SECURITIES PURCHASE AGREEMENT

(Signature Page)

 

PETROSONIC ENERGY, INC.

57 Valley Woods way NW

Calgary, AB CANADA

T3B 6A5

 

Ladies & Gentlemen:

 

The undersigned (the “Investor”), hereby confirms its agreement with you as
follows:

 

1. This Securities Purchase Agreement, including the Terms and Conditions set
forth in Annex I (the “Terms and Conditions”), the Risk Factors set forth in
Annex II (the “Risk Factors”), and exhibits, which are all attached hereto and
incorporated herein by reference as if fully set forth herein (the “Agreement”),
is made as of the date set forth below between Petrosonic Energy, Inc., a Nevada
corporation (the “Company”), and the Investor.

 

2. The Company has authorized the sale and issuance of up to 15,000,000 shares
of the Company’s securities to certain Investors in a private placement (the
“Offering”).

 

3. Pursuant to the Terms and Conditions, the Company and the Investor agree that
the Investor will purchase from the Company and the Company will issue and sell
to the Investor ____________________________, for a purchase price of $0.25 per
share, for an aggregate purchase price of $__________________________ consisting
of ___________ Shares. Unless otherwise requested by the Investor, certificates
representing the Common Stock purchased by the Investor will be registered in
the Investor’s name and address as set forth below.

 

Please confirm that the foregoing correctly sets forth the agreement between us
by signing in the space provided below for that purpose.

 

 

Date: ________________, 2013 Investor:           By:           Print Name:    
Title:           Address:                 Phone:     Fax:     Social Security
Number or TIN (if applicable):      

 

 

 

 

ANNEX I

 

TERMS AND CONDITIONS FOR PURCHASE OF SHARES

 

Investment in the Company involves a high degree of risk. Investor should
carefully consider the risk factors set forth in Annex II in addition to the
other information set forth in this Annex I before purchasing securities of the
Company.

 

1. Authorization and Sale of the Shares. Subject to these Terms and Conditions,
the Company has authorized the sale of up to 15,000,000 Shares of the Company,
each consisting of 1 share of the Company’s common stock, $0.001 par value (the
“Shares”). The Company reserves the right to increase or decrease this number.
All references to currency in this Securities Purchase Agreement shall refer to
the lawful currency of the United States of America.

 

2. Agreement to Sell and Purchase the Shares.

 

2.1 At the Closing (as defined in Section 3 of this Annex I), the Company will
sell to the Investor, and the Investor will purchase from the Company, upon the
terms and conditions hereinafter set forth, the number of Shares, if applicable,
set forth in Section 3 of the Signature Page to the Securities Purchase
Agreement at the purchase price set forth thereon.

 

2.2 The Company may enter into the same form of Securities Purchase Agreement
(“Agreement”), including these Terms and Conditions, with other Investors and
expects to complete sales of subsequent shares to other Investors.

 

3. Delivery of the Shares and at Closing. The completion of the purchase and
sale of the shares (the “Closing”) shall occur at the offices of the Company
upon receipt of cleared funds and fully executed documents for the purchase of
the shares on each date set by the Company, provided that a final closing shall
occur no later than January 31, 2013, which date may be extended at the sole
discretion of the Company. Within seven (7) days after each Closing, the Company
shall deliver to the Investor one or more stock certificates representing the
number of Shares, representing the number of shares of common stock as set forth
in Section 3 of the Signature Page to the Securities Purchase Agreement, each
such certificate, certificates to be registered in the name of the Investor, as
set forth in Section 3 of the Signature Page to the Securities Purchase
Agreement.

 

The Company’s obligation to issue the Shares to the Investor shall be subject to
the following conditions, any one or more of which may be waived by the Company:
(a) receipt by the Company of a certified or official bank check or wire
transfer of funds in the full amount of the purchase price for the shares being
purchased hereunder as set forth in Section 3 of the Signature Page to the
Securities Purchase Agreement; and (b) the accuracy of the representations and
warranties made by the Investor and the fulfillment of those undertakings of the
Investor to be fulfilled prior to the Closing.

 

The Investor’s obligation to purchase the shares shall be subject to the
following conditions, any one or more of which may be waived by the Investor:
(1) the representations and warranties of the Company set forth herein shall be
true and correct as of the Closing Date in all material respects and (2) the
Investor shall have received such documents as such Investor shall reasonably
have requested in connection with its due diligence.

 

4. Representations, Warranties and Covenants of the Company. The Company hereby
represents and warrants to, and covenants with, the Investor, as follows:

 

4.1 Organization. The Company is duly organized and validly existing in good
standing under the laws of the jurisdiction of its organization. The Company has
full power and authority to own, operate and occupy its properties and to
conduct its business as presently contemplated and is registered or qualified to
do business and in good standing in each jurisdiction in which the nature of the
business conducted by it or the location of the properties owned or leased by it
requires such qualification and where the failure to be so qualified would have
a material adverse effect upon the condition (financial or otherwise), earnings,
business, properties or operations of the Company (a “Material Adverse Effect”),
and no proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification.

 

 

 

 

4.2 Due Authorization and Valid Issuance. The Company has all requisite power
and authority to execute, deliver and perform its obligations under the
Agreement, and the Agreement has been duly authorized and validly executed and
delivered by the Company and constitutes a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with their terms,
except as rights to indemnity and contribution may be limited by state or
federal securities laws or the public policy underlying such laws, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law). No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for the
issuance and sale of the Shares. The Shares being purchased by the Investor
hereunder will, upon issuance and payment therefore pursuant to the terms
hereof, be duly authorized, validly issued, fully-paid and nonassessable.

 

4.3 Non-Contravention. The execution and delivery of the Agreement, the issuance
and sale of the shares under the Agreement, the fulfillment of the terms of the
Agreement and the consummation of the transactions contemplated thereby will not
(A) conflict with or constitute a violation of, or default under, (i) any
material bond, debenture, note or other evidence of indebtedness, lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company is a party or by which it or
its properties are bound, (ii) the charter, by-laws or other organizational
documents of the Company, or (iii) any law, administrative regulation, ordinance
or order of any court or governmental agency, arbitration panel or authority
applicable to the Company or its properties, except in the case of clauses (i)
and (iii) for any such conflicts, violations or defaults which are not
reasonably likely to have a Material Adverse Effect or (B) result in the
creation or imposition of any lien, encumbrance, claim, security interest or
restriction whatsoever upon any of the material properties or assets of the
Company or an acceleration of indebtedness pursuant to any obligation, agreement
or condition contained in any material bond, debenture, note or any other
evidence of indebtedness or any material indenture, mortgage, deed of trust or
any other agreement or instrument to which the Company is a party or by which
any of them is bound or to which any of the material property or assets of the
Company is subject.

