Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of December 21,
2011, is made and entered into by and between US Highland, Inc., an Oklahoma
corporation (the “Company”), with its principal executive offices located at
1241 South Harvard, Tulsa, OK, 74112, and Craigstone Ltd., (the “Purchaser”),
with its principal executive offices located at 88 Wood St. 10th #1, London, UK,
ECZV7RS.

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 of Regulation D promulgated thereunder, the
Company desires to issue and sell to Purchaser, and Purchaser desires to
purchase from the Company, securities of the Company as more fully described in
this Agreement; and,

                WHEREAS, the Purchaser desires to purchase and the Company
desires to issue and sell to the Purchaser, upon the terms and subject to the
conditions set forth in this Agreement four (4) Units (as defined below). 

 

NOW THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the Company and the
Purchaser hereby agree as follows:

1.                   Purchase and Sale of Units. 

(a)           Sale and Issuance of Units. Subject to the terms and conditions of
this Agreement, the Purchaser agrees to purchase at the Closing (as defined
below), and upon payment of the Purchase Price (as defined below), the Company
agrees to sell and issue to the Purchaser up to four (4) units (the “Units”).
Each Unit shall consist of the following:

                                (i)            a ten percent (10%) convertible
promissory note in substantially the same form as attached to the agreement in
Exhibit A (the “Note”), with a term of one (1) year, which may be convertible
into common stock of the Company on the terms stated therein; and,

                                (ii)           a common stock purchase warrant,
attached as Exhibit B (the “Warrant”), for the right to purchase that number of
shares of Company Common Stock equal to two hundred fifty thousand (250,000)
shares per Unit purchased, which shall be exercisable immediately and have a
three (3) year term with an Exercise Price as stated therein.

                (b)           Form of Payment. On the Closing Date: (i) the
Purchaser shall pay the Purchase Price (as hereinafter defined) for each Unit at
the Closing (as defined below) by wire transfer of immediately available funds
to the Company, in accordance with the Company’s written wiring instructions,
and (ii) the Company shall deliver the Notes and Warrants duly executed on
behalf of the Company, to such Purchaser, against delivery of such Purchase
Price.

(C)           CLOSING DATE. SUBJECT TO THE SATISFACTION (OR WRITTEN WAIVER) OF
THE CONDITIONS THERETO SET FORTH IN SECTION 5 AND SECTION 6 BELOW, THE DATE AND
TIME OF THE ISSUANCE AND SALE OF THE NOTES AND THE WARRANTS PURSUANT TO THIS
AGREEMENT (THE “CLOSING DATE”) SHALL BE 10:00 A.M., PACIFIC TIME, ON THE DATE
FIRST WRITTEN ABOVE, OR SUCH OTHER MUTUALLY AGREED UPON TIME. THE CLOSING OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (THE “CLOSING”) SHALL OCCUR ON THE
CLOSING DATE AT SUCH LOCATION AS MAY BE AGREED TO BY THE PARTIES AND MAY BE
UNDERTAKEN REMOTELY BY FACSIMILE OR OTHER ELECTRONIC TRANSMISSION.

 

 (d)          Purchase Price; Minimum and Maximum. The Purchase Price per Unit
is two hundred fifty thousand dollars $250,000.00 (the “Purchase Price”) and the
Company is offering a total of four (4) Units for gross proceeds of one million
dollars $1,000,000.00 to the Purchaser.

2.             Representations and Warranties of the Purchaser. The Purchaser
hereby acknowledges, represents, and warrants to the Company that:

 

 

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(a)           Investment Purpose. As of the date hereof, the Purchaser is
purchasing the Notes and the Warrants and the shares of Common Stock issuable
upon exercise thereof (the “Warrant Shares” and, collectively the Notes, and
Warrants are sometimes referred to as the “Securities”) for its own account and
not with a view towards the public sale or distribution thereof, except pursuant
to sales registered or exempted from registration under the Securities Act;
provided, however, that by making the representations herein, the Purchaser does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the
Securities Act. The Purchaser has no agreement or arrangement, formal or
informal, with any person to sell or transfer all or any part of the Securities,
and the Purchaser has no plans to enter into any such agreement or arrangement.

 

(B)           ACCREDITED INVESTOR STATUS. THE PURCHASER IS AN “ACCREDITED
INVESTOR,” AS THAT TERM IS DEFINED IN RULE 501(A) OF REGULATION D PROMULGATED
UNDER THE SECURITIES ACT (AN “ACCREDITED INVESTOR”), AND PURCHASER HAS COMPLETED
THE “INVESTOR QUESTIONNAIRE” AS ATTACHED HERETO AS ANNEX B. 

(C)           RELIANCE ON EXEMPTIONS. NEITHER THE UNITS NOR THE SECURITIES
OFFERED ARE REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE SECURITIES LAWS.
THE PURCHASER UNDERSTANDS THAT THE SECURITIES ARE BEING OFFERED AND SOLD TO IT
IN RELIANCE UPON SPECIFIC EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
UNITED STATES FEDERAL AND STATE SECURITIES LAWS AND THAT THE COMPANY IS RELYING
UPON THE TRUTH AND ACCURACY OF, AND THE PURCHASER’S COMPLIANCE WITH, THE
REPRESENTATIONS, WARRANTIES, AGREEMENTS, ACKNOWLEDGMENTS AND UNDERSTANDINGS OF
THE PURCHASER SET FORTH HEREIN IN ORDER TO DETERMINE THE AVAILABILITY OF SUCH
EXEMPTIONS AND THE ELIGIBILITY OF THE PURCHASER TO ACQUIRE THE SECURITIES.

(D)           INFORMATION.  THE PURCHASER AND ITS ADVISORS, IF ANY, ACKNOWLEDGES
THAT THEY HAVE BEEN FURNISHED WITH ALL MATERIALS RELATING TO THE BUSINESS,
FINANCES AND OPERATIONS OF THE COMPANY AND MATERIALS RELATING TO THE OFFER AND
SALE OF THE SECURITIES WHICH HAVE BEEN REQUESTED BY THE PURCHASER OR ITS
ADVISORS, HAVE CAREFULLY REVIEWED THEM AND UNDERSTANDS THE INFORMATION CONTAINED
THEREIN. THE PURCHASER AND ITS ADVISORS, IF ANY, HAVE BEEN AFFORDED THE
OPPORTUNITY TO ASK QUESTIONS OF THE COMPANY AND THE PURCHASER AND ITS ADVISORS
HAVE HAD ACCESS, THROUGH THE MEMORANDUM AND/OR THE EDGAR SYSTEM, TO TRUE AND
COMPLETE COPIES OF THE COMPANY’S MOST RECENT ANNUAL REPORT ON FORM 10-K AND ALL
OTHER REPORTS FILED BY THE COMPANY PURSUANT TO THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, (THE “EXCHANGE ACT”) SINCE THE FILING OF THE 10-K AND PRIOR TO
THE DATE HEREOF AND HAVE REVIEWED SUCH FILINGS. PURCHASER’S DECISION TO ENTER
INTO THIS AGREEMENT HAS BEEN MADE BASED SOLELY ON THE INDEPENDENT EVALUATION OF
THE PURCHASER AND ITS ADVISORS, IF ANY. NOTWITHSTANDING THE FOREGOING
REPRESENTATIONS, NEITHER SUCH INQUIRIES NOR ANY OTHER DUE DILIGENCE
INVESTIGATION CONDUCTED BY PURCHASER OR ANY OF ITS ADVISORS OR REPRESENTATIVES
SHALL MODIFY, AMEND OR AFFECT PURCHASER’S RIGHT TO RELY ON THE COMPANY’S
REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION 3 BELOW.                  

(E)         DOCUMENTS.  ALL DOCUMENTS, RECORDS, AND BOOKS PERTAINING TO THE
INVESTMENT IN THE SECURITIES HAVE BEEN MADE AVAILABLE, SUBJECT TO CERTAIN
CONFIDENTIALITY RESTRICTIONS, FOR INSPECTION BY THE PURCHASER AND ITS ADVISORS,
IF ANY.

(F)            NO GOVERNMENT REVIEW. THE PURCHASER UNDERSTANDS THAT NO UNITED
STATES FEDERAL OR STATE AGENCY OR ANY OTHER GOVERNMENT OR GOVERNMENTAL AGENCY
HAS APPROVED THE SECURITIES OR PASSED UPON OR MADE ANY RECOMMENDATION OR
ENDORSEMENT OF THE OFFERING OR CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THE THIS AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE UNITS AND THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.

(G)           TRANSFER OR RESALE. THE PURCHASER UNDERSTANDS THAT:

(I)            THE SALE OR RESALE OF THE SECURITIES HAS NOT BEEN AND IS NOT
BEING REGISTERED UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES
LAWS, AND THE SECURITIES MAY NOT BE TRANSFERRED UNLESS:

(A)          THE SECURITIES ARE SOLD PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT,

 

 

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(B)          THE PURCHASER SHALL HAVE DELIVERED TO THE COMPANY, AT THE COST OF
THE COMPANY, A CUSTOMARY OPINION OF COUNSEL THAT SHALL BE IN FORM, SUBSTANCE AND
SCOPE REASONABLY ACCEPTABLE TO THE COMPANY, TO THE EFFECT THAT THE SECURITIES TO
BE SOLD OR TRANSFERRED MAY BE SOLD OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM
SUCH REGISTRATION,

(C)          THE SECURITIES ARE SOLD OR TRANSFERRED TO AN “AFFILIATE” (AS
DEFINED IN RULE 144 PROMULGATED UNDER THE SECURITIES ACT (OR A SUCCESSOR RULE)
(“RULE 144”)) OF THE PURCHASER WHO AGREES TO SELL OR OTHERWISE TRANSFER THE
SECURITIES ONLY IN ACCORDANCE WITH THIS SECTION 2(G) AND WHO IS AN ACCREDITED
INVESTOR,

(D)          THE SECURITIES ARE SOLD PURSUANT TO RULE 144, OR

(E)           THE SECURITIES ARE SOLD PURSUANT TO REGULATION S UNDER THE
SECURITIES ACT (OR A SUCCESSOR RULE) (“REGULATION S”),

(II)           AND, IN EACH CASE, THE PURCHASER SHALL HAVE DELIVERED TO THE
COMPANY, AT THE COST OF THE COMPANY, A CUSTOMARY OPINION OF COUNSEL, IN FORM,
SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY;

(III)          NEITHER THE COMPANY NOR ANY OTHER PERSON IS UNDER ANY OBLIGATION
TO REGISTER SUCH SECURITIES UNDER THE SECURITIES ACT OR ANY STATE SECURITIES
LAWS OR TO COMPLY WITH THE TERMS AND CONDITIONS OF ANY EXEMPTION THEREUNDER. 

 (H)          LEGENDS. THE PURCHASER UNDERSTANDS THAT THE SECURITIES SHALL BEAR
A RESTRICTIVE LEGEND IN SUBSTANTIALLY THE FOLLOWING FORM (AND A STOP-TRANSFER
ORDER MAY BE PLACED AGAINST TRANSFER OF THE CERTIFICATES FOR SUCH SECURITIES):

 

“The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended. The securities may not be sold,
transferred or assigned in the absence of an effective registration statement
for the securities under said Act, or an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule 144
or Regulation S under said Act.”

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws: (i)
such Security is registered for sale under an effective registration statement
filed under the Securities Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold or (ii) such holder provides
the Company with a reasonable and customary opinion of counsel to the effect
that a public sale or transfer of such Security may be made without registration
under the Securities Act.  The Purchaser agrees to sell all Securities,
including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable prospectus delivery requirements, if any.

(I)            AUTHORIZATION; ENFORCEMENT. EACH  DOCUMENT TO WHICH THE PURCHASER
IS A PARTY: (I) HAS BEEN DULY AND VALIDLY AUTHORIZED, (II) HAS BEEN DULY
EXECUTED AND DELIVERED ON BEHALF OF THE PURCHASER, AND (III) WILL CONSTITUTE,
UPON EXECUTION AND DELIVERY BY THE PURCHASER THEREOF AND THE COMPANY, THE VALID
AND BINDING AGREEMENTS OF THE PURCHASER ENFORCEABLE IN ACCORDANCE WITH THEIR
TERMS, EXCEPT TO THE EXTENT LIMITED BY APPLICABLE BANKRUPTCY, INSOLVENCY,
REORGANIZATION, MORATORIUM OR OTHER LAWS OF GENERAL APPLICATION AFFECTING
ENFORCEMENT OF CREDITORS’ RIGHTS AND GENERAL PRINCIPLES OF EQUITY THAT RESTRICT
THE AVAILABILITY OF EQUITABLE OR LEGAL REMEDIES.

(J)            RESIDENCY. THE PURCHASER IS A RESIDENT OF THE JURISDICTION SET
FORTH IMMEDIATELY BELOW SUCH PURCHASER’S NAME ON THE SIGNATURE PAGES HERETO.
                           

