Document:

THREE FORKS, INC.

 

EXECUTIVE EMPLOYMENT AGREEMENT

(Terrence R. Manning)

 

THIS AGREEMENT (the
“Agreement”) is made as of the 10th day of June, 2014. The “Effective Date” shall be
considered to be the date that Employee actually and physically begins his employment with the Corporation, expected to be on
or before the 1st day of July, 2014.

 

BETWEEN:

 

THREE
FORKS, INC.

with its
registered office at

555
Eldorado Blvd., Suite 100

Bloomfield,
CO 80021 USA

 

(hereinafter
called the “Corporation”)

 

PARTY
OF THE FIRST PART

AND:

 

TERRENCE
R. MANNING

P.O.
Box 6968

Kingwood,
Texas 77325-6968 USA

 

(hereinafter
called “Employee”)

 

PARTY
OF THE SECOND PART

 

WHERE
AS the Corporation is incorporated under the laws of the State of Colorado and carries on business as an oil and gas exploration
and production company;

 

AND
WHERE AS the Corporation wishes to employ the Employee as its President and Chief Operating Officer, and additionally as its
Chief Executive Officer and President of its wholly owned subsidiary, TFI Operating Company, Inc., and the Employee has agreed
to such employment as the President and Chief Operating Officer of the Corporation, and to employment as Chief Executive Officer
and President of its wholly owned operating company, on the terms and subject to the conditions herein set forth;

 

AND WHERE AS the parties
wish to formally record the terms of employment of the Employee and his responsibilities, remuneration and other benefits;

 

NOW
THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and mutual covenants herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged by both parties, the parties here by
covenant and agree with each other as follows:

 

1.0 EMPLOYMENT

 

1.01 The Corporation agrees
to employ and to continue to employ the Employee and the Employee agrees to serve the Corporation in the capacity of President
and Chief Operating Officer (“COO”), during the term of this Agreement.

 

1.02 Subject to all necessary
regulatory approvals, the employment of the Employee under this Agreement shall commence on the Effective Date and continue until
terminated as hereinafter provided.

 

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1.03 The Employee
shall report to and be directly responsible to the Chief Executive Officer of the Corporation (the “CEO”). The
Employee shall perform, observe and conform to such duties and instructions as are from time to time reasonably assigned or
communicated to him by the CEO and which are equitable and consistent with the employment terms and conditions stipulated
in this Agreement. Further, the performance, actions and conduct of Employee shall be aligned with the position of the
Employee as President and COO of the Corporation, and in such a position, Employee shall be responsible for providing such
reports (written and/or oral) to the CEO and/or the Board of Directors as may be necessary to fully and properly inform such
Corporation officers of the matters of business of the Corporation for which the Employee is responsible as well as such
additional reports as the CEO may from time to time reasonably request.

 

1.04 The
Employee understands that it is the Corporation’s intention to take the Corporation public, and it is the Employee’s and the Corporation’s
intention that the Employee will assume the position of President and COO of any new business entity created as a result of the
public offering. Any new employment agreement that might result from this expected event shall contain terms and conditions materially
an essentially the same as contained in this Agreement, with the new business entity.

 

1.05 Corrupt
Practices. Employee agrees and covenants that he has not, and will not make, in the performance of his Agreement, any payment,
loan or gift or promise or offer of payment, loan or gift of any money or anything of value, directly or indirectly:

 

		(i)	To or for the use or benefit of any official employee of any government or agency or instrumentality
of any such government;

 

		(ii)	to any political party or official or candidate thereof;

 

		(iii)	to any other person if Corporation or Employee knows or has reason to know that any part of such
payment, loan or gift will be directly or indirectly given or paid to any such governmental official or employee or political party
or candidate or official thereof; or

 

		(iv)	to any other person or any entity, the payment of which would violate the laws of the State of
Colorado, the United States, or any country where the Corporation is seeking to or doing business.

 

Corporation will make its counsel
available to Employee to advise on the laws of the respective states and countries relating to this subject.

 

Corporation also agrees and
covenants that it will not require Employee to engage in, on behalf of Corporation, any of the aforementioned activities or practices.

 

2.0 COMPENSATION

 

2.01 Salary: The
Corporation agrees to pay the Employee and the Employee agrees to accept as compensation for his services here under an amount
in US Dollars of $ 8,487 (Eight thousand four hundred eighty-seven United States Dollars) payable on a monthly basis (the “Salary”)
per the Corporation’s monthly pay schedule while this Agreement remains in force, exclusive of any other benefits referred to herein.
It is also agreed that this Salary reflects an initial work commitment of the Employee is an average of 12 (twelve) days for each
calendar month, with the 12 (twelve) days per month considered in this compensation being allocated by the Employee at the sole
discretion of the Employee with the overriding determinant factor pertaining to a “day of work” being a reasonable standard
for involved, timely and efficient execution of the Employee’s role and responsibilities during each calendar week. The Corporation
acknowledges that the initial work commitment of the Employee is an average of 12 (twelve) days per month, which may be modified
as mutually determined necessary and as mutually agreed to by the CEO and Employee.

 

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2.02 Adjustment of
Salary: The amount of the Salary may be adjusted from time-to-time by the determination of the CEO and Board of
Directors. Except as otherwise provided in this Article, the date for administration of any revision to the Salary shall be
reassessed by the Board of Directors on an annual basis, but in any event, no later than the anniversary of the Effective
Date. The extent and flexibility of the initial work commitment of the Employee, in Article 2.01, is indirect proportion to
additional work commitments, the nature and extent of which have been identified for and communicated to the Corporation.
Accordingly, if, within the first 120 (one-hundred and twenty) days, a material variation to the initial work commitment is
identified by either the Employee or the CEO, the nature of which accounts for 20% less thru 1 or 20% more than the initial
work commitment days, then at the election of either the Employee or CEO, are assessment of the Salary will be completed by
the Board of Directors. Such reassessment shall be based on the Employee fulfilling and/or achieving goals and objectives
(“Employee Performance”) set forth by mutual agreement between the Corporation and the Employee at the time of
execution of the Agreement and other such Employee Perfomance determined to be reasonable by the CEO and/or the Board of
Directors established during the work period being reassessed.

 

2.03 Initial Stock
Options : Upon the Effective Date of this Agreement, the Employee will be awarded 1,200,000 (One million two
hundred thousand) non-qualified stock options of Three Forks, Inc. (the ’‘Initial Stock Options”). The
Initial Stock Options will have I) a $0.1O/share option strike price, 2) a 5-year term, 3) a cashless exercise option for
Employee, 4) a three-year vesting period with 10% of the options vesting upon the signing of this Agreement with an
additional 30% vesting on each of the first, second and third employment anniversary dates, and 5) a tag along sales option
for the Employee for eligible shares should the CEO or other Board of Directors elect to sell stock prior to public c trading
of the stock.

 

2.04 Performance
Compensation Program: The Corporation agrees to establish an incentive share plan, coincident with the execution of the
Agreement, for the benefit of the Terrence R. Manning whereby the Employee shall have the right to earn up to 500,000 common shares
or stock options (the “Share Pool”) of the Corporation. The path way for the Employee earning common shares or stock
options from this Share Pool shall be based upon the Employee being instrumental in achieving or exceeding certain reasonably measurable
quantitative milestones, that shall be agreed upon to be mutually agreed upon by the Employee, CEO and Corporation’s Board of Directors
within ninety (90) days following the execution of the Agreement. The first such earning opportunity relating to a dispensation
from the Share Pool to the employee shall occur coincident with the Employee’s first year of employment with the Corporation. To
provide further clarity, this Share Pool will be distributed in allocations tied to the production capacity from and the reserve
assessment of oil and gas related assets of the Corporation. For example, when the Corporation’s net production first averages
1,000 BOEPD for one calendar quarter, the Employee will receive 100,000 shares, and so on for increasing production plateaus. The
shares shall be distributed in addition to any company wide incentive compensation plan established to incentivize Corporation
employees.

 

2.05 Benefits
and Insurance Coverage: The Corporation is required to acquire and maintain Directors and Officers insurance normal to
the business of the Corporation concurrent with the employment of Employee and to add Employee lo employee family group medical,
vision and dental plans, employee life insurance, employee long-term disability insurance, employee 40IK plan, and other insurance
and benefits programs that are added from time to time for the benefit of Employee (and other employees).

 

2.06 Additional
Stock Options: The Employee shall be entitled to participate in any and all incentive programs, including, without
limiting the generality of the foregoing, share option plans, share purchase plans, share and/or cash bonus plans and/or
financial assistance plans, in accordance with and on terms and conditions determined by the applicable provisions of such
plans as established by the Corporation from time to time or by the Board in its sole discretion. The Employee acknowledges
that his participation in these plans or programs will be to such extent and in such amounts the Board in its sole
discretion may decide from time to time.

 

2.07 Any amounts to which
the Employee may be entitled under any such plan or program as described in Sections 2.03, 2.04 and 2.06 above shall not for
the purposes of this Agreement, be treated as salary.

 

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2.08 The
Employee agrees that the Corporation may substitute, reduce, modify, or if necessarily, eliminate the incentive programs described
in 2.06 at anytime, after prior consultation with Employee. Any and all stock option shares or share awards as described in Section
2.06 which have not vested at the time of the incentive program change will vest immediately, and will become the property of the
Employee. Additionally, all shares and options are subject to adjustment in the event of a capital restructure. All such plans
or programs shall be governed by the policies of the various regulatory bodies which have jurisdiction over the affairs of the
Corporation.

 

2.09 All
transactions in the shares assigned and vested in the Employee are to be subject to the applicable stock exchange regulations and
securities acts pertaining to insider trading.