 

4.4 Capitalization. As of October 30, 2012, there were 65,329,000 shares of the
Company’s common stock issued and outstanding. Except as contemplated by
documents filed by the Company with the Securities and Exchange Commission (the
“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), since such date through the date hereof (the “Exchange Act Documents”),
there are no other outstanding rights (including, without limitation, preemptive
rights), warrants or options to acquire, or instruments convertible into or
exchangeable for, any unissued shares of capital stock or other equity interest
in the Company or any contract, commitment, agreement, understanding or
arrangement of any kind to which the Company is a party or of which the Company
has knowledge and relating to the issuance or sale of any capital stock of the
Company, any such convertible or exchangeable securities or any such rights,
warrants or options.

 

4.5 Legal Proceedings. There is no material legal or governmental proceeding
pending or, to the knowledge of the Company, threatened to which the Company is
or may be a party or of which the business or property of the Company is subject
that is not disclosed in the Exchange Act Documents.

 

4.6 No Violations. The Company is not in violation of its charter, bylaws, or
other organizational document, or in violation of any law, administrative
regulation, ordinance or order of any court or governmental agency, arbitration
panel or authority applicable to the Company, which violation, individually or
in the aggregate, would be reasonably likely to have a Material Adverse Effect,
or is in default (and there exists no condition which, with the passage of time
or otherwise, would constitute a default) in any material respect in the
performance of any bond, debenture, note or any other evidence of indebtedness
in any indenture, mortgage, deed of trust or any other material agreement or
instrument to which the Company is a party or by which the Company is bound or
by which the properties of the Company are bound, which would be reasonably
likely to have a Material Adverse Effect.

 

 

 

 

 

4.7 Finder’s Fee. In connection with this Offering and subject to the approval
of the Company's Board of Directors, the Company may have to pay brokers,
advisors and others up to the aggregate of 10% in cash and/or 5% in warrant
(with an exercise of $0.50 per share) fees based on the gross proceeds from the
sale of the shares.

 

5. Representations, Warranties and Covenants of the Investor.

 

5.1 The Investor represents and warrants to, and covenants with, the Company
that: (i) the Investor is an “accredited investor” as defined in Rule 501 of
Regulation D under the Securities Act and the Investor is knowledgeable,
sophisticated and experienced in making, and is qualified to make decisions with
respect to investments in shares presenting an investment decision like that
involved in the purchase of the Shares, including investments in securities
issued by the Company and investments in comparable companies, and has
requested, received, reviewed and considered all information it deemed relevant
in making an informed decision to purchase the Shares; (ii) the Investor has
carefully read and fully understands the risks involved with an investment in
the Company including, without limitation, the risks identified on Annex II,
attached hereto, (iii) the Investor is acquiring the number of shares set forth
in Section 3 of the Signature Page to the Securities Purchase Agreement in the
ordinary course of its business and for its own account for investment only and
with no present intention of distributing any of such shares or any arrangement
or understanding with any other persons regarding the distribution of such
Shares; (iv) the Investor will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the shares except in compliance
with the Securities Act, applicable state securities laws and the respective
rules and regulations promulgated thereunder; (v) all of the representations
made by the Investor are true, correct and complete as of the date hereof and
will be true, correct and complete as of the Closing Date; and (vi) the Investor
has, in connection with its decision to purchase the number of shares set forth
in Section 3 of the Signature Page to the Securities Purchase Agreement, relied
only upon the Exchange Act Documents and the representations and warranties of
the Company contained herein. There are no suits, pending litigation, or claims
against the undersigned that could materially affect the net worth of the
Investor.

 

5.2 The Investor acknowledges that it has had access to the Exchange Act
Documents and has carefully reviewed the same. The Investor further acknowledges
that the Company has made available to it the opportunity to ask questions of
and receive answers from the Company’s officers and directors concerning the
terms and conditions of this Agreement and the business and financial condition
of the Company, and the Investor has received to its satisfaction, such
information about the business and financial condition of the Company and the
terms and conditions of the Agreement as it has requested. The Investor has
carefully considered the potential risks relating to the Company and a purchase
of the shares, and fully understands that the Shares are speculative
investments, which involve a high degree of risk of loss of the Investor’s
entire investment. Among others, the undersigned has carefully considered each
of the risks identified under the caption “Risk Factors” in the Exchange Act
Documents and Annex II.

 

5.3 The Investor acknowledges, represents and agrees that no action has been or
will be taken in any jurisdiction outside the United States by the Company that
would permit an offering of the shares, or possession or distribution of
offering materials in connection with the issuance of the shares, in any
jurisdiction outside the United States where legal action by the Company for
that purpose is required. Investor will comply with all applicable laws and
regulations in each foreign jurisdiction in which it purchases, offers, sells or
delivers shares, or has in its possession or distributes any offering material,
in all cases at its own expense.

 

5.4 The Investor hereby covenants with the Company not to make any sale of the
shares, without complying with the provisions of this Agreement, and the
Investor acknowledges that the certificates evidencing the Shares will be
imprinted with a legend that prohibits their transfer except in accordance
therewith. The overall commitment of the Investor to investments, which are not
readily marketable, is not excessive in view of the Investor’s net worth and
financial circumstances, and any purchase of the shares will not cause such
commitment to become excessive. The Investor is able to bear the economic risk
of an investment in the shares.

 

5.5 The Investor further represents and warrants to, and covenants with, the
Company that (i) the Investor has full right, power, authority and capacity to
enter into this Agreement and to consummate the transactions contemplated hereby
and has taken all necessary action to authorize the execution, delivery and
performance of this Agreement, and (ii) this Agreement constitutes a valid and
binding obligation of the Investor enforceable against the Investor in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ and contracting parties’ rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

 

 

 

 

 

5.6 Investor will not use any of the restricted Shares acquired pursuant to this
Agreement to cover any short position in the Common Stock of the Company if
doing so would be in violation of applicable securities laws.