 

 

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(K)          PURCHASER’S RELIANCE. IN EVALUATING THE SUITABILITY OF AN
INVESTMENT IN THE COMPANY, THE PURCHASER HAS NOT RELIED UPON ANY REPRESENTATION
OR OTHER INFORMATION (ORAL OR WRITTEN) OTHER THAN AS STATED IN THIS AGREEMENT OR
AS CONTAINED IN DOCUMENTS SO FURNISHED TO THE PURCHASER OR ITS ADVISORS, IF ANY,
BY THE COMPANY OR THE BY PERSONS ACTING ON BEHALF OF THE COMPANY. THE PURCHASER
IS NOT RELYING ON THE COMPANY, OR ANY OF ITS RESPECTIVE EMPLOYEES OR AGENTS WITH
RESPECT TO THE LEGAL, TAX, ECONOMIC AND RELATED CONSIDERATIONS OF AN INVESTMENT
IN THE UNITS, AND THE PURCHASER HAS RELIED ON THE ADVICE OF, OR HAS CONSULTED
WITH, ONLY ITS OWN ADVISORS, IF ANY.

(L)         NO SOLICITATION. THE PURCHASER IS UNAWARE OF, IS IN NO WAY RELYING
ON, AND DID NOT BECOME AWARE OF THE OFFERING OF THE UNITS DIRECTLY OR INDIRECTLY
THROUGH OR AS A RESULT OF, ANY FORM OF GENERAL SOLICITATION OR GENERAL
ADVERTISING INCLUDING, WITHOUT LIMITATION, ANY PRESS RELEASE, FILING WITH THE
SEC, ARTICLE, NOTICE, ADVERTISEMENT OR OTHER COMMUNICATION PUBLISHED IN ANY
NEWSPAPER, MAGAZINE OR SIMILAR MEDIA OR BROADCAST OVER TELEVISION, RADIO OR THE
INTERNET, IN CONNECTION WITH THE OFFERING AND SALE OF THE UNITS AND IS NOT
SUBSCRIBING FOR UNITS AND DID NOT BECOME AWARE OF THE OFFERING OF THE UNITS
THROUGH OR AS A RESULT OF ANY SEMINAR OR MEETING TO WHICH THE PURCHASER WAS
INVITED BY, OR ANY SOLICITATION OF A SUBSCRIPTION BY, A PERSON NOT PREVIOUSLY
KNOWN TO THE PURCHASER IN CONNECTION WITH INVESTMENTS IN SECURITIES GENERALLY.

 

(M)         BROKERAGE FEES. THE PURCHASER HAS TAKEN NO ACTION WHICH WOULD GIVE
RISE TO ANY CLAIM BY ANY PERSON FOR BROKERAGE COMMISSIONS, FINDER’S FEES OR THE
LIKE RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (OTHER
THAN COMMISSIONS AND OTHER COMPENSATION TO BE PAID BY AS OTHERWISE DESCRIBED IN
THIS AGREEMENT).

 

(N)          INDEPENDENT EVALUATION. THE PURCHASER'S DECISION TO ENTER INTO THIS
AGREEMENT HAS BEEN MADE BASED SOLELY ON THE INDEPENDENT EVALUATION OF THE
PURCHASER AND ITS OWN ADVISORS, IF ANY, AND THE PURCHASER, EITHER ALONE OR
TOGETHER WITH ITS ADVISORS, IF ANY, HAS SUCH KNOWLEDGE AND EXPERIENCE IN
FINANCIAL, TAX, AND BUSINESS MATTERS, AND, IN PARTICULAR, INVESTMENTS IN
SECURITIES, SO AS TO ENABLE IT TO UTILIZE THE INFORMATION MADE AVAILABLE TO IT
IN CONNECTION WITH THE OFFERING TO EVALUATE THE MERITS AND RISKS OF AN
INVESTMENT IN THE UNITS AND THE COMPANY AND TO MAKE AN INFORMED INVESTMENT
DECISION WITH RESPECT THERETO.

 

(O)         PURCHASER AFFILIATIONS. THE PURCHASER IS NEITHER A REGISTERED
REPRESENTATIVE UNDER THE FINANCIAL INDUSTRY REGULATORY AUTHORITY (“FINRA”), A
MEMBER OF FINRA OR ASSOCIATED OR AFFILIATED WITH ANY MEMBER OF FINRA, NOR A
BROKER-DEALER REGISTERED WITH THE SEC UNDER THE EXCHANGE ACT OR ENGAGED IN A
BUSINESS THAT WOULD REQUIRE IT TO BE SO REGISTERED, NOR IS IT AN AFFILIATE OF
SUCH A BROKER-DEALER OR ANY PERSON ENGAGED IN A BUSINESS THAT WOULD REQUIRE IT
TO BE REGISTERED AS A BROKER-DEALER. IN THE EVENT SUCH PURCHASER IS A MEMBER OF
FINRA, OR ASSOCIATED OR AFFILIATED WITH A MEMBER OF FINRA, SUCH PURCHASER
AGREES, IF REQUESTED BY FINRA, TO SIGN A LOCK-UP, THE FORM OF WHICH SHALL BE
SATISFACTORY TO FINRA WITH RESPECT TO THE SECURITIES. FURTHERMORE, THE PURCHASER
IS NOT AN UNDERWRITER OF THE SECURITIES, NOR IS IT AN AFFILIATE OF AN
UNDERWRITER OF THE SECURITIES.

  

(P)        RISK.  THE PURCHASE OF THE UNITS REPRESENTS A HIGH RISK CAPITAL
INVESTMENT AND THE PURCHASER IS ABLE TO AFFORD AN INVESTMENT IN A SPECULATIVE
VENTURE HAVING THE RISKS AND OBJECTIVES OF THE COMPANY. THE PURCHASER MUST BEAR
THE SUBSTANTIAL ECONOMIC RISKS OF THE INVESTMENT IN THE UNITS INDEFINITELY
BECAUSE NONE OF THE UNITS OR THE SECURITIES MAY BE SOLD, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. LEGENDS SHALL BE PLACED ON THE UNITS AND THE SECURITIES TO THE EFFECT
THAT THEY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS AND APPROPRIATE NOTATIONS THEREOF WILL BE MADE IN THE COMPANY'S
BOOKS. STOP TRANSFER INSTRUCTIONS WILL BE PLACED WITH THE TRANSFER AGENT OF THE
SECURITIES, IF ANY, OR WITH THE COMPANY. THERE CAN BE NO ASSURANCE THAT THERE
WILL BE ANY MARKET FOR RESALE OF THE UNITS OR THE SECURITIES. 

 

                                (q)        Suitable Investment. The Purchaser
has adequate means of providing for such Purchaser's current financial needs and
foreseeable contingencies and has no need for liquidity of its investment in the
Securities for an indefinite period of time. The Purchaser has significant prior
investment experience, including investments in high risk securities. The
Purchaser is knowledgeable about investments in small and thinly capitalized,
development stage companies. The Purchaser has a sufficient net worth to sustain
a loss of its entire investment in the Company in the event such a loss should
occur. The Purchaser's overall commitment to investments which are not readily
marketable is not excessive in view of the Purchaser’s net worth and financial
circumstances and the purchase of the Units will not cause such commitment to
become excessive. The investment is a suitable one for the Purchaser.

 

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(R)        PURCHASER ATTRIBUTES. THE PURCHASER (I) IF A NATURAL PERSON,
REPRESENTS THAT THE PURCHASER HAS REACHED THE AGE OF 21 AND HAS FULL POWER AND
AUTHORITY TO EXECUTE AND DELIVER THIS AGREEMENT AND ALL OTHER RELATED AGREEMENTS
OR CERTIFICATES AND TO CARRY OUT THE PROVISIONS HEREOF AND THEREOF; (II) IF A
CORPORATION, PARTNERSHIP, OR LIMITED LIABILITY COMPANY OR PARTNERSHIP, OR
ASSOCIATION, JOINT STOCK COMPANY, TRUST, UNINCORPORATED ORGANIZATION OR OTHER
ENTITY, REPRESENTS THAT SUCH ENTITY WAS NOT FORMED FOR THE SPECIFIC PURPOSE OF
ACQUIRING THE UNITS, SUCH ENTITY IS DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD
STANDING UNDER THE LAWS OF THE STATE OF ITS ORGANIZATION, THE CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED HEREBY IS AUTHORIZED BY, AND WILL NOT RESULT IN A
VIOLATION OF ANY LAW APPLICABLE TO IT OR ITS CHARTER OR OTHER ORGANIZATIONAL
DOCUMENTS, SUCH ENTITY HAS FULL POWER AND AUTHORITY TO EXECUTE AND DELIVER THIS
AGREEMENT AND ALL OTHER RELATED AGREEMENTS OR CERTIFICATES AND TO CARRY OUT THE
PROVISIONS HEREOF AND THEREOF AND TO PURCHASE AND HOLD THE UNITS AND THE
SECURITIES, THE EXECUTION AND DELIVERY OF THIS AGREEMENT HAS BEEN DULY
AUTHORIZED BY ALL NECESSARY ACTION, THIS AGREEMENT HAS BEEN DULY EXECUTED AND
DELIVERED ON BEHALF OF SUCH ENTITY AND IS A LEGAL, VALID AND BINDING OBLIGATION
OF SUCH ENTITY; OR (III) IF EXECUTING THIS AGREEMENT IN A REPRESENTATIVE OR
FIDUCIARY CAPACITY, REPRESENTS THAT IT HAS FULL POWER AND AUTHORITY TO EXECUTE
AND DELIVER THIS AGREEMENT IN SUCH CAPACITY AND ON BEHALF OF THE SUBSCRIBING
INDIVIDUAL, WARD, PARTNERSHIP, TRUST, ESTATE, CORPORATION, OR LIMITED LIABILITY
COMPANY OR PARTNERSHIP, OR OTHER ENTITY FOR WHOM THE PURCHASER IS EXECUTING THIS
AGREEMENT, AND SUCH INDIVIDUAL, PARTNERSHIP, WARD, TRUST, ESTATE, CORPORATION,
OR LIMITED LIABILITY COMPANY OR PARTNERSHIP, OR OTHER ENTITY HAS FULL RIGHT AND
POWER TO PERFORM PURSUANT TO THIS AGREEMENT AND MAKE AN INVESTMENT IN THE
COMPANY, AND REPRESENTS THAT THIS AGREEMENT CONSTITUTES A LEGAL, VALID AND
BINDING OBLIGATION OF SUCH ENTITY.  THE EXECUTION AND DELIVERY OF THIS AGREEMENT
WILL NOT VIOLATE OR BE IN CONFLICT WITH ANY ORDER, JUDGMENT, INJUNCTION,
AGREEMENT OR CONTROLLING DOCUMENT TO WHICH THE PURCHASER IS A PARTY OR BY WHICH
IT IS BOUND.

 

                                (s)         Additional Information. The
Purchaser and the advisors, if any, have had the opportunity to obtain any
additional information, to the extent the Company had such information in its
possession or could acquire it without unreasonable effort or expense, necessary
to verify the accuracy of the information contained in all documents received or
reviewed in connection with the purchase of the Units and have had the
opportunity to have representatives of the Company provide them with such
additional information regarding the terms and conditions of this particular
investment and the financial condition, results of operations, business and
prospects of the Company deemed relevant by the Purchaser or the advisors, if
any, and all such requested information, to the extent the Company had such
information in its possession or could acquire it without unreasonable effort or
expense, has been provided by the Company to the full satisfaction of the
Purchaser and the advisors, if any. The Purchaser is satisfied that it has
received adequate information with respect to all matters which it or the
advisors, if any, consider material to its decision to make this investment.

 

(T)         PURCHASER’S INFORMATION. WITHIN FIVE (5) BUSINESS DAYS AFTER RECEIPT
OF A REQUEST FROM THE COMPANY, THE PURCHASER WILL PROVIDE SUCH INFORMATION AND
DELIVER SUCH DOCUMENTS AS MAY REASONABLY BE NECESSARY TO COMPLY WITH ANY AND ALL
LAWS AND ORDINANCES TO WHICH THE COMPANY IS SUBJECT. ANY INFORMATION WHICH THE
PURCHASER HAS HERETOFORE FURNISHED OR IS FURNISHING HEREWITH TO THE COMPANY IS
COMPLETE AND ACCURATE AND MAY BE RELIED UPON BY THE COMPANY IN DETERMINING THE
AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER FEDERAL AND STATE
SECURITIES LAWS IN CONNECTION WITH THE OFFERING. THE PURCHASER FURTHER
REPRESENTS AND WARRANTS THAT IT WILL NOTIFY AND SUPPLY CORRECTIVE INFORMATION TO
THE COMPANY IMMEDIATELY UPON THE OCCURRENCE OF ANY CHANGE THEREIN OCCURRING
PRIOR TO THE COMPANY'S ISSUANCE OF THE SECURITIES UNDERLYING THE UNITS.

 

(U)        FORWARD LOOKING STATEMENTS. THE PURCHASER ACKNOWLEDGES THAT ANY
ESTIMATES OR FORWARD-LOOKING STATEMENTS OR PROJECTIONS INCLUDED IN THIS
AGREEMENT AND RELATED DOCUMENTS WERE PREPARED BY THE COMPANY IN GOOD FAITH BUT
THAT THE ATTAINMENT OF ANY SUCH PROJECTIONS, ESTIMATES OR FORWARD-LOOKING
STATEMENTS CANNOT BE GUARANTEED AND WILL NOT BE UPDATED BY THE COMPANY AND
SHOULD NOT BE RELIED UPON.