 

2.10 In
the event this Agreement is terminated by the Employee, all shares not vested in the Employee at the time of the termination, shall
return to the Corporation. All shares already vested will remain the property of Employee. This paragraph does not apply to termination
of the Agreement by the Corporation without Cause or in the event of a change of control, where upon all shares and options assigned
to the Employee shall vest immediately at the time of termination of this Agreement.

 

2.11 Vacation: After
6 (six) months of employment, the Employee will be entitled to 20 (twenty) days of vacation, prorated for percentage of work
week allocated to Corporation, in each calendar year, to be taken at such time or times as shall be convenient to the
Employee and in the spirit of acting reasonably on behalf of the Corporation with such vacation election where the Employee
will be isolated from communication with the Corporation for more than 2 (two) consecutive days, the Employee shall obtain
approval from the CEO. This Article is not seen to limit the ability of the Employee to exercise vacation rather; it is
intended for there to be an efficient handling of the business of the Corporation in the Employee’s absence. After the
initial 6 (six) months, the hourly rate for computing Employee’s salary will be adjusted to account for vacation time.
Holidays for each calendar year will be agreed upon annually.

 

2.12 Expenses: The
Employee shall be reimbursed by the Corporation on a monthly basis for all out of pocket expenses actually, necessarily,
reasonably and properly incurred by him in the discharge of his duties for the Corporation. Additionally, the Employee will
be reimbursed on a monthly basis for his temporary living expense, air travel expenses and rental car expenses associated
with his commuting to Broomfield, Colorado to fill the positions of President and Chief Operating Officer up to the estimated
amount of $ 7875.83 per month. Additionally, the Employee will be paid each month for the balance between the $ 7875.83
estimate and the actual expenses incurred if less than these timated amount. The Employee agrees that all such reimbursements
shall be due only after he has rendered an itemized expense account, together with receipts where applicable, showing all
monies actually expended on behalf of the Corporation and such other information as may reasonably be required and requested
by the Corporation. The Corporation agrees to provide Employee with the necessary equipment for conducting business
efficiently and effectively. In the case of air travel, any journey of four (4) hours total duration or less is to be taken
in economy class and journeys greater than four (4) hours total duration may be taken in Business Class or equivalent.

 

2.13 Vehicle:
The Corporation will not provide Employee with accompany vehicle, but agrees to reimburse Employee for all miles driven in personal
vehicle for company business or when and where appropriate for rental vehicle expenses, also for company business.

 

2.14 Relocation Allowance:
The Corporation agrees to a $ 50,000 (Fifty Thousand US dollars) allowance for relocation expenses (the “Relocation Allowance”)
payable directly to the Employee upon the Employee relocating to an area within 30 miles of Broom field, Colorado, the headquarters
of the Corporation (the “Relocation Area”). Additionally, at any time during the period during which the Employee has
not established residence in the Relocation Area, the Employee is entitled to a monthly draw from the Relocation Allowance not
to exceed $ 4,000, at the sole election of Employee for general and sundry purposes related to

 

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the assignment and relocation, including
but not limited to temporary living expenses, rental vehicle reimbursement, air travel to and from current residence and other
relocation expenses. The Relocation Allowance is offered to assist the Employee in establishing a residence in the Relocation Area.
In the event that Employee elects to terminate his employment with the Corporation prior to his first year anniversary, Employee
shall be required within 30 calendar days of such termination of employment to reimburse, to the Corporation, all or any of the
funds which have been drawn against the Relocation Allowance.

 

3.0
TERM AND TERMINATION

 

3.01 Effective
Date- This Agreement will take effect on the Effective Date and will continue in full force and effect until the
earlier of:

 

		(a)	Expiration of a three year period from the date of this Agreement; and

 

		(b)	Date of termination as otherwise provided for here under and pursuant to this Section
                                                                  3.

 

3.02 Termination
By Corporation For Cause – Not withstanding any other provision of this Agreement, the Corporation may, at any time,
give written notice to the Employee of its intention to terminate this Agreement if the Employee’s acts or omissions would constitute
Cause as defined below and at such time this Agreement shall be terminated. Upon such termination, any remuneration payable here
under shall be proportioned to the date of such termination and shall be paid on the date of such termination together with any
other amounts then due and owing to the Employee including, without limitation, any bonuses(proportioned to the date of termination)
and expenses. In addition, any stock options or other stock awards as described in Sections 2.03, 2.04, and 2.06 above then held
by the Employee that have vested as of the date of the notice shall be governed, with respect to their term and exercisability,
by the terms of this Agreement or the stock option plan of the Corporation and the stock option agreement under which such stock
options were granted; provided that any stock options then held by the Employee that have not vested as of the date of the notice
shall be deemed to have expired and cancelled.

 

“Cause”, for
purposes of this Agreement shall arise, in respect to the Employee, because of the Employee’s (i) theft, embezzlement, fraud, misfeasance.
malfeasance, obtaining funds or property under false pretenses, with respect to the property of the Corporation or its employees
or the Corporation’s customers or suppliers; or (ii) guilty plea or any conviction of the Employee of any indictable offence or
of a summary conviction offence under applicable criminal laws.

 

3.03  If the Employee should
die during the period of his employment hereunder, termination of his employment shall be deemed to have been effected by the Corporation
and the provisions of Section 3.02 shall apply and any payment to be made to the Employee pursuant to this Agreement shall be paid
to the legal representatives of the Employee.

 

3.04 If Employee should become
in capacitated by accident, sickness or other circumstance which renders him mentally or physically incapable of performing the
duties and services required of him here under on a full- time basis for a period of at least 90 consecutive days, termination
of his employment shall be deemed to have been effected by the Corporation and the provisions of Section 3.02 shall apply and any
payment to be made to the Employee pursuant to this Agreement shall be paid to the legal representatives of the Employee.

 

3.05 Any termination by
the Corporation pursuant to Sections 3.02, 3.03 and 3.04 shall be communicated by written notice of termination to the
Employee or to Employee’s legal representative, if necessary. For purposes of this  Agreement, a “notice of
termination” shall mean a notice which shall indicate

 

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the specific termination provision of this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment. For the purposes of
this Agreement, no such purported termination shall be effective without such notice.

 

3.06 On the date of termination
of the employment of the Employee pursuant to Section 3.02, 3.03 or 3.04 the Corporation’s obligation here under in respect of
all compensation referred to herein shall terminate.

 

3.07 Termination by
Either Party without Cause: Not withstanding any other provision of this agreement, the Employee or the Corporation may
give 30day written notice of the intention to terminate this Agreement without cause and this Agreement shall be terminated
30days from such notice. In the event of a termination of this Agreement by the Corporation in accordance with this Section,
all Employee Stock Options shall become immediately vested and fully released to the Employee on the date of termination of
this Agreement and the severance payment as outlined in Section 4.0 I shall apply. In the event of a termination of this
Agreement by the Employee in accordance with this Section, any Employee Stock Options not vested to the Employee, as at the
date of delivery of notice of termination by the Employee to the Company, shall be cancelled.

 

4.0
CHANGE IN CONTROL

 

4.01 In a Change of
Control (see definition below) event, the Corporation shall treat this Agreement as terminated by Corporation without cause
in which event Corporation shall be obligated to provide the Employee with a severance payment in lieu of notice. Such
severance payment shall be payable on the fifth day following the date on which Corporation notifies the Employee of
his termination and shall consist of the following amounts:

 

		(i)	The Employee’s full salary through to the date of termination specified in the notice of
termination at the rate in effect at the time notice of termination was given, plus an amount equal to the amount, if any, of any
awards previously made to the Employee which have not been paid; plus

 

		(ii)	In lieu of further salary and benefits for periods subsequent to the date of termination, an
amount which shall be equal to the salary and benefits which would otherwise have been payable to or paid on behalf of the Employee
for the twelve(12) month period following the date of termination; plus

 

		(iii)	Any remaining or outstanding stock grants, options or awards as described in Sections 2.03, 2.04
and 2.06 above shall fully vest, with a cashless option provision provided to the Employee for option exercising purposes.

 

Additionally, any common shares
owned by the Employee and subject to vesting will be immediately released from escrow to the Employee.

 

Termination
of this Agreement in accordance with this Section shall relieve the Corporation from any and all obligation, liability or claim
by the Employee, exclusive of monies owing to the Employee pursuant to this Section.

 

For purposes
of this Agreement, the term “Change in Control” shall mean(1) any merger, consolidation, or reorganization in which
Corporation is not the surviving entity (or survives only as a subsidiary of an entity), (2) any sale, lease, exchange, or other
transfer of (or agreement to sell, lease, exchange, or otherwise transfer) all or substantially all of the assets of Corporation
to any other person or entity (in one transaction or a series of related transactions), (3) dissolution or liquidation of Corporation,
(4) a new individual or company, or group of individuals or parties acting jointly or in concert coming to own of record or beneficially,
or coming to control or exercise direction over, for the first time, 50% or more of the then issued and outstanding voting shares
of the Corporation [reference Articles 4.02 and 4.03 pertaining to a takeover of the control of Corporation], (5) as a result of
or in connection with a contested election of directors, the persons who were directors of Corporation before such election cease
to constitute

 

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a majority of the Board of Directors, (6) a unilateral requirement that Employee permanently relocate to any place
more than 25 miles away from the Relocation Area to perform required work duties, or (7) a material reduction in Employee’s duties,
title, compensation or benefits in effect as of the date of the Change of Control, or position of responsibility as set for thin
this Agreement; provided, however, that the term “Change in Control’” shall not include any reorganization, merger,
consolidation, sale, lease, exchange, or similar transaction involving solely the Corporation and one or more previously wholly
owned subsidiaries of the Corporation.