 

5.7 The Investor understands that nothing in the Exchange Act Documents, this
Agreement or any other materials presented to the Investor in connection with
the purchase and sale of the shares constitutes legal, tax or investment advice.
The Investor has consulted such legal, tax and investment advisors, as it, in
its sole discretion, has deemed necessary or appropriate in connection with its
purchase of the shares.

 

5.8 The Investor understands that the issuance of the shares to the Investor has
not been registered under the Securities Act in reliance upon one or more
specific exemptions therefrom, including Regulation D and/or Regulation S, which
exemption depends upon, among other things, the accuracy of the Investor’s
representations made in this Agreement. The Investor understands that the shares
must be held indefinitely unless subsequently registered under the Securities
Act and qualified under applicable state securities laws, or unless an exemption
from such registration and qualification requirements is otherwise available.
The Investor acknowledges that the Company has no obligation to register or
qualify the shares or underlying Shares for resale. The Investor acknowledges
that the Company will refuse to register any transfer of Shares that is not made
in accordance with the provisions of Regulation S, registered pursuant to the
Securities Act or otherwise exempt from such registration. The Investor further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares and
requirements relating to the Company which are outside of the Investor’s
control, and which the Company is under no obligation and may not be able to
satisfy. The Investor has been independently advised as to the applicable
holding period imposed in respect of the Shares by securities legislation in the
jurisdiction in which the undersigned resides and confirms that no
representation has been made respecting the applicable holding periods for the
Shares in such jurisdiction and it is aware of the risks and other
characteristics of the shares and of the fact that the undersigned may not
resell the Shares except in accordance with applicable securities legislation
and regulatory policy.

 

5.9 A copy of the Company’s annual report on Form 10-K, its quarterly reports on
Form 10-Q, current reports on Form 8-K and information statements are available
on the SEC’s website at www.sec.gov.

 

5.10 For purposes of compliance with the Regulation S exemption for the offer
and sale of the Shares (defined in this Section 5.10 to include the underlying
Shares) to non-U.S. Persons, if the Investor is not a “U.S. Person,” as such
term is defined in Rule 902(k) of Regulation S,1 the Investor represents and
warrants that the Investor is a person or entity that is outside the United
States, and further represents and warrants as follows:

 

 

 

1Regulation S provides in part as follows:

1. “U.S. person” means: (i) any natural person resident in the United States;
(ii) any partnership or corporation organized or incorporated under the laws of
the United States; (iii) any estate of which any executor or administrator is a
U.S. person; (iv) any trust of which any trustee is a U.S. person; (v) any
agency or branch of a foreign entity located in the United States; (vi) any
non-discretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary for the benefit or account of a U.S. person;
(vii) any discretionary account or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated, or (if an
individual) resident in the United States; and (viii) any partnership or
corporation if: (A) organized or incorporated under the laws of any foreign
jurisdiction; and (B) formed by a U.S. person principally for the purpose of
investing in securities not registered under the Securities Act of 1933, as
amended, unless it is organized or incorporated, and owned, by accredited
investors (as defined in Rule 501(a)) who are not natural persons, estates or
trusts.

2. The following are not “U.S. persons”: (i) any discretionary account or
similar account (other than an estate or trust) held for the benefit or account
of a non-U.S. person by a dealer or other professional fiduciary organized,
incorporated, or (if an individual) resident in the United States; (ii) any
estate of which any professional fiduciary acting as executor or administrator
is a U.S. person if: (A) an executor or administrator of the estate who is not a
U.S. person has sole or shared investment discretion with respect to the assets
of the estate; and (B) the estate is governed by foreign law; (iii) any trust of
which any professional fiduciary acting as trustee is a U.S. person, if a
trustee who is not a U.S. person has sole or shared investment discretion with
respect to the trust assets, and no beneficiary of the trust (and no settlor if
the trust is revocable) is a U.S. person; (iv) an employee benefit plan
established and administered in accordance with the law of a country other than
the United States and customary practices and documentation of such country; (v)
any agency or branch of a U.S. person located outside the United States if: (A)
the agency or branch operates for valid business reasons; and (B) the agency or
branch is engaged in the business of insurance or banking and is subject to
substantive insurance or banking regulation, respectively, in the jurisdiction
where located; and (vi) the International Monetary Fund, the International Bank
for Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United Nations, and
their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension plans.

 

 

 

 

(a) The Investor is not acting and purchasing (or proposes to purchase) the
shares on behalf of any other persons, entities or accounts and is not acquiring
the shares for the account or benefit of a U.S. Person. The Investor represents
and warrants that the Investor is not a “U.S. Person” (as defined in Rule 902(k)
under the Securities Act) and was located outside the United States at the time
any offer to buy the shares was made and at the time the buy offer was
originated by the undersigned.

 

(b) If the Investor is a legal entity, it has not been formed specifically for
the purpose of investing in the Company.

 

(c) The Investor hereby represents that he, she or it has satisfied and fully
observed the laws of the jurisdiction in which he, she or it is located or
domiciled, in connection with the acquisition of the Shares, including (i) the
legal requirements of the Investor’s jurisdiction for the acquisition of the
shares, (ii) any foreign exchange restrictions applicable to such acquisition,
(iii) any governmental or other consents that may need to be obtained, and (iv)
the income tax and other tax consequences, if any, which may be relevant to the
holding, redemption, sale, or transfer of the shares; and further, the Investor
agrees to continue to comply with such laws as long as he, she or it shall hold
the shares.

 

(d) To the knowledge of the Investor, without having made any independent
investigation, neither the Company nor any person acting for the Company, has
conducted any “directed selling efforts” in the United States as the term
“directed selling efforts” is defined in Rule 902 of Regulation S, which, in
general, means any activity undertaken for the purpose of, or that could
reasonably be expected to have the effect of, conditioning the marketing in the
United States for any of the Shares being offered. Such activity includes,
without limitation, the mailing of printed material to investors residing in the
United States, the holding of promotional seminars in the United States, and the
placement of advertisements with radio or television stations broadcasting in
the United States or in publications with a general circulation in the United
States, which discuss the offering of the shares. To the knowledge of the
Investor, the shares were not offered to the undersigned through, and the
undersigned is not aware of, any form of general solicitation or general
advertising, including without limitation, (i) any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, and (ii) any seminar or meeting
whose attendees have been invited by any general solicitation or general
advertising.