 

(V)        INCONSISTENT REPRESENTATIONS. NO ORAL OR WRITTEN REPRESENTATIONS HAVE
BEEN MADE, OR ORAL OR WRITTEN INFORMATION FURNISHED, TO THE PURCHASER OR ITS
ADVISORS, IF ANY, IN CONNECTION WITH THE OFFERING WHICH ARE IN ANY WAY
INCONSISTENT WITH THE INFORMATION CONTAINED IN THIS AGREEMENT OR IN RELATED
DOCUMENTS.

 

                                (w)         Relationship with Company. The
Purchaser’s substantive relationship with the Company or subagent through which
the Purchaser is subscribing for Units predates the Company’s or such subagent's
contact with the Purchaser regarding an investment in the Units.

 

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                                (x)       Federal Regulations. The Purchaser
should check the Office of Foreign Assets Control (“OFAC”) website at
<http://www.treas.gov/ofac> before making the following representations. The
Purchaser represents that the amounts invested by it in the Company in the
Offering were not and are not directly or indirectly derived from activities
that contravene federal, state or international laws and regulations, including
anti-money laundering laws and regulations. Federal regulations and Executive
Orders administered by OFAC prohibit, among other things, the engagement in
transactions with, and the provision of services to, certain foreign countries,
territories, entities and individuals. The lists of OFAC prohibited countries,
territories, persons and entities can be found on the OFAC website at
<http://www.treas.gov/ofac>. In addition, the programs administered by OFAC (the
“OFAC Programs”) prohibit dealing with individuals or entities in certain
countries regardless of whether such individuals or entities appear on the OFAC
lists. To the best of the Purchaser’s knowledge, none of: (1) the Purchaser; (2)
any person controlling or controlled by the Purchaser; (3) if the Purchaser is a
privately-held entity, any person having a beneficial interest in the Purchaser;
or (4) any person for whom the Purchaser is acting as agent or nominee in
connection with this investment is a country, territory, individual or entity
named on an OFAC list, or a person or entity prohibited under the OFAC
Programs. 

 

                                Please be advised that the Company may not
accept any amounts from a prospective investor if such prospective investor
cannot make the representation set forth in the preceding paragraph. The
Purchaser agrees to promptly notify the Company should the Purchaser become
aware of any change in the information set forth in these representations. The
Purchaser understands and acknowledges that, by law, the Company may be
obligated to “freeze the account” of the Purchaser, either by prohibiting
additional subscriptions from the Purchaser, declining any redemption requests
and/or segregating the assets in the account in compliance with governmental
regulations, and may also be required to report such action and to disclose the
Purchaser’s identity to OFAC. The Purchaser further acknowledges that the
Company may, by written notice to the Purchaser, suspend the redemption rights,
if any, of the Purchaser if the Company reasonably deems it necessary to do so
to comply with anti-money laundering regulations applicable to the Company or
any of the Company’s service providers. These individuals include specially
designated nationals, specially designated narcotics traffickers and other
parties subject to OFAC sanctions and embargo programs.

 

                                (y)         Senior Foreign Political Figure. To
the best of the Purchaser’s knowledge, none of: (1) the Purchaser; (2) any
person controlling or controlled by the Purchaser; (3) if the Purchaser is a
privately-held entity, any person having a beneficial interest in the Purchaser;
or (4) any person for whom the Purchaser is acting as agent or nominee in
connection with this investment is a senior foreign political figure [1], or any
immediate family [2] member or close associate [3] of a senior foreign political
figure, as such terms are defined in the footnotes below; and

 

                                (z)         Foreign Bank. If the Purchaser is
affiliated with a non-U.S. banking institution (a “Foreign Bank”), or if the
Purchaser receives deposits from, makes payments on behalf of, or handles other
financial transactions related to a Foreign Bank, the Purchaser represents and
warrants to the Company that: (1) the Foreign Bank has a fixed address, other
than solely an electronic address, in a country in which the Foreign Bank is
authorized to conduct banking activities; (2) the Foreign Bank maintains
operating records related to its banking activities; (3) the Foreign Bank is
subject to inspection by the banking authority that licensed the Foreign Bank to
conduct banking activities; and (4) the Foreign Bank does not provide banking
services to any other Foreign Bank that does not have a physical presence in any
country and that is not a regulated affiliate.

--------------------------------------------------------------------------------

 

[1] A “senior foreign political figure” is defined as a senior official in the
executive, legislative, administrative, military or judicial branches of a
foreign government (whether elected or not), a senior official of a major
foreign political party, or a senior executive of a foreign government-owned
corporation. In addition, a “senior foreign political figure” includes any
corporation, business or other entity that has been formed by, or for the
benefit of, a senior foreign political figure.

 

[2] “Immediate family” of a senior foreign political figure typically includes
the figure’s parents, siblings, spouse, children and in-laws.

 

[3] A “close associate” of a senior foreign political figure is a person who is
widely and publicly known to maintain an unusually close relationship with the
senior foreign political figure, and includes a person who is in a position to
conduct substantial domestic and international financial transactions on behalf
of the senior foreign political figure.

 

6

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3.             Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as of the date hereof (unless the
context specifically indicates otherwise) that:

(A)           ORGANIZATION AND QUALIFICATION. THE COMPANY IS A CORPORATION OR
OTHER ENTITY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE
LAWS OF THE JURISDICTION IN WHICH IT IS INCORPORATED OR ORGANIZED, WITH FULL
POWER AND AUTHORITY (CORPORATE AND OTHER) TO OWN, LEASE, USE AND OPERATE ITS
PROPERTIES AND TO CARRY ON ITS BUSINESS AS AND WHERE NOW OWNED, LEASED, USED,
OPERATED AND CONDUCTED.   

 

(b)           Authorization. All corporate actions on the part of the Company,
its officers and directors necessary for the authorization, execution and
delivery of this Agreement and the authorization, sale, issuance and delivery of
the Units, and the performance of all obligations of the Company hereunder and
thereunder has been taken or will be taken prior to the Closing. This Agreement
when executed and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other laws of general application affecting enforcement of creditors’ rights
generally, and as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.

(C)           SEC DOCUMENTS; FINANCIAL STATEMENTS. THE COMPANY HAS FILED ALL
REPORTS, SCHEDULES, FORMS, STATEMENTS AND OTHER DOCUMENTS REQUIRED TO BE FILED
BY IT WITH THE SEC PURSUANT TO THE REPORTING REQUIREMENTS OF THE EXCHANGE ACT
(ALL OF THE FOREGOING FILED PRIOR TO THE DATE HEREOF AND ALL EXHIBITS INCLUDED
THEREIN AND FINANCIAL STATEMENTS AND SCHEDULES THERETO AND DOCUMENTS
INCORPORATED BY REFERENCE THEREIN, BEING HEREINAFTER REFERRED TO HEREIN AS THE
“SEC DOCUMENTS”). THE SEC DOCUMENTS ARE IN THE FORM AVAILABLE TO THE PUBLIC VIA
THE SEC’S EDGAR SYSTEM. 

 

(D)           NO GENERAL SOLICITATION. NEITHER THE COMPANY NOR ANY PERSON
PARTICIPATING ON THE COMPANY’S BEHALF IN THE TRANSACTIONS CONTEMPLATED HEREBY
HAS CONDUCTED ANY “GENERAL SOLICITATION,” AS SUCH TERM IS DEFINED IN REGULATION
D PROMULGATED UNDER THE SECURITIES ACT, WITH RESPECT TO ANY OF THE SECURITIES
BEING OFFERED HEREBY.

 

(E)           FINDER’S FEE. THE COMPANY MAY PAY, WHERE APPLICABLE, A REASONABLE
FINDER'S FEE (THE “FEE”), NOT TO EXCEED 10% OF THE PURCHASE PRICE. 

 

4.             Covenants. In addition to the other agreements and covenants set
forth herein, the applicable parties hereto hereby covenant as follows:

(A)           STOP ORDERS. THE COMPANY WILL ADVISE THE PURCHASER PROMPTLY AFTER
IT RECEIVES NOTICE OF ISSUANCE BY THE SEC, ANY STATE SECURITIES COMMISSION OR
ANY OTHER REGULATORY AUTHORITY OF ANY STOP ORDER OR OF ANY ORDER PREVENTING OR
SUSPENDING ANY OFFERING OF THE SECURITIES, OR OF THE SUSPENSION OF THE
QUALIFICATION OF THE COMMON STOCK OF THE COMPANY FOR OFFERING OR SALE IN ANY
JURISDICTION, OR THE INITIATION OF ANY PROCEEDING FOR ANY SUCH PURPOSE.

 

(B)           FORM D; BLUE SKY LAWS. THE COMPANY AGREES TO FILE A FORM D WITH
RESPECT TO THE SECURITIES AS REQUIRED UNDER REGULATION D AND TO PROVIDE A COPY
THEREOF TO THE PURCHASER PROMPTLY AFTER SUCH FILING. THE COMPANY SHALL, ON OR
BEFORE THE CLOSING DATE, TAKE SUCH ACTION AS THE COMPANY SHALL REASONABLY
DETERMINE IS NECESSARY TO QUALIFY THE SECURITIES FOR SALE TO THE PURCHASER AT
THE APPLICABLE CLOSING PURSUANT TO THIS AGREEMENT UNDER APPLICABLE SECURITIES OR
“BLUE SKY” LAWS OF THE STATES OF THE UNITED STATES (OR TO OBTAIN AN EXEMPTION
FROM SUCH QUALIFICATION), AND SHALL PROVIDE EVIDENCE OF ANY SUCH ACTION SO TAKEN
TO THE PURCHASER ON OR PRIOR TO THE CLOSING DATE.

 

(C)           AUTHORIZATION AND RESERVATION OF SHARES. THE COMPANY SHALL AT ALL
TIMES HAVE AUTHORIZED, AND RESERVED FOR THE PURPOSE OF ISSUANCE, A SUFFICIENT
NUMBER OF SHARES OF COMMON STOCK TO PROVIDE FOR THE EXERCISE OF THE OUTSTANDING
NOTES AND WARRANTS AND ISSUANCE OF THE WARRANT SHARES IN CONNECTION THEREWITH
(BASED ON THE EXERCISE PRICE OF THE WARRANTS IN EFFECT FROM TIME TO TIME) AND AS
OTHERWISE REQUIRED BY THE NOTES (COLLECTIVELY, THE “RESERVED AMOUNT”). THE
COMPANY SHALL NOT REDUCE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UPON EXERCISE OF THE WARRANTS. IF AT ANY TIME THE NUMBER OF SHARES OF
COMMON STOCK

7

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AUTHORIZED AND RESERVED FOR ISSUANCE (“AUTHORIZED AND RESERVED SHARES”) IS BELOW
THE RESERVED AMOUNT, THE COMPANY WILL PROMPTLY TAKE ALL CORPORATE ACTION
NECESSARY TO AUTHORIZE AND RESERVE A SUFFICIENT NUMBER OF SHARES, INCLUDING,
WITHOUT LIMITATION, CALLING A SPECIAL MEETING OF STOCKHOLDERS TO AUTHORIZE
ADDITIONAL SHARES TO MEET THE COMPANY’S OBLIGATIONS UNDER THIS SECTION 4(C), IN
THE CASE OF AN INSUFFICIENT NUMBER OF AUTHORIZED SHARES, OBTAIN STOCKHOLDER
APPROVAL OF AN INCREASE IN SUCH AUTHORIZED NUMBER OF SHARES, AND VOTING THE
SHARES OF THE COMPANY’S OFFICERS AND DIRECTORS IN FAVOR OF AN INCREASE IN THE
AUTHORIZED SHARES OF THE COMPANY TO ENSURE THAT THE NUMBER OF AUTHORIZED SHARES
IS SUFFICIENT TO MEET THE RESERVED AMOUNT.  THE COMPANY SHALL USE ITS BEST
EFFORTS TO OBTAIN SUCH STOCKHOLDER APPROVAL WITHIN THIRTY (30) DAYS FOLLOWING
THE DATE ON WHICH THE NUMBER OF RESERVED AMOUNT EXCEEDS THE AUTHORIZED AND
RESERVED SHARES.

(D)           CORPORATE EXISTENCE. SO LONG AS THE PURCHASER BENEFICIALLY OWNS
THE NOTES OR WARRANTS, THE COMPANY SHALL MAINTAIN ITS CORPORATE EXISTENCE AND
SHALL NOT SELL ALL OR SUBSTANTIALLY ALL OF THE COMPANY’S ASSETS, EXCEPT IN THE
EVENT OF A MERGER OR CONSOLIDATION OR SALE OF ALL OR SUBSTANTIALLY ALL OF THE
COMPANY’S ASSETS, WHERE THE SURVIVING OR SUCCESSOR ENTITY IN SUCH TRANSACTION:
(I) ASSUMES THE COMPANY’S OBLIGATIONS HEREUNDER AND UNDER THE AGREEMENTS AND
INSTRUMENTS ENTERED INTO IN CONNECTION HEREWITH AND (II) IS A PUBLICLY-TRADED
CORPORATION WHOSE COMMON STOCK IS LISTED FOR TRADING ON THE OTCBB, NASDAQ
NATIONAL MARKET, NASDAQ CAPITAL MARKET, AMERICAN STOCK EXCHANGE OR NEW YORK
STOCK EXCHANGE.