 

4.02 Subject to all
applicable regulations governing the Corporation’s common shares, if any “person”, or any person and any
“associate” of such person, begins a tender or exchange offer, circulates a proxy to shareholders or takes other
steps to effect a takeover of the control of Corporation (a “Take Over”), all common stock shares and
incentive stock options to purchase common shares of the Corporation owned by the Employee shall vest immediately on the
commencement of such Take Over subject to Exchange escrow and vesting requirements.

 

4.03
For purposes oft his Agreement .a take over of the control of Corporation shall be evidenced by the acquisition by any
person, or by any person and its associates, whether directly or indirectly, of common shares of the Corporation that, when
added to all other common shares at the time held by such person and its affiliates, totals for the first time more than 50%
of the outstanding common shares of the Corporation.

 

5.0
DUTIES OF THE EMPLOYEE

 

5.01 During
the term of this Agreement, the Employee shall engage in a work commitment which constitutes 12(twelve) days per calendar month
where upon such commitment involves the Employee’s attention, talents, experience, and capabilities are focused on the business
of the Corporation and further, Employee shall undertake such tasks as are ordinarily undertaken by a person in a similar position
at a similar company to the Corporation. EXCEPT AS OTHERWISE PERMITTED IN THIS ARTICLE (SECTION 5.04) OR WITHOUT THE PRIOR CONSENT
OF THE BOARD OF DIRECTORS, the Employee shall not, during the term of this Agreement, directly or in directly engage in any business
which is in direct competition with that of the Corporation or its associates or affiliates or accept employment with any other
company, firm or individual, whether a competitor or otherwise, or take any other action in consistent with the fiduciary relationship
of a President and COO to his corporation.

 

5.02 Notwithstanding the
above, the Employee may serve, with or without compensation, on the boards of such companies or corporations, or on such industry
associations or on such government or other public boards or committees (domestic or international) as the Employee may determine
is reasonable for the circumstances, subject to the approval of the Board, such approval not to be unreasonably with held, provided
that the goals and objectives of such boards or committees do not, in the opinion of the Board, present a conflict of interest
with respect for the Corporation.

 

5.03 In the event that the
Corporation becomes involved in any legal action relating to events which occur during the Employee’s employment under this Agreement
and about which the Employee has knowledge, the Employee will cooperate with the Corporation to the fullest extent possible in
the preparation, prosecution, or defense of the Corporation’s case.

 

5.04 The Corporation
AGREES, ACKNOWLEDGES AND ACCEPTS that the Employee IS PERMITTED TO continue working WITH BY AND ON certain companies and
projects for which the context of and identity of have been disclosed to the Corporation and appear in Schedule
“A”-Reserved Prior Commitments and which may, at the request of the CEO be further defined in writing to the
Corporation by Employee within 30(thirty) days following the date of execution of this agreement and from time-to-time as
requested by the CEO during the Term of this Agreement with respect to changes in the companies and projects identified at
time of this engagement. The intention and spirit of this Article is to provide the Employee with the flexibility to continue
a direct working involvement with existing business activities, identified to the Corporation, provided that the Reserved
Prior Commitments do not present a conflict of interest with respect to the business activities of the Corporation.

 

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5.05 In addition to the duties
of the Employee provided in Article 5.01.5.02 and 5.03, it is the Corporation’s intent to add the Employee to the Corporation’s
Board of Directors. This intention will be pursued with the upcoming restructuring of the Corporation’s Board to add additional
industry expertise to the Board of Directors.

 

6.0 NON-DISCLOSURE OF
CONFIDENTIAL INFORMATION

 

6.01 The
Employee agrees that during engagement under this Agreement and for one(1) year after termination of such engagement assuming the
Corporation has met and fulfilled all of its obligations under this Agreement, the Employee will not, without express written consent
of the Corporation, divulge or use confidential business information or trade secrets obtained by the Employee in the course of
engagement with the Corporation, directly or indirectly, for the Employee’s own benefit or for the benefit of any other person,
firm, business, corporation, or entity, except in accordance with this Agreement or with the written permission of the Corporation.

 

7.0
NON-HIRING

 

7.01
The Employee agrees that during engagement under this Agreement and for a period of one(1) year after the termination of such engagement
assuming the Corporation has met or fulfilled all of its obligations under this Agreement, he will not, without the express written
consent of the Corporation, personally or on behalf of any other person, business, corporation, or entity, directly or indirectly,
make any effort to induce any employee of the Corporation to leave his or her employment with the Corporation.

 

8.0
RETURN OF DOCUMENTS

 

8.01 The
Employee acknowledges that all originals and copies of records, reports, documents, lists, memoranda, notes, and other documentation
related to the business of the Corporation or containing any business information of the Corporation (whether developed or prepared
by the Corporation or others) shall be the sole and exclusive property of the Corporation and shall be returned to the Corporation
upon the termination of engagement under this Agreement for any reason what so ever or up on the written request of the Corporation.
The Employee shall not take with him any documents or data of any kind or any reproductions in whole or in part of such documents
or of the information contained in such documents.

 

9.0 BUSINESS OPPORTUNITIES

 

9.01 The listing of defined
projects disclosed in writing to the Corporation in Section 5.04 (reference Reserved Prior Commitments) are excluded from this
Business Opportunity disclosure requirement for the Employee. Consequently, as provided by direct reference in Article 5.04 and
as stipulated in Schedule “A” -Reserved Prior Commitments, the Employee agrees to communicate to the Corporation all
business opportunities, inventions and improvements in the nature of the business of the Corporation which, while his employment
continues, he may conceive, make or discover, become aware of, directly or indirectly, or have presented to him in any manner,
that relate in any way to the type of business of the Corporation, either as it is now or as it may develop, and such business
opportunities, inventions and improvements shall become the exclusive property of the Corporation without any obligation on the
part of the Corporation to make any payment therefore in addition to the salary and benefits described here in to the Employee.
Notwithstanding the above requirement for fully divulging business opportunities to the Corporation, it is hereby agreed that if
the Corporation elects not to pursue a business opportunity for whatever reason and Employee wishes to pursue such opportunity,
Board permission for Employee to pursue such opportunity shall not be unreasonably with held.

 

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10.0
SUCCESSORS OR ASSIGNS

 

10.01 The
rights and obligations of the Corporation under this Agreement shall inure to the benefit of and be binding upon the successors
or assigns of the Corporation.

 

11.0
MISCELLANEOUS

 

11.01 This
Agreement and the employment of the Employee shall be governed, interpreted, construed and enforced according to the laws of the
State of Colorado.

 

11.02 Then
on disclosure, non - solicitation and non - hiring covenants of this Agreement contained in Sections 6.0 and 7.0 are severable,
and if any clause or clauses are found to be unenforceable as written, the Agreement and its remaining covenants shall not fail
but shall be construed and enforced as stated in the Agreement. The parties agree that no covenant of this Agreement shall be in
validated because of over - breadth in so far as the parties acknowledge that the scope of the covenants contained herein is reasonable
and necessary to protect the Corporation and are not unduly restrictive of the Employee. Should a court determine not to enforce
any covenant of this Agreement due to over - breadth, then the parties agree that said covenant shall been forced to the extent
reasonable, with the court to make any necessary revisions to said covenant to permit its enforcement. whether such revisions be
in time, territory, or scope of prohibited activities.

 

11.03 This
Agreement and the completion of the obligation of the parties contained herein, including but not limited to the granting of Stock
Options or other stock awards, is subject to the approval of any other regulatory body having jurisdiction. The Stock Options and
awards will be issued only in compliance with all applicable securities laws.

 

11.04 This Agreement
shall inure to the benefit of and been force able by the Employee’s legal representatives, executors,
administrators, successors, heirs, distributes, devises and legatees. If the Employee should die while any amounts are
still pay able to him here under, all such amounts, unless otherwise provided here in, shall be paid in accordance with the
terms of this Agreement to such legal representatives, executors, administrators, successors, heirs, distributes, devises
and legatees or, if there be no such designee, to his estate.

 

11.05
This Agreement represents the entire Agreement between the Employee and the Corporation concerning the subject matter here of and
supersedes any previous oral or written communications, representations, understandings or agreements with the Corporation or any
officer or agent thereof.

 

11.06 Any
notice, acceptance or other document required or permitted here under shall be considered and deemed to have been duly given if
delivered by hand or mailed by postage (Special Delivery) prepaid and addressed as follows:

 

To the Employee:

 

Terrence R. Manning

P.O. Box 6968

Kingwood, Texas
77325-6968 USA

 

To the Corporation:

 

Three Forks, Inc.

555 Eldorado Blvd, Suite
100

Broomfield, Colorado
80021

Attn: CEO

 

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Or to such
other address as any party may specify in writing to the other and shall be deemed to have been received, if delivered, on the
date of delivery and if mailed as aforesaid, then on the second business day following the date of mailing thereof provided that
if there shall be, at the time of mailing or within two business days thereof, a strike, slowdown or other labor dispute which
might affect delivery of notice by the mails then the notice shall only be effective if actually delivered.

 

11.07 The
waiver by the Employee or by the Corporation of a breach of any provision of this Agreement shall not operate or be construed as
a waiver or any subsequent breach by the Corporation or by the Employee.

 

11.08 Time shall be of the essence
of this Agreement.

 

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

 

11.10 The
obligations of each party under this Agreement, other than the obligations to make payments of money and provide other benefits
and perquisites (including but not limited to the vesting of stock options or stock awards) to Employee as provided in this Agreement,
shall be excused or suspended while such party is prevented or hindered from complying there with, in whole or in part, by Force
Majeure. In the event Force Majeure causes a suspension of the obligations of any party as aforesaid, such party shall give notice
there of as soon as reasonably possible to the other party stating the date and extent of such suspension, whether in whole or
in part, and the nature of the Force Majeure. Any party whose obligations have been suspended as aforesaid shall take all reasonable
steps to remove the Force Majeure situation and shall resume the performances of such obligations as soon as reasonably possible
after the removal of the Force Majeure and shall so notify the other party.

