companies in our industry;


·

additions or departures of key personnel; and


·

future sales of our common stock.


Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock.


Our Common Shares May Become Thinly Traded and You May be Unable to Sell at or Near Ask Prices, or at All.


We cannot predict the extent to which an active public market for trading our common stock will be sustained.


This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community who generate or influence sales volume.  Even if we came to the attention of such persons, those persons tend to be risk-averse and may be reluctant to follow, purchase, or recommend the purchase of shares of an unproven company such as ours until such time as we become more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.


The market price for our common stock is particularly volatile given our status as a relatively small company, which could lead to wide fluctuations in our share price. You may be unable to sell your common stock at or above your purchase price if at all, which may result in substantial losses to you.




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Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.


Because the SEC Imposes Additional Sales Practice Requirements on Brokers Who Deal in Shares of Penny Stocks, Some Brokers May be Unwilling to Trade Our Securities. This Means that You May have Difficulty Reselling Your Shares, which May Cause the Value of Your Investment to Decline.


Our shares are classified as penny stocks and are covered by Section 15(g) of the Exchange Act which imposes additional sales practice requirements on brokers-dealers who sell our securities. For sales of our securities, broker-dealers must make a special suitability determination and receive a written agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices, it is possible that broker-dealers will not want to make a market in our common stock. This could prevent you from reselling your shares and may cause the value of your investment to decline.


Financial Industry Regulatory Authority (FINRA) Sales Practice Requirements May Limit Your Ability to Buy and Sell Our Common Stock, which Could Depress the Price of Our Shares.


FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.


Volatility in Our Common Share Price May Subject Us to Securities Litigation.


The market for our common stock is characterized by significant price volatility as compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management's attention and resources.





25





Our Business is Subject to Changing Regulations Related to Corporate Governance and Public Disclosure that have Increased Both Our Costs and the Risk of Noncompliance.


Because our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and FINRA, have issued requirements and regulations and continue to develop additional regulations and requirements in response to corporate scandals and laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Our efforts to comply with these regulations have resulted in, and are likely to continue resulting in, increased general and administrative expenses and diversion of management time and attention from revenue-generating activities to compliance activities. Because new and modified laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.


We Will Incur Increased Costs and Compliance Risks as a Result of Becoming a Public Company.


We will incur costs associated with our public company reporting requirements. We also anticipate that we will incur costs associated with recently adopted corporate governance requirements, including certain requirements under the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC and FINRA.  We expect these rules and regulations, in particular Section 404 of the Sarbanes-Oxley Act of 2002, to significantly increase our legal and financial compliance costs and to make some activities more time-consuming and costly. Like many smaller public companies, we face a significant impact from required compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires management of public companies to evaluate the effectiveness of internal control over financial reporting and the independent auditors to attest to the effectiveness of such internal controls and the evaluation performed by management. The SEC has adopted rules implementing Section 404 for public companies as well as disclosure requirements. The Public Company Accounting Oversight Board, or PCAOB, has adopted documentation and attestation standards that the independent auditors must follow in conducting its attestation under Section 404. We are currently preparing for compliance with Section 404; however, there can be no assurance that we will be able to effectively meet all of the requirements of Section 404 as currently known to us in the currently mandated timeframe. Any failure to implement effectively new or improved internal controls, or to resolve difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet reporting obligations or result in management being required to give a qualified assessment of our internal controls over financial reporting or our independent auditors providing an adverse opinion regarding management’s assessment. Any such result could cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price.


We also expect these new rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as executive officers. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.





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Sales of Our Currently Issued and Outstanding Stock May Become Freely Tradable Pursuant to Rule 144 and May Dilute the Market for Your Shares and have a Depressive Effect on the Price of the Shares of Our Common Stock.


A majority of the outstanding shares of our common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) (“Rule 144”). As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that one year following a company ceasing to be a “shell company” and filing Form 10 information with the SEC to that effect, a non-affiliate who has held restricted securities for a period of at least six months may sell their shares of common stock. Under Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTCQB). Pursuant to Rule 144, shareholders must wait at least one year from the date of our filing of a Form 8-K with requisite Form 10 information to avail themselves of Rule 144 unless we file a registration statement for the sale of such shares prior thereto. A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.


FINANCIAL INFORMATION


Please see the pro-forma financial statements for Dala and Westcott as of March 31, 2014 .  See Item 9.01.


PROPERTIES


Dala does not own any property but has the rights to engage in oil exploration and development on approximately 300 leases in north central Kansas with total acreage of approximately 80,000 acres (the “Property”). The cost of the 300 lease assets was $1,898,946.

For the next fiscal year, we will conduct our administrative affairs from our President’s office, at minimal cost to the Company.




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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


Security Ownership of Certain Beneficial Owners


The following table sets forth certain information concerning the number of shares our common stock owned beneficially as of June 3, 2014 (after the Merger and the Offering) by: (i) our directors and executive officer; and (ii) each person or group of persons known by us to beneficially own more than 5% of our outstanding shares of common stock.  Unless otherwise indicated, the shareholders listed below possess sole voting and investment power with respect to the shares they own.


5% Shareholders


Name and Address of Beneficial Owner

 

Title of Class

 

Amount and

Nature of

Beneficial

Ownership (1)

 

Percent of

Class after

the Merger (2)

(%)

 

Percent of

Class after the

Offering (based

on $2,052,000

raised) (3)

 

 

 

 

 

 

 

 

 

Orinoco Revocable Trust

 

Common

 

1,830,000

 

14.64%

 

10.01%

1010 10 th Street

Golden, CO  80401

 

Series A 6% Convertible Preferred

 

100

 

 

 

1.56%

 

 

 

 

 

 

 

 

 

Cottman Family Trust (4)

 

Common

 

1,650,000

 

13.2%

 

9.02%

1010 10 th Street

Golden, CO  80401

 

Series A 6% Convertible Preferred

 

100

 

 

 

1.56%

 

 

 

 

 

 

 

 

 

Terry Looper

 

Common

 

1,410,000

 

11.28%

 

7.71%

11757 Katy Freeway, Suite 1400

 Houston, TX  77079

 

Series A 6% Convertible Preferred

 

100

 

 

 

1.56%

 

 

 

 

 

 

 

 

 

Oil & Gas Technology Consultants

 

Common

 

960,000

 

7.68%

 

5.25%

Citco Bldg., Wickhams Cay,

Road Town, Tortola, BVI

 

Series A 6% Convertible Preferred

 

100

 

 

 

1.56%

 

 

 

 

 

 

 

 

 

E. Will Gray II (5)

112 Loraine South, Suite 266,

Midland, Texas 79701

 

Common

 

890,000

 

7.12%

 

4.87%

 

 

 

 

 

 

 

 

 

J&M Wimbish Family Trust (6)

 

Common

 

800,000

 

6.4%

 

4.38%

1010 10 th Street

Golden, CO  80401

 

Series A 6% Convertible Preferred

 

50

 

 

 

.78%





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Management


Name and Address of Beneficial Owner

 

Title of Class

 

Amount and

Nature of

Beneficial

Ownership (1)

 

Percent of

Class after

the Merger (2)

(%)

 

Percent of

Class after the

Offering

(assuming

maximum is raised) (3)

E. Will Gray II (5)

112 Loraine South, Suite 266,

Midland, Texas 79701

 

Common

 

890,000

 

7.12%

 

4.53%

 

 

 

 

 

 

 

 

 

Jonathan S. Wimbish (6)

 

Common

 

800,000

 

6.4%

 

4.07%

1010 10 th Street

Golden, CO  80401

 

Series A 6% Convertible Preferred

 

50

 

 

 

.73%

 

 

 

 

 

 

 

 

 

Clancy Cottman (4)

 

Common

 

1,650,000

 

13.2%

 

8.40%

1010 10 th Street

Golden, CO  80401

 

Series A 6% Convertible Preferred

 

100

 

 

 

1.45%

 

 

 

 

 

 

 

 

 

Callie Jones

175 South Main Street

Fifteenth Floor

Salt Lake City, Utah 84111

 

 

 

0

 

0%

 

0%


(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 12,500,000 issued (or issuable and fully-paid) and outstanding shares of common stock as of June 3, 2014, immediately following the Merger after the issuance of 10,000,000 shares as consideration for the Merger.

(3)

Based on 18,285,714 shares, consisting of 12,500,000 shares issued (or issuable and fully-paid) and outstanding shares of common stock following the Merger, 2,892,857 shares of common stock underlying the Series A 6% Convertible Preferred Shares sold as part of the Offering (assuming the maximum Offering is met) and 2,892,857 shares underlying the warrants issued as part of the Offering (assuming the maximum Offering is met). This number does not include 867,856 shares reserved for the payment of dividends for the Series A 6% Convertible Preferred Shares that the Company can elect to pay in cash or kind.

(4)

Clancy Cottman, our director, is the trustee of the Cottman Family Trust.

(5)

E. Will Gray II is a director and the Company’s CEO.

(6)

Jonathan S. Wimbish is a director of the Company.


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.





29





DIRECTORS AND EXECUTIVE OFFICERS


There have been several significant change to the Company’s Board of Directors since the filing of our last Annual Report on Form 10-K. On February 12, 2014, E. Will Gray II was elected to serve as a director of the Company. On June 3, 2014, Clancy Cottman and Jonathan S. Wimbish were appointed to the Board of Directors, and Wayne Bassham and Todd Albiston resigned from their positions as directors. On that same day, E. Will Gray II resigned as Secretary of the Company and was appointed as the Chief Executive Officer of the Company, Wayne Bassham resigned as the President of the Company, Todd Albiston resigned as the Vice President of the Company, and Callie Jones was appointed as the Secretary of the Company.  The following sets forth information about our directors and executive officers as of the date of this report, immediately following the Merger.


NAME

 

AGE

 

POSITION

E. Will Gray II

 

39

 

Chief Executive Officer & Director

Clancy Cottman

 

57

 

Chairman of the Board

Jonathan S. Wimbish

 

43

 

Director

Callie Jones

 

32

 

Secretary


Background of Executive Officer and Directors


E. Will Gray II, 39, our Chief Executive Officer and Director, is a seasoned oil executive who has operated in excess of over 300+ wells within Southeastern New Mexico, West Texas, and Oklahoma.  Mr. Gray was the CEO and Chairman of Cross Border Resources, Inc. (formerly Doral Energy Corp) from December 10, 2008 to May 31, 2012.  While serving as the Chairman and CEO of Cross Border Resources, Mr. Gray arranged for over $80MM in credit facilities and equity financing for the Company.  Additionally, Mr. Gray has been solely responsible for approximately $73MM worth of A&D transactions since 2008 comprising a mix of both operated and non-operated assets within the Permian Basin.  Subsequent to Cross Border Resources, Mr. Gray served in the capacity as EVP & Head of Capital Markets and Business Development for Resaca Exploitation, a Torch Energy portfolio company headquartered in Houston, Texas.  Mr. Gray received his B.S. in Business Management from Texas State University in 1998. While attending Texas State University, Mr. Gray was a member of the Men’s Varsity Golf Team on which he earned Southland Conference All-Academic honors and was a member of the 1997 Southland Conference Golf Championship Team.


Clancy Cottman, 57, is the Chairman of our Board of Directors. Mr. Cottman is a Managing Partner of Chisholm Partners, LLC. Mr. Cottman has over 30 years experience in the oil and gas industry with a focus on joint ventures, acquisitions and project development.  He is Chairman and CEO of NiMin Energy. Mr. Cottman has held various senior management positions at PetroFalcon, Benton Oil and Gas Company and Sun Exploration and Production. He has negotiated numerous oil and gas contracts and arranged multiple energy debt and equity financings in North America and internationally. He holds a BA from Rochester Institute of Technology and an MBA from the University of Rhode Island. Clancy is a Certified Petroleum Landman.


Jonathan S. Wimbish, CFA, 43, will serve as a Director to the Company post-Merger. Mr. Wimbish is an advisor to Chisholm Partners II, LLC, a partner of Kensington Investment Counsel, a registered investment advisor, and  CFO of NiMin Energy. Prior to these activities, Mr. Wimbish was a Portfolio Manager, Managing Director and Co-Founder of Marketus, LLC, an equity-focused hedge fund management company. He managed all energy and industrial investments from its founding in 2002. Mr. Wimbish was also a Managing Director and Portfolio Manager at ING Furman Selz Asset Management and Analyst with Husic Capital Management. He began his career at MasterCard International and held roles of increasing responsibility. He is on the selection committee for the Sharpe Fellows program at University of California at Los Angeles and is a guest lecturer at the Marshall School of Business at University of Southern California.  Mr. Wimbish holds a BA in Economics from UCLA, an MBA from Columbia Business School and is a CFA Charterholder.




30





Callie Jones, 32, will serve as the Secretary of the Company post-Merger. Ms. Jones is a partner in Brunson Chandler & Jones, PLLC, a law firm that was established in 2013. She has been practicing law since 2006. Her practice includes advising clients on a variety of corporate matters such as securities law, mergers & acquisitions, private placements, public offerings of equity, initial public offerings, and exchange offers.  She has worked with individuals, start-up companies and national corporations as well as clients located in foreign countries. She holds a BA in English from the University of Utah and a JD from the J. Reuben Clark Law School at Brigham Young University.


Director Compensation


Currently, our directors receive no annual compensation for their service on the Board of Directors. Upon acceptance of the position of Secretary and Director of the Company on February 7, 2014, Mr. Gray purchased 890,000 shares of restricted common stock of the Company through a subscription agreement.


Pursuant to the Merger, Westcott granted Mr. Gray 400,000 stock options and granted Mr. Cottman and Mr. Wimbish each 100,000 stock options.


Director Qualifications


In evaluating potential directors, we have considered the following factors, among others:


·

The appropriate size of our Board of Directors relative to our business;

·

Our needs with respect to the particular talents and experience of our directors;

·

The knowledge, skills and experience of directors;

·

Familiarity with our business;

·

Experience with accounting rules and practices; and

·

The desire to balance the benefit of continuity with the periodic injection of the fresh perspective that may be provided by new members, when an increase in the size of our Board of Director is deemed to be reasonable.


Our goal is to assemble a Board of Directors that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, we will also consider candidates with appropriate non-business backgrounds.


Term of Office


Directors serve until the next annual meeting of our shareholders or until their successors are elected and qualify or until the earlier occurrence of his or her death, resignation or removal by our Board of Directors or shareholders. Each of our executive officers is elected by our Board of Directors, and their terms of office are at the discretion of our Board of Directors.  Our executive officers serve until the earlier occurrence of the election of his or her successor at the next annual meeting of our Board of Directors, death, resignation or removal by our Board of Directors.


Identification of Significant Employees


We have no significant employees other than E. Will Gray II, our Chief Executive Officer, and a director.


Material Relationships between Our Affiliates and Dala Petroleum Corp.


The following are the material relationships between each of our affiliates and Dala:


Mr. Gray, the Secretary of the Company immediately prior to the Merger and the Chief Executive Officer of the Company immediately following the Merger, owned approximately 890,000 shares of common stock of Westcott just prior to the closing of the Merger, which then represented approximately 35.6% of the outstanding shares of common stock of Westcott prior to the Merger and the Offering.



31






Family Relationships


We currently do not have any officers or directors of our Company who are related to each other.


Involvement in Certain Legal Proceedings


During the past 10 years, no director, executive officer, promoter or control person of the Company has been involved in the following:


(1)

A petition under the Federal bankruptcy laws or any state insolvency law which 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 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 Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission 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




32





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.

Audit Committee and Audit Committee Financial Expert


We do not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on our Board of Directors.  With our current business model, we do not believe we presently need an audit committee, but our Board of Directors will reevaluate this determination at least annually.


Code of Ethics


Our Board of Directors has adopted a Code of Ethics that is filed as an Exhibit to this Current Report.  See Item 9.01.


EXECUTIVE COMPENSATION


Our chief executive officer will be compensated according to the terms of his Employment Agreement with the Company. He will receive a salary of $175,000 annually, standard health and employment benefits, and 400,000 incentive stock options at an exercise price of $0.70 that will vest over six years.


There are no other employment contracts (except for the Employment Agreement for Mr. Gray described herein), 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.