 

(e) The Investor will offer, sell or otherwise transfer the shares, only (A)
pursuant to a registration statement that has been declared effective under the
Securities Act, (B) pursuant to offers and sales that occur outside the United
States within the meaning of Regulation S in a transaction meeting the
requirements of Rule 904 (or other applicable Rule) under the Securities Act, or
(C) pursuant to another available exemption from the registration requirements
of the Securities Act, subject to the Company’s right prior to any offer, sale
or transfer pursuant to clauses (B) or (C) to require the delivery of an opinion
of counsel, certificates or other information reasonably satisfactory to the
Company for the purpose of determining the availability of an exemption.

 

(f) The Investor will not engage in hedging transactions involving the Shares
unless such transactions are in compliance with the Securities Act.

 

(g) The Investor represents and warrants that the undersigned is not a citizen
of the United States and is not, and has no present intention of becoming, a
resident of the United States (defined as being any natural person physically
present within the United States for at least 183 days in a 12-month consecutive
period or any entity who maintained an office in the United States at any time
during a 12-month consecutive period). The Investor understands that the Company
may rely upon the representations and warranty of this paragraph as a basis for
an exemption from registration of the shares under the Securities Act of 1933,
as amended, and the provisions of relevant state securities laws.

 

 

 

 

 

5.11 The Investor is not a “disqualified organization.” “Disqualified
organization” means (i) the federal government of the United States; (ii) any
state or political subdivision of the United States; (iii) any foreign
government; (iv) any international organization; (v) any agency or
instrumentality of any of the organizations listed in clauses (i), (ii), (iii)
or (iv) above; (vi) any other tax exempt organization, other than a farmer’s
cooperative described in Section 521 of the Code that is exempt from both income
taxation and from taxation under the unrelated business taxable income
provisions of the Code; or (vii) any rural electrical or telephone cooperative.

 

5.12 The Investor represents that neither it nor, to the Investor’s knowledge,
any person or entity controlling, controlled by or under common control with the
Investor, nor any person or entity having a beneficial interest in the Investor,
nor any other person or entity on whose behalf the undersigned is acting (i) is
a person or entity listed in the annex to Executive Order No. 13224 (2001)
issued by the President of the United States (Executive Order Blocking Property
and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or
Support Terrorism); (ii) is named on the List of Specially Designated Nationals
and Blocked Persons maintained by the U.S. Office of Foreign Assets Control
(OFAC); (iii) is a non-U.S. shell bank or is providing banking services
indirectly to a non-U.S. shell bank; (iv) is a senior non-U.S. political figure
or an immediate family member or close associate of such figure; or (v) is
otherwise prohibited from investing in the Company pursuant to applicable U.S.
anti-money laundering, antiterrorist and asset control laws, regulations, rules
or orders (categories (i) through (v) collectively, a “Prohibited Investor”).
The Investor agrees to provide the Company, promptly upon request, all
information that the Company reasonably deems necessary or appropriate to comply
with applicable U.S. anti-money laundering, antiterrorist and asset control
laws, regulations, rules and orders. The Investor consents to the disclosure to
U.S. regulators and law enforcement authorities by the Company and its
affiliates and agents of such information about the Investor as the Company
reasonably deems necessary or appropriate to comply with applicable U.S.
anti-money laundering, antiterrorist and asset control laws, regulations, rules
and orders. If the Investor is a financial institution that is subject to the
PATRIOT Act, Public Law No. 107-56 (Oct. 26, 2001) (the “Patriot Act”), the
Investor represents that the Investor has met all of its respective obligations
under the Patriot Act. The Investor acknowledges that if, following the
investment in the Company by the Investor, the Company reasonably believes that
the Investor is a Prohibited Investor or is otherwise engaged in suspicious
activity or refuses to provide promptly information that the Company requests,
the Company has the right or may be obligated to prohibit additional
investments, segregate the assets constituting the investment in accordance with
applicable regulations or immediately require Investor to transfer the Shares.
The Investor further acknowledges that the Investor will not have any claim
against the Company or any of its affiliates or agents for any form of damages
as a result of any of the foregoing actions.

 

6. Notices. All notices, requests, consents and other communications hereunder
shall be in writing, shall be mailed (A) if within the United States by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, or by facsimile, or (B) if delivered from
outside the United States, by International Federal Express or facsimile, and
shall be deemed given (i) if delivered by first-class registered or certified
mail, three business days after so mailed, (ii) if delivered by nationally
recognized overnight carrier, one business day after so mailed, (iii) if
delivered by International Federal Express, two business days after so mailed,
(iv) if delivered by facsimile, upon electronic confirmation of receipt and
shall be delivered as addressed as follows:

 

  (a) if to the Company, to: Petrosonic Energy, Inc.       57 Valley Woods Way
NW       Calgary, AB, Canada       T3B 6A5       Attn: Chief Executive Officer  
    Phone: (403) 708-7869           (b) with a copy to: Greenberg Traurig LLP  
    1201 K Street, Suite 1100       Sacramento, CA 95814       Attn: Mark C Lee
      Phone: (916) 442-1111       Fax: (916) 448-1709

 

 

 

 

(c) if to the Investor, at its address on the signature page hereto, or at such
other address or addresses as may have been furnished to the Company in writing.

 

7. Changes. This Agreement may not be modified or amended except pursuant to an
instrument in writing signed by the Company and the Investor.

 

8. Headings. The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.

 

9. Severability. In case any provision contained in this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.

 

10. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Nevada, without giving effect
to the principles of conflicts of law.

 

11. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument, and shall become effective when
one or more counterparts have been signed by each party hereto and delivered to
the other parties.

 

12. Rule 144. The Company covenants that it will timely file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder (or, if the Company is not
required to file such rep orts, it will, upon the request of the Investor
holding Shares and Warrant Shares purchased hereunder made after the first
anniversary of the Closing Date, make publicly available such information as
necessary to permit sales pursuant to Rule 144 under the Securities Act), and it
will take such further action as the Investor may reasonably request, all to the
extent required from time to time to enable such Investor to sell Shares or
Warrant Shares purchased hereunder without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of the
Investor, the Company will deliver to such holder a written statement as to
whether it has complied with such information and requirements.