 

11.11 Corporation
shall indemnify, defend, and hold harmless Employee, his heirs, assigns and personal representatives, from and against any and
all loss, cost, damage, liability or expense, relating to, resulting from or arising out of Employee’s performance of services
here under, except to the extent that such loss, cost, damage, liability or expense results from the gross negligence or willful
misconduct of Employee. Notwithstanding Employee’s right to receive his salary, benefits and out of pocket expenses while
performing his duties for the Corporation, Employee shall indemnify, defend, and hold harmless Corporation, its subsidiaries, associates,
and affiliates, and the irrespective officers, directors and executives, from and against any and all loss, costs, damage, liability
or expense, sustained by Employee, resulting from or arising out of Corporation’s performance here under, except to the extent
that such loss, cost, damage, liability or expenses results from the gross negligence or willful misconduct of Corporation. Neither
Corporation nor Employee shall be liable to the other for any of its incidental or consequential damages (including without limitation,
lost profits). Neither of them shall assert any such claim against the other or its subsidiaries or affiliates, or the irrespective
directors or employees, or its heirs, assigns or personal representatives.

 

12.0
ENFORCEMENT

 

12.01  Both the Employee
and the Corporation recognize and agree that in the event of a breach or threatened breach of then on disclosure, non - competition,
or non - hiring covenants of this Agreement, irreparable harm might result to the Corporation and its business. Therefore, the
parties agree that if the Corporation has met and fulfilled all of its obligations under this Agreement and in such event of breach
or threatened breach, the Corporation shall be entitled to an injunction to restrain actual or potential violation of the non disclosure,
non - solicitation, and non - hiring covenants of this Agreement in addition to all other remedies, damages, or legal relief available
to the Corporation.

 

    	10

    	 

    

 

12.02 The
Employee represents and admits that his or her consider able business talents, past experience, and proven cap abilities are such
that the Employee can obtain employment in some other business and the Corporation acknowledges that enforcement of this Agreement
by way of injunction is not intended to and will not prevent the Employee from earning a livelihood. For enforcement purposes,
the non - disclosure, non - solicitation, and non - hiring covenants of this Agreement shall be construed as obligation independent
of any other obligations between the parties, and the existence of any claim or cause of action by the Employee against the Corporation
shall not constitute a defense to the enforcement by the Corporation by way of injunction of the non disclosure, non - solicitation,
and non - hiring covenants of this Agreement. This clause is relevant and enforce able only if and when Corporation has met and
fulfilled all of its obligations under this Agreement.

 

13.0
AGREEMENT VOLUNTARY AND EQUITABLE

 

13.01 The Corporation and
the Employee further acknowledge and declare that they each have carefully considered and understand the terms of employment contained
in this Agreement including, but without limiting the generality of the fore going, the Employee’s rights up on termination and
the restrictions on the Employee after termination, and acknowledge and agree that the said terms of employment and rights and
restrictions upon termination are mutually fair and equitable, and that they executed this Agreement voluntarily and of their own
free will.

 

    	11

    	 

    

 

IN WITNESS WHERE OF the
Corporation has caused this Agreement to be executed by its duly authorized officers on its behalf and the Employee has here unto executed this Agreement as of the day and year first above written.

 

THREE FORKS, INC.

 

Per: /s/ W. Edward Nichols

Authorized Signatory

 

W. Edward Nichols

Name

 

SIGNED AND DELIVERED

BY Terrence R. Manning in the presence of:

 

_____________________________________

	Name	 /s/ Terrence R. Manning 

 

_____________________________________

Address

 

_____________________________________

City

 

_____________________________________

Occupation

 

    	12

    	 

    

 

SCHEDULE “A” - RESERVED PRIOR COMMITMENTS

 

The intention and spirit
of this SCHEDULE “A” is to provide the Employee with the flexibility to continue having a direct working
involvement with existing business activities as specifically provided herein, solon gas Employee’s activities outlined
here under do not directly present a conflict with the goals and objective soft he Corporation. In this context, the
CORPORATION AGREES, ACKNOWLEDGES AND ACCEPTS THAT EMPLOYEE IS ACO - OWNER OF MAGNUM ENERGY PARTNERS AND THE AFFILIATE
COMPANIES DIRECTLY CONTROLLED THERE BY. THE EMPLOYEE IS PERMITTED TO, DIRECTLY OR INDIRECTLY, INDIVIDUALLY OR THROUGH MAGNUM
ENERGY PARTNERS OR ONE OR MORE AFFILIATES, OWN, ENGAGE IN, MANAGE, OPERATE, JOIN, ADVISE, BE EMPLOYED BY, CONSULT FOR,
CONTROL, OR WORK IN THE BUSINESS OF ACQUIRING, MANAGING, DISPOSING OF OR OTHERWISE DEALING WITH OIL AND GAS LEASES AND/OR
EXPLORING FOR OIL AND GAS, EXPLOITING AND DEVELOPING OIL AND GAS ASSETS AND/OR OPERATING OIL AND GAS ASSETS. THE EMPLOYEE
MAY, AT HIS SOLE ELECTION MAKE THE CORPORATION AWARE OF POTENTIAL OPPORTUNITIES WHICH ARISE AS A RESULT OF THE WORK EFFORTS
DEDICATED TOWARD MAGNUM ENERGY PARTNERS AND ITS AFFILIATES.

 

Further to Reserved
Prior Commitments (noted above) and with respect to these same Reserved Prior Commitments, the following provisions also
apply:

 

		(i)	Terrence R. Manning may own up to ten percent (10%) of the outstanding shares of any one or
                                                                  more private companies or publicly traded companies engaged in acquiring, managing, disposing of or otherwise dealing with
                                                                  oil and gas leases as well as exploring for oil and gas, exploiting and developing oil and gas assets and/or operating
                                                                  oil and gas assets, here in after referred to as the ” Oil and Gas Business”; and

 

		(ii)	Terrence R. Manning shall be entitled, without limitation, to receive compensation
for such services in form of salary, stipends, retainers, ownership interests of any kind from such Oil and Gas Businesses noted
here in; and

 

		(iii)	In the due course and conduct of his efforts to manage, operate, join, advise,
be employed by, consult for, control, or work for businesses engaged in the Oil and Gas Business, Terrence R. Manning is entitled
to raise capital and/or organize financing for such business for the purposes of effecting the execution of programs of such Oil
and Gas Businesses noted here in.

 

The
specific projects noted below are currently being engaged or are in the engagement process by Magnum Energy Partners and/or it
affiliate companies:

 

		(I)	Flippen Carbonate Development - Eastern Shelf of Midl and
Basin (Abilene Area, Texas)

		(II)	Tannehill Sand Exploration – Eastern Shelf of Midland
Basin (Abilene Area, Texas)\

		(III)	Kuparuk “C” Sand Development - North Slope,
Alaska

		(IV)	Buda Limestone Exploitation - Atascosa, Wilson, Karnes,
Dewitt, McMullen, LaSalle, Frio Counties, Texas

		(V)	Eagle Ford Shale Exploitation - Atascosa, Wilson, Karnes, Dewitt, McMullen, LaSalle,

Frio Counties, Texas

		(VI)	Middle & Lower Cretaceous - Atascosa, Wilson, Karnes, Dewitt, McMullen, LaSalle, Frio Counties,
Texas

 

    	13f8k070214ex10i_coatesinter.htm

Exhibit 10.1

 

EQUITY PURCHASE AGREEMENT

 

BY AND BETWEEN

 

COATES INTERNATIONAL, LTD.

 

AND

 

SOUTHRIDGE PARTNERS II, LP

 

Dated

 

July 2, 2014

 

  

  

  

THIS EQUITY PURCHASE AGREEMENT entered into as of the 2nd day of July, 2014 (this "AGREEMENT"), by and between SOUTHRIDGE PARTNERS II, LP, a Delaware limited partnership ("INVESTOR"), and COATES INTERNATIONAL, LTD., a Delaware corporation (the "COMPANY").

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to Investor, from time to time as provided herein, and Investor shall purchase up to Ten Million Dollars ($10,000,000) of the Company’s Common Stock (as defined below); and

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

Section 1.1             DEFINED TERMS as used in this Agreement, the following terms shall have the following meanings specified or indicated (such meanings to be equally applicable to both the singular and plural forms of the terms defined)

"AGREEMENT" shall have the meaning specified in the preamble hereof.

"BY-LAWS" shall have the meaning specified in Section 4.7.

"CLAIM NOTICE" shall have the meaning specified in Section 9.3(a).

“CLEARING DATE” shall be the date in which the Estimated Put Shares (as defined in Section 2.2(a)) have been deposited into the Investor’s brokerage account..

"CLOSING" shall mean one of the closings of a purchase and sale of shares of Common Stock pursuant to Section 2.3.

"CLOSING CERTIFICATE" shall mean the closing certificate of the Company in the form of Exhibit B hereto.

"CLOSING PRICE" shall mean the VWAP price for the Company’s common stock on the Principal Market on a Trading Day as reported by OTCIQ services (“OTCIQ”)..

"COMMITMENT PERIOD" shall mean the period commencing on the Effective Date, and ending on the earlier of (i) the date on which Investor shall have purchased Put Shares pursuant to this Agreement for an aggregate Purchase Price of the Maximum Commitment Amount, 

or (ii) the date occurring thirty six (36) months from the date of commencement of the Commitment Period.

 

  

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"COMMON STOCK" shall mean the Company's common stock, $0.0001 par value per share, and any shares of any other class of common stock whether now or hereafter authorized, having the right to participate in the distribution of dividends (as and when declared) and assets (upon liquidation of the Company).