Outstanding Equity Awards


As part of the Merger, the Company’s newly-appointed Chief Executive Officer and Directors were granted a total of 600,000 stock options. Mr. Gray was granted 400,000 stock options at an exercise price of $0.70 that will vest over six years (unless there is a change of control of the Company or if Dala’s operations are acquired by a third party, at which time all the unvested stock options granted under the Plan will immediately vest and be exercisable). Mr. Cottman and Mr. Wimbish were each granted 100,000 stock options at an exercise price of $0.70 that will vest over six years (unless there is a change of control of the Company or if Dala’s operations are acquired by a third party, at which time all the unvested stock options granted under the Plan will immediately vest and be exercisable).


Director Compensation


Currently, our directors receive no annual compensation for their service on the Board of Directors other than their receipt of stock options granted as part of the Merger.


Compensation Committee Interlocks and Insider Participation


We currently do not have a compensation committee of our Board of Directors. Our Board of Directors, comprised presently of three people, determines executive compensation.




33





Long-Term Incentive Plans


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


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 OTCBB, 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, E. Will Gray II is not an independent director because he is also an executive officer of the Company and a director.


Related Party Transactions


Dala has entered into a service agreement with Chisholm II, giving Dala the rights to use Chisholm II’s existing technical exploration team to further explore and develop the Property.


Pacific Oil & Gas LLC, a shareholder of Chisholm II, is owned in part by Clancy Cottman, our Chairman.


LEGAL PROCEEDINGS


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


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.” There is currently no established trading market for shares of our common stock.  Management does not expect any viable market to develop in our common stock unless and until we complete an acquisition or merger. In any event, 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.




34





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 Bulletin Board, and represents prices between dealers, does not include retail markups, markdowns or commissions, and may not represent actual transactions:


 

 

Closing Bid

 

 

High

 

Low

2011

 

 

 

 

October 1 – December 31

 

NONE

 

NONE

2012

 

 

 

 

January 3 – March 30

 

.15

 

.15

April 2 – June 29

 

.15

 

.15

July 2 – September 28

 

.01

 

.01

October 1 – December 31

 

.0015

 

.0015

2013

 

 

 

 

January 2 – March 28

 

.0015

 

.0015

April 1 – June 28

 

.01

 

.0021

July 1 – September 30

 

.01

 

.01

October 1 –December 31

 

.0015

 

.0015

2014

 

 

 

 

January 2 – March 31

 

.0015

 

.0015


These prices were obtained from the National Quotation Bureau, Inc. (“NQB”) 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:


 

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.





35





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 .


(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).


Holders


We had approximately 556 common stockholders of record as of June 3, 2014.  We have 13 preferred stockholders of record as of June 3, 2014.




36





Warrants


We have issued 2,892,857 warrants to purchase our common stock at an exercise price of $1.35 per share within three years of the Effective Date  (as defined in the Stock Purchase Agreement of the Offering Documents.) The Effective Date is defined as earliest of the date that (a) the initial Registration Statement has been declared effective by the Commission, (b) all of the underlying shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of the Closing Date provided that a holder of underlying shares is not an Affiliate of the Company, all of the underlying shares may be sold pursuant to an exemption from registration under Section 4(1) of the Securities Act without volume or manner-of-sale restrictions and Company counsel has delivered to such holders a standing written unqualified opinion that resales may then be made by such holders of the underlying shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.


Dividends


To date, the Company has not declared or paid cash dividends on its common stock.  The Company presently intends to retain all future earnings, if any, for its business and does not anticipate paying cash dividends in the foreseeable future.


The Series A 6% Convertible Preferred Stock offered as part of the Offering will pay a dividend of six percent (6%) per annum, payable quarterly in arrears, as further described in the Certificate of Designation filed on May 30, 2014.


When and as declared by the Board of Directors, holders of the outstanding shares of common stock offered hereby will be entitled to non-cumulative dividends.  Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon the Company’s financial condition, results of operations, capital requirements, general business conditions, and such other factors as the Board of Directors may deem relevant.


Securities Authorized for Issuance under Equity Compensation Plans


The Company has granted 600,000 incentive employee stock options to its Chief Executive Officer and Directors pursuant to the Merger Agreement.




37





Use of Proceeds of Offering


Pursuant to the Offering, the Company offered to certain accredited and sophisticated investors a minimum of 2,000 Units and a maximum of 2,500 Units at a price of $1,000 per Unit for minimum gross offering proceeds of $2,000,000 and maximum gross offering proceeds of $2,500,000.  The following table sets forth the use of proceeds assuming all the Units offering in the Maximum Offering are sold.


Assuming Sale of Maximum Offering


 

 

Minimum

Offering

 

Percentage

of Proceeds

of Minimum

Offering

 

Maximum

Offering

 

Percentage

of Proceeds

of Maximum

Offering

Gross Offering Proceeds (1)

 

$

2,000,000

 

100%

 

$

2,500,000

 

100%

Expense allowances, fees and offering expenses (2)

 

$

240,000

 

12.0%

 

$

240,000

 

9.6%

Net proceeds

 

$

1,760,000

 

 

 

$

2,260,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Drilling (Dry Hole Cost)

 

$

450,000

 

22.5%

 

$

450,000

 

18.0%

Completion Costs (est. four wells)

 

$

250,000

 

12.5%

 

$

250,000

 

10.0%

Seismic (Stage I)

 

$

252,000

 

12.6%

 

$

414,000

 

16.6%

Seismic (Stage II)

 

$

300,000

 

15.0%

 

$

462,000

 

18.5%

Technical Services

 

$

300,000

 

15.0%

 

$

462,000

 

18.5%

General and Administrative (3)

 

$

208,000

 

10.4%

 

$

222,000

 

8.9%

Total Application of Net Proceeds

 

$

2,000,000

 

100%

 

$

2,500,000

 

100%


(1)    The Company offered the Units on a “best efforts” basis up to the Maximum Offering and may allow for oversubscription amounts up to 2,775 units.


(2)    The Company expects to incur certain accountable expenses related to this Offering, including printing, Blue Sky fees, filing fees, escrow fees, audit preparation and review fees, printing, postage, professional fees, the assumption of certain liabilities of Westcott, and travel expenses.


(3)    Represents estimated amounts we will apply towards dividends payable pursuant to the rights and preferences of the Series A 6% Convertible Preferred shares, working capital to cover our expected operating deficits for twelve months, salaries and general and administrative expenses and our costs to be a reporting public company.


The foregoing represents our best estimate of the allocation of the proceeds of the Offering based on our present plans and business conditions.  However, there can be no assurance that unforeseen events or changes in business conditions will not result in the application of proceeds of the Offering in a manner other than is described in this Memorandum.  Any such reallocation of the net proceeds of this Offering would be substantially limited to the categories set forth above. We believe we will have sufficient working capital for twelve months if we sell the Maximum Offering.  Pending such uses, we may invest such funds in short-term, interest-bearing securities where there is appropriate safety of principal or in interest-bearing bank accounts.


Purchases of Equity Securities by Us and Affiliated Purchasers


On February 12, 2014, E. Will Gray II (then our Secretary and Director, and currently serving as our Chief Executive Officer) purchased 890,000 shares of restricted common stock of the Company at the purchase price of $0.01 per share. With the exception of the information provided under the heading “Changes in Control” of the caption “Securities Ownership of Management and Certain Beneficial Holders,” there were no other purchases of any of our outstanding securities by us or our affiliated persons during our last two fiscal years ended September 30, 2013, and 2012.




38






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, with 2,775 of the 50,000,000 shares of preferred stock designated as Series A 6% Convertible Preferred Stock 2,025 of which none are outstanding.


Common Stock


Prior to the Merger, there were 2,500,000 shares of common stock of the Company issued and outstanding. As consideration for the Merger, Chisholm II, the sole shareholder of Dala, received 10,000,000 restricted shares of Westcott. Immediately following the Merger, there will be 12,500,000 shares of common stock issued and outstanding in the Company without conversion of any Series A 6% Convertible Preferred Stock (or exercise of any stock options or warrants) into common stock.


Preferred Stock


Prior to the Offering, no shares of Series A 6% Convertible Preferred Stock had been issued. Through the Offering, the Company has now issued 2,025 shares of Series A 6% Convertible Preferred Stock.


The Series A 6% Convertible Preferred Stock has been designated with certain rights, preferences and limitations. Holders of Series A 6% Convertible Preferred Stock are entitled to receive cumulative dividends at the rate per share of 6% per annum, payable quarterly on January 1, April 1, July 1, and October 1, in cash from legally available funds or, at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of common stock.  Each share of Series A 6% Convertible Preferred Stock is convertible at any time at the option of the Holder into common stock at the conversion price of $0.70 per common share based on the total dollar amount invested (subject to adjustment as set forth in the Series A 6% Convertible Preferred Stock Certificate of Designation) Unless waived by the Holder, at no time will the Holder be able to convert the Series A 6% Convertible Preferred Stock into common stock that is equal to more than 4.99% of the total issued and outstanding shares of common stock of the Company (the “Conversion Limitation”). If the Holder gives the Company at least 61 days’ written notice, then the Holder may convert up to 9.99% of the total issued and outstanding shares of common stock of the Company.


Within sixty days of the Closing of the Offering, the Company shall file a Registration Statement registering all Registrable Securities (as defined in the Registration Rights Agreement) including the shares of common stock issuable upon conversion of the shares of Series A 6% Convertible Preferred Stock, the warrant shares offered in the Offering, and any shares that may be paid to the Holder as dividends on the Series A 6% Convertible Preferred Stock. The Company shall cause the Registration Statement to become effective within 180 days following the filing date (in the event of a “full review” by the SEC) or 150 days (if there is not a “full review” by the SEC). All fees associated with the Registration shall be borne by the Company. The Company may incur certain cash liquidated damages if the terms and timelines of the Registration Rights Agreement are not met.


Stock Options


The Company issued incentive stock options in connection with the Merger. The Company’s newly-appointed Chief Executive Officer and Directors were granted a total of 600,000 stock options. Mr. Gray was granted 400,000 stock options at an exercise price of $0.70 that will vest over six years (unless there is a change of control of the Company or if Dala’s operations are acquired by a third party, at which time all the unvested stock options granted under the Plan will immediately vest and be exercisable). Mr. Cottman and Mr. Wimbish were each granted 100,000 stock options at an exercise price of $0.70 that will vest over six years (unless there is a change in control of the Company or if Dala’s operations are acquired by a third party, at which time all the unvested stock options granted under the Plan will immediately vest and be exercisable).




39






INDEMNIFICATION OF DIRECTORS AND OFFICERS


Our directors and officers is indemnified as provided by the Delaware General Corporation Law (“Section 145”) and our bylaws.  We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.  In the event of a claim for indemnification against such liabilities is asserted by one of our directors, executive officers or controlling persons,  we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction.  We will then be governed by the court’s decision.


CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


None.


FINANCIAL STATEMENTS AND EXHIBITS


Please see our interim financial statements for the three months ended March 31, 2014 and our audited financial statements for the fiscal years ended September 30, 2013, and 2012, along with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in our Quarterly Report on Form 10-Q for the quarters ended March 31, 2014, which was filed with the SEC on May 15, 2014, and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013, which was filed with the SEC on November 27, 2013.


Additionally, please see the proforma financial statements for Dala and Westcott as of March 31, 2014. See Item 9.01.


Item 5.01 Changes in Control of the Registrant.


On June 3, 2014, after the closing of the Merger, and the completed issuance of 10 million shares to the sole shareholder of Dala (that were immediately distributed on a pro rata basis to the sole shareholder’s members), a change of control of the Company occurred.


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


On June 3, 2014, Clancy Cottman and Jonathan S. Wimbish were appointed to the Board of Directors, and Wayne Bassham and Todd Albiston resigned from their positions as directors. On that same day, E. Will Gray II resigned as Secretary of the Company, Wayne Bassham resigned as the President of the Company, and Todd Albiston resigned as the Vice President of the Company. E. Will Gray II was appointed as the Chief Executive Officer of the Company and Callie Jones was appointed as the Secretary of the Company.  Biographical information for each of the new directors is included in the “Directors and Executive Officers” section of the Form 10 information above.


Item 5.06 Change in Shell Company Status.


Based on the Merger described in Items 2.01 and 5.01 herein, we are no longer a “shell company” as defined in subparagraph (i) of Rule 144.





40





Item 9.01 Financial Statements and Exhibits.


(a)

Financial Statements of Business Acquired


Filed herewith as Exhibit 99.1 are:


Ÿ

Consolidated financial statements of Dala Petroleum Corp. from inception (January 17, 2014) to May 21, 2014


Ÿ

Pro-forma financial statements for Dala Petroleum Corp. and Westcott Products Corp. as of March 31, 2014


(c)

(b) See “Documents Incorporated by Reference,” below, for reference to our interim financial statements for the six months ended March 31, 2014, and our audited financial statements for the fiscal years ended September 30, 2013, and 2012. Exhibits


Exhibit

 

 

 

 

Number

 

Description of Exhibit

 

Filing

3.1

 

Articles of Incorporation

 

Filed with the SEC on January 23, 1989 and incorporated herein by reference.

3.1(a)

 

Amended Articles of Incorporation

 

Filed with the SEC on January 23, 1989 and incorporated herein by reference.

3.1(b)

 

Certificate of Designation for the Series A 6% Convertible Preferred Shares filed May 30, 2014

 

Filed herewith.

3.2

 

Bylaws

 

Filed with our initial Form 10-KSB for September 30, 2003 and incorporated herein by reference.

4.1

 

Registration Rights Agreement dated June 3, 2014

 

Filed herewith.

4.2

 

Form of Warrant dated June 3, 2014

 

Filed herewith.

4.3

 

Form of Lock-Up Agreement

 

Filed herewith.

4.4

 

Stock Option Grant Notice for E. Will Gray dated June 3, 2014

 

Filed herewith.

4.5

 

Stock Option Grant Notice for Clarence Cottman III dated June 3, 2014

 

Filed herewith.

4.6

 

Stock Option Grant Notice for Jonathan S. Wimbish dated June 3, 2014

 

Filed herewith.

10.1

 

Merger Agreement

 

Filed herewith.

10.2

 

Master Service Agreement

 

Filed herewith.

10.3

 

Option Participation Agreement

 

Filed herewith.

10.4

 

Form of Lease Agreement

 

Filed herewith.

10.5

 

List of Assigned Leases

 

Filed herewith.

10.6

 

Lease Assignment for Clay County, Kansas

 

Filed herewith.

10.7

 

Lease Assignment for Dickinson County, Kansas

 

Filed herewith.

10.8

 

Lease Assignment for Ottowa County, Kansas

 

Filed herewith.

10.9

 

Lease Assignment for Saline County, Kansas

 

Filed herewith.

10.10

 

Employment Agreement for E. Will Gray II

 

Filed herewith.

10.11

 

Private Placement Memorandum dated May 28, 2014

 

Filed herewith.

10.12

 

Form of Securities Purchase Agreement dated June 3, 2014

 

Filed herewith.

10.13

 

Escrow Agreement for Offering Funds

 

Filed herewith.

10.14

 

Jenson Services Escrow Agreement

 

Filed herewith.

99.1

 

Dala Petroleum Corp. Financial Statements for the Period from Inception (January 17, 2014) through May 21, 2014

 

Filed herewith.

99.2

 

Dala Petroleum Corp. Unaudited Pro-Forma Financial Statements

 

Filed herewith.


Additional Documents Incorporated by Reference


(i)

Quarterly Report on Form 10-Q filed on May 15, 2014;

(ii)

Quarterly Report on Form 10-Q filed on February 14, 2014;

(iii)

Annual Report filed on Form 10-K filed on November 27, 2013; and

(iv)

Annual Report filed on Form 10-K filed on D ecember 11, 2012.



41







SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Current Report to be signed on its behalf by the undersigned hereunto duly authorized.


WESTCOTT PRODUCTS CORP.


Date:

June 3, 2014

 

By:

/s/ E. Will Gray II

 

 

 

 

E. Will Gray II

 

 

 

 

Chief Executive Officer and Director




42


Exhibit 3.1(b)


WESTCOTT PRODUCTS CORPORATION


CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES A 6% CONVERTIBLE PREFERRED STOCK


PURSUANT TO SECTION 151 OF THE

DELAWARE GENERAL CORPORATION LAW


The undersigned, Wayne Bassham and E. Will Gray II, do hereby certify that:


1. They are the President and Secretary, respectively, of Westcott Products Corporation, a Delaware corporation (the “ Corporation ”).