 

5.             Conditions to the Company’s Obligation to Sell. The obligation of
the Company hereunder to issue and sell the Notes and Warrants to a Purchaser at
the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions thereto, provided that these conditions are for
the Company’s sole benefit and may be waived by the Company at any time in its
sole discretion:

(A)           THE PURCHASER SHALL HAVE EXECUTED THIS AGREEMENT, AND DELIVERED
THE SAME TO THE COMPANY.

(B)           THE PURCHASER SHALL HAVE DELIVERED THE PURCHASE PRICE IN
ACCORDANCE WITH SECTION 1(B) ABOVE.

(C)           THE REPRESENTATIONS AND WARRANTIES OF THE APPLICABLE PURCHASER
SHALL BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS, AND THE APPLICABLE PURCHASER
SHALL HAVE PERFORMED, SATISFIED AND COMPLIED IN ALL MATERIAL RESPECTS WITH THE
COVENANTS, AGREEMENTS AND CONDITIONS REQUIRED BY THIS AGREEMENT TO BE PERFORMED,
SATISFIED OR COMPLIED WITH BY THE APPLICABLE PURCHASER AT OR PRIOR TO THE
CLOSING DATE.

(D)           NO LITIGATION, STATUTE, RULE, REGULATION, EXECUTIVE ORDER, DECREE,
RULING OR INJUNCTION SHALL HAVE BEEN ENACTED, ENTERED, PROMULGATED OR ENDORSED
BY OR IN ANY COURT OR GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION OR ANY
SELF-REGULATORY ORGANIZATION HAVING AUTHORITY OVER THE MATTERS CONTEMPLATED
HEREBY WHICH PROHIBITS THE CONSUMMATION OF ANY OF THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT.

 

6.             Conditions to the Purchaser’s Obligation to Purchase. The
obligation of the Purchaser hereunder to purchase the Notes and Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions, provided that these conditions are for such
Purchaser’s sole benefit and may be waived by such Purchaser at any time in its
sole discretion:

(A)           TO THE PURCHASER DULY EXECUTED NOTES (IN SUCH DENOMINATIONS AS THE
PURCHASER SHALL REQUEST) AND WARRANTS IN ACCORDANCE WITH SECTION 1(A) ABOVE.

(B)           THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHALL BE TRUE
AND CORRECT IN ALL MATERIAL RESPECTS, AND THE COMPANY SHALL HAVE PERFORMED,
SATISFIED AND COMPLIED IN ALL MATERIAL RESPECTS WITH THE COVENANTS, AGREEMENTS
AND CONDITIONS REQUIRED BY THIS AGREEMENT TO BE PERFORMED, SATISFIED OR COMPLIED
WITH BY THE COMPANY AT OR PRIOR TO THE CLOSING DATE.

(C)           NO LITIGATION, STATUTE, RULE, REGULATION, EXECUTIVE ORDER, DECREE,
RULING OR INJUNCTION SHALL HAVE BEEN ENACTED, ENTERED, PROMULGATED OR ENDORSED
BY OR IN ANY COURT OR GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION OR ANY
SELF-REGULATORY ORGANIZATION HAVING AUTHORITY OVER THE MATTERS CONTEMPLATED
HEREBY WHICH PROHIBITS THE CONSUMMATION OF ANY OF THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT.

8

--------------------------------------------------------------------------------

 

7.             [Intentionally Deleted]. 

 

8.             Governing Law; Jurisdiction. This agreement shall be enforced,
governed by and construed in accordance with the laws of the state of Oklahoma
applicable to agreements made and to be performed entirely within such state,
without regard to the principles of conflicts of law. 

9.             Miscellaneous. 

(A)           COUNTERPARTS; SIGNATURES BY FACSIMILE. THIS AGREEMENT MAY BE
EXECUTED IN ONE OR MORE COUNTERPARTS. EACH OF SUCH COUNTERPARTS SHALL BE DEEMED
AN ORIGINAL, AND ALL OF WHICH SHALL, WHEN TAKEN TOGETHER, CONSTITUTE ONE AND THE
SAME AGREEMENT, AND SHALL BECOME EFFECTIVE WHEN COUNTERPARTS HAVE BEEN SIGNED BY
EACH PARTY AND DELIVERED TO THE OTHER PARTY. THIS AGREEMENT, ONCE EXECUTED BY A
PARTY (INCLUDING IN THE MANNER DESCRIBED ABOVE), MAY BE DELIVERED TO THE OTHER
PARTY HERETO BY FACSIMILE TRANSMISSION OF A COPY OF THIS AGREEMENT BEARING THE
SIGNATURE OF THE PARTY SO DELIVERING THIS AGREEMENT.

(B)           HEADINGS. THE HEADINGS OF THIS AGREEMENT ARE FOR CONVENIENCE OF
REFERENCE ONLY AND SHALL NOT FORM PART OF, OR AFFECT THE INTERPRETATION OF, THIS
AGREEMENT. 

(C)           SEVERABILITY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT IS
INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH
PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT
THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF
LAW. ANY PROVISION HEREOF WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW
SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION HEREOF.

(D)           ENTIRE AGREEMENT; AMENDMENTS. THIS AGREEMENT, THE OTHER
TRANSACTION DOCUMENTS AND THE INSTRUMENTS, DOCUMENTS AND SCHEDULES REFERENCED
HEREIN CONTAIN THE ENTIRE UNDERSTANDING OF THE PARTIES WITH RESPECT TO THE
MATTERS COVERED HEREIN AND THEREIN AND, EXCEPT AS SPECIFICALLY SET FORTH HEREIN
OR THEREIN, NEITHER THE COMPANY NOR ANY PURCHASER MAKES ANY REPRESENTATION,
WARRANTY, COVENANT OR UNDERTAKING WITH RESPECT TO SUCH MATTERS. NO PROVISION OF
THIS AGREEMENT MAY BE WAIVED OR AMENDED OTHER THAN BY AN INSTRUMENT IN WRITING
SIGNED BY THE COMPANY AND THE PURCHASER.

(E)           NOTICES. ANY NOTICES REQUIRED OR PERMITTED TO BE GIVEN UNDER THE
TERMS OF THIS AGREEMENT SHALL BE SENT BY CERTIFIED OR REGISTERED MAIL (RETURN
RECEIPT REQUESTED) OR DELIVERED PERSONALLY OR BY COURIER (INCLUDING A RECOGNIZED
OVERNIGHT DELIVERY SERVICE) OR BY FACSIMILE TRANSMISSION AND SHALL BE EFFECTIVE
FIVE DAYS AFTER BEING PLACED IN THE MAIL, IF MAILED BY REGULAR UNITED STATES
MAIL, OR UPON RECEIPT, IF DELIVERED PERSONALLY OR BY COURIER (INCLUDING A
RECOGNIZED OVERNIGHT DELIVERY SERVICE) OR BY FACSIMILE TRANSMISSION, WITH
PRINTED CONFIRMATION OF RECEIPT, IN EACH CASE ADDRESSED TO A PARTY.  THE
ADDRESSES FOR SUCH COMMUNICATIONS SHALL BE:

 

                If to the Company:                            

US Highland, Inc.

1241 South Harvard,

Tulsa, OK 74112

Attention: Mr. John R. Fitzpatrick, CEO

Telephone: 918-827-5254   

 

If to a Purchaser:                 Craigstone Ltd.

                                                88 Wood St.

                                                10th #1

                                                London, UK ECZV7RS

 

Each party shall provide notice to the other party of any change in address,
telephone or facsimile number.

 

(F)            SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL BE BINDING UPON AND
INURE TO THE BENEFIT OF THE PARTIES AND THEIR SUCCESSORS AND ASSIGNS. NEITHER
THE COMPANY NOR ANY PURCHASER SHALL ASSIGN THIS AGREEMENT OR ANY RIGHTS OR
OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER.
NOTWITHSTANDING THE FOREGOING, BUT SUBJECT TO THE PROVISIONS OF SECTION 2(G)
HEREOF, ANY PURCHASER MAY, WITHOUT THE CONSENT OF THE COMPANY, ASSIGN ITS

9

--------------------------------------------------------------------------------

 

RIGHTS HEREUNDER TO ANY PERSON THAT PURCHASES SECURITIES IN A PRIVATE
TRANSACTION FROM A PURCHASER OR TO ANY OF ITS “AFFILIATES,” AS THAT TERM IS
DEFINED UNDER THE EXCHANGE ACT.

 

(G)           THIRD PARTY BENEFICIARIES. THIS AGREEMENT IS INTENDED FOR THE
BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE PERMITTED SUCCESSORS AND
ASSIGNS, AND IS NOT FOR THE BENEFIT OF, NOR MAY ANY PROVISION HEREOF BE ENFORCED
BY, ANY OTHER PERSON.

 

(H)           SURVIVAL; INDEMNIFICATION; LIMITATION ON LIABILITY.   

 

(I)            THE REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE
COMPANY SET FORTH IN SECTIONS 2 AND 3 HEREOF SHALL SURVIVE FOR 18 MONTHS
FOLLOWING THE CLOSING DATE NOTWITHSTANDING ANY DUE DILIGENCE INVESTIGATION
CONDUCTED BY OR ON BEHALF OF THE PURCHASER OR THE COMPANY, AS APPLICABLE. THE
AGREEMENTS AND COVENANTS OF THE COMPANY SET FORTH IN SECTION 4 SHALL SURVIVE FOR
SO LONG AS ANY PURCHASER BENEFICIALLY OWNS ANY SECURITIES. 

 

(II)           THE COMPANY AGREES TO INDEMNIFY AND HOLD HARMLESS THE PURCHASER
AND ALL OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
REPRESENTATIVE FROM AND AGAINST ANY AND ALL CLAIMS, COSTS, EXPENSES,
LIABILITIES, OBLIGATIONS, LOSSES OR DAMAGES (INCLUDING REASONABLE LEGAL FEES) OF
ANY NATURE (“LOSSES”), INCURRED BY OR IMPOSED UPON ANY SUCH PARTY ARISING AS A
RESULT OF OR RELATED TO ANY ACTUAL OR ALLEGED BREACH BY THE COMPANY OF ANY OF
ITS REPRESENTATIONS, WARRANTIES AND COVENANTS SET FORTH IN SECTIONS 3 AND 4
HEREOF OR ANY OF ITS COVENANTS, AGREEMENTS AND OBLIGATIONS UNDER THIS AGREEMENT
OR ANY OTHER TRANSACTION DOCUMENT. 

 

(III)          THE PURCHASER AGREES, SEVERALLY BUT NOT JOINTLY, TO INDEMNIFY AND
HOLD HARMLESS THE COMPANY AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS FOR
LOSSES ARISING AS A RESULT OF OR RELATED TO ANY ACTUAL OR ALLEGED BREACH ANY
BREACH BY SUCH PURCHASER OF ANY OF ITS REPRESENTATIONS OR WARRANTIES SET FORTH
IN SECTION 2 HEREOF OR ANY OF ITS COVENANTS, AGREEMENTS AND OBLIGATIONS UNDER
THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT.

 

(IV)          FURTHER ASSURANCES. EACH PARTY SHALL DO AND PERFORM, OR CAUSE TO
BE DONE AND PERFORMED, ALL SUCH FURTHER ACTS AND THINGS, AND SHALL EXECUTE AND
DELIVER ALL SUCH OTHER AGREEMENTS, CERTIFICATES, INSTRUMENTS AND DOCUMENTS, AS
THE OTHER PARTY MAY REASONABLY REQUEST IN ORDER TO CARRY OUT THE INTENT AND
ACCOMPLISH THE PURPOSES OF THIS AGREEMENT AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY.

(J)            NO STRICT CONSTRUCTION. THE LANGUAGE USED IN THIS AGREEMENT WILL
BE DEEMED TO BE THE LANGUAGE CHOSEN BY THE PARTIES TO EXPRESS THEIR MUTUAL
INTENT, AND NO RULES OF STRICT CONSTRUCTION WILL BE APPLIED AGAINST ANY PARTY.

 

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

 

 

 

US HIGHLAND, INC.

 

 

 

By: /s/ ROBERT HARRIS                              

       Name: Robert Harris

       Title: Chairman

 

 

10

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PURCHASER:

 

The Purchaser executing the Signature Page in the form attached hereto as Annex
A and delivering the same to the Company or its agents shall be deemed to have
executed this Agreement and agreed to the terms hereof.

 

 

 

 

 

 

 

 

11

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Annex A

 

Securities Purchase Agreement

Purchaser Counterpart Signature Page

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: _____________________________________________________________

Signature of Authorized Signatory of Purchaser:
______________________________________

Name of Authorized Signatory:
____________________________________________________

Title of Authorized Signatory:
_____________________________________________________

Email Address of Purchaser:
______________________________________________________

Fax Number of Purchaser:
________________________________________________________

Address for Notice of Purchaser:

 

______________________________________________________________________________

 

______________________________________________________________________________

 

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

______________________________________________________________________________

 

______________________________________________________________________________

 

Subscription Amount: $______________________________________

 

 

Number of Units Purchased: __________________________________

 

 

Principal Amount of Notes:  $__________________________________

 

 

Warrant Shares: ____________________________________________

 

 

 

12

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Annex B

 

 PURCHASER QUALIFICATION QUESTIONNAIRE

(Confidential)

US HIGHLAND, Inc.