"COMMON STOCK EQUIVALENTS" shall mean any securities that are convertible into or exchangeable for Common Stock or any options or other rights to subscribe for or purchase Common Stock or any such convertible or exchangeable securities.

 

"COMPANY" shall have the meaning specified in the preamble to this Agreement.

"DAMAGES" shall mean any loss, claim, damage, liability, cost and expense (including, without limitation, reasonable attorneys' fees and disbursements and costs and expenses of expert witnesses and investigation).

"DISPUTE PERIOD" shall have the meaning specified in Section 9.3(a).

"DOLLAR VOLUME" shall mean the product of (a) the Closing Price multiplied by (b) the trading volume on the Principal Market on a Trading Day.

"DTC" shall have the meaning specified in Section 2.3.

"DWAC" shall have the meaning specified in Section 2.3.

"EFFECTIVE DATE" shall mean the date that the Registration Statement is declared effective by the SEC.

“ESTIMATED PUT SHARES” shall have the meaning specified in Section 2.2(a)

"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder.

"FAST" shall have the meaning specified in Section 2.3.

"FINRA" shall mean the Financial Industry Regulatory Authority, Inc.

“FLOOR PRICE” shall have the meaning specified in Section 2.2(c).

"INDEMNIFIED PARTY" shall have the meaning specified in Section 9.3(a).

"INDEMNIFYING PARTY" shall have the meaning specified in Section 9.3(a).

"INDEMNITY NOTICE" shall have the meaning specified in Section 9.3(b).

 

  

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"INVESTMENT AMOUNT" shall mean the dollar amount to be invested by Investor to purchase Put Shares with respect to any Put as notified by the Company to Investor in accordance with Section 2.2.

"INVESTOR" shall have the meaning specified in the preamble to this Agreement.

"LEGEND" shall have the meaning specified in Section 8.1.

"MARKET PRICE" shall mean the lowest Closing Price on the Principal Market for any Trading Day during the Valuation Period, as reported by OTCIQ..

"MATERIAL ADVERSE EFFECT" shall mean any effect on the business, operations, properties, or financial condition of the Company that is material and adverse to the Company and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to enter into and perform its obligations under any of this Agreement.

"MAXIMUM COMMITMENT AMOUNT" shall mean Ten Million  Dollars ($10,000,000).

 

"PERSON" shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

"PRINCIPAL MARKET" shall mean any of the national exchanges (i.e. NYSE, NYSE AMEX, Nasdaq), OTCQX, OTCQB, the OTC Bulletin Board, or other principal exchange which is at the time the principal trading exchange or market for the Common Stock.

"PURCHASE PRICE" shall mean 94% of the Market Price on such date on which the Purchase Price is calculated in accordance with the terms and conditions of this Agreement.

"PUT" shall mean the right of the Company to require the Investor to purchase shares of Common Stock, subject to the terms and conditions of this Agreement.

"PUT DATE" shall mean any Trading Day during the Commitment Period that a Put Notice is deemed delivered pursuant to Section 2.2(b).

"PUT NOTICE" shall mean a written notice, substantially in the form of Exhibit A hereto, to Investor setting forth the Investment Amount with respect to which the Company intends to require Investor to purchase shares of Common Stock pursuant to the terms of this Agreement.

 

  

3

  

 

"PUT SHARES" shall mean all shares of Common Stock issued or issuable pursuant to a Put that has been exercised or may be exercised in accordance with the terms and conditions of this Agreement.

"REGISTERED SECURITIES" shall mean the (a) Put Shares, and (b) any securities issued or issuable with respect to any of the foregoing by way of exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registered Securities, once issued such securities shall cease to be Registrable Securities when (i) a Registration Statement has been declared effective by the SEC and such Registrable Securities have been disposed of pursuant to a Registration Statement, (ii) such Registrable Securities have been sold under circumstances under which all of the applicable conditions of Rule 144 are met, (iii) such time as such Registrable Securities have been otherwise transferred to holders who may trade such shares without restriction under the Securities Act or (iv) in the opinion of counsel to the Company, which counsel shall be reasonably acceptable to Investor, such Registrable Securities may be sold without registration under the Securities Act or the need for an exemption from any such registration requirements and without any time, volume or manner limitations pursuant to Rule 144(b)(i) (or any similar provision then in effect) under the Securities Act.

"REGISTRATION STATEMENT" shall mean the Company’s effective registration statement on file with the SEC, and any follow up registration statement or amendment thereto.

"REGULATION D" shall mean Regulation D promulgated under the Securities Act.

"RULE 144" shall mean Rule 144 under the Securities Act or any similar provision then in force under the Securities Act.

"SEC" shall mean the Securities and Exchange Commission.

"SECURITIES ACT" shall have the meaning specified in the recitals of this Agreement.

"SEC DOCUMENTS" shall mean, as of a particular date, all reports and other documents filed by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the Company's then most recently completed and reported fiscal year as of the time in question (provided that if the date in question is within ninety days of the beginning of the Company's fiscal year, the term shall include all documents filed since the beginning of the preceding fiscal year).

“SHORT SALES” shall mean all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).

 

  

4

  

 

"SUBSCRIPTION DATE" shall mean the date on which this Agreement is executed and delivered by the Company and Investor.

"THIRD PARTY CLAIM" shall have the meaning specified in Section 9.3(a).

“TRADING DAY” shall mean a day on which the Principal Market shall be open for business.

“TRANSACTION DOCUMENTS” shall mean this Agreement and the Registration Rights Agreement.

"TRANSFER AGENT" shall mean the transfer agent for the Common Stock (and to any substitute or replacement transfer agent for the Common Stock upon the Company's appointment of any such substitute or replacement transfer agent).

"UNDERWRITER" shall mean any underwriter participating in any disposition of the Registered Securities on behalf of Investor pursuant to the Registration Statement.

"VALUATION EVENT" shall mean an event in which the Company at any time during a Valuation Period takes any of the following actions:

(a)           subdivides or combines the Common Stock;

(b)           pays a dividend in shares of Common Stock or makes any other distribution of shares of Common Stock, except for dividends paid with respect to any series of preferred stock authorized by the Company, whether existing now or in the future;

(c)           issues any options or other rights to subscribe for or purchase shares of Common Stock other than pursuant to this Agreement, and other than options or stock grants issued or issuable to directors, officers and employees pursuant to a stock option program, whereby the price per share for which shares of Common Stock may at any time thereafter be issuable pursuant to such options or other rights shall be less than the Closing Price in effect immediately prior to such issuance;

(d)           issues any securities convertible into or exchangeable for shares of Common Stock and the consideration per share for which shares of Common Stock may at any time thereafter be issuable pursuant to the terms of such convertible or exchangeable securities shall be less than the Closing Price  in effect immediately prior to such issuance, provided however, that the issuance and/or conversion of convertible notes convertible into restricted shares of common stock at a discount from a defined conversion price shall not constitute a Valuation Event;

 

  

5

  

 

(e)           issues shares of Common Stock otherwise than as provided in the foregoing subsections (a) through (d), at a price per share less, or for other consideration lower, than the Closing Price in effect immediately prior to such issuance, or without consideration, provided however, that the issuance and/or conversion of convertible notes convertible into restricted shares of common stock at a discount from a defined conversion price shall not constitute a Valuation Event; or

(f)           makes a distribution of its assets or evidences of indebtedness to the holders of Common Stock as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Company's assets (other than under the circumstances provided for in the foregoing subsections (a) through (e).

"VALUATION PERIOD" shall mean the period of ten (10) Trading Days immediately following the Clearing Date associated with the applicable Put Notice during which the Purchase Price of the Common Stock is valued; provided, however, that if a Valuation Event occurs during any Valuation Period, a new Valuation Period shall begin on the Trading Day immediately after the occurrence of such Valuation Event and end on the tenth (10th) Trading Day thereafter.  Investor shall notify the Company in writing of the occurrence of the Clearing Date associated with a Put Notice.  The Valuation Period shall begin the first Trading Day following such written notice from Investor.

"VWAP" shall mean the daily volume weighted average price for the Company’s common stock on the Principal Market on a Trading Day as reported by OTCIQ..

ARTICLE II

PURCHASE AND SALE OF COMMON STOCK

Section 2.1             INVESTMENTS.

(a)           PUTS.  Upon the terms and conditions set forth herein (including, without limitation, the provisions of Article VII), on any Put Date the Company may exercise a Put by the delivery of a Put Notice. The number of Put Shares that Investor shall purchase pursuant to such Put shall be determined by dividing the Investment Amount specified in the Put Notice by the Purchase Price with respect to such Put Notice.

 

(b)           PROMISSORY NOTE; WARRANTS.  As a condition for the execution of this Agreement by the Investor, the Company shall issue to the Investor a promissory note in the principal amount equal to $5,000.00 (the “Note”) on the Subscription Date.  In the event that the Company issues 5,000,000 Put Shares to Investor, then the Company shall issue to Investor a three (3) year warrant to purchase 250,000 shares of common stock at an exercise price of $0.05 (“Warrant”). Such Warrant shall have a cashless exercise provision.  In the event that the Company issues an additional 5,000,000 Put Shares to Investor (i.e. 10,000,000 in aggregate), then the Company shall issue to Investor an additional Warrant with the exact same terms.  Neither the Warrant(s) nor the Note shall have registration rights.

 

  

6

  

 

Section 2.2             MECHANICS.

(a)           PUT NOTICE. At any time and from time to time during the Commitment Period, the Company may deliver a Put Notice to Investor, subject to the conditions set forth in Section 7.2; provided, however, that the Investment Amount identified in the applicable Put Notice, when taken together with all prior Put Notices, shall not exceed the Maximum Commitment Amount.   On the Put Date the Company shall deliver to Investor’s brokerage account estimated put shares equal to the Investment Amount indicated in the Put Notice divided by the Closing Price on the Trading Day immediately preceding the Put Date, multiplied by one hundred twenty five percent (125%) (the “Estimated Put Shares”).