 

13. Confidential Information. The Investor represents to the Company that, at
all times during the Company’s offering of the Shares, the Investor has
maintained in confidence all non-public information regarding the Company
received by the Investor from the Company or its agents, and covenants that it
will continue to maintain in confidence such information and shall not use such
information for any purpose other than to evaluate the purchase of the Shares
until such information (a) becomes generally publicly available other than
through a violation of this provision by the Investor or its agents or (b) is
required to be disclosed in legal proceedings (such as by deposition,
interrogatory, request for documents, subpoena, civil investigation demand,
filing with any governmental authority or similar process), provided, however,
that before making any use or disclosure in reliance on this subparagraph (b)
the Investor shall give the Company at least fifteen (15) days prior written
notice (or such shorter period as required by law) specifying the circumstances
giving rise thereto and will furnish only that portion of the non-public
information which is legally required and will exercise its best efforts to
obtain reliable assurance that confidential treatment will be accorded any
non-public information so furnished.

  

 

 

 

Annex II

 

Risk Factors

 

The risks described below are the ones the Company believes are the most
important for the Investor to consider, although these risks are not the only
ones that the Company faces. If events anticipated by any of the following risks
actually occur, the Company’s business, operating results or financial condition
could suffer and the trading price of the Company’s common stock could decline.

 

 

Risks Related to our Business

 

We have incurred losses in prior periods and may incur losses in the future.

 

We cannot be assured that we can achieve or sustain profitability on a quarterly
or annual basis in the future.  Our operations are subject to the risks and
competition inherent in the establishment of a business enterprise.  There can
be no assurance that future operations will be profitable.  We may not achieve
our business objectives and the failure to achieve such goals would have an
adverse impact on us.

 

Our future is dependent upon our ability to obtain financing.  If we do not
obtain such financing, we may have to cease our activities and investors could
lose their entire investment.

 

There is no assurance that we will operate profitably or generate positive cash
flow in the future.  We will require additional financing in order to proceed
beyond the establishment of our own stand-alone facilities, including the
processing facility in Albania.  We will also require additional financing to
pay the fees and expenses necessary to become and operate as a public
company.  We will also need more funds if the costs of the development and
operation of our existing technologies are greater than we have anticipated.  We
will also require additional financing to sustain our business operations if we
are not successful in earning revenues. We may not be able to obtain financing
on commercially reasonable terms or terms that are acceptable to us when it is
required.  Our future is dependent upon our ability to obtain financing.  If we
do not obtain such financing, our business could fail and investors could lose
their entire investment.

 

Because we may never earn revenues from our operations, our business may fail
and investors may lose all of their investment in our Company.

 

We have no history of revenues from operations.  We have yet to generate
positive earnings and there can be no assurance that we will ever operate
profitably.  Our company has a limited operating history.  If our business plan
is not successful and we are not able to operate profitably, then our stock may
become worthless and investors may lose all of their investment in our company.

 

Prior to completion of the oil processing facility in Albania, we anticipate
that we will incur increased operating expenses without realizing any
revenues.  We therefore expect to incur significant losses into the foreseeable
future.  We recognize that if we are unable to generate significant revenues
from our processing facilities in the future, we will not be able to earn
profits or continue operations.  There is no history upon which to base any
assumption as to the likelihood that we will prove successful, and we can
provide no assurance that we will generate any revenues or ever achieve
profitability.  If we are unsuccessful in addressing these risks, our business
will fail and investors may lose all of their investment in our company.

 

We may not be fully indemnified against financial losses in all circumstances
where damage to or loss of property, personal injury, death or environmental
harm occur.

 

As is customary in our industry, our contracts will typically provide that our
customers indemnify us for claims arising from the injury or death of their
employees, the loss or damage of their equipment, damage to the reservoir and
pollution emanating from the customer’s equipment or from the reservoir
(including uncontained oil flow from a reservoir). Conversely, we will typically
indemnify our customers for claims arising from the injury or death of our
employees, the loss or damage of our equipment, or pollution emanating from our
equipment. Our contracts will typically provide that our customer will indemnify
us for claims arising from catastrophic events, such as a well blowout, fire or
explosion.

 

 

 

 

 

Our indemnification arrangements may not protect us in every case. For example,
from time to time we may enter into contracts with less favorable indemnities or
perform work without a contract that protects us; our indemnity arrangements may
be held unenforceable in some courts and jurisdictions; or we may be subject to
other claims brought by third parties or government agencies. Furthermore, the
parties from which we seek indemnity may not be solvent, may become bankrupt,
may lack resources or insurance to honor their indemnities, or may not otherwise
be able to satisfy their indemnity obligations to us. The lack of enforceable
indemnification could expose us to significant potential losses.

Further, our assets generally are not insured against loss from political
violence such as war, terrorism or civil commotion. If any of our assets are
damaged or destroyed as a result of an uninsured cause, we could recognize a
loss of those assets.

 

Our operations are subject to environmental and other laws and regulations that
may expose us to significant liabilities and could reduce our business
opportunities and revenues.

 

We are subject to various laws and regulations relating to the energy industry
in general and the environment in particular. An environmental claim could arise
with respect to one or more of our current businesses, products or services, or
a business or property that one of our predecessors owned or used, and such
claims could involve material expenditures. Generally, environmental laws have
in recent years become more stringent and have sought to impose greater
liability on a larger number of potentially responsible parties. The scope of
regulation of our industry and our products and services may increase further
following the April 2010 accident in the Gulf of Mexico, including possible
increases in liabilities or funding requirements imposed by governmental
agencies. We also cannot ensure that our future business, if any, will be
profitable in light of new regulations that have been and may continue to be
promulgated and in light of the current risk environment and insurance markets.
Additional regulation could increase the costs of conducting our business and
could materially reduce our business opportunities and revenues if our customers
decrease their levels of activity in response to such regulation.

 

We are subject to significant foreign exchange and currency risks that could
adversely affect our operations and our ability to reinvest earnings from
operations, as well as mitigate our foreign exchange risk through hedging
transactions may be limited.