2. The Corporation is authorized to issue 50,000,000 shares of preferred stock, none of which have been issued.


3. The following resolutions were duly adopted by the board of directors of the Corporation (the “ Board of Directors ”):


WHEREAS, the Certificate of Incorporation of the Corporation provides for a class of its authorized stock known as Series A 6% Convertible Preferred Stock, consisting of 600,000 shares, $0.01 par value per share, issuable from time to time in one or more series, as filed with the Secretary of State of the State of Delaware on February 27, 2014 (the “600,000 Share Certificate”); and


WHEREAS, the Board of Directors deems it to be in the best interests of the Corporation to amend its Certificate of Incorporation to delete the 600,000 Share Certificate, of which no shares have been issued or are outstanding, and to further amend its Certificate of Incorporation by adopting the Certificate of Designation of Preferences, Rights and Limitations of Series A 6% Convertible Preferred Stock set forth below; and


WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them; and


WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of, except as otherwise set forth in the Purchase Agreement (as defined below), up to 2,025 shares of the preferred stock, which the Corporation has the authority to issue;


NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows:


TERMS OF SERIES A 6% CONVERTIBLE PREFERRED STOCK


Section 1 .

Definitions . For the purposes hereof, the following terms shall have the following meanings:


Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.



1





Alternate Consideration ” shall have the meaning set forth in Section 7(e).


Bankruptcy Event ” means any of the following events: (a) the Corporation or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Corporation or any Significant Subsidiary thereof, (b) there is commenced against the Corporation or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Corporation or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Corporation or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Corporation or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Corporation or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, or (g) the Corporation or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.


Base Conversion Price ” shall have the meaning set forth in Section 7(b).


Beneficial Ownership Limitation ” shall have the meaning set forth in Section 6(d).


Business Day ” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.


Buy-In ” shall have the meaning set forth in Section 6(c)(iv).


Change of Control Transaction ” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation (other than by means of conversion or exercise of Preferred Stock and the Securities issued together with the Preferred Stock), (b) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the Corporation or the successor entity of such transaction, (c) the Corporation sells or transfers all or substantially all of its assets to another Person and the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which the Corporation  is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.


Closing ” means the closing of the purchase and sale of the Securities pursuant to Section 2.1 of the Purchase Agreement.





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Closing Date ” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) each Holder’s obligations to pay the Subscription Amount and (ii) the Corporation’s obligations to deliver the Securities have been satisfied or waived.


Commission ” means the United States Securities and Exchange Commission.


Common Stock ” means the Corporation’s common stock, par value $0.001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.


Common Stock Equivalents ” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.


Conversion Amount ” means the sum of the Stated Value at issue.


Conversion Date ” shall have the meaning set forth in Section 6(a).


Conversion Price ” shall have the meaning set forth in Section 6(b).


Conversion Shares ” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof.


Conversion Shares Registration Statement ” means a registration statement that registers the resale of all Conversion Shares of the Holders, who shall be named as “selling stockholders” therein and meets the requirements of the Registration Rights Agreement.


Dilutive Issuance ” shall have the meaning set forth in Section 7(b).


Dilutive Issuance Notice ” shall have the meaning set forth in Section 7(b).


Dividend Conversion Rate ” means the lesser of (a) the Conversion Price or (b) 90% of the lesser of (i) the average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Dividend Payment Date or (ii) the average of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the date the applicable Dividend Conversion Shares are issued and delivered if such delivery is after the Dividend Payment Date.


Dividend Conversion Shares ” shall have the meaning set forth in Section 3(a).


Dividend Notice Period ” shall have the meaning set forth in Section 3(a).


Dividend Payment Date ” shall have the meaning set forth in Section 3(a).

 

Dividend Share Amount ” shall have the meaning set forth in Section 3(a).


Effective Date ” means the date that the Conversion Shares Registration Statement filed by the Corporation pursuant to the Registration Rights Agreement is first declared effective by the Commission.




3





Equity Conditions ” means, during the period in question, (a) the Corporation shall have duly honored all conversions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the applicable Holder on or prior to the dates so requested or required, if any, (b) the Corporation shall have paid all liquidated damages and other amounts owing to the applicable Holder in respect of the Preferred Stock, (c)(i) there is an effective Conversion Shares Registration Statement pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Corporation believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash payments of dividends) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Corporation as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized, but unissued and otherwise unreserved, shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there is no existing Triggering Event and no existing event which, with the passage of time or the giving of notice, would constitute a Triggering Event, (g) the issuance of the shares in question would not violate the limitations set forth in Section 6(d) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession of any information provided by the Corporation that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily dollar trading volume for the Common Stock on the principal Trading Market exceeds $150,000 per Trading Day.


Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.


Exempt Issuance ” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Corporation pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any securities issued pursuant to the Purchase Agreement and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of the Purchase Agreement, provided that such securities have not been amended since the date of the Purchase Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of any such securities and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Corporation, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Corporation and shall provide to the Corporation additional benefits in addition to the investment of funds, but shall not include a transaction in which the Corporation is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.


Fundamental Transaction ” shall have the meaning set forth in Section 7(e).


GAAP ” means United States generally accepted accounting principles.


Holder ” shall have the meaning given such term in Section 2.





4




Indebtedness ” means (a) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Corporation’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, and (c) the present value of any lease payments in excess of $100,000 due under leases required to be capitalized in accordance with GAAP.


Junior Securities ” means the Common Stock and all other Common Stock Equivalents of the Corporation other than those securities which are explicitly senior or pari passu to the Preferred Stock in dividend rights or liquidation preference.


Liens ” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.


Liquidation ” shall have the meaning set forth in Section 5.


New York Courts ” shall have the meaning set forth in Section 11(d).


Notice of Conversion ” shall have the meaning set forth in Section 6(a).


Original Issue Date ” means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.


Permitted Indebtedness ” means (a) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement and (b) lease obligations and purchase money indebtedness of up to $100,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets.


Permitted Lien ” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Corporation) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Corporation’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Corporation’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Corporation and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clause (a) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under clause (b) thereunder, provided that such Liens are not secured by assets of the Corporation or its Subsidiaries other than the assets so acquired or leased.


Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.


Preferred Stock ” shall have the meaning set forth in Section 2.


Purchase Agreement ” means the Securities Purchase Agreement, dated as of the Original Issue Date, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.



5





Registration Rights Agreement ” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, among the Corporation and the original Holders, in the form of Exhibit B attached to the Purchase Agreement.


Registration Statement ” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.


Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.


Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.


Securities ” means the Preferred Stock, the Warrants, the Warrant Shares and the Underlying Shares.


Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.


Share Delivery Date ” shall have the meaning set forth in Section 6(c).


Stated Value ” shall have the meaning set forth in Section 2, as the same may be increased pursuant to Section 3.


Subscription Amount ” shall mean, as to each Holder, the aggregate amount to be paid for the Preferred Stock purchased pursuant to the Purchase Agreement as specified below such Holder’s name on the signature page of the Purchase Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.


Subsidiary ” means any subsidiary of the Corporation as set forth on Schedule 3.1(a) of the Purchase Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed or acquired after the date of the Purchase Agreement.


Successor Entity ” shall have the meaning set forth in Section 7(e).


Trading Day ” means a day on which the principal Trading Market is open for business.


Trading Market ” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).


Transaction Documents ” means this Certificate of Designation, the Purchase Agreement, the Warrants, the Registration Rights Agreement, the Lock-Up Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement.


Transfer Agent ” means American Registrar & Transfer Co., the current transfer agent of the Corporation with a mailing address of 342 E 900 S, Salt Lake City, Utah 84111 and a facsimile number of (801)363-9066, and any successor transfer agent of the Company.




6




Triggering Event ” shall have the meaning set forth in Section 10(a).


Triggering Redemption Amount ” means, for each share of Preferred Stock, the sum of (a) the greater of (i) 130% of the Stated Value and (ii) the product of (y) the VWAP on the Trading Day immediately preceding the date of the Triggering Event and (z) the Stated Value divided by the then Conversion Price, (b) all accrued but unpaid dividends thereon and (c) all liquidated damages and other costs, expenses or amounts due in respect of the Preferred Stock.


Triggering Redemption Payment Date ” shall have the meaning set forth in Section 10(b).


Underlying Shares ” means the shares of Common Stock issued and issuable upon conversion of the Preferred Stock, upon exercise of the Warrants and issued and issuable in lieu of the cash payment of dividends on the Preferred Stock in accordance with the terms of this Certificate of Designation.


Variable Rate Transaction ” shall have the meaning ascribed to such term in Section 4.13(b) of the Purchase Agreement.


VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid by the Corporation.


Warrants ” means, collectively, the Common Stock purchase warrants delivered to the Holder at the Closing in accordance with Section 2.2(a) of the Purchase Agreement, which Warrants shall be exercisable immediately and have a term of exercise equal to three years, in the form of Exhibit C attached to the Purchase Agreement.


Warrant Shares ” means the shares of Common Stock issuable upon exercise of the Warrants.


Section 2 .

Designation, Amount and Par Value . The series of preferred stock shall be designated as its Series A 6% Convertible Preferred Stock (the “ Preferred Stock ”) and the number of shares so designated shall be up to 2,025 (which shall not be subject to increase without the written consent of all of the holders of the Preferred Stock (each, a “ Holder ” and collectively, the “ Holders ”)). Each share of Preferred Stock shall have a par value of $0.01 per share and a stated value equal to $1,000, subject to increase set forth in Section 3 below (the “ Stated Value ”).




7





Section 3 .

Dividends .


a)

Dividends in Cash or in Kind .  Holders shall be entitled to receive, and the Corporation shall pay, cumulative dividends at the rate per share (as a percentage of the Stated Value per share) of 6% per annum (subject to increase pursuant to Section 10(b)) , payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first such date after the Original Issue Date and on each Conversion Date (with respect only to Preferred Stock being converted) (each such date, a “ Dividend Payment Date ”) (if any Dividend Payment Date is not a Trading Day, the applicable payment shall be due on the next succeeding Trading Day)  in cash, or at the Corporation’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 3(a), or a combination thereof (the dollar amount to be paid in shares of Common Stock, the “ Dividend Share Amount ”).  The form of dividend payments to each Holder shall be determined in the following order of priority: (i) if funds are legally available for the payment of dividends and the Equity Conditions have not been met during the 20 consecutive Trading Days immediately prior to the applicable Dividend Payment Date (the “ Dividend Notice Period ”), in cash only, (ii) if funds are legally available for the payment of dividends and the Equity Conditions have been met during the Dividend Notice Period, at the sole election of the Corporation, in cash or shares of Common Stock which shall be valued at the Dividend Conversion Rate, (iii) if funds are not legally available for the payment of dividends and the Equity Conditions have been met during the Dividend Notice Period, in shares of Common Stock which shall be valued at the Dividend Conversion Rate, (iv) if funds are not legally available for the payment of dividends and the Equity Condition relating to an effective Conversion Shares Registration Statement has been waived by such Holder, as to such Holder only, in unregistered shares of Common Stock which shall be valued at the Dividend Conversion Rate, and (v) if funds are not legally available for the payment of dividends and the Equity Conditions have not been met during the Dividend Notice Period, then, at the election of such Holder, such dividends shall accrue to the next Dividend Payment Date or shall be accreted to, and increase, the outstanding Stated Value.  In addition, as a condition to paying dividends in shares of Common Stock, as to such Dividend Payment Date, prior to such Dividend Notice Period (but not more than five (5) Trading Days prior to the commencement of such Dividend Notice Period), the Corporation shall have delivered to each Holder’s account with The Depository Trust Company a number of shares of Common Stock to be applied against such Dividend Share Amount equal to the quotient of (x) the applicable Dividend Share Amount divided by (y) the Dividend Conversion Rate, assuming for such purposes that the Dividend Payment Date is the Trading Day immediately prior to the commencement of the Dividend Notice Period (the “ Dividend Conversion Shares ”).  The Holders shall have the same rights and remedies with respect to the delivery of any such shares as if such shares were being issued pursuant to Section 6.


b)

Corporation’s Ability to Pay Dividends in Cash or Kind .  On the Closing Date, the Corporation shall have notified the Holders whether or not it may legally pay cash dividends as of the Closing Date.  The Corporation shall promptly notify the Holders at any time the Corporation shall become able or unable, as the case may be, to legally pay cash dividends. If at any time the Corporation has the right to pay dividends in cash or shares of Common Stock, the Corporation must provide the Holders with at least 20 Trading Days’ notice of its election to pay a regularly scheduled dividend in shares of Common Stock (the Corporation may indicate in such notice that the election contained in such notice shall continue for later periods until revised by a subsequent notice).  The aggregate number of shares of Common Stock otherwise issuable to a Holder on a Dividend Payment Date shall be reduced by the number of shares of Common Stock previously issued to such Holder in connection with such Dividend Payment Date.  If any Dividend Conversion Shares are issued to a Holder in connection with a Dividend Payment Date and are not applied against a Dividend Share Amount, then such Holder shall promptly return such excess shares to the Corporation.




8





c)

Dividend Calculations . Dividends on the Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date, and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends.   Payment of dividends in shares of Common Stock shall otherwise occur pursuant to Section 6(c)(i) herein and, solely for purposes of the payment of dividends in shares, the Dividend Payment Date shall be deemed the Conversion Date.  Dividends shall cease to accrue with respect to any Preferred Stock converted, provided that, the Corporation actually delivers the Conversion Shares within the time period required by Section 6(c)(i) herein.  Except as otherwise provided herein, if at any time the Corporation pays dividends partially in cash and partially in shares, then such payment shall be distributed ratably among the Holders based upon the number of shares of Preferred Stock held by each Holder on such Dividend Payment Date.


d)

Late Fees . Any dividends, whether paid in cash or shares of Common Stock, that are not paid within three Trading Days following a Dividend Payment Date shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 18% per annum or the lesser rate permitted by applicable law which shall accrue daily from the Dividend Payment Date through and including the date of actual payment in full.

 

e)

Other Securities . So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities except as expressly permitted by Section 10(a)(ix). So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall directly or indirectly pay or declare any dividend or make any distribution upon (other than a dividend or distribution described in Section 6 or dividends due and paid in the ordinary course on preferred stock of the Corporation at such times when the Corporation is in compliance with its payment and other obligations hereunder), nor shall any distribution be made in respect of, any Junior Securities as long as any dividends due on the Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities or shares pari passu with the Preferred Stock.


f)

Special Reserves . The Corporation acknowledges and agrees that the capital of the Corporation in respect of the Preferred Stock and any future issuances of the Corporation’s capital stock shall be equal to the aggregate par value of such Preferred Stock or capital stock, as the case may be, and that, on or after the date of the Purchase Agreement, it shall not increase the capital of the Corporation with respect to any shares of the Corporation’s capital stock issued and outstanding on such date.  The Corporation also acknowledges and agrees that it shall not create any special reserves without the prior written consent of each Holder.


Section 4 .

Voting Rights . Except as otherwise provided herein or as otherwise required by law, the Preferred Stock shall have no voting rights. However, as long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of 67% or more of the then outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Preferred Stock, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Preferred Stock or (e) enter into any agreement with respect to any of the foregoing.




9





Section 5 .

Liquidation . Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “ Liquidation ”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.  A Fundamental Transaction or Change of Control Transaction shall not be deemed a Liquidation. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.


Section 6 .

Conversion .


a)

Conversions at Option of Holder . Each share of Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations set forth in Section 6(d)) determined by dividing the Stated Value of such share of Preferred Stock by the Conversion Price. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “ Notice of Conversion ”). Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such date, the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required.   The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error.  To effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Preferred Stock to the Corporation unless all of the shares of Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Preferred Stock promptly following the Conversion Date at issue.  Shares of Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued.


b)

Conversion Price .  The conversion price for the Preferred Stock shall equal $0.70, subject to adjustment herein (the “ Conversion Price ”).


c)

Mechanics of Conversion


i.