 

 

(b)           DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed delivered on (i) the Trading Day it is received by facsimile or otherwise by Investor if such notice is received on or prior to 12:00 noon New York time, or (ii) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 12:00 noon New York time on a Trading Day or at any time on a day which is not a Trading Day.

(c)           FLOOR PRICE.  In the event that, during a Valuation Period, the Closing Price on any Trading Day falls more than twenty five  percent (25%) below the average of the VWAP prices for the ten (10) trading days immediately preceding the date of the Company’s Put Notice (a “Floor Price”), for each such Trading Day, the parties shall have no right and shall be under no obligation to purchase one tenth (1/10th) of the Investment Amount specified in the Put Notice, and the Investment Amount shall accordingly be deemed reduced by such amount.

Section 2.3     CLOSINGS. At the end of the Valuation Period the Purchase Price shall be established and the number of Put Shares shall be determined for a particular Put.  If the number of Estimated Put Shares initially delivered to Investor is greater than the Put Shares purchased by Investor pursuant to such Put, then immediately after the Valuation Period the Investor shall deliver to Company any excess Estimated Put Shares associated with such Put.   If the number of Estimated Put Shares delivered to Investor is less than the Put Shares purchased by Investor pursuant to a Put, then immediately after the Valuation Period the Company shall deliver to Investor the difference between the Estimated Put Shares and the Put Shares issuable pursuant to such Put.  The Closing of a Put shall occur upon the first Trading Day following the completion of the Valuation Period, whereby Investor shall deliver the Investment Amount specified in the Put Notice, less the Par Value Payment, by wire transfer of immediately available funds to an account designated by the Company. In lieu of delivering physical certificates representing the Common Stock issuable in accordance with clause (a) of this Section 2.3, and provided that the Transfer Agent then is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of Investor, but subject to the applicable provisions of Article VIII hereof, the Company shall use its commercially reasonable efforts to cause the Transfer Agent to electronically transmit, prior to the applicable Closing Date, the applicable Put Shares by crediting the account of the Investor's prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system, and provide proof satisfactory to the Investor of such delivery.  In addition, on or prior to such Closing Date, each of the Company and Investor shall deliver to each other all documents, instruments and writings required to be delivered or reasonably requested by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein.

 

  

7

  

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF INVESTOR

Investor represents and warrants to the Company that:

Section 3.1             INTENT. Investor is entering into this Agreement for its own account and Investor has no present arrangement (whether or not legally binding) at any time to sell the Registered Securities to or through any person or entity; provided, however, that Investor reserves the right to dispose of the Registered Securities at any time in accordance with federal and state securities laws applicable to such disposition.

Section 3.2             NO LEGAL ADVICE FROM THE COMPANY.  The Investor acknowledges that it has had the opportunity to review this Agreement and the transactions contemplated by this Agreement with its own legal counsel and investment and tax advisors.  The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.

Section 3.3             SOPHISTICATED INVESTOR. Investor is a sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in Rule 501 of Regulation D), and Investor has such experience in business and financial matters that it is capable of evaluating the merits and risks of an investment in the Registered Securities. Investor acknowledges that an investment in the Registered Securities is speculative and involves a high degree of risk.

Section 3.4             AUTHORITY. (a) Investor has the requisite power and authority to enter into and perform its obligations under this Agreement and the transactions contemplated hereby in accordance with its terms; (b) the execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action and no further consent or authorization of Investor or its partners is required; and (c) this Agreement has been duly authorized and validly executed and delivered by Investor and constitutes a valid and binding obligation of Investor enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

 

  

8

  

 

Section 3.5             NOT AN AFFILIATE. Investor is not an officer, director or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of the Company.

Section 3.6             ORGANIZATION AND STANDING. Investor is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Investor is duly qualified and in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a material adverse effect on Investor.

Section 3.7             ABSENCE OF CONFLICTS. The execution and delivery of this Agreement and any other document or instrument contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, and compliance with the requirements hereof and thereof, will not (a) violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Investor, (b) violate any provision of any indenture, instrument or agreement to which Investor is a party or is subject, or by which Investor or any of its assets is bound, or conflict with or constitute a material default thereunder, (c) result in the creation or imposition of any lien pursuant to the terms of any such indenture, instrument or agreement, or constitute a breach of any fiduciary duty owed by Investor to any third party, or (d) require the approval of any third-party (that has not been obtained) pursuant to any material contract, instrument, agreement, relationship or legal obligation to which Investor is subject or to which any of its assets, operations or management may be subject.

Section 3.8             DISCLOSURE; ACCESS TO INFORMATION. Investor had an opportunity to review copies of the SEC Documents filed on behalf of the Company and has had access to all publicly available information with respect to the Company.

Section 3.9             MANNER OF SALE. At no time was Investor presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general solicitation or advertising.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Investor that, except as disclosed in the SEC Documents:

Section 4.1             ORGANIZATION OF THE COMPANY. The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted.  The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a Material Adverse Effect.

 

  

9

  

 

Section 4.2             AUTHORITY. (a) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and to issue the Put Shares; (b) the execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required; and (c) each of this Agreement and has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

 

Section 4.3             CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of 1,000,000,000 shares of Common Stock, $0.0001 par value per share, of which 405,971,843 shares were issued and outstanding as of July 1, 2014, and 100,000,000 million shares of preferred stock, $0.001 par value per share authorized, which included 1,000,000 shares designated as Series A Preferred Stock, 179,901 of which are issued and outstanding, 1,000,000 shares designated as  Series B Convertible Preferred Stock, no shares of which are issued and outstanding and 98,000,000 share which remain undesignated and unissued.

Except as otherwise disclosed in the SEC Documents or on Schedule 4.3, there are no outstanding securities which are convertible into shares of Common Stock, whether such conversion is currently exercisable or exercisable only upon some future date or the occurrence of some event in the future.

All of the outstanding shares of Common Stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable.

 

Section 4.4             COMMON STOCK. The Company is in full compliance with all reporting requirements of the Exchange Act, and the Company has maintained all requirements for the continued listing or quotation of the Common Stock, and such Common Stock is currently listed or quoted on the Principal Market which is presently the OTCQB. 

 

  

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Section 4.5             SEC DOCUMENTS. The Company may make available to Investor true and complete copies of the SEC Documents (including, without limitation, proxy information and solicitation materials). To the Company’s knowledge, the Company has not provided to Investor any information that, according to applicable law, rule or regulation, should have been disclosed publicly prior to the date hereof by the Company, but which has not been so disclosed. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act, and other federal laws, rules and regulations applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents comply as to form and substance in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto or (b) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

 

Section 4.6             VALID ISSUANCES. When issued and paid for as herein provided, the Put Shares shall be duly and validly issued, fully paid, and non-assessable. The sales of the Put Shares pursuant to this Agreement, and the Company's performance of its obligations hereunder, shall not (a) result in the creation or imposition of any liens, charges, claims or other encumbrances upon the Put Shares, or any of the assets of the Company, or (b) entitle the holders of outstanding shares of Common Stock to preemptive or other rights to subscribe to or acquire the Common Stock or other securities of the Company. The Put Shares shall not subject Investor to personal liability, in excess of the subscription price by reason of the ownership thereof.

Section 4.7             NO CONFLICTS. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, including without limitation the issuance of the Put Shares, do not and will not (a) result in a violation of the Company’s Articles of Incorporation or By-Laws or (b) conflict with, or constitute a material default (or an event that with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture, instrument or any "lock-up" or similar provision of any underwriting or similar agreement to which the Company is a party, or (c) result in a violation of any federal, state or local law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect) nor is the Company otherwise in violation of, in conflict with or in default under any of the foregoing. The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental entity, except for possible violations that either singly or in the aggregate do not and will not have a Material Adverse Effect. The Company is not required under federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or issue and sell the Common Stock in accordance with the terms hereof (other than any SEC, FINRA or state securities filings that may be required to be made by the Company subsequent to any Closing, any registration statement that may be filed pursuant hereto); provided that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of Investor herein.

 

  

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Section 4.8             NO MATERIAL ADVERSE CHANGE. Since March 31, 2014 no event has occurred that would have a Material Adverse Effect on the Company.

 

Section 4.9             LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the Company’s SEC filings, there are no lawsuits or proceedings pending or to the knowledge of the Company threatened, against the Company, nor has the Company received any written or oral notice of any such action, suit, proceeding or investigation, which would have a Material Adverse Effect. No judgment, order, writ, injunction or decree or award has been issued by or, so far as is known by the Company, requested of any court, arbitrator or governmental agency which would have a Material Adverse Effect.

 

Section 4.10           DILUTION.  The number of shares of Common Stock issuable as Put Shares may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines during the period between the Effective Date and the end of the Commitment Period.  The Company’s executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Agreement and recognize that they have a potential dilutive effect.  The board of directors of the Company has concluded in its good faith business judgment that such issuance is in the best interests of the Company.  The Company specifically acknowledges that, subject to Section 2.2(c), its obligation to issue the Put Shares is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.

ARTICLE V

COVENANTS OF INVESTOR

Section 5.1             COMPLIANCE WITH LAW; TRADING IN SECURITIES. Investor's trading activities with respect to shares of the Common Stock will be in compliance with all applicable state and federal securities laws, rules and regulations and the rules and regulations of FINRA and the Principal Market on which the Common Stock is listed or quoted.

Section 5.2             SHORT SALES AND CONFIDENTIALITY. Neither Investor nor any affiliate of the Investor acting on its behalf or pursuant to any understanding with it will execute any Short Sales during the period from the date hereof to the end of the Commitment Period.  For the purposes hereof, and in accordance with Regulation SHO, the sale after delivery of a Put Notice of such number of shares of Common Stock reasonably expected to be purchased under a Put Notice shall not be deemed a Short Sale.