AN OKLAHOMA Corporation

 

This Questionnaire is being given to each individual who has expressed an
interest in purchasing Units and becoming a security-holder in the Company. The
proposed sale of the Units are a “Private Placement” proposed to be effective
without registration under the Securities Act of 1933 (the “Act”) on the basis
of the exemption set forth in section 4(2) of the Act and the standards imposed
by Regulation D promulgated by the Securities and Exchange Commission under the
Act.

 

The purpose of this Questionnaire is to assure the Company, that the proposed
Purchaser meets the standards imposed for application of that exemption
including, but not limited to, whether the proposed Purchaser qualifies as an
“accredited investor” as defined in rule 501 under the Act. Your answers will at
all times be kept strictly confidential. However, by signing this Questionnaire
you agree that the Company may present this Questionnaire to such parties as
they deem appropriate if called upon under the law to establish the availability
under the Act of an exemption from registration of the private placement or if
the contents thereof are relevant to any issue in any action, suit or proceeding
to which the Company is a party or by which it may be bound. The undersigned
realizes that this Questionnaire does not constitute an offer by the Company or
any sales agent to sell Shares but is a request for information.

 

Please print your response to each question, and where the answer to any
question is “none” or “not applicable”, please so state.

 

Please complete and return this Questionnaire to:

 

US Highland, Inc.

1241 South Harvard,

Tulsa, OK 74112

Attention: Mr. John R. Fitzpatrick, CEO

Telephone: 918-827-5254     

 

If you are in doubt as to the meaning or implication of any of the terminology
used in the Questionnaire, or as to the significance of any particular question,
please call the telephone number above.

 

 

 

 

 

13

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PURCHASER QUALIFICATION QUESTIONNAIRE

(Confidential)

US Highland, Inc.

an oklahoma Corporation

 

Name:

 

Marital Status:

 

Social Security No.

 

Profession:

 

 

Check preferred mailing address

 

Residence:

 

 

 

 

 

Phone:

 

 

 

 

 

Business:

 

 

 

 

 

Phone:

 

 

CAPACITY:

1.             Are you acting as an individual  purchasing the Units for your
own personal account?

 

¨Yes     ¨No     (If Yes  Then Skip to #8) 

 

2.             If you are not  acting as an individual purchasing for your own
personal account, please specify the capacity in which you are acting (e.g.
agent, trustee, partner, corporate officer, joint tenant or tenant in common).

 

 

3.             If you represent an entity, when was the entity formed? (Please
provide the filing date of the articles of incorporation, trust formation date
or the agreement or certificate of partnership, where applicable).

 

 

4.             In what state, territory, possession or foreign country was the
entity formed?

 

 

5.             If you represent an entity such as a corporation, partnership,
trust, association, Joint Stock Company or other incorporated association, was
such entity organized for the purpose of acquiring the Units?    

 

¨Yes     ¨No   (If No  Then Skip to #8) 

 

6.             If the answer to question (5) is yes, please list in the space
provided below the names, addresses and telephone numbers of each beneficial
owner of the entity and supply the information requested in the remaining
questions below with respect to each beneficial owner of the entity. You may
have each such beneficial owner complete and sign a photocopy of this form.

 

Name

Address

City State Zip

Telephone

 

 

 

 

 

 

 

 

 

 

 

 

 

7.             If you are not  purchasing as an individual, then are you any one
of the following?

 

a.             Any of the following institutions: bank (whether acting in its
individual or fiduciary capacity); insurance company; registered investment
company or business development company; licensed Small Business Investment
Company; an employee benefit plan subject to the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a “plan fiduciary”
which is either a bank, insurance company or investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000;

14

--------------------------------------------------------------------------------

 

 

¨Yes     ¨No

 

b.             Any private business development company as defined in the
Investment Advisors Act of 1940;

 

¨Yes     ¨No

 

c.             Any tax-exempt organization described in section 501(c)(3) of the
Internal Revenue Code with total assets in excess of $5,000,000.

 

¨Yes     ¨No

 

8.             Individual gross income for most two most recent tax years:

 

Year: _________                Income: $_______________        

 

Year: ________                  Income: $_______________         

 

Joint income, with spouse, for two most recent tax years:

 

Year: _________                Income: $_______________        

 

Year: ________                  Income: $_______________         

 

9.             Estimated gross income, individual or combined with spouse, for
current tax year:  

 

$_____________________

 

10.          Will your individual net worth, independently or jointly with your
spouse, exceed $1,000,000 at the time of purchase?

 

¨Yes     ¨No

 

11.          Are you a director or executive officer of US Highland, Inc.?

 

¨Yes     ¨No

       

12.          Indicate the company employing you and, if less than five years
please list previous business activity or other employment during the last five
years.

 

Employer

Date Employed

Your Title

 

 

 

 

 

 

 

13.          Please circle the highest level of education you have achieved.

 

Elementary

High School

College/Graduate Level

Degrees

1 2 3 4 5 6 7 8

1 2 3 4

1 2 3 4 /1 2 3

 

 

15.          Has your business activity and/or employment experiences or other
positions previously or currently held by you provided you with sufficient
knowledge and experience in financial and business matters so that you are
capable of evaluating the merits and risks of this proposed investment?
               

 

15

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                ¨Yes     ¨No

 

14.          Have you previously purchased securities, which were sold in
reliance on the private offering exemption from registration under the
Securities Act of 1933, or invested in limited partnerships or tax shelters?
     

 

                ¨Yes     ¨No

 

15.          Please indicate the nature and extent of your present holdings in
limited partnerships or other private investment vehicles:

 

Number of investments:

 

 

Total Dollar Value:

Over $20,000

 

 

Over $50,000

 

 

Over $100,000

 

 

Over $200,000

 

 

No investments

 

 

16.          Indicate tax shelter investments, if any, to date:

 

 

 

 

17.          In making the investments listed in answers 16 and 17, have you
relied on the advice of a Purchaser Representative (e.g. lawyer, accountant,
investment advisor)?

 

                ¨Yes     ¨No     

 

          If yes, please indicate the name, address and telephone number of your
Purchaser Representative and the respective investments for which they give
advice.

 

Name:

 

Address:

 

Telephone Number:

 

Investment:

 

 

18.          Does the above-named investment advisor have such knowledge and
experience in financial and business matters that he, she or they are capable of
evaluating the merits and risks of an investment in the Company?    

 

¨Yes     ¨No

 

20.          Please indicate how long you have dealt with each advisor
professionally and the attributes, which qualify them to knowledgeably evaluate
the merits and risks of this investment. (education, accounting certificates,
SEC registration, etc.).

 

 

 

21.          If in connection with the proposed investment, you will receive
advice from bankers, lawyers, accountants, investment advisors, or other persons
please give the following information with respect to such person or persons:

 

                ¨Yes     ¨No

 

Name

Profession

Address

Telephone

Contact?

 

 

 

 

¨Yes ¨No

 

 

 

 

¨Yes ¨No

 

 

 

 

¨Yes ¨No

16

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22.          Can you bear the economic risks in and afford a complete loss of
any investment you may make by virtue of an investment in the Company and can
you afford to hold any investment therein for an indefinite period?

 

¨Yes     ¨No

 

23.          Do you understand the nature of this particular investment in the
Company and the risks associated with such an investment?

 

¨Yes     ¨No

 

24.  Are you purchasing these securities for investment and not with the intent
to resell them?

 

¨Yes     ¨No

 

25.          In making your investment decision you have relied on your own
examination of the company and the terms of the Offering, including the merits
and risks involved and acknowledge that the Units have not been recommended by
any federal or state securities commission or regulatory authority or any
securities commission of any other country. 

 

¨Yes     ¨No

                 

                 

PURCHASER ACKNOWLEDGMENT

 

I understand that the Company will be relying on the accuracy and completeness
of my responses to the foregoing questions and I represent and warrant to the
Company as follows:

 

1)            The answers contained in the Questionnaire are complete and
correct and may be relied upon by the Company in determining whether this
offering in connection with which I have executed this Questionnaire is exempt
from registration under the Securities Act of 1933, pursuant to Rule 506 or
otherwise;

 

2)            I will notify the Company immediately of any material change in
any statement made herein occurring prior to the closing of any purchase by me
of an interest in the investment;

 

3)            I personally have knowledge and experience in financial and
business matters, either alone or together with my professional advisors, to be
capable of evaluating the merits and risks of my investment in the Company.

 

IN WITNESS WHEREOF, I have executed this Questionnaire this _______ day of
20___.

 

 

______________________________

(signature)

 

______________________________

(print name)

 

 

 

17

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Exhibit A

 

Form of Note

 

18

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THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES INTO WHICH THIS SECURITY IS
CONVERTIBLE HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION TO A PERSON WHO IS NOT
A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").

NONE OF THE SECURITIES REPRESENTED HEREBY NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S.
STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO A U.S. PERSON EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.  IN ADDITION, HEDGING TRANSACTIONS INVOLVING THIS
SECURITY AND THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE MAY NOT BE
CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933 ACT. "UNITED STATES" AND "U.S.
PERSON" ARE AS DEFINED BY REGULATION S UNDER THE 1933 ACT.

Dated:  _____________________, 2011

 

                                                                                                                                                                  
U.S. $1,000,000

CONVERTIBLE NOTE

FOR VALUE RECEIVED, US HIGHLAND, INC. (the “Company”) promises to pay to
 CRAIGSTONE LTD. or its registered assigns  (the “Holder”), the principal sum of
One Million Dollars ($1,000,000) in lawful currency of the United States (the
“Principal Amount”) on the twelve month anniversary of the execution date
hereof, or such earlier date as the Note may be permitted to be repaid as
provided hereunder (the “Maturity Date”), with 10% annual interest, to the
Holder on the earlier of (i) the Conversion Date (as hereafter defined) and (ii)
the Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day) in cash.  The
Company may prepay any portion of the Principal Amount without the prior written
consent of the Holder.

This Note is subject to the following additional provisions:

1.                                           OTHER AGREEMENTS.

1.1                                        THIS NOTE HAS BEEN ISSUED PURSUANT TO
A SUBSCRIPTION AGREEMENT BETWEEN THE COMPANY AND THE HOLDER DATED DECEMBER 21,
2011 (THE “SECURITIES PURCHASE AGREEMENT”) PURSUANT TO WHICH THE HOLDER
PURCHASED THIS NOTE, AND THIS NOTE IS SUBJECT IN ALL RESPECTS TO THE TERMS OF
THE SECURITIES PURCHASE AGREEMENT AND INCORPORATES THE TERMS OF THE SECURITIES
PURCHASE AGREEMENT TO THE EXTENT THAT THEY DO NOT CONFLICT WITH THE TERMS OF
THIS NOTE.  THIS NOTE MAY BE TRANSFERRED OR ASSIGNED.

2.                                           EVENTS OF DEFAULT.

2.2                          “EVENT OF DEFAULT”, WHEREVER USED HEREIN, MEANS ANY
ONE OF THE FOLLOWING EVENTS (WHATEVER THE REASON AND WHETHER IT 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):

 

19

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(A)           ANY DEFAULT IN THE PAYMENT OF THE PRINCIPAL AMOUNT OF THIS NOTE,
FREE OF ANY CLAIM OF SUBORDINATION, AS AND WHEN THE SAME SHALL BECOME DUE AND
PAYABLE (WHETHER ON A CONVERSION DATE OR THE MATURITY DATE OR BY ACCELERATION OR
OTHERWISE);

(B)           THE COMPANY SHALL FAIL TO OBSERVE OR PERFORM ANY OTHER COVENANT OR
AGREEMENT CONTAINED IN THIS NOTE OR THE SECURITIES PURCHASE AGREEMENT WHICH
FAILURE IS NOT CURED, IF POSSIBLE TO CURE, WITHIN THIRTY (30) CALENDAR DAYS
AFTER NOTICE OF SUCH DEFAULT IS SENT BY THE HOLDER TO THE COMPANY; OR

(C)           THE COMPANY OR ANY OF ITS SUBSIDIARIES (EACH A “SUBSIDIARY”) SHALL
COMMENCE, OR THERE SHALL BE COMMENCED AGAINST THE COMPANY OR ANY SUBSIDIARY A
CASE UNDER ANY APPLICABLE BANKRUPTCY OR INSOLVENCY LAWS AS NOW OR HEREAFTER IN
EFFECT OR ANY SUCCESSOR THERETO, OR THE COMPANY OR ANY SUBSIDIARY COMMENCES ANY
OTHER PROCEEDING UNDER ANY REORGANIZATION, ARRANGEMENT, ADJUSTMENT OF DEBT,
RELIEF OF DEBTORS, DISSOLUTION, INSOLVENCY OR LIQUIDATION OR SIMILAR LAW OF ANY
JURISDICTION WHETHER NOW OR HEREAFTER IN EFFECT RELATING TO THE COMPANY OR ANY
SUBSIDIARY OR THERE IS COMMENCED AGAINST THE COMPANY OR ANY SUBSIDIARY ANY SUCH
BANKRUPTCY, INSOLVENCY OR OTHER PROCEEDING WHICH REMAINS UNDISMISSED FOR A
PERIOD OF SIXTY (60) DAYS; OR THE COMPANY OR ANY SUBSIDIARY IS ADJUDICATED
INSOLVENT OR BANKRUPT; OR ANY ORDER OF RELIEF OR OTHER ORDER APPROVING ANY SUCH
CASE OR PROCEEDING IS ENTERED; OR THE COMPANY OR ANY SUBSIDIARY SUFFERS ANY
APPOINTMENT OF ANY CUSTODIAN OR THE LIKE FOR IT OR ANY SUBSTANTIAL PART OF ITS
PROPERTY WHICH CONTINUES UNDISCHARGED OR UNSTAYED FOR A PERIOD OF SIXTY (60)
DAYS; OR THE COMPANY OR ANY SUBSIDIARY MAKES A GENERAL ASSIGNMENT FOR THE
BENEFIT OF CREDITORS; OR THE COMPANY SHALL FAIL TO PAY, OR SHALL STATE THAT IT
IS UNABLE TO PAY, OR SHALL BE UNABLE TO PAY, ITS DEBTS GENERALLY AS THEY BECOME
DUE; OR THE COMPANY OR ANY SUBSIDIARY SHALL CALL A MEETING OF ITS CREDITORS WITH
A VIEW TO ARRANGING A COMPOSITION, ADJUSTMENT OR RESTRUCTURING OF ITS DEBTS; OR
THE COMPANY OR ANY SUBSIDIARY SHALL BY ANY ACT OR FAILURE TO ACT EXPRESSLY
INDICATE ITS CONSENT TO, APPROVAL OF OR ACQUIESCENCE IN ANY OF THE FOREGOING; OR
ANY CORPORATE OR OTHER ACTION IS TAKEN BY THE COMPANY OR ANY SUBSIDIARY FOR THE
PURPOSE OF EFFECTING ANY OF THE FOREGOING.