Delivery of Conversion Shares Upon Conversion . Not later than three (3) Trading Days after each Conversion Date (the “ Share Delivery Date ”), the Corporation shall deliver, or cause to be delivered, to the converting Holder (A) the number of Conversion Shares being acquired upon the conversion of the Preferred Stock (including, if the Corporation has given continuous notice pursuant to Section 3(b) for payment of dividends in shares of Common Stock at least 20 Trading Days prior to the date on which the Notice of Conversion is delivered to the Corporation, shares of Common Stock representing the payment of accrued dividends otherwise determined pursuant to Section 3(a) but assuming that the Dividend Notice Period is the 20 Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the Corporation and excluding for such issuance the condition that the Corporation deliver the Dividend Share Amount as to such dividend payment prior to the commencement of the Dividend Notice Period) which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement), and (B) a bank check in the amount of accrued and unpaid dividends (if the Corporation has elected or is required to pay



10




accrued dividends in cash). On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Corporation shall deliver the Conversion Shares required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions.


ii.

Failure to Deliver Conversion Shares .  If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.


iii.

Obligation Absolute; Partial Liquidated Damages .  The Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided , however , that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder.  In the event a Holder shall elect to convert any or all of the Stated Value of its Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment.  In the absence of such injunction, the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) on the third Trading Day after the Share Delivery Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Preferred Stock being converted, $50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day and increasing to $200 per Trading Day on the sixth Trading Day after such damages begin to accrue) for each Trading Day after such second Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion.  Nothing herein shall limit a Holder’s right to pursue actual damages or declare a Triggering Event pursuant to Section 10 hereof for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.




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iv.

Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion . In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 6(c)(i), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “ Buy-In ”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Preferred Stock equal to the number of shares of Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver the Conversion Shares upon conversion of the shares of Preferred Stock as required pursuant to the terms hereof.


v.

Reservation of Shares Issuable Upon Conversion . The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Preferred Stock and payment of dividends on the Preferred Stock, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding shares of Preferred Stock and payment of dividends hereunder.  The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Conversion Shares Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Conversion Shares Registration Statement (subject to such Holder’s compliance with its obligations under the Registration Rights Agreement).


vi.

Fractional Shares . No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Preferred Stock.   As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.




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vii.

Transfer Taxes and Expenses .  The issuance of Conversion Shares on conversion of this Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.  The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.


d)

Beneficial Ownership Limitation .   The Corporation shall not effect any conversion of the Preferred Stock, and a Holder shall not have the right to convert any portion of the Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Stated Value of Preferred Stock beneficially owned by such Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation  subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Preferred Stock or the Warrants) beneficially owned by such Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates) and of how many shares of Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates) and how many shares of the Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation shall have no obligation to verify or confirm the accuracy of such determination.   In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder .  For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Corporation shall within two Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including the Preferred Stock, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Stock held by the applicable Holder.  A



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Holder, upon not less than 61 days’ prior notice to the Corporation, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(d) applicable to its Preferred Stock provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Preferred Stock held by the Holder and the provisions of this Section 6(d) shall continue to apply.  Any such increase or decrease will not be effective until the 61 st day after such notice is delivered to the Corporation and shall only apply to such Holder and no other Holder.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of Preferred Stock.


Section 7 .

Certain Adjustments .


a)

Stock Dividends and Stock Splits .  If the Corporation, at any time while this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, this Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.


b)

Subsequent Equity Sales .  If, at any time while this Preferred Stock is outstanding, the Corporation or any Subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “ Base Conversion Price ” and such issuances, collectively, a “ Dilutive Issuance ”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price.  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  Notwithstanding the foregoing, no adjustment will be made under this Section 7(b) in respect of an Exempt Issuance.  If the Corporation enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Corporation shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised.  The Corporation shall notify the Holders in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 7(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “ Dilutive Issuance Notice ”).  For purposes of clarification, whether or not the Corporation provides a Dilutive Issuance Notice pursuant to this Section 7(b), upon the occurrence of any Dilutive Issuance, the Holders are entitled to receive a number of Conversion Shares



14




based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether a Holder accurately refers to the Base Conversion Price in the Notice of Conversion.


c)

Subsequent Rights Offerings .  In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder of will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).


d)

Pro Rata Distributions .  During such time as this Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a " Distribution "), at any time after the issuance of this Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete Conversion of this Preferred Stock (without regard to any limitations on Conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).


e)

Fundamental Transaction .  If, at any time while this Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the C orporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other



15




Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent conversion of this Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Preferred Stock following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration.  The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 7(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Preferred Stock, deliver to the Holder in exchange for this Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Preferred Stock (without regard to any limitations on the conversion of this Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation and the other Transaction Documents referring to the “Corporation” shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein.


f)

Calculations .  All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.




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g)

Notice to the Holders .


i.

Adjustment to Conversion Price .  Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.


ii.

Notice to Allow Conversion by Holder .  If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to convert the Conversion Amount of this Preferred Stock (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.


Section 8 .

[RESERVED]


Section 9 .

Negative Covenants .  As long as any shares of Preferred Stock are outstanding, unless the holders of at least 67% in Stated Value of the then outstanding shares of Preferred Stock shall have otherwise given prior written consent, the Corporation shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:


a)

other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

b)

other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;



17





c)

amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;


d)

repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock, Common Stock Equivalents or Junior Securities, other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Corporation, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors for so long as the Preferred Stock is outstanding;


e)

pay cash dividends or distributions on Junior Securities of the Corporation;


f)

enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Corporation (even if less than a quorum otherwise required for board approval); or


g)

enter into any agreement with respect to any of the foregoing.


Section 10 .  

Redemption Upon Triggering Events .


a)

Triggering Event ” means, wherever used herein any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):


i.

the failure of the initial Conversion Shares Registration Statement to be declared effective by the Commission on or prior to the 240 th day after the Original Issue Date;


ii.

if, during the Effectiveness Period (as defined in the Registration Rights Agreement), the effectiveness of the Conversion Shares Registration Statement lapses for more than an aggregate of 60 calendar days (which need not be consecutive calendar days) during any 12 month period, or the Holders shall not otherwise be permitted to resell Registrable Securities under the Conversion Shares Registration Statement for more than an aggregate of 60 calendar days (which need not be consecutive calendar days) during any 12 month period;


iii.

the Corporation shall fail to deliver Conversion Shares issuable upon a conversion hereunder that comply with the provisions hereof prior to the fifth Trading Day after such shares are required to be delivered hereunder, or the Corporation shall provide written notice to any Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion of any shares of Preferred Stock in accordance with the terms hereof;


iv.

one of the Events (as defined in the Registration Rights Agreement) described in subsections (i), (ii) or (iii) of Section 2(b) of the Registration Rights Agreement shall not have been cured to the satisfaction of the Holders prior to the expiration of 30 calendar days from the Event Date (as defined in the Registration Rights Agreement) relating thereto (other than an Event resulting from a failure of a Conversion Shares Registration Statement to be declared timely effective by the Commission on or prior to the 240th day after the Original Issue Date, which shall be covered by Section 10(a)(i));




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v.

the Corporation shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within five calendar days after notice therefor is delivered hereunder or shall fail to pay all amounts owed on account of any Event (as defined in the Registration Rights Agreement) within five days of the date due and payable;


vi.

the Corporation shall fail to have available a sufficient number of authorized and unreserved shares of Common Stock to issue to such Holder upon a conversion hereunder;


vii.

unless specifically addressed elsewhere in this Certificate of Designation as a Triggering Event, the Corporation shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents, and such failure or breach shall not, if subject to the possibility of a cure by the Corporation, have been cured within 30 calendar days after the date on which written notice of such failure or breach shall have been delivered;


viii.

any breach of the Lock-Up Agreements delivered to the initial Holders at the Closing pursuant to Section 2.2(a) of the Purchase Agreement;


ix.

the Corporation shall redeem more than a de minimis number of  Junior Securities other than as to repurchases of Common Stock or Common Stock Equivalents from departing officers and directors, provided that, while any of the Preferred Stock remains outstanding, such repurchases shall not exceed an aggregate of $100,000 from all officers and directors;


x.

the Corporation shall be party to a Change of Control Transaction;


xi.

there shall have occurred a Bankruptcy Event;


xii.

the Common Stock shall fail to be listed or quoted for trading on a Trading Market for more than five Trading Days, which need not be consecutive Trading Days;


xiii.

the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”; or


xiv.

any monetary judgment, writ or similar final process shall be entered or filed against the Corporation, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.


b)

Upon the occurrence of a Triggering Event, each Holder shall (in addition to all other rights it may have hereunder or under applicable law) have the right, exercisable at the sole option of such Holder, to require the Corporation to redeem all of the Preferred Stock then held by such Holder for a redemption price, in cash, equal to the Triggering Redemption Amount.  The Triggering Redemption Amount shall be due and payable or issuable, as the case may be, within five Trading Days of the date on which the notice for the payment therefor is provided by a Holder (the “ Triggering Redemption Payment Date ”).  If the Corporation fails to pay in full the Triggering Redemption Amount hereunder on the date such amount is due in accordance with this Section, the Corporation will pay interest thereon at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law, accruing daily from such date until the Triggering Redemption Amount, plus all such interest thereon, is paid in full.  For purposes of this Section, a share of Preferred Stock is outstanding until such date as the applicable Holder shall have received Conversion Shares upon a conversion (or attempted conversion) thereof that meets the requirements hereof or has been paid the Triggering Redemption Amount in cash.




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Section 11 .

Miscellaneous .


a)

Notices .  Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at the address set forth above Attention: E. Will Gray II, facsimile number (432)505-9476, or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 11.  Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.


b)

Absolute Obligation . Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay liquidated damages, accrued dividends and accrued interest, as applicable, on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.


c)

Lost or Mutilated Preferred Stock Certificate .  If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.


d)

Governing Law .  All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof.  Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “ New York Courts ”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Certificate of Designation and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Certificate of Designation or the transactions contemplated hereby.  If any party shall commence an action



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or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.


e)

Waiver .  Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders.  The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on any other occasion.  Any waiver by the Corporation or a Holder must be in writing.


f)

Severability .  If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.  If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.


g)

Next Business Day .  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.


h)

Headings .  The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.


i)

Status of Converted or Redeemed Preferred Stock .  Shares of Preferred Stock may only be issued pursuant to the Purchase Agreement.  If any shares of Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series A 6% Convertible Preferred Stock.



*********************



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RESOLVED, FURTHER, that the Chairman, the President or any Vice President, and the Secretary or any Assistant Secretary, of the Corporation be and they hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Delaware law.


IN WITNESS WHEREOF, the undersigned have executed this Certificate this 30 th day of May 2014.


/s/ Wayne Bassham

 

/s/ E. Will Gray II

Name:  Wayne Bassham

 

Name:  E. Will Gray II

Title:  President

 

Title:  Secretary

 

 

 

 

 

 




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ANNEX A


NOTICE OF CONVERSION


(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED STOCK)


The undersigned hereby elects to convert the number of shares of Series A 6% Convertible Preferred Stock indicated below into shares of common stock, par value $0.001 per share (the “ Common Stock ”), of Westcott Products Corporation, a Delaware corporation (the “ Corporation ”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Purchase Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.


Conversion calculations:


Date to Effect Conversion: __________________________________________________________________

 

Number of shares of Preferred Stock owned prior to Conversion: _____________________________________

 

Number of shares of Preferred Stock to be Converted: _____________________________________________

 

Stated Value of shares of Preferred Stock to be Converted: __________________________________________

 

Number of shares of Common Stock to be Issued: ________________________________________________

 

Applicable Conversion Price:_________________________________________________________________

 

Number of shares of Preferred Stock subsequent to Conversion: ______________________________________

 

Address for Delivery: ______________________

or

DWAC Instructions:

Broker no: _________

Account no: ___________

 

[HOLDER]


By:___________________________________

       Name:

       Title:





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Exhibit 4.1


EXHIBIT B


REGISTRATION RIGHTS AGREEMENT


This Registration Rights Agreement (this “ Agreement ”) is made and entered into as of June 3, 2014, between Westcott Products Corporation, a Delaware corporation (the “ Company ”), and each of the several purchasers signatory hereto (each such purchaser, a “ Purchaser ” and, collectively, the “ Purchasers ”).


This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the “ Purchase Agreement ”).


The Company and each Purchaser hereby agrees as follows:


1.

Definitions .


Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:


 “ Advice ” shall have the meaning set forth in Section 6(d).


Effectiveness Date ” means, with respect to the Initial Registration Statement required to be filed hereunder, the 150 th calendar day following the date hereof (or, in the event of a “full review” by the Commission, the 180 th calendar day following the date hereof) and with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the 90 th calendar day following the date on which an additional Registration Statement is required to be filed hereunder (or, in the event of a “full review” by the Commission, the 120 th calendar day following the date such additional Registration Statement is required to be filed hereunder); provided , however , that in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates otherwise required above, provided, further, if such Effectiveness Date falls on a day that is not a Trading Day, then the Effectiveness Date shall be the next succeeding Trading Day.


Effectiveness Period ” shall have the meaning set forth in Section 2(a).


Event ” shall have the meaning set forth in Section 2(d).


Event Date ” shall have the meaning set forth in Section 2(d).


Filing Date ” means, with respect to the Initial Registration Statement required hereunder, the 60 th calendar day following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.


Holder ” or “ Holders ” means the holder or holders, as the case may be, from time to time of Registrable Securities.


Indemnified Party ” shall have the meaning set forth in Section 5(c).





Indemnifying Party ” shall have the meaning set forth in Section 5(c).


Initial Registration Statement ” means the initial Registration Statement filed pursuant to this Agreement.


Losses ” shall have the meaning set forth in Section 5(a).


Plan of Distribution ” shall have the meaning set forth in Section 2(a).


Prospectus ” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.


Registrable Securities ” means, as of any date of determination, (a) all of the shares of Common Stock then issued and issuable upon conversion in full of the Preferred Stock (assuming on such date the shares of Preferred Stock are converted in full without regard to any conversion limitations therein), (b) all shares of Common Stock issued and issuable as dividends on the Preferred Stock assuming all dividend payments are made in shares of Common Stock and the Preferred Stock is held for at least 3 years, (c) all Warrant Shares then issued and issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein), (d) any additional shares of Common Stock issued and issuable in connection with any anti-dilution provisions in the Preferred Stock or the Warrants (in each case, without giving effect to any limitations on conversion set forth in the Certificate of Designation or limitations on exercise set forth in the Warrants) and (e) any securities issued or then issuable upon any stock split, dividend or other distribution,  recapitalization or similar event with respect to the foregoing; provided, however , that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercised by cashless exercise as provided in Section 2(c) of each of the Warrants), as reasonably determined by the Company, upon the advice of counsel to the Company.


Registration Statement ” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.




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Rule 415 ” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.


Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.


Selling Stockholder Questionnaire ” shall have the meaning set forth in Section 3(a).


SEC Guidance ” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.


2.

Shelf Registration .


(a)

On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415.  Each Registration Statement filed hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed by at least 85% in interest of the Holders) substantially the “ Plan of Distribution ” attached hereto as Annex A .  Subject to the terms of this Agreement, the Company shall use its best efforts to cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the “ Effectiveness Period ”).  The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. Eastern Time on a Trading Day.   The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement.  The Company shall, by 9:30 a.m. Eastern Time on the Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424.  Failure to so notify the Holder within one (1) Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d).


(b)

 Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); with



3




respect to filing on Form S-3 or other appropriate form, and subject to the provisions of Section 2(d) with respect to the payment of liquidated damages; provided , however , that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.


(c)

Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows:


a.

First, the Company shall reduce or eliminate any securities to be included by any Person other than a Holder;


b.

Second, the Company shall reduce Registrable Securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Warrant Shares held by such Holders); and


c.

Third, the Company shall reduce Registrable Securities represented by Conversion Shares (applied, in the case that some Conversion Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Conversion Shares held by such Holders).


In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder’s allotment.  In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended.

 

(d)

If: (i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) prior to the effective date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within twenty (20) calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declared effective, or (iv) a Registration Statement registering for resale all of the Registrable Securities is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (v) after the effective date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than ten (10) consecutive calendar days or more than an aggregate of fifteen (15) calendar days (which need not



4




be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “ Event ”, and for purposes of clauses (i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and for purpose of clause (iii) the date which such twenty (20) calendar day period is exceeded, and for purpose of clause (v) the date on which such ten (10) or fifteen (15) calendar day period, as applicable, is exceeded being referred to as “ Event Date ”), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 1.5% multiplied by the aggregate Subscription Amount under the Purchase Agreement of the Securities then held by such Holder. The parties agree that the maximum aggregate liquidated damages payable to a Holder under this Agreement shall be 9% of the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement.  If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event.