 

  

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Other than to other Persons party to this Agreement, Investor has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

ARTICLE VI

COVENANTS OF THE COMPANY

Section 6.1             RESERVATION OF COMMON STOCK. The Company will, from time to time as needed in advance of a Closing Date, reserve and keep available until the consummation of such Closing, free of preemptive rights sufficient shares of Common Stock for the purpose of enabling the Company to satisfy its obligation to issue the Put Shares to be issued in connection therewith. The number of shares so reserved from time to time, as theretofore increased or reduced as hereinafter provided, may be reduced by the number of shares actually delivered hereunder.

Section 6.2             LISTING OF COMMON STOCK.  If the Company applies to have the Common Stock traded on any other Principal Market, it shall include in such application the Put Shares, and shall take such other action as is necessary or desirable in the reasonable opinion of Investor to cause the Common Stock to be listed on such other Principal Market as promptly as possible. The Company shall use its commercially reasonable efforts to continue the listing and trading of the Common Stock on the Principal Market (including, without limitation, maintaining sufficient net tangible assets) and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the FINRA and the Principal Market.

Section 6.3             CERTAIN AGREEMENTS. So long as this Agreement remains in effect, the Company covenants and agrees that it will not, without the prior written consent of the Investor, enter into any other equity line of credit agreement with a third party during the Commitment Period having terms and conditions substantially comparable to this Agreement.  For the avoidance of doubt, nothing contained in the Transaction Documents shall restrict, or require the Investor's consent for, any agreement providing for the issuance or distribution of (or the issuance or distribution of) any equity securities pursuant to any agreement or arrangement that is not commonly understood to be an "equity line of credit."

 

ARTICLE VII

CONDITIONS TO DELIVERY OF

PUT NOTICES AND CONDITIONS TO CLOSING

Section 7.1             CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND SELL COMMON STOCK. The obligation hereunder of the Company to issue and sell the Put Shares to Investor is subject to the satisfaction of each of the conditions set forth below.

(a)           ACCURACY OF INVESTOR'S REPRESENTATIONS AND WARRANTIES. The representations and warranties of Investor shall be true and correct in all material respects as of the date of this Agreement and as of the date of each such Closing as though made at each such time.

  

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(b)           PERFORMANCE BY INVESTOR. Investor shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Investor at or prior to such Closing.

(c)           PRINCIPAL MARKET REGULATION. The Company shall not issue any Put Shares, and the Investor shall not have the right to receive any Put Shares, if the issuance of such shares would exceed the aggregate number of shares of Common Stock which the Company may issue without breaching the Company’s obligations under the rules or regulations of the Principal Market (the “EXCHANGE CAP”).

Section 7.2             CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER A PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES. The right of the Company to deliver a Put Notice and the obligation of Investor hereunder to acquire and pay for the Put Shares is subject to the satisfaction of each of the following conditions:

 

(a)           EFFECTIVE REGISTRATION STATEMENT. The Registration Statement, and any amendment or supplement thereto, shall remain effective for the sale by Investor of the Registered Securities subject to such Put Notice, and (i) neither the Company nor Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so  and (ii) no other suspension of the use or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist.

(b)           ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company shall be true and correct in all material respects (except for representations and warranties specifically made as of a particular date), except for any conditions which have temporarily caused any representations or warranties herein to be incorrect and which have been corrected with no continuing impairment to the Company or Investor.

(c)           PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company.

(d)           NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or adopted by any court or governmental authority of competent jurisdiction that prohibits or directly and materially adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or materially adversely affecting any of the transactions contemplated by this Agreement.

 

  

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(e)           ADVERSE CHANGES. Since the date of filing of the Company's most recent SEC Document, no event that had or is reasonably likely to have a Material Adverse Effect has occurred.

(f)            NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The trading of the Common Stock shall not have been suspended by the SEC, the Principal Market or the FINRA and the Common Stock shall have been approved for listing or quotation on and shall not have been delisted from the Principal Market.

(g)           [INTENTIONALLY OMITTED]

(h)           TEN PERCENT LIMITATION. On each Closing Date, the number of Put Shares then to be purchased by Investor shall not exceed the number of such shares that, when aggregated with all other shares of Common Stock then owned by Investor beneficially or deemed beneficially owned by Investor, would result in Investor owning more than 9.99% of all of such Common Stock as would be outstanding on such Closing Date, as determined in accordance with Section 16 of the Exchange Act and the regulations promulgated thereunder. For purposes of this Section, in the event that the amount of Common Stock outstanding as determined in accordance with Section 16 of the Exchange Act and the regulations promulgated thereunder is greater on a Closing Date than on the date upon which the Put Notice associated with such Closing Date is given, the amount of Common Stock outstanding on such Closing Date shall govern for purposes of determining whether Investor, when aggregating all purchases of Common Stock made pursuant to this Agreement, would own more than 9.99% of the Common Stock following such Closing Date.

(i)            Principal Market Regulation. The Company shall not issue any Put Shares, and the Investor shall not have the right to receive any Put Shares, if the issuance of such shares would exceed the Exchange Cap.

(j)            NO KNOWLEDGE. The Company shall have no knowledge of any event more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective (which event is more likely than not to occur within the fifteen (15) Trading Days following the Trading Day on which such Put Notice is deemed delivered).

(k)           NO VIOLATION OF SHAREHOLDER APPROVAL REQUIREMENT. The issuance of shares of Common Stock with respect to the applicable Closing, if any, shall not violate the shareholder approval requirements of the Principal Market.

 

  

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(l)            NO VALUATION EVENT. No Valuation Event shall have occurred since the Put Date.

 

(m)           OTHER. On the date of delivery of each Put Notice, Investor shall have received a certificate in substantially the form and substance of Exhibit B hereto, executed by an executive officer of the Company and to the effect that all the conditions to such Closing shall have been satisfied as at the date of each such certificate.

ARTICLE VIII

LEGENDS

 

Section 8.1             NO STOCK LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend shall be placed on the share certificates representing the Put Shares.

 

Section 8.2             INVESTOR'S COMPLIANCE. Nothing in this Article VIII shall affect in any way Investor's obligations under any agreement to comply with all applicable securities laws upon the sale of the Common Stock.

ARTICLE IX

NOTICES; INDEMNIFICATION

Section 9.1             NOTICES. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (a) personally served, (b) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (c) delivered by reputable air courier service with charges prepaid, or (d) transmitted by hand delivery, telegram, facsimile, or email as a PDF, addressed as set forth below or to such other address as such party shall have specified most recently by written notice given in accordance herewith. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (i) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, or email as a PDF, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (ii) on the second business day following the date of mailing by express courier service or on the fifth business day after deposited in the mail, in each case, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.

 

  

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The addresses for such communications shall be:

 

If to the Company:                                           

Coates International, Ltd.

2100 Highway 34

Wall Township, NJ 07719

Attn:  George J. Coates and Barry C. Kaye

Email: info@coatesengine.com

 bk@coatesengine.com

Copy to (which shall not constitute notice):

 Szaferman, Lakind, Blumstein & Blader PC

101 Grovers Mill Road, Suite 200

Lawrenceville, NJ 08648

Attn: Gregg Jaclin, Esq.

Email: Gjaclin@szaferman.com

Tel: 609-275-0400

 

If to Investor:

Southridge Partners II, LP

90 Grove Street

Ridgefield, Connecticut 06877

Tel: 203-431-8300

Fax: 203-431-8301

Either party hereto may from time to time change its address or facsimile number for notices under this Section 9.1 by giving at least ten (10) days' prior written notice of such changed address or facsimile number to the other party hereto.

Section 9.2             INDEMNIFICATION.  Each party (an “Indemnifying Party”) agrees to indemnify and hold harmless the other party along with its officers, directors, employees, and authorized agents, and each Person or entity, if any, who controls such party within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (an “Indemnified Party”) from and against any Damages, joint or several, and any action in respect thereof to which the Indemnified Party becomes subject to, resulting from, arising out of or relating to (i) any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Indemnifying Party contained in this Agreement, (ii) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or supplement thereto, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under which the statements therein were made, not misleading, (iv) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the Exchange Act or any state securities law, as such Damages are incurred, except to the extent such Damages result primarily from Indemnified Party's failure to perform any covenant or agreement contained in this Agreement or Indemnified Party's negligence, recklessness or bad faith in performing its obligations under this Agreement; provided, however, that the foregoing indemnity agreement shall not apply to any Damages of an Indemnified Party to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made by an Indemnifying Party in reliance upon and in conformity with written information furnished to the Indemnifying Party by the Indemnified Party expressly for use in the Registration Statement, any post-effective amendment thereof or supplement thereto, or any preliminary prospectus or final prospectus (as amended or supplemented).

 

  

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Section 9.3             METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for indemnification by any Indemnified Party (as defined below) under Section 9.2 shall be asserted and resolved as follows:

(a)           In the event any claim or demand in respect of which an Indemnified Party  might seek indemnity under Section 9.2 is asserted against or sought to be collected from such Indemnified Party by a person other than a party hereto or an affiliate thereof (a "THIRD PARTY CLAIM"), the Indemnified Party shall deliver a written notification, enclosing a copy of all papers served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Party's claim for indemnification that is being asserted under any provision of Section 9.2 against an Indemnifying Party, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third Party Claim (a "CLAIM NOTICE") with reasonable promptness to the Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice with reasonable promptness after the Indemnified Party receives notice of such Third Party Claim, the Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect to such Third Party Claim to the extent that the Indemnifying Party's ability to defend has been prejudiced by such failure of the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party as soon as practicable within the period ending thirty (30) calendar days following receipt by the Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined below) (the "DISPUTE PERIOD") whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party under Section 9.2 and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim.