 

Since we currently conduct a significant portion our operations outside the
United State of America, our business is subject to foreign currency risks,
including currency exchange rates fluctuations and difficulties in converting
local currencies into U.S. dollars. The exchange rates between the Albanian Lek,
the Canadian dollar, the Euro and the U.S. dollar and other foreign currencies
is affected by, among other things, changes in local political and economic
conditions. Such currency fluctuations may materially affect the Company’s
financial position and results of operations and a material change in currency
rates in our markets could affect our future results as well as affect the
carrying values of our assets.

 

We generally attempt to denominate our contracts in U.S. dollars or in the
currencies of our costs. However, we may enter into contracts that subject us to
currency risk exposure, primarily when our contract revenue is denominated in a
currency different than the contract costs. We anticipate that a significant
portion of our consolidated revenue and consolidated operating expenses will be
in foreign currencies. As a result, we will be subject to significant foreign
currency risks, including risks resulting from changes in foreign exchange rates
and limitations on our ability to reinvest earnings from operations in one
country to fund the financing requirements of our operations in other countries.

Customer credit risks could result in losses.

The concentration of our future customers in the energy industry may impact our
overall exposure to credit risk as customers may be similarly affected by
prolonged changes in economic and industry conditions. Those countries that rely
heavily upon income from hydrocarbon exports would be hit particularly hard by a
drop in oil prices. Further, laws in some jurisdictions in which we may operate
could make collection difficult or time consuming. We will perform ongoing
credit evaluations of our customers and generally do not plan to require
collateral in support of our trade receivables. While we may maintain reserves
for potential credit losses, we cannot assure such reserves will be sufficient
to meet write-offs of uncollectible receivables or that our losses from such
receivables will be consistent with our expectations.

 

Global political, economic and market conditions could affect projected results.

 

Our operating results are based on our current assumptions about oil supply and
demand, oil prices, rig count and other market trends. Our assumptions on these
matters are in turn based on currently available information, which is subject
to change. The oil industry is extremely volatile and subject to change based on
political and economic factors outside our control. A weakened global economic
climate generally results in lower demand and lower prices for oil, which
reduces drilling, processing and production activity, which in turn results in
lower revenues and income for us. Worldwide drilling activity and global demand
for oil may also be affected by changes in governmental policies and sovereign
debt, laws and regulations related to environmental or energy security matters,
including those addressing alternative energy sources and the risks of global
climate change. Worldwide economic conditions, and the related demand for oil ,
may in future periods be significantly weaker than we have assumed.

 

 

 

 

We may be unable to recognize our expected revenues from current and future
contracts.

 

Our potential customers, some of whom may be national oil companies, often have
significant bargaining leverage over us and may elect to cancel or revoke
contracts, not renew contracts, modify the scope of contracts or delay
contracts, in some cases preventing us from realizing expected revenues and/or
profits.

 

Increases in the prices and availability of our raw materials could affect our
results of operations.

 

We use significant amounts of raw materials (including steel and other metals,
chemicals, plastics, polymers and energy inputs) for manufacturing our products,
facilities and some of our fixed assets. The price of these raw materials has a
significant impact on our cost of producing products for sale or constructing
fixed assets used in our business. There can be no assurance that the prices of
our raw materials will remain within a manageable range and will be readily
available. If we are unable to obtain necessary raw materials or if we are
unable to minimize the impact of increased raw material costs or to realize the
benefit of cost decreases in a timely fashion through our supply chain
initiatives or pricing, our margins and results of operations could be adversely
affected.

 

Our long-term growth depends upon technological innovation and
commercialization.

 

 Our ability to deliver our long-term growth strategy depends in part on the
commercialization of new technology. A central aspect of our growth strategy is
to improve our products and services through innovation, to obtain
technologically advanced products through internal research and development
and/or acquisitions, to protect proprietary technology from unauthorized use and
to expand the markets for new technology by leveraging our infrastructure. Our
success will depend on our ability to commercialize the technology that we have
acquired and demonstrate the enhanced value our technology brings to our
customers’ operations. Our major technological advances include, but are not
limited to, those related to the design of enhanced mass transfer energy
processes and reactors. We cannot be assured of the successful commercialization
of, and above-average growth from, our new products and services, as well as
legal protection of our intellectual property rights. Any failure in the
commercialization of our technology could adversely affect our business and
results of operations.  

 

If we are unable to enforce our intellectual property rights or if our
intellectual property rights become obsolete, our competitive position could be
adversely impacted.

 

We utilize a variety of intellectual property rights in our services. We view
our portfolio of process and design technologies as one of our competitive
strengths and we use it as part of our efforts to differentiate our service
offerings. We may not be able to successfully preserve these intellectual
property rights in the future and these rights could be invalidated,
circumvented, challenged or infringed upon. In addition, the laws of some
foreign countries in which our services may be sold do not protect intellectual
property rights to the same extent as the laws of the United States. If we are
unable to protect and maintain our intellectual property rights, or if there are
any successful intellectual property challenges or infringement proceedings
against us, our ability to differentiate our service offerings could diminish.
In addition, if our intellectual property rights or work processes become
obsolete, we may not be able to differentiate our service offerings and some of
our competitors may be able to offer more attractive services to our customers.
As a result, our business and financial performance could be materially and
adversely affected.

 

 

 

 

 

International and political events may adversely affect our operations.

 

A significant portion of our revenue will be derived from foreign operations,
which exposes us to risks inherent in doing business in each of the countries
where we transact business. The occurrence of any of the risks described below
could have a material adverse effect on our business operations and financial
performance. With respect to any particular country, these risks may include:

 

·expropriation and nationalization of our assets in that country;

 

·political and economic instability;

 

·civil unrest, acts of terrorism, force majeure, war, or other armed conflict;

 

·currency fluctuations, devaluations, and conversion restrictions;

 

·confiscatory taxation or other adverse tax policies;

 

·governmental activities that limit or disrupt markets, restrict payments, or
limit the movement of funds;

 

·governmental activities that may result in the deprivation of contract rights;
and

 

·governmental activities that may result in the inability to obtain or retain
licenses required for operation.