(e)

If Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission.


3.

Registration Procedures .


In connection with the Company’s registration obligations hereunder, the Company shall:


(a)

Not less than five (5) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. Notwithstanding the above, the Company shall not be obligated to provide the Holders advance copies of any universal shelf registration statement registering securities in addition to those required hereunder, or any Prospectus prepared thereto.  The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than five (5) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex B (a “ Selling Stockholder Questionnaire ”) on a date that is not less than two (2) Trading Days prior to the Filing Date or by the end of the fourth (4 th ) Trading Day following the date on which such Holder receives draft materials in accordance with this Section.




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(b)

(i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.


(c)

If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.


(d)

Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus, provided , however , in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.



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(e)

Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.


(f)

Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form.


(g)

Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).


(h)

 The Company shall cooperate with any broker-dealer through which a Holder proposes to resell its Registrable Securities in effecting a filing with the FINRA Corporate Financing Department pursuant to FINRA Rule 5110, as requested by any such Holder, and the Company shall pay the filing fee required by such filing within two (2) Business Days of request therefor.


(i)

Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that, the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.


(j)

If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.


(k)

Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any



7




Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.  The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company shall be entitled to exercise its right under this Section 3(k) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period.


(l)

Comply with all applicable rules and regulations of the Commission.


(m)

The Company shall use its best efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.


(n)

The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.


4.

Registration Expenses . All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) if not previously paid by the Company in connection with an Issuer Filing, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.  In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.




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5.

Indemnification .


(a)

Indemnification by the Company . The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “ Losses ”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected.  The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(h).


(b)

Indemnification by Holders . Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with any applicable prospectus delivery requirements of the Securities Act through no fault of the Company or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company



9




expressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such information relates to such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto or (iii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), to the extent, but only to the extent, related to the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected.  In no event shall the liability of any selling Holder under this Section 5(b) be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.


(c)

Conduct of Indemnification Proceedings . If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “ Indemnified Party ”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “ Indemnifying Party ”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that, the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.


An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.


Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that, the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.



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(d)

Contribution . If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.


The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute pursuant to this Section 5(d), in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.


The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.


6.

Miscellaneous .


(a)

Remedies .  In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement.  Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.


(b)

No Piggyback on Registrations; Prohibition on Filing Other Registration Statements .  Except as set forth on Schedule 6(b) , neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statements other than the Registrable Securities.  The Company shall not file any other registration statements until all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission, provided that this Section 6(b) (i) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement and (ii) shall not prohibit the Company from filing a shelf registration statement on Form S-3 for a primary offering by the Company, provided that the Company makes no offering of securities pursuant to such shelf registration statement prior to the effective date of the Registration Statement required hereunder that includes all of the Registrable Securities.




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(c)

Compliance . Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to a Registration Statement.


(d)

Discontinued Disposition .  By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “ Advice ”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed.  The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(d).


(e)

Piggy-Back Registrations . If, at any time during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans, then the Company shall deliver to each Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided , however , that the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144 (without volume restrictions or current public information requirements) promulgated by the Commission pursuant to the Securities Act or that are the subject of a then effective Registration Statement.


(f)

Amendments and Waivers . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 67% or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security).  If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided , however , that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first  sentence of this Section 6(f). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.


(g)

Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.


(h)

Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities.  Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase Agreement.



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(i)

No Inconsistent Agreements . Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.  Except as set forth on Schedule 6(i) , neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.


(j)

Execution and Counterparts . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.


(k)

Governing Law .  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.


(l)

Cumulative Remedies . The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.


(m)

Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.


(n)

Headings . The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.


(o)

Independent Nature of Holders’ Obligations and Rights . The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not asset any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder.  It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.


********************




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(Signature Pages Follow)



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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.



WESTCOTT PRODUCTS CORPORATION

 

 

 

 

 

 

 

By:

/s/ E. Will Gray II

 

 

Name: E. Will Gray II

 

 

Title: CEO and President

 












[SIGNATURE PAGE OF HOLDERS FOLLOWS]






[SIGNATURE PAGE OF HOLDERS TO WESTCOTT/DALA RRA]



Name of Holder: __________________________


Signature of Authorized Signatory of Holder : _________ /s/ _________________


Name of Authorized Signatory: _________________________


Title of Authorized Signatory: __________________________




[SIGNATURE PAGES CONTINUE]










Annex A


Plan of Distribution


Each Selling Stockholder (the “ Selling Stockholders ”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the [NAME OF principal Trading Market] or any other stock exchange, market or trading facility on which the securities are traded or in private transactions.  These sales may be at fixed or negotiated prices.  A Selling Stockholder may use any one or more of the following methods when selling securities:

·

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

·

block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

·

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

·

an exchange distribution in accordance with the rules of the applicable exchange;

·

privately negotiated transactions;

·

settlement of short sales;

·

in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;

·

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

·

a combination of any such methods of sale; or

·

any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended (the “ Securities Act ”), if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales.  Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume.  The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities.  The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).




The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales.  In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.  Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities.  The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder.  In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect.  The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution.  In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholders or any other person.  We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).



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Annex B

WESTCOTT PRODUCTS CORPORATION

Selling Stockholder Notice and Questionnaire

The undersigned beneficial owner of common stock (the “ Registrable Securities ”) of Westcott Products Corporation, a Delaware corporation (the “ Company ”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “ Commission ”) a registration statement (the “ Registration Statement ”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “ Securities Act ”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “ Registration Rights Agreement ”) to which this document is annexed.  A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below.  All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.

NOTICE

The undersigned beneficial owner (the “ Selling Stockholder ”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.




The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

QUESTIONNAIRE

1.

Name.

(a)

Full Legal Name of Selling Stockholder

 

 


(b)

Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

 

 


(c)

Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):

 

 


2.  Address for Notices to Selling Stockholder:

 

 

 

 

 

 


Telephone:

 


Fax:

 


Contact Person:

 


3.  Broker-Dealer Status:

(a)

Are you a broker-dealer?

Yes    o  No    o

(b)

If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

Yes    o  No    o

Note:

If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

(c)

Are you an affiliate of a broker-dealer?

Yes    o  No   o




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(d)

If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

Yes    o  No    o

Note:

If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

4.  Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement.

(a)

Type and Amount of other securities beneficially owned by the Selling Stockholder:


 

 

 







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5.  Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:


 

 

 




The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto.  The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.


Date:

 

 

Beneficial Owner:

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

Title:


PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:


Brunson Chandler & Jones PLLC


175 South Main Street, Suite 1500


Salt Lake City, Utah 84111


Fax: (801)355-5005


Email: callie@bcjlaw.com





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Schedule 6(b)


Shareholder Name

Amount of Shares to Be Registered

Claire Catherine Keneally

6,000

John Sebastian Keneally

6,000

Ian Matthews Keneally

6,000

Edwin C. Brown Family Trust

30,000

Able Family Trust

12,000

Baldo Sanso

36,000

Bill Pearson

12,000

Robert Redfearn

29,000

Garrett Soden

6,000

Charles Clark

6,000

Ronald Lincoln

12,000

KDND Family Trust

24,000

Robert Sali

61,000

Chris Dabbs

6,000

Phillip McPherson

6,000

Robert Pollack

6,000

Timothy Sorenson

6,000

Erin Cottman

5,000

Brian Bayley

60,000


Schedule 6(i)


No exceptions.




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Exhibit 4.2


EXHIBIT C

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.


COMMON STOCK PURCHASE WARRANT


 WESTCOTT PRODUCTS CORPORATION


Warrant Shares:________

Initial Exercise Date:  June 3, 2014


THIS COMMON STOCK PURCHASE WARRANT (the “ Warrant ”) certifies that, for value received, _____________ or its assigns (the “ Holder ”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “ Initial Exercise Date ”) and on or prior to the close of business on the three year anniversary of the Effective Date (as defined in the Purchase Agreement)(the “ Termination Date ”) but not thereafter, to subscribe for and purchase from Westcott Products Corporation, a Delaware corporation (the “ Company ”), up to ______ shares (as subject to adjustment hereunder, the “ Warrant Shares ”) of Common Stock.  The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1 .

Definitions .  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “ Purchase Agreement ”), dated June 3, 2014, among the Company and the purchasers signatory thereto.

Section 2 .

Exercise .

a)

Exercise of Warrant .  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise in the form annexed hereto and within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding






number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice.   The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

b)

Exercise Price .  The exercise price per share of the Common Stock under this Warrant shall be $1.35 , subject to adjustment hereunder (the “ Exercise Price ”).

c)

Cashless Exercise .  If at any time after the six month anniversary of the date of the Purchase Agreement, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;


(B) = the Exercise Price of this Warrant, as adjusted hereunder; and


(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.


Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).


(d)

Mechanics of Exercise .

i.

Delivery of Warrant Shares Upon Exercise .  Warrant Shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“ DWAC ”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale by the Holder pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “ Warrant Share Delivery Date ”).   The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid.  If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $15 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.



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ii.

Delivery of New Warrants Upon Exercise .  If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii.

Rescission Rights .  If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

iv.

Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise .  In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

v.

No Fractional Shares or Scrip .  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

vi.

Charges, Taxes and Expenses .  Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may



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require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.  The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

vii.

Closing of Books .  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

e)

Holder’s Exercise Limitations .  The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other  Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith.   To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.   In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant.  The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after



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giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply.  Any such increase or decrease will not be effective until the 61 st day after such notice is delivered to the Company.  The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

Section 3 .

Certain Adjustments .

a)

Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)

Subsequent Equity Sales . If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “ Base Share Price ” and such issuances collectively, a “ Dilutive Issuance ”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price.  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance.  The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “ Dilutive Issuance Notice ”).  For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised



5



c)

Subsequent Rights Offerings .  In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

d)

Pro Rata Distributions .  During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

e)

Fundamental Transaction . If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company , directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any



6



limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction.  “ Black Scholes Value ” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“ Bloomberg ”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date.  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

f)

Calculations . All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.



7



g)

Notice to Holder .

i.

Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

ii.

Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice  except as may otherwise be expressly set forth herein.

Section 4 .

Transfer of Warrant .

a)

Transferability .  Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.   Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full.   The Warrant, if



8



properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)

New Warrants . This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

c)

Warrant Register . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)

Transfer Restrictions . If , at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

e)

Representation by the Holder .  The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

Section 5 .

Miscellaneous .

a)

No Rights as Stockholder Until Exercise .  This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

b)

Loss, Theft, Destruction or Mutilation of Warrant . The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)

Saturdays, Sundays, Holidays, etc .  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

d)

Authorized Shares .

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its



9



officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e)

Jurisdiction . All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

f)

Restrictions .  The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

g)

Nonwaiver and Expenses .  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)

Notices .  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

i)

Limitation of Liability .  No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common



10



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

j)

Remedies .  The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

k)

Successors and Assigns .  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

l)

Amendment .  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

m)

Severability .  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n)

Headings .  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.


********************



(Signature Page Follows)



11





IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.


WESTCOTT PRODUCTS CORPORATION

 

 

 

 

 

 

 

By:

/s/ E. Will Gray II

 

 

Name:  E. Will Gray II

 

 

Title:  CEO and President

 







12






NOTICE OF EXERCISE


TO:

WESTCOTT PRODUCTS CORPORATION


(1)

The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)

Payment shall take the form of (check applicable box):

[  ] in lawful money of the United States; or

[ ] [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)

Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________



The Warrant Shares shall be delivered to the following DWAC Account Number:


_______________________________


_______________________________


_______________________________


(4)   Accredited Investor .  The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.


[SIGNATURE OF HOLDER]


Name of Investing Entity: _____________________________________________________________________________

Signature of Authorized Signatory of Investing Entity : _______________________________________________________

Name of Authorized Signatory: _________________________________________________________________________

Title of Authorized Signatory: __________________________________________________________________________

Date: _____________________________________________________________________________________________












EXHIBIT B


ASSIGNMENT FORM


(To assign the foregoing Warrant, execute this form and supply required information.  Do not use this form to purchase shares.)


FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to




Name:

____________________________________________

 

(Please Print)

 

 

Address:

____________________________________________

 

(Please Print)

 

 

Dated: _______________ __, ______

 

 

 

Holder’s Signature:__________________________

 

 

 

Holder’s Address:___________________________

 






Exhibit 4.3


EXHIBIT E


FORM OF LOCK-UP AGREEMENT


June 3, 2014


Each Purchaser referenced below:


Re:

Securities Purchase Agreement, dated as of June 3, 2014 (the “Purchase Agreement ”), between Westcott Products Corporation, a Delaware corporation (the “ Company ”) and the purchasers signatory thereto (each, a “ Purchaser ” and, collectively, the “ Purchasers ”)


Ladies and Gentlemen:


Defined terms not otherwise defined in this letter agreement (the “ Letter Agreement ”) shall have the meanings set forth in the Purchase Agreement.  Pursuant to Section 2.2 of the Purchase Agreement and in satisfaction of a condition of the Company’s obligations under the Purchase Agreement, the undersigned irrevocably agrees with the Company that, from the date hereof until the 12-month anniversary of the date the Merger 8-K is filed with the Commission (such period, the “ Restriction Period ”), the undersigned will not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the undersigned or any Affiliate of the undersigned or any person in privity with the undersigned or any Affiliate of the undersigned), directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act with respect to, any shares of Common Stock or Common Stock Equivalents beneficially owned, held or hereafter acquired by the undersigned (the “ Securities ”).  Beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act.  In order to enforce this covenant, the Company shall impose irrevocable stop-transfer instructions preventing the Transfer Agent from effecting any actions in violation of this Letter Agreement.  The restrictions contained in this letter agreement shall not apply to: (i) transfers of shares of Common Stock as a bona fide gift or gifts to the undersigned’s immediately family or charitable organizations, (ii) transfers of shares of Common Stock or any Common Stock Equivalent to the immediate family of the undersigned, to a trust the beneficiaries of which are exclusively the undersigned and/or a member or members of the immediate family of the undersigned or to any corporation, partnership, limited liability company or other entity all of the beneficial ownership interests of which are held exclusively by the undersigned and/or a member or members of the immediate family of the undersigned, or (iii) if the undersigned is a corporation, partnership, limited liability company or other business entity, any transfers to any shareholder, partner or member of, or owner of a similar equity interest in, the undersigned, as the case may be, if, in any such case, such transfer is not for value, provided, that in the case of any transfer or distribution pursuant to the preceding clause(s) (i), (ii) and (iii), prior to and as a condition of any such transfer or distribution, each donee, distributee or transferee shall execute and deliver to the Purchasers a lock-up letter for the remainder of the Restriction Period, in the form of this Letter Agreement.


The undersigned acknowledges that the execution, delivery and performance of this Letter Agreement is a material inducement to each Purchaser to complete the transactions contemplated by the Purchase Agreement and that each Purchaser (which shall be a third party beneficiary of this Letter Agreement) and the Company shall be entitled to specific performance of the undersigned’s obligations hereunder.  The undersigned hereby represents that the undersigned has the power and authority to execute, deliver and perform this Letter Agreement, that the undersigned has received adequate consideration therefor and that the undersigned will indirectly benefit from the closing of the transactions contemplated by the Purchase Agreement.






This Letter Agreement may not be amended or otherwise modified in any respect without the written consent of each of the Company, each Purchaser and the undersigned.  This Letter Agreement shall be construed and enforced in accordance with the laws of the State of New York without regard to the principles of conflict of laws. The undersigned hereby irrevocably submits to the exclusive jurisdiction of the United States District Court sitting in the Southern District of New York and the courts of the State of New York located in Manhattan, for the purposes of any suit, action or proceeding arising out of or relating to this Letter Agreement, and hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that (i) it is not personally subject to the jurisdiction of such court, (ii) the suit, action or proceeding is brought in an inconvenient forum, or (iii) the venue of the suit, action or proceeding is improper. The undersigned hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under the Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  The undersigned hereby waives any right to a trial by jury.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  The undersigned agrees and understands that this Letter Agreement does not intend to create any relationship between the undersigned and each Purchaser and that each Purchaser is not entitled to cast any votes on the matters herein contemplated and that no issuance or sale of the Securities is created or intended by virtue of this Letter Agreement.