 

2.2          IF ANY EVENT OF DEFAULT OCCURS, THE FULL PRINCIPAL AMOUNT, TOGETHER
WITH INTEREST AND OTHER AMOUNTS OWING IN RESPECT THEREOF TO THE DATE OF
ACCELERATION SHALL BECOME, AT THE HOLDER’S ELECTION, IMMEDIATELY DUE AND PAYABLE
IN CASH. UPON PAYMENT OF THE FULL PRINCIPAL AMOUNT, TOGETHER WITH INTEREST AND
OTHER AMOUNTS OWING IN RESPECT THEREOF, IN ACCORDANCE HEREWITH, THIS NOTE SHALL
PROMPTLY BE SURRENDERED TO OR AS DIRECTED BY THE COMPANY. THE HOLDER NEED NOT
PROVIDE AND THE COMPANY HEREBY WAIVES ANY PRESENTMENT, DEMAND, PROTEST OR OTHER
NOTICE OF ANY KIND, AND THE HOLDER MAY IMMEDIATELY AND WITHOUT EXPIRATION OF ANY
GRACE PERIOD ENFORCE ANY AND ALL OF ITS RIGHTS AND REMEDIES HEREUNDER AND ALL
OTHER REMEDIES AVAILABLE TO IT UNDER APPLICABLE LAW. SUCH DECLARATION MAY BE
RESCINDED AND ANNULLED BY THE HOLDER AT ANY TIME PRIOR TO PAYMENT HEREUNDER AND
THE HOLDER SHALL HAVE ALL RIGHTS AS A NOTE HOLDER UNTIL SUCH TIME, IF ANY, AS
THE FULL PAYMENT UNDER THIS SECTION SHALL HAVE BEEN RECEIVED BY IT. NO SUCH
RESCISSION OR ANNULMENT SHALL AFFECT ANY SUBSEQUENT EVENT OF DEFAULT OR IMPAIR
ANY RIGHT CONSEQUENT THEREON.

3.                                           CONVERSION. 

3.1                          AT ANY TIME AFTER THE FINANCING DATE UNTIL THIS
NOTE IS NO LONGER OUTSTANDING, THIS NOTE MAY BE CONVERTED INTO CONVERSION SHARES
AT ANY TIME AND FROM TIME-TO-TIME, IN WHOLE OR IN PART, AT THE OPTION OF THE
HOLDER. THE HOLDER SHALL EFFECT CONVERSIONS BY DELIVERING TO THE COMPANY THE
FORM OF NOTICE OF CONVERSION ATTACHED HERETO AS ANNEX A (A “NOTICE OF
CONVERSION”), SPECIFYING THEREIN THE AMOUNT OF PRINCIPAL TO BE CONVERTED AND THE
DATE ON WHICH SUCH CONVERSION IS TO BE EFFECTED (A “CONVERSION DATE”); PROVIDED
THAT THE DATE UPON WHICH ANY SUCH CONVERSION MAY BE EFFECTED MAY NOT BE LESS
THAN FIVE (5) CALENDAR DAYS FOLLOWING THE DATE OF DELIVERY OF THE NOTICE OF
CONVERSION. IF NO CONVERSION DATE IS SPECIFIED IN A NOTICE OF CONVERSION, THE
CONVERSION DATE SHALL BE THE DATE THAT IS FIVE (5)  CALENDAR DAYS AFTER SUCH
NOTICE OF CONVERSION IS DELIVERED TO THE COMPANY. TO EFFECT CONVERSIONS
HEREUNDER, THE HOLDER SHALL NOT BE REQUIRED TO PHYSICALLY SURRENDER THE NOTE TO
THE COMPANY UNLESS THE ENTIRE PRINCIPAL AMOUNT OF THIS NOTE HAS BEEN SO
CONVERTED. CONVERSIONS HEREUNDER SHALL HAVE THE EFFECT OF LOWERING THE
OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE IN AN AMOUNT EQUAL TO THE APPLICABLE
CONVERSION. THE HOLDER AND THE COMPANY SHALL MAINTAIN RECORDS SHOWING THE
PRINCIPAL AMOUNT CONVERTED AND THE DATE OF SUCH CONVERSIONS. THE COMPANY SHALL
DELIVER ANY OBJECTION TO ANY NOTICE OF CONVERSION WITHIN TEN (10) BUSINESS DAYS
OF RECEIPT OF SUCH NOTICE. THE HOLDER, BY ACCEPTANCE OF THIS NOTE, ACKNOWLEDGES
AND AGREES THAT, BY REASON OF THE PROVISIONS OF THIS

20

--------------------------------------------------------------------------------

 

PARAGRAPH, FOLLOWING CONVERSION OF A PORTION OF THIS NOTE, THE UNPAID AND
UNCONVERTED PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE AMOUNT STATED ON
THE FACE HEREOF.

3.2                          THE NUMBER OF CONVERSION SHARES ISSUABLE UPON A
CONVERSION OF ANY OUTSTANDING PRINCIPAL UNDER THE NOTE SHALL BE DETERMINED BY
THE QUOTIENT OBTAINED BY DIVIDING (X) BY (Y) WHERE (X) IS EQUAL TO THE AMOUNT OF
OUTSTANDING PRINCIPAL TO BE CONVERTED AND (Y) IS THE CONVERSION PRICE (AS
HEREINAFTER DEFINED).

3.3                          NOT LATER THAN FIVE (5) TRADING DAYS AFTER ANY
CONVERSION DATE, THE COMPANY WILL DELIVER TO THE HOLDER A CERTIFICATE OR
CERTIFICATES REPRESENTING THE CONVERSION SHARES (BEARING SUCH LEGENDS AS MAY BE
REQUIRED BY APPLICABLE LAW AND THOSE REQUIRED BY THE SECURITIES PURCHASE
AGREEMENT) REPRESENTING THE NUMBER OF CONVERSION SHARES BEING ACQUIRED UPON THE
CONVERSION OF NOTE.

3.4                          THE CONVERSION PRICE (THE “CONVERSION PRICE”) IN
EFFECT ON ANY CONVERSION DATE SHALL MEAN 75% OF THE AVERAGE CLOSING BID PRICES
FOR THE THIRTY TRADING DAYS IMMEDIATELY PRECEDING THE CONVERSION DATE. THE TERM
"CLOSING BID PRICE" SHALL MEAN, ON ANY PARTICULAR DATE (I) THE CLOSING BID PRICE
PER SHARE OF THE COMMON STOCK ON SUCH DATE ON THE OTC BULLETIN BOARD, OR ANOTHER
REGISTERED NATIONAL STOCK EXCHANGE ON WHICH THE COMMON STOCK IS THEN LISTED, OR
IF THERE IS NO SUCH PRICE ON SUCH DATE, THEN THE CLOSING BID PRICE ON SUCH
EXCHANGE OR QUOTATION SYSTEM ON THE DATE NEAREST PRECEDING SUCH DATE, OR (II) IF
THE COMMON STOCK IS NOT LISTED THEN ON THE OTC BULLETIN BOARD OR ANY REGISTERED
NATIONAL STOCK EXCHANGE, THE CLOSING BID PRICE FOR A SHARE OF COMMON STOCK IN
THE OVER‑THE‑COUNTER MARKET, AS REPORTED BY THE OTC BULLETIN BOARD OR IN THE
NATIONAL QUOTATION BUREAU INCORPORATED OR SIMILAR ORGANIZATION OR AGENCY
SUCCEEDING TO ITS FUNCTIONS OF REPORTING PRICES) AT THE CLOSE OF BUSINESS ON
SUCH DATE, OR (III) IF THE COMMON STOCK IS NOT THEN REPORTED BY THE OTC BULLETIN
BOARD OR THE NATIONAL QUOTATION BUREAU INCORPORATED (OR SIMILAR ORGANIZATION OR
AGENCY SUCCEEDING TO ITS FUNCTIONS OF REPORTING PRICES), THEN THE AVERAGE OF THE
"PINK SHEET" QUOTES FOR THE RELEVANT CONVERSION PERIOD, AS DETERMINED IN GOOD
FAITH BY THE HOLDER, OR (IV) IF THE COMMON STOCK IS NOT THEN PUBLICLY TRADED THE
FAIR MARKET VALUE OF A SHARE OF COMMON STOCK AS DETERMINED BY THE HOLDER AND
REASONABLY ACCEPTABLE TO THE COMPANY.

3.5                          AT ANY TIME AFTER THE FINANCING DATE UNTIL THIS
NOTE IS NO LONGER OUTSTANDING, THIS NOTE MAY BE CONVERTED INTO CONVERSION SHARES
AT ANY TIME AND FROM TIME-TO-TIME, IN WHOLE OR IN PART, AT THE OPTION OF THE
COMPANY. THE COMPANY SHALL EFFECT CONVERSIONS BY DELIVERING TO THE HOLDER
WRITTEN NOTICE OF CONVERSION SPECIFYING THEREIN THE AMOUNT OF PRINCIPAL TO BE
CONVERTED AND THE DATE ON WHICH SUCH CONVERSION IS TO BE EFFECTED (A “CONVERSION
DATE”);  

3.6                          UNLESS THE HOLDER OTHERWISE DIRECTS THE COMPANY,
THE COMPANY SHALL NOT EFFECT ANY CONVERSION OF THIS NOTE, AND THE HOLDER SHALL
NOT HAVE THE RIGHT TO CONVERT ANY PORTION OF THIS NOTE PURSUANT TO SECTION 3.1
HERETO, TO THE EXTENT THAT AFTER GIVING EFFECT TO SUCH CONVERSION, THE HOLDER
WOULD BENEFICIALLY OWN,  FOR PURPOSES OF THE SECURITIES ACT OF 1934, AS AMENDED
(THE "EXCHANGE ACT") , IN EXCESS OF 9.99% (THE "MAXIMUM PERCENTAGE") OF THE
NUMBER OF COMMON SHARES OUTSTANDING IMMEDIATELY AFTER GIVING EFFECT TO SUCH
CONVERSION.  FOR PURPOSES OF THE FOREGOING SENTENCE, THE NUMBER OF COMMON SHARES
BENEFICIALLY OWNED BY THE HOLDER SHALL INCLUDE THE NUMBER OF COMMON SHARES
ISSUABLE UPON CONVERSION OF THIS NOTE WITH RESPECT TO WHICH THE DETERMINATION OF
SUCH SENTENCE IS BEING MADE, BUT SHALL EXCLUDE THE NUMBER OF COMMON SHARES WHICH
WOULD BE ISSUABLE UPON (A) CONVERSION OF THE REMAINING, NONCONVERTED PORTION OF
THIS NOTE BENEFICIALLY OWNED BY THE HOLDER AND (B) EXERCISE OR CONVERSION OF THE
UNEXERCISED OR NONCONVERTED PORTION OF ANY OTHER SECURITIES OF THE COMPANY
(INCLUDING, WITHOUT LIMITATION, ANY OTHER NOTES OR WARRANTS) SUBJECT TO A
LIMITATION ON CONVERSION OR EXERCISE ANALOGOUS TO THE LIMITATION CONTAINED
HEREIN BENEFICIALLY OWNED BY THE HOLDER.  EXCEPT AS SET FORTH IN THE PRECEDING
SENTENCE, FOR PURPOSES OF THIS SECTION 3, BENEFICIAL OWNERSHIP PURSUANT TO THE
EXCHANGE ACT SHALL BE CALCULATED IN ACCORDANCE WITH SECTION 13(D) OF THE
EXCHANGE ACT, EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE. FOR PURPOSES OF
THIS SECTION 3 IN DETERMINING THE NUMBER OF OUTSTANDING COMMON SHARES, THE
HOLDER MAY RELY ON THE NUMBER OF OUTSTANDING COMMON SHARES AS REFLECTED IN (X)
THE COMPANY'S MOST RECENT FORM 10-K, FORM 10-Q OR FORM 8-K, AS THE CASE MAY BE,
(Y) A MORE RECENT PUBLIC ANNOUNCEMENT BY THE COMPANY OR (Z) ANY OTHER NOTICE BY
THE COMPANY OR THE TRANSFER AGENT SETTING FORTH THE NUMBER OF COMMON SHARES
OUTSTANDING. FOR ANY REASON AT ANY TIME, UPON THE WRITTEN OR ORAL REQUEST OF THE
HOLDER, THE COMPANY SHALL WITHIN TWO (2) BUSINESS DAYS CONFIRM ORALLY AND IN
WRITING TO THE HOLDER THE NUMBER OF COMMON SHARES THEN OUTSTANDING. IN ANY CASE,
THE NUMBER OF OUTSTANDING COMMON SHARES SHALL BE DETERMINED AFTER GIVING EFFECT
TO THE CONVERSION OR EXERCISE OF SECURITIES OF THE COMPANY, INCLUDING THIS NOTE,
BY THE HOLDER OR ITS AFFILIATES SINCE THE DATE AS OF WHICH SUCH NUMBER OF
OUTSTANDING COMMON SHARES WAS REPORTED. BY WRITTEN NOTICE TO THE COMPANY, THE
HOLDER MAY INCREASE OR DECREASE THE MAXIMUM PERCENTAGE TO ANY OTHER PERCENTAGE
SPECIFIED IN