 

  

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(i)           If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Indemnified Party with respect to the Third Party Claim pursuant to this Section 9.3(a), then the Indemnifying Party shall have the right to defend, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings shall be vigorously and diligently prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party (but only with the consent of the Indemnified Party in the case of any settlement that provides for any relief other than the payment of monetary damages or that provides for the payment of monetary damages as to which the Indemnified Party shall not be indemnified in full pursuant to Section 9.2). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that the Indemnified Party may, at the sole cost and expense of the Indemnified Party, at any time prior to the Indemnifying Party's delivery of the notice referred to in the first sentence of this clause (i), file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests; and provided further, that if requested by the Indemnifying Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this clause (i), and except as provided in the preceding sentence, the Indemnified Party shall bear its own costs and expenses with respect to such participation. Notwithstanding the foregoing, the Indemnified Party may takeover the control of the defense or settlement of a Third Party Claim at any time if it irrevocably waives its right to indemnity under Section 9.2 with respect to such Third Party Claim.

(ii)           If the Indemnifying Party fails to notify the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Third Party Claim pursuant to Section 9.3(a), or if the Indemnifying Party gives such notice but fails to prosecute vigorously and diligently or settle the Third Party Claim, or if the Indemnifying Party fails to give any notice whatsoever within the Dispute Period, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings shall be prosecuted by the Indemnified Party in a reasonable manner and in good faith or will be settled at the discretion of the Indemnified Party(with the consent of the Indemnifying Party, which consent will not be unreasonably withheld). The Indemnified Party will have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that if requested by the Indemnified Party, the Indemnifying Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting. Notwithstanding the foregoing provisions of this clause (ii), if the Indemnifying Party has notified the Indemnified Party within the Dispute Period that the Indemnifying Party disputes its liability or the amount of its liability hereunder to the Indemnified Party with respect to such Third Party Claim and if such dispute is resolved in favor of the Indemnifying Party in the manner provided in clause (iii) below, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this clause (ii) or of the Indemnifying Party's participation therein at the Indemnified Party's request, and the Indemnified Party shall reimburse the Indemnifying Party in full for all reasonable costs and expenses incurred by the Indemnifying Party in connection with such litigation. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this clause (ii), and the Indemnifying Party shall bear its own costs and expenses with respect to such participation.

 

  

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(iii)           If the Indemnifying Party notifies the Indemnified Party that it does not dispute its liability or the amount of its liability to the Indemnified Party with respect to the Third Party Claim under Section 9.2 or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party with respect to such Third Party Claim, the amount of Damages specified in the Claim Notice shall be conclusively deemed a liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.

(b)           In the event any Indemnified Party should have a claim under Section 9.2 against the Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver a written notification of a claim for indemnity under Section 9.2 specifying the nature of and basis for such claim, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such claim (an "INDEMNITY NOTICE") with reasonable promptness to the Indemnifying Party. The failure by any Indemnified Party to give the Indemnity Notice shall not impair such party's rights hereunder except to the extent that the Indemnifying Party demonstrates that it has been irreparably prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim or the amount of the claim described in such Indemnity Notice or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes the claim or the amount of the claim described in such Indemnity Notice, the amount of Damages specified in the Indemnity Notice will be conclusively deemed a liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.

 

  

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(c)           The Indemnifying Party agrees to pay the Indemnified Party, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.

(d)           The indemnity provisions contained herein shall be in addition to (i) any cause of action or similar rights of the Indemnified Party against the Indemnifying Party or others, and (ii) any liabilities the Indemnifying Party may be subject to.

ARTICLE X

MISCELLANEOUS

Section 10.1           GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York without regard to the principles of conflicts of law. Each of the Company and Investor hereby submit to the exclusive jurisdiction of the United States Federal and state courts located in New York with respect to any dispute arising under this Agreement, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby.

Section 10.2           JURY TRIAL WAIVER.  The Company and the Investor hereby waive a trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other in respect of any matter arising out of or in connection with the Transaction Documents.

Section 10.3           ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Company and Investor and their respective successors. Neither this Agreement nor any rights of Investor or the Company hereunder may be assigned by either party to any other person.

 

 

Section 10.4           THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the Company and Investor and their respective successors, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

Section 10.5           TERMINATION. The Company may terminate this Agreement at any time by written notice to the Investor. Additionally, this Agreement shall terminate at the end of Commitment Period or as otherwise provided herein; provided, however, that the provisions of Articles IX, and Sections 10.1 and 10.2 shall survive the termination of this Agreement for a period of twenty four (24) months.

Section 10.6           ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This Agreement and the instruments referenced herein contain the entire understanding of the Company and Investor with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor Investor 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 party to be charged with enforcement.

 

  

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Section 10.7           FEES AND EXPENSES. The Company agrees to pay its own expenses in connection with the preparation of this Agreement and performance of its obligations hereunder.  The Company shall pay all stamp or other similar taxes and duties levied in connection with issuance of the Put Shares pursuant hereto.

Section 10.8           COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. This Agreement may be delivered to the other parties hereto by facsimile transmission or email of a copy of this Agreement bearing the signature of the parties so delivering this Agreement.

Section 10.9           SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party.

Section 10.10         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.

Section 10.11         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.

Section 10.12         EQUITABLE RELIEF. The Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under this Agreement, any remedy at law may prove to be inadequate relief to Investor. The Company therefore agrees that Investor shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

Section 10.13         TITLE AND SUBTITLES. The titles and subtitles used in this Agreement are used for the convenience of reference and are not to be considered in construing or interpreting this Agreement.

 

  

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Section 10.14         REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied upon for the determination of the Closing Price for the Common Stock on any given Trading Day for the purposes of this Agreement shall be OTCIQ or any successor thereto. The written mutual consent of Investor and the Company shall be required to employ any other reporting entity.

Section 10.15         PUBLICITY.   The Company and Investor shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other parties with prior notice of such public statement. Notwithstanding the foregoing, the Company shall not publicly disclose the name of Investor without the prior written consent of such Investor, except to the extent required by law. Investor acknowledges that this Agreement and all or part of the Transaction Documents may be deemed to be "material contracts" as that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore be required to file such documents as exhibits to reports or registration statements filed under the Securities Act or the Exchange Act. Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by the Company, in consultation with its counsel.

 

  

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[SIGNATURE PAGE]

IN WITNESS WHEREOF, the parties hereto have caused this Equity Purchase Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.

 

	  	
SOUTHRIDGE PARTNERS II LP

	  	  	  
	  	
By:

	
Southridge Advisors II LLC

	  	  	  
	  	  	  
	  	  	  
	  	
By:

	
/s/ Stephen Hicks

	  	
Name:

	
Stephen Hicks

	  	
Title:

	
Manager

	  	  	  
	  	
COATES INTERNATIONAL, LTD.

	  	  	  
	  	
By:

	
/s/ Barry C. Kaye

	  	
Name:

	
Barry C. Kaye

	  	
Title:

	
Chief Financial Officer

 

  

24

  

 

Schedule 4.3 – Outstanding Securities

 

  

25

  

 

EXHIBITS

 

	
EXHIBIT A

	
Put Notice

	  	  
	
EXHIBIT B

	
Closing Certificate

 

 

26

 

 

EXHIBIT A

FORM OF PUT NOTICE

TO: SOUTHRIDGE PARTNERS II, LP

We refer to the Equity Purchase Agreement dated July 2, 2014 (the “Agreement”) entered into by COATES INTERNATIONAL, LTD. (the “Company”) and you.   Capitalized terms defined in the Agreement shall, unless otherwise defined, have the same meaning when used herein.

We hereby:

	 	
1. 

	
Give you notice that we require you to purchase $_________ (the “Investment Amount”) in Put Shares;

 

	 	
2. 

	
Determine the Floor Price for this Put, as defined in Section 2.2(c) of the Agreement, to be $___________; and

 

	 	
3. 

	
 Certify that, as of the date hereof, to the best of our knowledge, the conditions set forth in Section 7.2 of the Agreement are satisfied.

 

Date: _____________, 20__

 

	 	COATES INTERNATIONAL, LTD.
	 	 	 
	  	
By:

	  
	  	
Name:

	
Barry C. Kaye

	  	
Title:

	
Chief Financial Officer

 

  

  

  

 

EXHIBIT B

FORM OF

CERTIFICATE OF THE CHIEF FINANCIAL OFFICER

OF

COATES INTERNATIONAL, LTD.

Pursuant to Section 7.2(m) of that certain Equity Purchase Agreement dated July 2, 2014 (the “Agreement”) by and between the Company and Southridge Partners II, LP (the “Investor”), the undersigned, in his capacity as the Chief Financial Officer of COATES INTERNATIONAL, LTD. (the “Company”), and not in his individual capacity, hereby certifies, as of the date hereof (such date, the “Condition Satisfaction Date”), the following:

1.           The representations and warranties of the Company are true and correct in all material respects as of the Condition Satisfaction Date as though made on the Condition Satisfaction Date (except for representations and warranties specifically made as of a particular date) with respect to all periods, and as to all events and circumstances occurring or existing to and including the Condition Satisfaction Date, except for any conditions which have temporarily caused any representations or warranties of the Company set forth in the Agreement to be incorrect and which have been corrected with no continuing impairment to the Company or Investor; and

2.           All of the Company’s conditions to Closing set forth in Section 7.2 of the Agreement have been satisfied as of the Condition Satisfaction Date.

Capitalized terms used herein shall have the meanings set forth in the Agreement unless otherwise defined herein.

IN WITNESS WHEREOF, the undersigned has hereunto affixed his hand as of the ___ day of ____________, 20__.

 

	  	
By:

	  
	  	  	
Barry C. Kaye, Chief Financial Officer

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