By its signature below, the Transfer Agent hereby acknowledges and agrees that, reflecting this Letter Agreement, it has placed an irrevocable stop transfer instruction on all Securities beneficially owned by the undersigned until the end of the Restriction Period.  This Letter Agreement shall be binding on successors and assigns of the undersigned with respect to the Securities and any such successor or assign shall enter into a similar agreement for the benefit of the Purchasers.




*** SIGNATURE PAGE FOLLOWS***





2





This Letter Agreement may be executed in two or more counterparts, all of which when taken together may be considered one and the same agreement.



_________________________


Address for Notice:

_________________________

_________________________

_________________________



_____________________________

Number of shares of Common Stock



Number of shares of Common Stock underlying subject to warrants, options, debentures or other convertible securities


By signing below, the Company agrees to enforce the restrictions on transfer set forth in this Letter Agreement.


WESTCOTT PRODUCTS CORPORATION


By:

 

Name: E. Will Gray II

Title: President and CEO



Acknowledged and agreed to

as of the date set forth above:


American Registrar & Transfer Co.


By:

 

Name:

Title:




3



Exhibit 4.4


WESTCOTT PRODUCTS CORPORATION


INCENTIVE STOCK OPTION AGREEMENT


 

 

 

 

Name of Optionee: E. Will Gray II

 

 

 

 

 

 

 

 

No. of Shares Covered: 400,000

 

Date of Grant: June 3, 2014

 

 

 

 

 

 

Exercise Price Per Share: $0.70

 

Expiration Date: June 3, 2020

 

 

 

 

 

 

Exercise Schedule:

 

 

 

 

 

 

 

 

Date(s) of
Exercisability


May 30, 2015

May 30, 2016

May 30, 2017

May 30, 2018

 

No. of Shares as to Which
Option Becomes Exercisable


100,000

100,000

100,000

100,000

 

 

 

This is an Incentive Stock Option Agreement (“ Agreement ”) between Westcott Products Corporation (the “ Company ”), and the optionee identified above (the “ Optionee ”) effective as of the date of grant specified above.

Background


A.

The Company has entered into a Merger Agreement with Dala Petroleum Corp., a Nevada corporation, as of the Date of Grant listed above.


B.

Pursuant to the Merger Agreement, the Board of Directors of the Company (the “ Board ”) hereby grants the Option to the Optionee under the terms and conditions as follows:


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. Mountain Time on the earliest of:

(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 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 purchase 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 purchase 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 purchase price of such Shares.

(c)

Limitation on Payment by Shares.  Notwithstanding Section 6(b), the Option may not be exercised through payment of any portion of the purchase price with Shares if, in the opinion of the Committee, payment in such manner could have adverse financial accounting consequences for the Company that were not applicable at the time of the grant.




(d)

Delivery of Certificates .  As soon as practicable after the Company receives the notice and purchase 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 and the Exchange Act.


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 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 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 for one 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 .

(a)

Death or Disability .  In the event of the death or disability of the Optionee, any portion of the Option that was not previously exercisable shall become immediately exercisable in full if the Optionee shall have been continuously employed by the Company or a parent or subsidiary thereof between the date the Option was granted and the date of such death or disability.

(b)

Change in Control .  If a Change in Control 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 exercisable in full and shall remain exercisable during the remaining term of the Option.

(c)

Discretionary Acceleration .  Notwithstanding any other provisions of this Agreement to the contrary, the 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 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 years from the date of grant or within one 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 years from the date of grant or within one year from the effective date of exercise of the Option.


13.

Interpretation of This Agreement .  All decisions and interpretations made by the Committee with regard to any question arising hereunder shall be binding and conclusive upon the Company and the Optionee.


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 By Laws .  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 By Laws, 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.


The Optionee and the Company have executed this Agreement as of the 3rd day of June, 2014.



E. Will Gray II

 

  /s/ E. Will Gray II

 

WESTCOTT PRODUCTS CORPORATION

 

By

 

   Its

  





Exhibit 4.5


WESTCOTT PRODUCTS CORPORATION


INCENTIVE STOCK OPTION AGREEMENT


 

 

 

 

Name of Optionee: Clarence Cottman III

 

 

 

 

 

 

 

 

No. of Shares Covered: 100,000

 

Date of Grant: June 3, 2014

 

 

 

 

 

 

Exercise Price Per Share: $0.70

 

Expiration Date: June 3, 2020

 

 

 

 

 

 

Exercise Schedule:

 

 

 

 

 

 

 

 

Date(s) of
Exercisability


May 30, 2015

May 30, 2016

 

No. of Shares as to Which
Option Becomes Exercisable


50,000

50,000

 

 

 

This is an Incentive Stock Option Agreement (“ Agreement ”) between Westcott Products Corporation (the “ Company ”), and the optionee identified above (the “ Optionee ”) effective as of the date of grant specified above.

Background


A.

The Company has entered into a Merger Agreement with Dala Petroleum Corp., a Nevada corporation, as of the Date of Grant listed above.


B.

Pursuant to the Merger Agreement, the Board of Directors of the Company (the “ Board ”) hereby grants the Option to the Optionee under the terms and conditions as follows:


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. Mountain Time on the earliest of:

(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 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 purchase 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 purchase 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 purchase price of such Shares.

(c)

Limitation on Payment by Shares.  Notwithstanding Section 6(b), the Option may not be exercised through payment of any portion of the purchase price with Shares if, in the opinion of the Committee, payment in such manner could have adverse financial accounting consequences for the Company that were not applicable at the time of the grant.




(d)

Delivery of Certificates .  As soon as practicable after the Company receives the notice and purchase 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 and the Exchange Act.


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 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 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 for one 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 .

(a)

Death or Disability .  In the event of the death or disability of the Optionee, any portion of the Option that was not previously exercisable shall become immediately exercisable in full if the Optionee shall have been continuously employed by the Company or a parent or subsidiary thereof between the date the Option was granted and the date of such death or disability.

(b)

Change in Control .  If a Change in Control 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 exercisable in full and shall remain exercisable during the remaining term of the Option.

(c)

Discretionary Acceleration .  Notwithstanding any other provisions of this Agreement to the contrary, the 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 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 years from the date of grant or within one 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 years from the date of grant or within one year from the effective date of exercise of the Option.


13.

Interpretation of This Agreement .  All decisions and interpretations made by the Committee with regard to any question arising hereunder shall be binding and conclusive upon the Company and the Optionee.


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 By Laws .  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 By Laws, 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.


The Optionee and the Company have executed this Agreement as of the 3rd day of June, 2014.




OPTIONEE:

 

 /s/ Clarence Cottman III

Clarence Cottman III

 

WESTCOTT PRODUCTS CORPORATION

 

By

 

   Its

 





Exhibit 4.6


WESTCOTT PRODUCTS CORPORATION


INCENTIVE STOCK OPTION AGREEMENT


 

 

 

 

Name of Optionee: Jonathan S. Wimbish

 

 

 

 

 

 

 

 

No. of Shares Covered: 100,000

 

Date of Grant: June 3, 2014

 

 

 

 

 

 

Exercise Price Per Share: $0.70

 

Expiration Date: June 3, 2020

 

 

 

 

 

 

Exercise Schedule:

 

 

 

 

 

 

 

 

Date(s) of
Exercisability


May 30, 2015

May 30, 2016

 

No. of Shares as to Which
Option Becomes Exercisable


50,000

50,000

 

 

 

This is an Incentive Stock Option Agreement (“ Agreement ”) between Westcott Products Corporation (the “ Company ”), and the optionee identified above (the “ Optionee ”) effective as of the date of grant specified above.

Background


A.

The Company has entered into a Merger Agreement with Dala Petroleum Corp., a Nevada corporation, as of the Date of Grant listed above.


B.

Pursuant to the Merger Agreement, the Board of Directors of the Company (the “ Board ”) hereby grants the Option to the Optionee under the terms and conditions as follows:


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. Mountain Time on the earliest of:

(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 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 purchase 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 purchase 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 purchase price of such Shares.

(c)

Limitation on Payment by Shares.  Notwithstanding Section 6(b), the Option may not be exercised through payment of any portion of the purchase price with Shares if, in the opinion of the Committee, payment in such manner could have adverse financial accounting consequences for the Company that were not applicable at the time of the grant.




(d)

Delivery of Certificates .  As soon as practicable after the Company receives the notice and purchase 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 and the Exchange Act.


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 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 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 for one 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 .

(a)

Death or Disability .  In the event of the death or disability of the Optionee, any portion of the Option that was not previously exercisable shall become immediately exercisable in full if the Optionee shall have been continuously employed by the Company or a parent or subsidiary thereof between the date the Option was granted and the date of such death or disability.

(b)

Change in Control .  If a Change in Control 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 exercisable in full and shall remain exercisable during the remaining term of the Option.

(c)

Discretionary Acceleration .  Notwithstanding any other provisions of this Agreement to the contrary, the 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 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 years from the date of grant or within one 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 years from the date of grant or within one year from the effective date of exercise of the Option.


13.

Interpretation of This Agreement .  All decisions and interpretations made by the Committee with regard to any question arising hereunder shall be binding and conclusive upon the Company and the Optionee.


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 By Laws .  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 By Laws, 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.


The Optionee and the Company have executed this Agreement as of the 3rd day of June, 2014.



OPTIONEE:

 

/s/ Jonathan S. Wimbish

Jonathan S. Wimbish

 

WESTCOTT PRODUCTS CORPORATION

 

By

 

   Its

 





Exhibit 10.1


AGREEMENT AND PLAN OF MERGER


THIS AGREEMENT AND PLAN OF MERGER (the “Agreement” ) is made as of June 2, by and among Westcott Products Corporation, a Delaware corporation ( “Parent” ); Dala Acquisition Corp., a Nevada corporation and wholly-owned subsidiary of Parent ( “Merger Subsidiary” ); Dala Petroleum Corp., a Nevada corporation ( “Company” ) and wholly-owned subsidiary of Chisholm Partners II, LLC, a Louisiana limited liability company ( “Company Shareholder” ).  The foregoing are sometimes singly referred to as a “Party” or collectively as the “Parties .


RECITALS:


WHEREAS, Company is engaged in the business of the acquisition of oil and gas leasehold interests and intends to engage in the business of oil and gas exploration (the “Business” ); and


WHEREAS, the Boards of Directors of Parent, Merger Subsidiary and Company, Company Shareholder, as Company’s sole shareholder, Parent, as Merger Subsidiary’s sole 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 as otherwise required by applicable governing any Party (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 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 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 has 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 7 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 likely be no later than June 6, 2014 (the “ Termination Date ”) (unless such date is extended by the Parties in writing), 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., 455 East 500 South, Suite 205, Salt Lake City, Utah, or at such other place as the Parties may agree, at which time and place the Transaction Documents necessary or appropriate to effect the Merger and the transactions contemplated herein 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)

Each share of common stock of Company ( “Company Common Stock” ) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one (1) share of Parent or an aggregate of 10,000,000 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 is converted, on a one to one basis, is referred to herein as the “Merger Consideration .

(b)

Except as expressly set forth herein, each share of any other equity interest of Company will be canceled, without payment of any consideration therefor and without any conversion thereof.

(c)

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 will be canceled as of the Effective Time.

(d)

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, will be canceled, 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 and Options .

(a)

At the Closing, Company and Company Shareholder will cause the delivery of Company Shareholder’s Company Common Stock, constituting all of Company outstanding Company Common Stock, immediately prior to the Effective Time, to Parent ( “Company Shareholder’s Company Certificate”) , together with appropriate assignments signed by such holder, in exchange for 10,000,000 shares of Parent and Company Shareholder’s Company Certificate so surrendered will be canceled.  It is anticipated that Company Shareholder will thereafter transfer the 10,000,000 shares received as Merger Consideration to its members on a pro rata basis, subject to compliance with applicable securities laws, rules and regulations.

(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 will be deemed to have been issued in full satisfaction of all rights pertaining to such Company Common Stock.

(c)

As of the Effective Time, the holder of Company Shareholder’s Company Certificate representing shares of Company Common Stock will cease to have any rights as a Company Shareholder, except such rights, if any, as it may have pursuant to the NRS.  Except as provided above, until such Company Shareholder’s Company Certificate is surrendered for exchange, each such Company Certificate will, 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 will be issued upon the surrender for exchange of Company Certificates; no dividend or other distribution of Parent will relate to any fractional share; and such fractional share will not entitle the holder thereof to vote or to any rights of a shareholder of Parent.  All fractional shares of Parent Common Stock to which a holder of Company Common Stock immediately prior to the Effective Time would otherwise be entitled, at the Effective Time, will be aggregated if and to the extent multiple Company Certificates of such holder are submitted together to Parent.  If a fractional share results from such aggregation, then such fractional share will be rounded up to the nearest whole share and each holder of shares of Company Common Stock interests who otherwise would be entitled to receive such fractional share of Parent Common Stock will receive one whole share in lieu of such fractional share, as applicable.

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 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 Clancy Cottman and Jon Wimbish to Parent’s Board of Directors, and thereafter, the current directors of Parent shall resign, in seriatim, effective as of the Effective Time, and the following officers shall be appointed as officers of Parent by the present or new directors of Parent: E. Will Gray II, as Chief Executive Officer; and Callie Tempest Jones, Esq. as Secretary.

1.9

Parent Common Stock and other Parent Securities Outstanding Immediately Prior the Closing of Merger .  Immediately prior to the Closing of the Merger, Parent shall have not more than 2,500,000 outstanding shares of Parent Common Stock, and no options, warrants, calls or other rights to acquire authorized but unissued Parent Common Stock or other securities of Parent shall be outstanding.


1.10

Completion of Private Placement and Escrow of Funds, the Release of which shall be subject only to the Closing and the Effective Date of the Merger .  Prior to and as a condition precedent to Closing of the Merger, Parent shall have caused to be raised in a private placement offering no less than $2,000,000 ( “Parent Private Offering” or the “Offering” ), all funds of which shall be held in escrow by a person or persons satisfactory to Parent and Company until the minimum Offering amount is raised, at which time the Closing of the Merger shall occur and the funds raised shall be released forthwith to Parent, on the Effective Time.  A description of the Offering terms of Parent Private Offering is outlined in Sections 5.4(c) and 6.4(d) hereof, in the conditions of the respective Parties to the Closing of the Merger.






ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF COMPANY AND COMPANY SHAREHOLDER

Company and Company Shareholder hereby represents and warrants to Parent and Merger Subsidiary as follows:


2.1

Disclosure Schedule .  The disclosure schedule attached hereto as Exhibit 2.1 ( “Company Disclosure Schedule” ) is divided into sections 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  Company Disclosure Schedule.  The number of shares of Company Common Stock outstanding as of the date of this Agreement and the Options granted under Company 2014 Equity Incentive Plan and as set forth in Company Disclosure Schedule represents all of the issued and outstanding capital securities of Company.  All issued and outstanding shares of Company Common Stock and Options are duly authorized, validly issued, fully paid and nonassessable (subject only to the terms of further payment on exercise of the respective Options being fully satisfied) and are without, and were not issued in violation of, preemptive rights.  There are no other 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 .  Each of Company and Company Shareholder 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 Company Shareholder and is the valid and binding legal obligation of each Company and Company Shareholder enforceable against each 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;






(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 audited financial statements of Company from inception on January 17, 2014, to ­­­­­­­­­­­­­­­­­­­May 21, 2014 ( “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: (a) Liabilities that are fully reflected or reserved for in Company Financial Statements; (b) Liabilities that are set forth on Company Disclosure Schedule; (c) Liabilities incurred by Company in the ordinary course of business after the date of Company Financial Statements and consistent with past practice; (d) Liabilities in an amount not to exceed $5,000 individually or in the aggregate unless such amounts are disclosed on Company Disclosure Schedule; or (e) 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 the date of the execution of this Agreement, 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 .

(c)

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.

(d)

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, tradenames, 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: (a) Company does not own or use any Intellectual Property Rights pursuant to any written license agreement; (b) 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 (c) 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 .