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SUCH NOTICE; PROVIDED THAT (I) ANY SUCH INCREASE WILL NOT BE EFFECTIVE UNTIL THE
SIXTY-FIRST (61ST) DAY AFTER SUCH NOTICE IS DELIVERED TO THE COMPANY, AND (II)
ANY SUCH INCREASE OR DECREASE WILL APPLY ONLY TO THE HOLDER AND NOT TO ANY OTHER
HOLDER OF NOTES.

3.7                          THE COMPANY COVENANTS THAT IT WILL AT ALL TIMES
RESERVE AND KEEP AVAILABLE OUT OF ITS AUTHORIZED AND UNISSUED SHARES OF COMMON
STOCK SUCH NUMBER OF SHARES AS IS NECESSARY IN ORDER TO ENSURE THAT A SUFFICIENT
NUMBER ARE AVAILABLE FOR THE PURPOSE OF ISSUANCE OF CONVERSION SHARES UPON
CONVERSION OF THIS NOTE, FREE FROM PRE-EMPTIVE RIGHTS OR ANY OTHER ACTUAL
CONTINGENT PURCHASE RIGHTS OF PERSONS OTHER THAN THE HOLDER. THE COMPANY
COVENANTS THAT ALL CONVERSION SHARES SHALL, UPON ISSUE, BE DULY AND VALIDLY
AUTHORIZED, ISSUED AND FULLY PAID AND NON-ASSESSABLE.

3.8                          UPON A CONVERSION HEREUNDER THE COMPANY SHALL NOT
BE REQUIRED TO ISSUE STOCK CERTIFICATES REPRESENTING FRACTIONS OF ANY CONVERSION
SHARES, AND THE NUMBER OF CONVERSION SHARES SHALL BE ROUNDED UP OR DOWN TO THE
NEAREST WHOLE NUMBER.

3.9                          IF THE COMPANY, AT ANY TIME WHILE THIS NOTE IS
OUTSTANDING: (A) PAYS A STOCK DIVIDEND OR OTHERWISE MAKES A DISTRIBUTION OR
DISTRIBUTIONS IN SHARES OF ITS COMMON STOCK OR ANY OTHER EQUITY OR EQUITY
EQUIVALENT SECURITIES PAYABLE IN SHARES OF COMMON STOCK, (B) SUBDIVIDES
OUTSTANDING SHARES OF COMMON STOCK INTO A LARGER NUMBER OF SHARES, (C) COMBINES
(INCLUDING BY WAY OF REVERSE STOCK SPLIT) OUTSTANDING SHARES OF COMMON STOCK
INTO A SMALLER NUMBER OF SHARES, OR (D) ISSUES BY RECLASSIFICATION OF SHARES OF
THE COMMON STOCK ANY SHARES OF CAPITAL STOCK OF THE COMPANY, THEN THE CONVERSION
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
BEFORE SUCH EVENT AND OF WHICH THE DENOMINATOR SHALL BE THE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING AFTER SUCH EVENT.  ANY ADJUSTMENT MADE PURSUANT TO THIS
SECTION 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.

4.                                           REPAYMENT 

4.1                          REPAYMENT OF THIS NOTE, INCLUDING ALL INTEREST,
SHALL BE DUE ON THE MATURITY DATE, UNLESS EARLIER CONVERTED INTO COMMON SHARES.

5.                                           INTEREST 

 

5.1                          Interest on the Principal Amount shall be
calculated at 10%, per annum, and be payable on November 4th of each year that
the Note remains outstanding. 

6.                                           NOTICES 

6.1                          ANY AND ALL NOTICES OR OTHER COMMUNICATIONS OR
DELIVERIES TO BE PROVIDED BY THE HOLDER HEREUNDER, INCLUDING, WITHOUT
LIMITATION, ANY NOTICE OF CONVERSION, SHALL BE IN WRITING AND DELIVERED
PERSONALLY, SENT BY A NATIONALLY RECOGNIZED OVERNIGHT COURIER SERVICE, ADDRESSED
TO THE COMPANY, AT THE ADDRESS SET FORTH ABOVE, ATTN: JOHN R. FITZPATRICK OR
SUCH OTHER ADDRESS OR FACSIMILE NUMBER AS THE COMPANY MAY SPECIFY FOR SUCH
PURPOSES BY NOTICE TO THE HOLDER DELIVERED IN ACCORDANCE WITH THIS SECTION.  ANY
AND ALL NOTICES OR OTHER COMMUNICATIONS OR DELIVERIES TO BE PROVIDED BY THE
COMPANY HEREUNDER SHALL BE IN WRITING AND DELIVERED PERSONALLY, BY FACSIMILE,
SENT BY A NATIONALLY RECOGNIZED OVERNIGHT COURIER SERVICE ADDRESSED TO THE
HOLDER AT THE FACSIMILE TELEPHONE NUMBER OR ADDRESS OF SUCH HOLDER APPEARING ON
THE BOOKS OF THE COMPANY, OR IF NO SUCH FACSIMILE TELEPHONE NUMBER OR ADDRESS
APPEARS, AT THE ADDRESS OF THE HOLDER TO WHICH THIS NOTE WAS DELIVERED. 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 TELEPHONE NUMBER
SPECIFIED IN THIS SECTION PRIOR TO 5:30 P.M. (PACIFIC STANDARD TIME), (II) THE
DATE AFTER THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS
DELIVERED VIA FACSIMILE AT THE FACSIMILE TELEPHONE NUMBER SPECIFIED IN THIS
SECTION LATER THAN 5:30 P.M. (PACIFIC STANDARD TIME) ON ANY DATE AND EARLIER
THAN 11:59 P.M. (PACIFIC STANDARD TIME) ON SUCH DATE, (III) THE SECOND BUSINESS
DAY FOLLOWING THE DATE OF MAILING, IF SENT BY NATIONALLY RECOGNIZED OVERNIGHT
COURIER SERVICE, OR (IV) UPON ACTUAL RECEIPT BY THE PARTY TO WHOM SUCH NOTICE IS
REQUIRED TO BE GIVEN.

 

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7.                                           DEFINITIONS.  

7.1                          FOR THE PURPOSES HEREOF, IN ADDITION TO THE TERMS
DEFINED ELSEWHERE IN THIS NOTE: (I) CAPITALIZED TERMS NOT OTHERWISE DEFINED
HEREIN HAVE THE MEANINGS GIVEN TO SUCH TERMS IN THE SECURITIES PURCHASE
AGREEMENT, AND (II) THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING MEANINGS:

(A)           “BUSINESS DAY” MEANS ANY DAY EXCEPT SATURDAY, SUNDAY AND ANY DAY
WHICH SHALL BE A FEDERAL LEGAL HOLIDAY IN THE UNITED STATES OR A DAY ON WHICH
BANKING INSTITUTIONS IN THE STATE OF OKLAHOMA ARE AUTHORIZED OR REQUIRED BY LAW
OR OTHER GOVERNMENT ACTION TO CLOSE.

(B)           “COMMON STOCK” MEANS THE COMMON STOCK, PAR VALUE $0.001 PER SHARE,
OF THE COMPANY AND STOCK OF ANY OTHER CLASS INTO WHICH SUCH SHARES MAY HEREAFTER
HAVE BEEN RECLASSIFIED OR CHANGED.

(C)           “CONVERSION DATE” HAS THE MEANING SET FORTH IN SECTION 3.5 HEREOF.

(D)           “CONVERSION PRICE” HAS THE MEANING SET FORTH IN SECTION 3.4
HEREOF.

(E)           “CONVERSION SHARE” MEANS SHARES OF THE COMPANY’S COMMON STOCK INTO
WHICH PRINCIPAL AND INTEREST DUE PURSUANT TO THIS NOTE MAY BE CONVERTED.

(F)            “EXCHANGE ACT” MEANS THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

(G)           “FINANCING DATE” MEANS THE DATE ON WHICH THE PRINCIPAL AMOUNT IS
DELIVERED TO THE COMPANY BY THE INVESTOR.

(H)           “SECURITIES ACT” MEANS THE SECURITIES ACT OF 1933, AS AMENDED, AND
THE RULES AND REGULATIONS PROMULGATED THEREUNDER.

(I)            “TRADING DAY” MEANS A DAY ON WHICH THE SHARES OF COMMON STOCK ARE
TRADED ON A TRADING MARKET ON WHICH THE SHARES OF COMMON STOCK ARE THEN LISTED
OR QUOTED, PROVIDED, THAT IN THE EVENT THAT THE SHARES OF COMMON STOCK ARE NOT
LISTED OR QUOTED, THEN TRADING DAY SHALL MEAN A BUSINESS DAY.

8.                                           REPLACEMENT OF NOTE IF LOST OR
DESTROYED.

 

8.1                          If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
hereof, and indemnity, if requested, all reasonably satisfactory to the Company.

9.                                           GOVERNING LAW.

 

9.1                          All questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Oklahoma, without regard to the principles of conflicts of law thereof.

10.                                        WAIVERS 

 

10.1                        Any waiver by the Company or the Holder of a breach
of any provision of this Note 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 Note. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note. Any waiver must be
in writing.

 

23

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11.                                        USURY 

 

11.1                                    IF ANY PROVISION OF THIS NOTE IS
INVALID, ILLEGAL OR UNENFORCEABLE, THE BALANCE OF THIS NOTE 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 APPLICABLE LAWS GOVERNING USURY, THE APPLICABLE RATE OF
INTEREST DUE HEREUNDER SHALL AUTOMATICALLY BE LOWERED TO EQUAL THE MAXIMUM
PERMITTED RATE OF INTEREST. THE COMPANY COVENANTS (TO THE EXTENT THAT IT MAY
LAWFULLY DO SO) THAT IT SHALL NOT AT ANY TIME INSIST UPON, PLEAD, OR IN ANY
MANNER WHATSOEVER CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF, ANY STAY, EXTENSION
OR USURY LAW OR OTHER LAW WHICH WOULD PROHIBIT OR FORGIVE THE COMPANY FROM
PAYING ALL OR ANY PORTION OF THE PRINCIPAL OF OR INTEREST ON THIS NOTE AS
CONTEMPLATED HEREIN, WHEREVER ENACTED, NOW OR AT ANY TIME HEREAFTER IN FORCE, OR
WHICH MAY AFFECT THE COVENANTS OR THE PERFORMANCE OF THIS INDENTURE, AND THE
COMPANY (TO THE EXTENT IT MAY LAWFULLY DO SO) HEREBY EXPRESSLY WAIVES ALL
BENEFITS OR ADVANTAGE OF ANY SUCH LAW, AND COVENANTS THAT IT WILL NOT, BY RESORT
TO ANY SUCH LAW, HINDER, DELAY OR IMPEDED THE EXECUTION OF ANY POWER HEREIN
GRANTED TO THE HOLDER, BUT WILL SUFFER AND PERMIT THE EXECUTION OF EVERY SUCH AS
THOUGH NO SUCH LAW HAS BEEN ENACTED.

12.                                        NEXT BUSINESS DAY

 

12.1                        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.

IN WITNESS WHEREOF, the Company has caused this Convertible Note to be duly
executed by a duly authorized officer as of the date first above indicated.

 

US HIGHLAND, INC.

By:/s/ROBERTHARRIS  
                Robert Harris - Chairman

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Convertible Note of
US Highland, Inc., an Oklahoma corporation (the “Company”), due on
____________________, 201___, into shares of the Company’s Common Stock (each a
“Share”) as of the date written below. The undersigned will pay all transfer
taxes, intangible or other taxes payable with respect hereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the holder for any
conversion.