 

Due to the unsettled political conditions in many oil-producing countries, our
financial performance is subject to the adverse consequences of war, the effects
of terrorism, civil unrest, strikes, currency controls, and governmental
actions. Our customer’s operations are conducted in areas that have significant
amounts of political risk. In addition, military action or continued unrest in
the Middle East could impact the supply and price of oil, disrupt our customer’s
operations in the region and elsewhere, and increase our costs related to
security worldwide.

 

Economic and political developments in Albania may adversely affect our
business.

 

A significant portion of our operations and assets are currently located in
Albania. As a result, our financial condition, results of operations and
business may be affected by and are subject to the general condition of the
Albanian economy, the devaluation of the Albania Lek as compared to the U.S.
Dollar, Albanian inflation, interest rates, regulation, taxation, social
instability and other political, social and economic developments in or
affecting Albania, including changes in the laws and policies that govern
foreign investment, as well as changes in United States laws and regulations
relating to foreign trade and investment, over which we have no control. There
can be no assurance as to the future effect of any such changes on our results
of operations, financial condition, or cash flows.

 

The dangers inherent in our operations could cause disruptions and could expose
us to potentially significant losses, costs, or liabilities. Any significant
interruptions in the operations of any of our facilities could materially and
adversely affect our business, financial condition, and results of operations.

 

Our operations are subject to significant hazards and risks inherent in refining
operations and in transporting and storing crude oil. These hazards and risks
include, but are not limited to, the following:

 

·natural disasters;

 

 

 

 

·weather-related disruptions;

 

·fires;

 

·explosions;

 

·pipeline ruptures and spills;

 

·third-party interference;

 

·disruption of natural gas deliveries;

 

·disruptions of electricity deliveries; and

 

·mechanical failure of equipment at our refineries or third-party facilities

 

Any of the foregoing could result in production and distribution difficulties
and disruptions, environmental pollution, personal injury or wrongful death
claims, and other damage to our properties and the properties of others. There
is also risk of mechanical failure and equipment shutdowns both in general and
following unforeseen events.

 

Our activities will initially be conducted at our facility in Albania. This
facility constitutes a significant portion of our operating assets. Because of
the significance to us of this operation, the occurrence of any of the events
described above could significantly disrupt our processing of crude oil, and any
sustained disruption could have a material adverse effect on our business,
financial condition, and results of operations.

We may incur significant costs to comply with environmental and health and
safety laws and regulations.

 

Our operations and properties are subject to extensive national, state, and
local environmental, health, and safety regulations governing, among other
things, the generation, storage, handling, use, and transportation of petroleum
and hazardous substances, the emission and discharge of materials into the
environment, waste management, characteristics, and the monitoring, reporting,
and control of greenhouse gas emissions. If we fail to comply with these
regulations, we may be subject to administrative, civil, and criminal
proceedings by governmental authorities, as well as civil proceedings by
environmental groups and other entities and individuals. A failure to comply,
and any related proceedings, including lawsuits, could result in significant
costs and liabilities, penalties, judgments against us, or governmental or court
orders that could alter, limit, or stop our operations.

  

In addition, new environmental laws and regulations, including new regulations
relating to alternative energy sources, new regulations relating to fuel
quality, and the risk of global climate change regulation, as well as new
interpretations of existing laws and regulations, increased governmental
enforcement, or other developments could require us to make additional
unforeseen expenditures. Many of these laws and regulations are becoming
increasingly stringent, and the cost of compliance with these requirements can
be expected to increase over time. We are not able to predict the impact of new
or changed laws or regulations or changes in the ways that such laws or
regulations are administered, interpreted, or enforced. The requirements to be
met, as well as the technology and length of time available to meet those
requirements, continue to develop and change. To the extent that the costs
associated with meeting any or all of these requirements are substantial and not
adequately provided for, there could be a material adverse effect on our
business, financial condition, and results of operations.

 

 

 

 

 

We may not have sufficient crude oil to be able to run our Albania facility at
full capacity.

 

Our Albania facility will process crude oil from the local regions around the
facility. To the extent sufficient local crude oil cannot be contracted to
process and we are unable to contract sufficient crude oil from non-local
sources to supply the Albania facility, we may not have sufficient crude oil to
run the Albania facility at full capacity, which could have a material adverse
impact on our business, financial condition, and results of operations.

 

We could incur substantial costs or disruptions in our business if we cannot
obtain or maintain necessary permits and authorizations.

 

Our operations require numerous permits and authorizations under various laws
and regulations, including environmental and health and safety laws and
regulations. These authorizations and permits are subject to revocation,
renewal, or modification and can require operational changes, which may involve
significant costs, to limit impacts or potential impacts on the environment
and/or health and safety. A violation of these authorization or permit
conditions or other legal or regulatory requirements could result in substantial
fines, criminal sanctions, permit revocations, injunctions and/or refinery
shutdowns. In addition, major modifications of our operations could require
modifications to our existing permits or expensive upgrades to our existing
pollution control equipment, which could have a material adverse effect on our
business, financial condition, or results of operations.

 

Risks Associated with our Company and our Securities

 

We will be required to incur significant costs and require significant
management resources to evaluate our internal control over financial reporting
as required under Section 404 of the Sarbanes-Oxley Act, and any failure to
comply or any adverse result from such evaluation may have an adverse effect on
our stock price.

 

As a smaller reporting company as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended, we are required to evaluate our internal
control over financial reporting under Section 404 of the Sarbanes-Oxley Act of
2002 (“Section 404”). Section 404 requires us to include an internal control
report with the Annual Report on Form 10-K. This report must include
management’s assessment of the effectiveness of our internal control over
financial reporting as of the end of the fiscal year. This report must also
include disclosure of any material weaknesses in internal control over financial
reporting that we have identified. Failure to comply, or any adverse results
from such evaluation could result in a loss of investor confidence in our
financial reports and have an adverse effect on the trading price of our equity
securities. Management believes that its internal controls and procedures are
currently not effective to detect the inappropriate application of U.S. GAAP
rules. Management realize there are deficiencies in the design or operation of
our internal control that adversely affect our internal controls which
management considers to be material weaknesses including those described below:

 

  i) The Company’s management is relying on external consultants for purposes of
preparing its financial reporting package and may not be able to identify errors
and irregularities in the financial reporting package before its release as a
continuous disclosure document         ii) As the Company is governed by one
officer who is also a director, there is an inherent lack of segregation of
duties and lack of independent governing board      

Achieving continued compliance with Section 404 may require us to incur
significant costs and expend significant time and management resources. We
cannot assure you that we will be able to fully comply with Section 404 or that
we and our independent registered public accounting firm would be able to
conclude that our internal control over financial reporting is effective at
fiscal year end. As a result, investors could lose confidence in our reported
financial information, which could have an adverse effect on the trading price
of our securities, as well as subject us to civil or criminal investigations and
penalties. In addition, our independent registered public accounting firm may
not agree with our management’s assessment or conclude that our internal control
over financial reporting is operating effectively.