(e)

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;

(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.

(f)

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.






2.16

Brokers .  Except as otherwise set forth in Section 2.16 of Company Disclosure Schedule, neither Company nor, to the knowledge of Company, any of the its directors, officers or employees, 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 for any such fee or commission to be claimed by any person or entity.

2.17

Issuance of Parent Common Stock .  To Company’s knowledge, as of the date of this Agreement and as of the Effective Time, no facts or circumstances exist or will exist that could cause the issuance of Parent Common Stock pursuant to the Merger to fail to meet the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act” ), and the General Rules and Regulations of the Securities and Exchange Commission (the “SEC” ) promulgated thereunder.

2.18

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.

2.19

Business Generally; Accuracy of Information .  No representation or warranty made by Company or Company Shareholder 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, including any information about Company and Company  Shareholder contained in the Private Placement Memorandum to be utilized in the Parent Private Offering, 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.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUBSIDIARY

Parent and Merger Subsidiary represent and warrant to Company as follows:


3.1

Disclosure Schedule .  The disclosure schedule attached hereto 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 board 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 Parent Disclosure Schedule.  The number of shares of Parent Common Stock, 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 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 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 and 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.




3.7

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.

3.8

Financial Statements .

(a)

The financial statements of Parent consisting of audited financial statements for the fiscal years ended September 30, 2013, and 2012, and interim unaudited financial statements for the quarter ended March 31, 2013 (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 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.

3.9

No Liabilities .  Parent does not have any Liabilities, except for (i) Liabilities expressly stated in the most recent balance sheet, or (ii) other Liabilities which do not exceed $5,000 in the aggregate, except as set forth in Parent Disclosure Schedule in Section 3.9 thereof.

3.10

No Assets .  As of the Closing, Parent will not have any assets or operations of any kind, except as identified in the most recent balance sheet and notes thereto of Parent Financial Statements and as included in Parent Disclosure Schedule.

3.11

Absence of Certain Changes .  Parent has owned and operated the assets, properties and business that it has owned 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 Parent.

3.12

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.

3.13

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.

3.14

No Broker or Finder .  No broker, finder or investment banker is entitled to any brokerage, finder’s 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.






3.15

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” ), the Consent of Directors of Parent approving the Merger or Parent Disclosure Schedule, there are, and during the last two 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, stockholder, 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.

3.16

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.

3.17

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 during the past 12 months.  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;

(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 $5,000 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 $5,000 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 canceled 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 canceled, terminated or lapsed are in full force and effect;

(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 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 Schedules .  Prior to the Closing, each Party will supplement or amend their respective Disclosure Schedules 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 such Disclosure Schedules or which is necessary to correct any information in such Disclosure Schedules or in any representation and warranty of Company or Parent, 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 their Disclosure Schedules, except to the extent such information is delivered prior to Closing.

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 officers and directors of Parent 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, those persons indicated in Section 1.8(b), effective as of the Closing.  To the extent deemed required or necessary by Parent, Parent will have complied with the applicable provisions of SEC Rule 14f-1 promulgated under the Exchange Act in respect of the election of the new directors of Parent.

4.10

8-K Current Report .  Within four (4) business days of the Effective Time of the Merger, Parent, through the primary efforts of Company and its counsel, will cause the required 8-K Current Report on SEC Form 8-K to be filed with the SEC (the “8-K Current Report” ), which shall include Company Financial Statements, along with unaudited pro forma balance sheets, income statements and related footnotes showing the effects of the Merger among the Parties for the financial periods required by Regulation S-K and Regulation S-X of the SEC and Form 8-K of the SEC, along with the “Form 10 Information” outlined in subparagraph (i) of SEC Rule 144.

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.




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 Company and 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, and any required consent of holders of Company Options shall have been obtained.

(b)

All Consents of or from all Authorities 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 and 5.7 have been duly satisfied;

(b)

a Joint or Singular consent (respectively, in the form of Exhibit 5.4(b)(i) and Exhibit 5.4(b)(ii))  of Unanimous Written Consent of Company Board of Directors and of Company Shareholder approving the Merger, among other provisions thereof, executed by all members of Company Board of Directors and Company Shareholder;

(c)

Parent Private Placement Offering shall consist of a unit comprised of one (1) share of Parent’s Series A 6% Convertible Preferred Stock and 1,429 three (3) year warrants to acquire 1,429 additional shares of Parent Common Stock (computed on a one warrant for one share basis for each share of common stock that can be acquired on conversion of such Series A 6% Convertible Preferred Stock at the initial conversion price of $0.70 per share) at an exercise price of $1.35 per share (subject to adjustment as set forth in the warrant) at an Offering price of $1,000 per unit (the “Unit”). Parent shall have raised not less than $2,000,000 from the sale of the Units (the minimum Offering) to persons who are “accredited investors” or non-“U.S. Persons” in consideration of the issuance of a minimum of 2,000 Units up to a maximum of 2,500 Units.  Each share of the Series A 6% Convertible Preferred Stock shall be convertible at any time at the option of the holder into Parent Common Stock at the conversion price of $0.70 per common share (subject to adjustment as set forth in the Series A 6% Convertible Preferred Stock Certificate of Designation). Not less than $2,000,000 shall have been placed in escrow with a person or persons satisfactory to Parent and Company with the release of such funds being subject only to the Closing and Effective Time of the Merger, without further qualification (“Parent Private Offering”).  In the case of an over subscription of Units, Parent may increase the Units being offered to a maximum of 2,775 Units;

(d)

Jenson Services, Inc., a Utah corporation and a shareholder of Parent (“Jenson Services”), shall have deposited 200,000 shares of Parent Common Stock with Company counsel to be held for two (2) years as security for any claim against Parent related to its outstanding capitalization or Parent’s representations and warranties contained in Section 3 hereof in accordance with the Escrow Agreement in the form of Exhibit 5.4(d) ; and

(e)

Company Shareholder shall have executed the Company Shareholder Representations and Warranties in the form of Exhibit 5.4(e) .

5.5

Adverse Changes .  No material adverse change will have occurred in the business, financial condition, prospects, assets or operations of Company since the date of execution of this Agreement, 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 .  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.

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 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 stockholders 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 and 6.7 have been duly satisfied;

(b)

a Joint or Singular Company Board of Director’s and Company  Shareholder’s Written Consent to Merger, among other provisions thereof, in the form of Exhibit 5.4(b)(i) or 5.4(b)(ii) executed by all members of Company Board of Directors and Company Shareholder;




(c)

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 to in Section 1.8(b) of this Agreement or as otherwise required to complete the transactions contemplated hereby;

(d)

Parent Private Placement Offering shall consist of a unit comprised of one (1) share of Parent’s Series A 6% Convertible Preferred Stock and 1,429 three (3) year warrants to acquire 1,429 additional shares of Parent Common Stock (computed on a one warrant for one share basis for each share of common stock that can be acquired on conversion of such Series A 6% Convertible Preferred Stock at the initial conversion price of $0.70 per share) at an exercise price of $1.35 per share (subject to adjustment as set forth in the warrant) at an Offering price of $1,000 per unit (the “Unit”). Parent shall have raised not less than $2,000,000 from the sale of the Units (the minimum Offering) to persons who are “accredited investors” or non-“U.S. Persons” in consideration of the issuance of a minimum of 2,000 Units up to a maximum of 2,500 Units.  Each share of the Series A 6% Convertible Preferred Stock shall be convertible at any time at the option of the holder into Parent Common Stock at the conversion price of $0.70 per common share (subject to adjustment as set forth in the Series A 6% Convertible Preferred Stock Certificate of Designation). Not less than $2,000,000 shall have been placed in escrow with a person or persons satisfactory to Parent and Company with the release of such funds being subject only to the Closing and Effective Time of the Merger, without further qualification (“Parent Private Offering”).  In the case of an over subscription of Units, Parent may increase the Units being offered to a maximum of 2,775 Units;

(e)

Jenson Services, a shareholder of Parent, shall have deposited 200,000 shares of Parent Common Stock with Company counsel to be held for two (2) years as security for any claim against Parent related to its outstanding capitalization or Parent’s representations and warranties contained in Section 3 hereof in accordance with the Escrow Agreement in the form of Exhibit 5.4(d) ;

(f)

Parent shall have executed the Employment Agreement of E. Will Gray II in the form of Exhibit 5.4(f ), to be effective on the Effective Time; and

(g)

Parent shall have executed the director and employee stock option agreements in the forms of Exhibit 5.4(g)(i), (ii) and (iii) , to be effective on the Effective Time.

6.5

Adverse Changes .  No material adverse change will have occurred in the business, financial condition, prospects, assets or operations of Parent since December 31, 2012, except as set forth in Parent Disclosure Schedule or incurred in the ordinary course of business and consistent with past practice.

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
TERMINATION AND ABANDONMENT

7.1

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

7.2

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 7.2 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).

7.3

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.

7.4

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.

7.5

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 7, 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

(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 8
MISCELLANEOUS  PROVISIONS

8.1

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.

8.2

Survival .  Excepting only the obligations of Jenson Services mentioned in Sections 5.4(d) and 6.4(e) and as specifically contained in Exhibit 5.4(d) , the representations and warranties of the Parties shall survive the Closing for a period of one (1) year.

8.3

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.






8.4

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.

8.5

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.

8.6

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 8.6.

If to Company or Company Majority

Shareholders Prior to the Merger:

With a copy to:

 

 

Dala Petroleum Corp.

Clarence Cottman II, Managing Partner

1010 10th Street

Golden, Colorado 80401

Callie Tempest Jones, Esq.

175 South Main Street

Fifteenth Floor

Salt Lake City, Utah 84111


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 8.6.


If to Parent or Merger Subsidiary Prior to

the Merger:

With a copy to:

 

 

Westcott Products Corporation

Wayne Bassham

8867 South Capella Way

Sandy, Utah  84093

Leonard W. Burningham, Esq.

455 East 500 South, Suite 205

Salt Lake City, Utah  84111

Facsimile No.:  801-355-7126


or to such other person or address as Parent will furnish to the other Parties hereto in writing in accordance with this Section 8.6.


8.7

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.

8.8

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.

8.9

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.




8.10

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.

8.11

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.  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.

8.12

Disputes .  Notwithstanding anything contained herein to the contrary, in the case of any dispute which arises out of or relating to this Agreement or the relationship of the Parties, which the Parties cannot resolve amicably between themselves, a mediator agreeable to both Parties shall be selected to assist in resolving the dispute provided that the mediation shall be held within sixty (60) days of the notice by one Party that mediation is required.  Fees for such mediation will be split equally between the Parties.  If any such dispute cannot be resolved through mediation within such sixty (60) day period, any and all claims and actions arising out of or relating to this Agreement or relationship of the Parties, shall be exclusively arbitrated in Midland, Texas, in accordance with the then prevailing rules and regulations of the American Arbitration Association, which proceedings shall be final and binding on the Parties, and strictly confidential. Attorneys’ fees for such arbitration of the prevailing Party will be paid by the other Party. Neither the existence of such proceedings nor the results thereof shall be disclosed to any third party, unless expressly required by law.


8.13

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.


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



WESTCOTT PRODUCTS CORPORATION

 

DALA PETROLEUM CORP.

 

 

 

 

 

By:

/s/ Wayne Bassham

 

By:

/s/ E. Will Gray II

 

Wayne Bassham, President

 

 

E. Will Gray II, President

 

 

 

 

 

DALA ACQUISITION CORP.

 

CHISHOLM PARTNERS II, LLC

 

 

 

 

 

By:

/s/ Wayne Bassham

 

By:

/s/ Clancy Cottman III

 

Wayne Bassham, President

 

 

Clancy Cottman III, Managing

 

 

 

 

Member





EXHIBIT 2.1


Company Disclosure Schedule








EXHIBIT 3.1


Parent Disclosure Schedule








EXHIBIT 5.4(b)(i) or (ii)


Joint or Singular Company Board of Directors’ and Company Shareholder’s Written Consent to Merger








EXHIBIT 5.4(d)


Jenson Services Escrow Agreement








EXHIBIT 5.4(e)


Company Shareholder Representations and Warranties









Exhibit 6.4(f)


E. Will Gray II Employment










Exhibits 6.4(g)(i), (ii) and (iii)


Forms of Director and Employee Stock Option Agreements



Exhibit 10.2



MASTER SERVICE AGREEMENT


In consideration of the mutual covenants set forth herein, Dala Petroleum Corp., a Nevada corporation (“Company”) and Chisholm Partners II LLC, a Louisiana limited liability company (“Contractor”) (the Company and the Contractor may be referred to herein individually as a “Party” and collectively as the “Parties”), hereby enter into this Master Service Agreement (“MSA”), effective this 3rd day of June, 2014 to read as follows:


RECITALS :


WHEREAS , the Company is engaged in the business of acquiring, developing, drilling, operating, servicing and maintaining oil and gas wells and properties and producing oil and gas; and in the course of such operations regularly and customarily enters into contracts with independent contractors for the performance of various services relating thereto; and


WHEREAS , the Contractor represents that it has personnel capable of developing, drilling, operating, servicing and maintaining oil and gas wells and properties and in producing oil and gas, and, without limiting the generality of the foregoing, has experience in developing, operating, servicing and maintaining oil and gas projects within the State of Kansas, and desires to act as an independent contractor for the Company;


NOW, THEREFORE , the Parties hereto agree as follows:


1.

Services .  This Agreement shall control and govern all work and services performed by Contractor for Company under written or oral work orders or agreements. This Contract shall control and govern all work, services and related activities agreed to be done by Contractor and shall define the rights, liabilities, and obligations of Company and Contractor during the term hereof.  It is agreed that any work shall be deemed to incorporate all terms and provisions of this Agreement and the terms of this Agreement shall control over any inconsistent provisions of any such work.


2.

Fees and Payment Terms .  The prices, rates, or amounts to be paid by Company, including labor rates, shall be those specified on Exhibit “A” attached hereto, unless modified by the written agreement. Contractor shall invoice Company following the 15th day of the month and/or the last day of the month.  Company shall pay Contractor’s invoice within 15 days of receipt.


3.

Taxes .  Contractor agrees to pay all taxes, licenses, and fees levied or assessed on Contractor by any governmental agency, in connection with or incident to the performance of this Contract, and all unemployment compensation insurance, old age benefits, Social Security, or any other taxes upon the payments made to Contractor, or the wages paid to its agents, employees, and representatives.  Contractor agrees to require the same agreements and to be liable for any breach of such agreements by any of its subcontractors.  Contractor agrees to reimburse Company on demand for all such taxes or governmental charges which Company may be required or deem it necessary to pay on account of employees of Contractor or its subcontractors.  Contractor agrees to furnish Company with the information required to enable it to make the necessary reports and to pay such taxes or charges.


4.

Term of Agreement/Termination .  This Agreement will commence on the date set forth above, and will remain in full force and effect continuously thereafter for twelve (12) months. Thereafter, until either party may terminate this Agreement by giving the other Party a minimum of thirty (30) days written notice; however, no such termination shall be effective until any and all services in progress under any applicable work orders are either satisfactorily completed or terminated by Company.






5.

Confidentiality .  Confidential Information means technical, economic, financial, pricing, marketing, leasing, acquisition or other information of the Company that has not been published or is not otherwise available to members of the public.  Contractor agrees to hold as confidential and to not disclose to others Confidential Information obtained from Company.  Contractor agrees not to use Confidential Information to compete with Company, or for any other purpose outside the scope of services performed under this Agreement.  Confidential Information does not include information that (i) the Contractor had in its possession prior to Company’s disclosure, (ii) becomes public knowledge through no fault of the Contractor, (iii) the Contractor lawfully acquires from a third party not under an obligation of confidentiality to the Company, (iv) Contractor independently develops, or (v) is required to be disclosed by law or court order.


6.

Compliance with Laws/Warranty .  Company and Contractor agree to comply with all federal, state and local laws, rules and regulations which are now or may become applicable to operations covered by this Agreement and any work order issued in connection herewith.  If any of the terms hereof are in conflict with any such applicable law, rule or regulation, the terms of this Agreement so in conflict shall not apply and said rule, regulation, or law shall prevail.  Contractor warrants that its workmanship, services and material shall be of the highest quality, and shall repair or replace, at Contractor’s expense, any defects in Contractor’s work arising within one year thereof.  The warranty for equipment and materials provided by Contractor shall be limited to the warranty provided by the equipment/material manufacturer, which is hereby assigned by Contractor to Company.