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
Shares.

Conversion calculations:
                                                                 
                                                                 

Date to Effect Conversion:
                                                                                                                             
 

Principal Amount of Note to be Converted:
                                                                                                
 

Accrued Interest to be Converted:
                                                                                                                 
 

Number of Shares to be issued:
                                                                                                                      
 

 

Signature:
                                                                                                                                                            
 

                 

Name:
                                                                                                                                                                  
 

                                                                 

Address:
                                                                                                                                                              
 

 

 

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Exhibit B

 

Form of Warrant

 

 

 

 

 

 

 

 

 

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Warrant No. 2011-__

US HIGHLAND, INC.

(an Oklahoma corporation)

Warrant for the Purchase of 1,000,000 
Shares of Common Stock, Par Value $0.001

[This Warrant Will Be Void
After 5:00 P.M. Pacific Time
On ________________, 2014

These securities have not been registered with the U.S. Securities and Exchange
Commission (the
“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), and
are being
offered in reliance on exemptions from registration provided in Section 4(2) of
the
Securities Act and Rule 506 of Regulation D promulgated thereunder and
preemption from the registration or qualification requirements (other
than notice filing and fee provisions) of applicable state laws under
the National Securities Markets Improvement Act of 1996.

THIS WARRANT (this “Warrant”) certifies that, for value received, Craigstone
Ltd. or its registered assigns (the “Holder” or “Holders”), is entitled, at any
time on or before 5:00 p.m. Pacific Standard Time on _______________, 2014, to
subscribe for, purchase, and receive one million (1,000,000)  shares (the
“Shares”) of fully paid and non-assessable common stock, par value $0.001 (the
“Common Stock”) of US Highland, Inc. an Oklahoma corporation (the “Company”).
This Warrant is exercisable to purchase the Shares at the lower of: (i) a price
of $0.20 per share or (ii) 75% of the average Closing Bid Price for the thirty
Trading Days immediately preceding the Exercise Date (the “Exercise Price”). The
number of Shares to be received on exercise of this Warrant and the Exercise
Price may be adjusted on the occurrence of certain events as described herein.
If the rights represented hereby are not exercised by 5:00 p.m. Pacific Standard
Time on ______________, 2014, this Warrant shall automatically become void and
of no further force or effect, and all rights represented hereby shall cease and
expire.

Subject to the terms set forth herein, this Warrant may be assigned by the
Holder in whole or in part by execution of the form of assignment attached
hereto or may be exercised by the Holder in whole or in part by execution of the
form of exercise attached hereto and payment of the Exercise Price in the manner
described above, all subject to the terms hereof.

1.                   Exercise of Warrants. The Holder shall have the rights of a
stockholder only with respect to Shares fully paid for by the Holder under this
Warrant. On the exercise of all or any portion of this Warrant in the manner
provided above, the Holder exercising the same shall be deemed to have become a
Holder of record of the Shares as to which this Warrant is exercised for all
purposes, and certificates for the securities so purchased shall be delivered to
the Holder within a reasonable time, but in no event longer than ten (10) days
after this Warrant shall have been exercised as set forth above. If this Warrant
shall be exercised in respect to only a part of the Shares covered hereby, the
Holder shall be entitled to receive a similar Warrant of like tenor and date
covering the number of Shares with respect to which this Warrant shall not have
been exercised.

2.                   Assignment of Warrants. In the event this Warrant is
assigned in the manner provided herein, the Company, upon request and upon
surrender of this Warrant by the Holder at the principal office of the Company
accompanied by payment of all transfer taxes, if any, payable in connection
therewith, shall transfer this Warrant on the books of the Company. If the
assignment is in whole, the Company shall execute and deliver a new Warrant or
Warrants of like tenor to this Warrant to the appropriate assignee expressly
evidencing the right to purchase the aggregate number of Shares purchasable
hereunder; and if the assignment is in part, the Company shall execute and

 

 

 

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deliver to the appropriate assignee a new Warrant or Warrants of like tenor
expressly evidencing the right to purchase the portion of the aggregate number
of Shares as shall be contemplated by any such agreement, and shall concurrently
execute and deliver to the Holder a new Warrant of like tenor to this Warrant
evidencing the right to purchase the remaining portion of the Shares purchasable
hereunder that have not been transferred to the assignee.

3.                     Fully Paid Shares. The Company covenants and agrees that
the Shares that may be issued on the exercise of this Warrant will, on issuance
pursuant to the terms of this Warrant, be fully paid and nonassessable, free
from all taxes, liens, and charges with respect to the issue thereof, and not
issued in violation of the preemptive or similar right of any other person. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will have
authorized and reserved a sufficient number of Shares of Common Stock to provide
for the exercise of the rights represented by this Warrant.

4.                   Adjustment of Exercise Price and Number of Shares.

(a)           Adjustment of Exercise Price and Number of Shares. The number of
Shares purchasable on the exercise of this Warrant and the Exercise Price shall
be adjusted appropriately from time to time as follows:

(i)                   In the event the Company shall declare a dividend or make
any other distribution on any capital stock of the Company payable in Common
Stock, rights to purchase Common Stock, or securities convertible into Common
Stock, or shall subdivide its outstanding shares of Common Stock into a greater
number of shares or combine such outstanding stock into a smaller number of
shares, then in each such event, the number of Shares subject to this Warrant
shall be adjusted so that the Holder shall be entitled to purchase the kind and
number of Shares of Common Stock or other securities of the Company that it
would have owned or have been entitled to receive after the happening of any of
the events described above, had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect thereto; an
adjustment made pursuant to this subsection (a) shall become effective
immediately after the effective date of such event retroactive to the record
date for such event.

(ii)                 No adjustment in the number of Shares purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the number of Shares purchasable on the exercise of this
Warrant; provided, however, that any adjustments that by reason of this
subsection (a) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.

(iii)                Whenever the number of Shares purchasable on the exercise
of this Warrant is adjusted, as herein provided, the Exercise Price payable on
exercise shall be adjusted by multiplying the Exercise Price immediately prior
to such adjustment by a fraction, the numerator of which shall be the number of
Shares purchasable on the exercise of this Warrant immediately prior to such
adjustment and the denominator of which shall be the number of Shares so
purchasable immediately thereafter.

(iv)               Whenever the number of Shares purchasable on the exercise of
this Warrant or the Exercise Price of such Shares is adjusted, as herein
provided, the Company shall cause to be promptly mailed by first class mail,
postage prepaid, to the Holder of this Warrant notice of such adjustment or
adjustments and shall deliver a resolution of the board of directors of the
Company setting forth the number of Shares purchasable on the exercise of this
Warrant and the Exercise Price of such Shares after such adjustment, setting
forth a brief statement of the facts requiring such adjustment, together with
the computation by which such adjustment was made. Such resolution, in the
absence of manifest error, shall be conclusive evidence of the correctness of
adjustment.

(v)                 All such adjustments shall be made by the board of directors
of the Company, which shall be binding on the Holder in the absence of
demonstrable error.

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(b)            No Adjustment in Certain Cases. No adjustments shall be made in
connection with:

(i)                   the issuance of any Shares on the exercise of this
Warrant;

(ii)                 the conversion of shares of Preferred Stock;

(iii)                the exercise or conversion of any rights, options,
warrants, or convertible securities containing the right to purchase or acquire
Common Stock;

(iv)               the issuance of additional Shares or other securities on
account of the anti-dilution provisions contained in or relating to this Warrant
or any other option, warrant, or right to acquire Common Stock;

(v)                 the purchase or other acquisition by the Company of any
shares of Common Stock, evidences of its indebtedness or assets, or rights,
options, warrants, or convertible securities containing the right to subscribe
for or purchase Common Stock; or

(vi)               the sale or issuance by the Company of any shares of Common
Stock, evidences of its indebtedness or assets, or rights, options, warrants, or
convertible securities containing the right to subscribe for or purchase Common
Stock or other securities pursuant to options, warrants, or other rights to
acquire Common Stock or other securities.

                  5.           Notice of Certain Events. In the event of:

(a)                 any taking by the Company of a record of the holders of any
class of securities of the Company for the purpose of determining the holders
thereof who are entitled to receive any dividends or other distribution, or any
right to subscribe for, purchase, or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other rights;

(b)                 any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, or any
transfer of all or substantially all of the assets of the Company to any other
person, or any consolidation, share exchange, or merger involving the Company;
or

(c)                 any voluntary or involuntary dissolution, liquidation, or
winding up of the Company,

the Company will mail to the Holder(s) of this Warrant, at least twenty (20)
days prior to the earliest date specified therein, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend,
distribution, or right; the amount and character of such dividend, distribution,
or right; or the date on which any such reorganization, reclassification,
transfer, consolidation, share exchange, merger, dissolution, liquidation, or
winding up of the Company will occur and the terms and conditions of such
transaction or event.

 6.            Limitation of Transfer. Subject to the restrictions set forth in
paragraph 7 hereof, this Warrant is transferable at the offices of the Company.
On such transfer, every Holder hereof agrees that the Company may deem and treat
the registered Holder(s) of this Warrant as the true and lawful owner(s) thereof
for all purposes, and the Company shall not be affected by any notice to the
contrary.

 7.            Disposition of Warrants or Shares. Each registered owner of this
Warrant, by acceptance hereof, agrees for itself and any subsequent owner(s)
that, before any disposition is made of any Warrants or Shares of Common Stock,
the owner(s) shall give written notice to the Company describing briefly the
manner of any such proposed disposition. No such disposition shall be made
unless and until:

(a)           the Company has received written assurances from the proposed
transferee confirming a factual basis for relying on exemptions from
registration under applicable federal and state securities laws for such
transfer or an opinion from counsel for the Holder(s) of the Warrants or Shares
stating that no

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registration under the Securities Act or applicable state statute is required
with respect to such disposition; or

(b)           a registration statement under the Securities Act has been filed
by the Company and declared effective by the SEC covering such proposed
disposition and the disposition has been registered or qualified, or is exempt
therefrom, under the state having jurisdiction over such disposition.

8.                     Restricted Securities: Registration of Securities. The
Holder acknowledges that this Warrant is, and that the Shares issuable on
exercise hereof will be, “restricted securities” as that term is defined in Rule
144 promulgated under the Securities Act. Accordingly, this Warrant must be
taken for investment and held indefinitely. Likewise, any Shares issued on
exercise of this Warrant must be taken for investment and held indefinitely and
may not be resold unless such resale is registered under the Securities Act
and/or comparable state securities laws or unless an exemption from such
registration is available. A legend to the foregoing effect shall be placed
conspicuously on the face of all certificates for Shares issuable on exercise of
this Warrant.

9.                     Reports under Exchange Act. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell the Shares issuable on exercise of this Warrant, the
Company shall, until such Shares may be resold pursuant to the provisions of
Rule 144 or any similar provision:

(a)                 make and keep public information available, as those terms
are understood and defined in SEC Rule 144;

(b)                 file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934; and,

(c)                 furnish to any Holder, forthwith upon request: (i) a written
statement by the Company that it has complied with Rule 144, the Securities Act
and the Securities Exchange Act of 1934, or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-2 or Form S-3; (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company; and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC that permits the selling of any such securities without registration or
pursuant to such form.

10.                Governing Law. This Warrant shall be construed under and be
governed by the laws of the state of Oklahoma.

11.                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.

12.                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 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 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 Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

13.                Remedies. 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 the defense in any action for specific performance that a remedy at law
would be adequate.

14.                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 of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders of this Warrant from the Initial
Exercise Date through the Termination Date, and shall be enforceable by any such
Holder or holder of Warrant Shares.

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

16.                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.

17.                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.

18.                Loss, Theft, Destruction, or Mutilation. Upon receipt by the
Company of reasonable evidence of the ownership of and the loss, theft,
destruction, or mutilation of this Warrant, the Company will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

19.          Taxes.  The Company will pay all taxes in respect of the issue of
this Warrant or the Shares issuable upon exercise thereof.

DATED this 21st day of December, 2011.

 

US HIGHLAND, INC.

 

 

By: /s/ ROBERT HARRIS                  

       Robert Harris, Chairman

                 

 

 

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Notice of Exercise
(to be signed only upon exercise of Warrant)

TO:          US HIGHLAND, INC.

The undersigned, the owner of the attached Warrant, hereby irrevocable elects to
exercise the purchase rights represented by the Warrant for, and to purchase
thereunder,      ____________________shares of Common Stock of US Highland,
Inc., and herewith makes payment of $____________________  therefore. Please
issue the shares of Common Stock as to which this Warrant is exercised in
accordance with the instructions set forth below and, if the Warrant is being
exercised with respect to less than all of the Shares to which it pertains,
prepare and deliver a new Warrant of like tenor for the balance of the Shares
purchasable under the attached Warrant.

DATED this_____ day of___________ , 20___ .

Signature:_________________________________

Signature Guaranteed:________________________

INSTRUCTIONS FOR REGISTRATION OF STOCK

 

 

Name: ____________________________  

            (Please Type or Print)

 

Address: ___________________________

             

              ___________________________

 

              ___________________________

 

                        

NOTICE: The signature to the form of purchase must correspond with the name as
written upon the face of the attached Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.

 

 

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