 

 

 

 

All of our assets, and our sole officer and director, are outside the United
States, with the result that it may be difficult for investors to enforce within
the United States any judgments obtained against us or our directors and
officers.

 

All of our assets are located outside the United States. In addition, our sole
officer and director is a national and resident of a country other than the
United States, and all or a substantial portion of their assets are located
outside the United States. As a result, it may be difficult for investors to
enforce within the United States any judgments obtained against us or our
director and officers, including judgments predicated upon the civil liability
provisions of the securities laws of the United States or any state thereof.
Consequently, you may be effectively prevented from pursuing remedies under
United States federal and state securities laws against us or our directors and
officers.

 

Our business is dependent on key executives and the loss of any of our key
executives could adversely affect our business, future operations and financial
condition.

 

We are dependent on the services of key executives, including our sole officer
and director, Art Agolli. Mr. Agolli has many years of experience and an
extensive background in the oil industry in general. We may not be able to
replace that experience and knowledge with other individuals. We do not have
“Key-Man” life insurance policies on our key executives. The loss of our key
executives or our inability to attract and retain additional highly skilled
employees may adversely affect our business, future operations, and financial
condition.

The elimination of monetary liability against our directors, officers and
employees under Nevada law and the existence of indemnification rights to our
directors, officers and employees may result in substantial expenditures by our
company and may discourage lawsuits against our directors, officers and
employees.

 

Our Articles of Incorporation contain a provision permitting us to eliminate the
personal liability of our directors to our company and shareholders for damages
for breach of fiduciary duty as a director or officer to the extent provided by
Nevada law.  The foregoing indemnification obligations could result in the
Company incurring substantial expenditures to cover the cost of settlement or
damage awards against directors and officers, which we may be unable to
recoup.  These provisions and resultant costs may also discourage our company
from bringing a lawsuit against directors and officers for breaches of their
fiduciary duties, and may similarly discourage the filing of derivative
litigation by our shareholders against our directors and officers even though
such actions, if successful, might otherwise benefit our company and
shareholders.

 

Our stock is categorized as a penny stock.  Trading of our stock may be
restricted by the SEC’s penny stock regulations which may limit a shareholder’s
ability to buy and sell our stock.

 

Our stock is categorized as a penny stock.  The SEC has adopted Rule 15g-9 which
generally defines “penny stock” to be any equity security that has a market
price (as defined) less than US$ 5.00 per share or an exercise price of less
than US$ 5.00 per share, subject to certain exceptions.  Our securities are
covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and accredited investors.  The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document in a form prepared
by the SEC which provides information about penny stocks and the nature and
level of risks in the penny stock market.  The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer’s account.  The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer’s confirmation.  In addition, the penny
stock rules require that prior to a transaction in a penny stock not otherwise
exempt from these rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction.  These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for the stock that is subject to these penny
stock rules.  Consequently, these penny stock rules may affect the ability of
broker-dealers to trade our securities.  We believe that the penny stock rules
discourage investor interest in and limit the marketability of our common stock.

 

 

 

 

 

FINRA sales practice requirements may also limit a shareholder’s ability to buy
and sell our stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules
that require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that 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, investment
objectives and other information.  Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers.  The 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 stock and have an
adverse effect on the market for our shares.

 

To date, we have not paid any cash dividends and no cash dividends will be paid
in the foreseeable future.

 

We do not anticipate paying cash dividends on our common stock in the
foreseeable future and we may not have sufficient funds legally available to pay
dividends.  Even if the funds are legally available for distribution, we may
nevertheless decide not to pay any dividends.  We presently intend to retain all
earnings for our operations.

 

A limited public trading market exists for our common stock, which makes it more
difficult for our stockholders to sell their common stock in the public markets.

 

Our common shares are currently traded under the symbol “PSON,” but currently
with low or no volume, based on quotations on the “Over-the-Counter Bulletin
Board,” meaning that the number of persons interested in purchasing our common
shares at or near bid prices at any given time may be relatively small or
non-existent.  This situation is attributable to a number of factors, including
the fact that we are a small company which is still relatively unknown to stock
analysts, stock brokers, institutional investors, and others in the investment
community that generate or influence sales volume, and that even if we came to
the attention of such persons, they tend to be risk-averse and would be
reluctant to follow an unproven company such as ours or purchase or recommend
the purchase of our shares until such time as we became more
viable.  Additionally, many brokerage firms may not be willing to effect
transactions in the securities.  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 trading levels will be sustained.

 

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 future volatility of our share price.

 

 

 

 

 

If we issue additional shares in the future, it will result in the dilution of
our existing shareholders.

 

Our articles of incorporation authorize the issuance of up to 843,750,000 shares
of common stock with a par value of $0.001 per share. Our Board of Directors may
choose to issue some or all of such shares to acquire one or more companies or
properties and to fund our overhead and general operating requirements. The
issuance of any such shares may reduce the book value per share and may
contribute to a reduction in the market price of the outstanding shares of our
common stock. If we issue any such additional shares, such issuance will reduce
the proportionate ownership and voting power of all current shareholders.
Further, such issuance may result in a change of control of our corporation.

 

THE FOREGOING RISK FACTORS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF ALL OF
THE RISKS INVOLVED IN PURCHASING THE SHARES OFFERED HEREIN. POTENTIAL INVESTORS
SHOULD READ THIS MEMORANDUM IN ITS ENTIRETY AND REVIEW THE COMPANY’S EXCHANGE
ACT DOCUMENTS BEFORE DETERMINING WHETHER TO PURCHASE THE SHARES.