Petron Energy, Inc. is a company controlled by the Companys
majority shareholder. In 2011 and 2010, the Company paid Petron Energy, Inc. $312,510 and $196,575, respectively. These
amounts have been reflected in the accompanying consolidated financial statement as charges from a related party and are included
in general and administrative expenses for the respective years.
Effective August 31,
2011, the Company entered into an Executive Employment Agreement with Floyd L. Smith. Pursuant to the employment agreement,
Mr. Smith agreed to serve as President and Chief Executive Officer of the Company for a term of five years, renewable thereafter
for additional one year periods if not terminated by either party. The employment agreement provides for Mr. Smith to
receive a salary of $200,000 per year; reimbursement for reasonable business expenses; the ability to earn a yearly bonus in the
sole discretion of the Board of Directors of the Company; co-investment rights, providing Mr. Smith the right to participate in
the amount of up to 20% of any acquisition, transaction or funding undertaken by the Company during the term of the employment
agreement; stock options to purchase 12,000,000 shares of the Companys common stock at an exercise price of $0.0039 per
share, with cashless exercise rights and a five year term, which vested immediately upon the parties entry into the employment
agreement; and 1,000 shares of Series A Preferred Stock which give Mr. Smith Super Majority Voting Rights.
The employment agreement
includes a non-competition provision, prohibiting Mr. Smith from competing against the Company in Texas, Louisiana, Oklahoma or
New Mexico for a term of 12 months following the termination of the employment agreement.
The employment agreement
can be terminated by the Company for cause (as defined in the agreement), without cause, or by Mr. Smith for good reason (as defined
in the agreement) or without good reason. If the employment agreement is terminated due to Mr. Smiths death,
disability, with cause by the Company or without good reason by Mr. Smith, he is due the consideration earned by him up until the
date of termination of the agreement. If the employment agreement is terminated by the Company without cause or by Mr.
Smith for good reason, Mr. Smith is due the consideration earned by him up until the date of termination, plus the lesser of six
months of salary due to Mr. Smith under the employment agreement and the remaining amount of consideration due pursuant to the
terms of the employment agreement in a lump sum.
Mr. Smith also agreed
to assign the Company rights to any intellectual property and inventions which he creates or conceives during the term of the employment
agreement relating to the Companys business pursuant to the employment agreement.