7.

Waiver of Consequential Damages .  Notwithstanding any other terms in this Agreement to the contrary, neither party, nor their parent, affiliated or subsidiary companies, nor the officers, directors, agents, employees or contractors of any of the foregoing, shall be liable to the other in any action or claim for incidental, indirect, special, collateral, consequential, exemplary or punitive damages arising out of or related to the services provided hereunder, including without limitation, loss of profits, loss of opportunity, loss of production, or loss of use.  Any protection or limitation against liability for any losses or damages afforded any individual or entity by this Agreement shall apply whether the action in which recovery of damages is sought is based upon contract, tort, and statute or otherwise.  To the extent permitted by law, any statutory remedies inconsistent with these terms are waived.


8.

Insurance .  At any and all times during the term of this Agreement, Contractor agrees to carry insurance with an insurance carrier or carriers reasonably satisfactory to Company.


9.

Indemnity .  If any claims, demands, suits and/or causes of action are ever asserted against Company, its co-lessees, partners, joint venturers, or their respective affiliates, subsidiaries, officers, directors, and employees (all of which are hereinafter referred to as the “Indemnified Company Parties”) or their respective insurers for (1) illness of, injury to and/or death of any employees of Contractor [even if only nominally employed by Contractor and deemed in fact or at law to be (or also to be) employees of Company], for (2) illness of, injury to and/or death of Contractor’s contractors or subcontractors or their respective employees, or for (3) damage to or loss of any and all property, equipment, materials and vessels owned, operated, rented, leased or chartered by Contractor, by Contractor’s contractors, by Contractor’s subcontractors, or by their respective employees, Contractor will fully and unconditionally release, protect, defend, indemnify and hold harmless the Indemnified Company Parties and their respective insurers, even if said claims, demands, suits and/or causes of action arise, in whole or in part, from negligence, strict liability, and/or unseaworthiness (pre-existing or otherwise) attributable to the Indemnified Company Parties.  The sole restriction on the above is that the aforesaid claims, demands, suits and/or causes of action must have arisen out of, be related to, and/or be incidental to, in any way, the work, service or equipment covered by this Agreement or any work order issued in connection herewith.




2





If any claims, demands, suites and/or causes of action are ever asserted against Contractor, its employees and vessels (all of which are hereinafter in this Section referred to as the “Indemnified Contractor Parties”) or their respective insurers for (1) illness of, injury to and/or death of any employees of Company, or for (2) damage to or loss of any and all property, equipment, materials and vessels owned by Company, Company will fully and unconditionally release, protect, defend, indemnify and hold harmless the indemnified Contractor Parties and their respective insurers, even if said claims, demands, suits and/or causes of action arise, in whole or in part, from negligence, strict liability, and/or unseaworthiness (pre-existing or otherwise) attributable to the Indemnified Contractor Parties.  The sole restriction on the above is that the aforesaid claims, demands, suits and/or causes of action must have arisen out of, be related to, and/or be incidental to, in any way, the work, service or equipment covered by this Agreement or any work order issued in connection herewith.


Company’s above assumed release, defense and indemnity obligations shall not include Contractor’s defense and indemnity obligations to Parties not included in the definition of Indemnified Company Parties.  Contractor’s above assumed release, defense and indemnity obligations shall not include Company’s defense and indemnity obligations to Parties not included in the definition of Indemnified Contractor Parties.  However, in the event that both Company and Contractor owe defense and indemnity obligations to the same Party, Contractor will satisfy Contractor’s obligations to said Party without seeking recoupment, sharing, or other recovery from Company or Company’s insurers.


9.

Patent/License Indemnification .  In addition to all other indemnifying provisions contained herein, Contractor represents and warrants that the use or construction of any and all tools and equipment furnished by Contractor and used in the work provided for herein does not infringe on any license or patent which has been issued or applied for, and Contractor agrees to defend, indemnify and hold the Indemnified Company Parties harmless from any and all claims, demands, and causes of action of every kind and character in favor of or made by any patentee, licensee, or claimant of any right or priority to such tool or equipment, or the use or construction thereof, which may result from or arise out of furnishing or use of any such tool or equipment by Contractor in connection with the work under this Agreement and applicable work orders.


10.

Independent Contractor Status .  Except as set forth in Section 14(b) below, the actual performance and superintendence of all work hereunder shall be by Contractor, but Company and its representatives shall have unlimited access to the operations to determine whether work is being performed by Contractor in accordance with the provisions of this Agreement and the applicable work order or purchase order.  Contractor shall be an independent contractor with respect to the performance of all work hereunder, and neither Contractor nor anyone employed by Contractor shall be deemed for any purpose to be the employee, agent, servant, or representative of Company in the performance of any work or service or part thereof in any manner dealt with hereunder.  Company shall have no direction or control of Contractor or its employees and agents except with respect to the results to be obtained.  The work contemplated herein shall meet the approval of Company and be subject to the general right of inspection for Company to secure the satisfactory completion thereof; however, neither Company 's failure to inspect nor failure to discover any deficiencies shall relieve Contractor of any representation, warranty or obligation at law, under this Agreement, or otherwise.  Notwithstanding the foregoing, Contractor shall remove from work on behalf of Company hereunder any employee of Contractor who is convicted of a crime involving moral turpitude or who comes to work intoxicated or under the influence of a controlled substance.


11.

Hiring Practices .  Except to the extent that this Agreement and the work performed hereunder may be exempt therefrom, Contractor agrees to comply with the provisions of all applicable state, federal and local requirements and regulations on hiring practices and employment.


12.

Liens .  Contractor agrees to pay all just claims for labor, materials and supplies furnished by Contractor hereunder and to allow no lien or charge to become fixed upon any property of Company excepting those liens or charges resulting from Company’s breach of its payment obligations. Contractor shall furnish to Company, at Company’s request, a notarized affidavit that all payments to subcontractors and vendors have been made or are in the process of being paid.





3




13.

Assignment .  Contractor will not assign or subcontract this Agreement, or any part thereof, without the prior written consent of Company.


14.

Default . In the event Contractor shall fail to carry out its duties under this Agreement, Company may give Contractor written notice specifying the failure or default and the period of time within which Contractor will be required by correct such failure or default in a manner satisfactory to Company.


15.

Entire Agreement/Modifications .  This is the entire agreement between Company and Contractor.  No modification or alteration of this Agreement will be effective unless made in writing and signed by both parties hereto.


16.

Governing Law .  This Agreement is to be considered as having been executed in the State of Colorado and the parties agree that Colorado law will govern this Agreement.


17.

Waiver .  No waiver by Company of any of the terms, provisions or conditions hereof shall be effective unless said waiver shall be in writing and signed by an authorized representative of Company, and no one waiver or multiple waivers shall be construed to cause or constitute any other waiver whatsoever.


18.

Notices .  All notices to be given with respect to this Agreement and applicable work orders unless otherwise provided for shall be given to Company at:


Dala Petroleum Corp.

112 Loraine South

Suite 266

Midland, Texas 79701

Attn:  CEO

Phone:

(XXX) XXX-XXXX

Fax:

(XXX) XXX-XXXX


and to Contractor at:


Chisholm Partners II, LLC


1010 10 th Street

Golden, CO 90401

Attn:  Managing Director

Phone:

(805) 268-2281


E Mail: bggumma@gmail.com




4




All sums payable hereunder to Contractor shall be payable at Contractor’s address above unless otherwise specified herein or in the applicable work order.




DATED:  June 3, 2014


Contractor

 

Company

 

 

 

 

 

Chisholm Partners II, LLC

 

Dala Petroleum Corp.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 /s/ Clarence Cottman III

 

By:

  /s/ E. Will Gray

 

 

 

 

 

 

 

 

 

 

Clarence Cottman III

 

E. Will Gray, CEO



















5






EXHIBIT A – FEE SCHEDULE


The Contractor shall be paid $25,000 upon the signing of this agreement and $25,000 per month for its Services and reimbursed for any and all direct expenses incurred by Contractor in performing its duties and obligations under this MSA.



6



Exhibit 10.3




OPTION PARTICIPATION AGREEMENT


Chisholm Partners II LLC, a Louisiana limited liability company (“Chisholm”) and Dala Petroleum Corp., a Nevada corporation (“Dala”), (Chisholm and Dala may be referred to herein individually as “Party” and collectively as “Parties”), hereby enter into this Option Participation Agreement (“OPA”), effective May           2014, to wit:


WHEREAS , Chisholm is in the business of developing and drilling oil and/or gas wells; and


WHEREAS , Dala has capital and desires to participate as a non-operator in the drilling for oil and/or gas;


NOW, THEREFORE , the Parties hereto agree in consideration of the mutual covenants set forth herein, the receipt and sufficiency of which are hereby acknowledged, as follows:


1. Option. Chisholm  hereby grants to Dala the option (the “Option”) to participate for up to twenty-five percent (25%) of Chisholm’s share of each drilling operation in search of oil and/or gas in the State of Kansas undertaken by Chisholm on the same basis as Chisholm; i.e. , if Chisholm acquires a drilling opportunity for $10,000 and Dala elects to participate for 25%, Dala shall pay to Chisholm  twenty-five (25.0%) percent of $10,000 for its interest, which interest shall be subject to 25% of any burdens placed on Chisholm’s interest.


2. Election. Within five days after Chisholm elects to participate in any such drilling operation, it shall give Dala written notice thereof, which notice shall include the cost thereof to Dala, and Dala shall have seventy-two (72) hours from receipt of such notice within which to exercise its Option by giving Chisholm written notice thereof, together with its payment of its proportionate share of the cost charged to Chisholm to participate in such drilling opportunity.  Dala’s failure to timely exercise its option shall be deemed ipso facto a decision not to exercise that Option.


3. Assignment. This OPA may not be assigned by Dala without the written consent of Chisholm.


4. Governing Law. This OPA is to be considered as having been executed in the State of Colorado and the Parties agree that Colorado law will govern.


5. Termination .  This agreement shall terminate and be of no future force and effect one year from the date hereof unless extended by mutual agreement.







6. Notices. All notices to be given with respect to this OPA and applicable participation shall be by email, unless otherwise provided for as follows:




Chisholm Partners II LLC

1010 10 th Street

Golden, CO 80401


Attention: Managing Director


Phone: (805) 268-2281

Email address: bgumma@gmail.com



Dala Petroleum Corp.


112 Loraine South, Suite 266, Midland, Texas 79701






Thus done and signed this _______________ day of May, 2014.




CHISHOLM PARTNERS II LLC

 

DALA PETROLEUM CORP.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

By:

 

 

William Gumma, Managing Director

 

 

E. Will Gray, CEO






Exhibit 10.4



ASSIGNMENT OF OIL, GAS & MINERAL LEASES



STATE OF KANSAS

§

§

COUNTY OF ____________

§



KNOW ALL MEN BY THESE PRESENTS:


THAT, CHISHOLM PARTNERS II, a KANSAS LIMITED LIABILITY CORPORATION, whose mailing address is 1010 10 th ST., GOLDEN, CO, 80401, hereinafter referred to as " Assignor ,"  for One Hundred Dollars and No/100 ($100.00) cash, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby assign, grant, transfer, convey and deliver unto Dala Petroleum Corp., a Nevada corporation, whose mailing address is 1306 West Ohio Ave., Midland, Texas  79701, hereinafter referred to as " Assignee, " all of Assignor's rights, title and interest in and to those certain Oil, Gas and Mineral Leases affecting those certain lands situated in ________________ County, Kansas and more particularly described on Exhibit "A" attached hereto and made a part hereof, hereinafter referred to as “Said Leases.”


TO HAVE AND TO HOLD unto said Assignee, subject to the following terms and provisions:


1.

Assignor hereby binds itself to warrant and forever defend the title to Said Leases against all persons whomsoever claiming the same or any part thereof, by, through or under Assignor, but not otherwise.


2.

All terms and provisions hereof shall be binding upon, and inure to the benefit of Assignor and Assignee, their heirs, successors and assigns.


3.

This Assignment is made subject to the terms and provisions of Said Leases, and Assignee agrees to be bound thereby and to indemnify and hold Assignor harmless in connection with any and all obligations relative thereto, the same as though Assignee had originally been named as Lessee in Said Leases.


This instrument may be executed in any number of counterparts and shall be binding on each party executing the same to the same extent as if all parties had executed one instrument.  Such counterparts may be recorded separately or may be combined to form one instrument for recording purposes.



Effective this 21st day of May, 2014.



ASSIGNOR:

 

 

 

 

 

 

 

 

 

By:

/s/Clarence Cottman

 

 

 

NAME:

Clarence Cottman

 

 

TITLE:

Managing Director





STATE OF ____________

§

§

COUNTY OF __________

§


This instrument was acknowledged before me the undersigned authority on this the _____________________ day of _________, 20__ by ________________, as ________ of __________________________________, on behalf of said corporation.



NOTARY PUBLIC

 












STATE OF ____________

§

§

COUNTY OF __________

§


This instrument was acknowledged before me the undersigned authority on this the _____________________ day of _________, 20__ by ________________, as ________ of __________________________________, on behalf of said corporation.



NOTARY PUBLIC

 























Exhibit A


LEASE SCHEDULE


Attached to and made a part of that certain Assignment of Oil, Gas & Mineral Lease dated __________________________ by and between ___________ as Assignor and ______________________________, as Assignees.






2



Exhibit 10.5


SCHEDULE OF OIL & GAS LEASE PROPERTIES


Type

 

Check Date

 

Check Num

 

Sorted by

County

 

Name

 

Net Acres

 

Term

 

Effective Date

 

Debit

 

Balance

 

Lease

Confirmation

 

Check

Confirmation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIRECT OIL LEASE PURCHASES BY CHISHOLM PARTNERS II, LLC AND ASSIGNED TO DALA PETROLEUM CORP. ON MAY 21, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Check

 

05/18/2012

 

1216

 

Clay County

 

Walter & Evelyn Mugler, Trustees

 

481 acres

 

5 years

 

05/18/2012

 

12,025.00

 

12,025.00

 

üü

 

üü

Check

 

09/28/2012

 

1343

 

Clay County

 

Douglas Matson, Trustee

 

130 acres

 

5 years

 

09/28/2012

 

3,250.00

 

15,275.00

 

üü

 

üü

Check

 

10/05/2012

 

1426

 

Clay County

 

Harold B. Matson

 

32.5 acres

 

5 years

 

09/28/2012

 

812.50

 

16,087.50

 

üü

 

üü

Check

 

10/05/2012

 

1348

 

Clay County

 

Wayne F. Matson

 

144 acres

 

5 years

 

09/28/2012

 

1,625.00

 

17,712.50

 

üü

 

üü

Check

 

10/07/2012

 

1427

 

Clay County

 

Virginia J. Cox & Douglas Cox Trustees

 

65 acres

 

5 years

 

09/28/2012

 

1,625.00

 

19,337.50

 

üü

 

üü

Check

 

10/08/2012

 

1428

 

Clay County

 

Delaine K. Gifford

 

32.5 acres

 

5 years

 

09/28/2012

 

812.50

 

20,150.00

 

üü

 

üü

Check

 

10/17/2012

 

1432

 

Clay County

 

Jean Baker

 

124 acres

 

5 years

 

10/17/2012

 

3,100.00

 

23,250.00

 

üü

 

üü

Check

 

10/27/2012

 

1434

 

Clay County

 

Muriel Lee Wood Beaver

 

163 acres

 

5 years

 

10/27/2012

 

4,075.00

 

27,325.00

 

üü

 

üü

Check

 

11/03/2012

 

1437

 

Clay County

 

Harry L. Brumbaugh, Trustee

 

59 acres

 

5 years

 

11/03/2012

 

1,475.00

 

28,800.00

 

üü

 

üü

Check

 

11/03/2012

 

1436

 

Clay County

 

Marjorie M. Brumbaugh, Trustee

 

59 acres

 

5 years

 

11/03/2012

 

1,475.00

 

30,275.00

 

üü

 

üü

Check

 

11/14/2012

 

1443

 

Clay County

 

Wendelken Farms, LLC