Document:

Exhibit 10.1

 

Exhibit
10.1

 

COLLABORATION
AGREEMENT

 

THIS
COLLABORATION AGREEMENT (“Agreement”) is made as of this 18th day of August 2014 (the “Effective
Date”), by and between Capsugel US, LLC and its Affiliates with an address at 412 Mt. Kemble Ave, Suite 200C, Morristown,
NJ 07960 (“CAPSUGEL”) and Cardax, Inc., and its Affiliates, with a corporate address at 2800 Woodlawn Dr.,
Suite 129, Honolulu, HI 96822 (“CARDAX”). CARDAX and CAPSUGEL are each a “Party” and together constitute
the “Parties”

 

RECITALS

 

WHEREAS,
CAPSUGEL is experienced in formulating, developing, manufacturing, testing and packaging of health and nutrition products;
and

 

WHEREAS,
CARDAX is experienced in developing products that are based on its astaxanthin technologies; and

 

WHEREAS,
CAPSUGEL and CARDAX desire to enter into an arrangement under which the Product (as defined below) will be formulated and developed
for the purpose of identifying a marketing partner(s) (“Marketer”) for Marketer’s onward sale of the
Product in the Territory.

 

NOW,
THEREFORE, the Parties hereto agree to the following:

 

SECTION
1

 

DEFINITIONS

 

The
following terms for the purpose of this Agreement shall have the following respective meanings:

 

1.1
“Active Ingredient” shall mean the synthetic Astaxanthin and/or esters thereof that will be formulated in the
Product as the active ingredient of the Product.

 

1.2
“Adjusted Net Sales” shall mean [***].

 

1.3
“Administrative Cost” shall mean [***].

 

1.4
“Affiliate” shall mean, with respect to either Party, all entities which, directly or indirectly, are controlled
by, control or are under common control with such Party. For purposes of this Agreement, the word “control” shall
mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an
entity, including through ownership of more than fifty percent (50%) of the voting shares or interest of an entity; provided,
however, with respect to CAPSUGEL, the term “Affiliate” shall be limited to entities who directly or indirectly through
one or more intermediaries are controlled by the parent of CAPSUGEL’s direct parent entity and with respect to CARDAX the
term “Affiliate” shall not include Cardax Pharmaceuticals, Inc.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   1

    	 

    

 

1.5
“Applicable Laws” shall mean all applicable laws, statutes, ordinances, codes, rules and regulations applicable
to the formulation, development and/or manufacture, marketing, distribution sale, and disposal of the Product or any aspect thereof
and the obligations of CAPSUGEL or CARDAX, as the context requires under this Agreement.

 

1.6
“Annual Period” shall mean the twelve (12) month period beginning on the first day in which the Launch Date
occurs and each twelve (12) month period beginning on the anniversary of such day thereafter.

 

1.7
“Commercially Reasonable Efforts” means a Party’s reasonable efforts and diligence, consistent with professional
business standards generally practiced in the health and nutrition industry, applied in accordance with the Party’s commercially
reasonable business, legal, medical and scientific judgment, including the efforts and resources the Party would use for a product
owned by it or to which it has rights, which is of similar market potential at a similar stage in its product life, taking into
account the competitiveness of the marketplace, the proprietary position of the compound, the Applicable Laws, the profitability
of the applicable products, and other relevant factors including, without limitation, technical, legal, scientific or medical
factors.

 

1.8
“Development Plan” shall have the meaning set forth in Section 2.1.

 

1.9
“Disclosing Party” shall have the meaning set forth in the Confidentiality Agreement.

 

1.10
“Formulation” means a specific combination of excipient(s) that can formulate the Active Ingredient, as well
as compounds other than the Active Ingredient, developed as a result of the work conducted under the Development Plan.

 

1.11
“Force Majeure” shall have the meaning set forth in Section 10.5.

 

1.12
“Indemnified Party” shall have the meaning set forth in Section 8.3.

 

1.13
“Indemnifying Party” shall have the meaning set forth in Section 8.3.

 

1.14
“Intellectual Property Rights” means a composition of matter, formula, process, method of use, invention, improvement,
business name, domain name or database right to the extent any of the foregoing is protected in a utility model, trademark, service
mark, trade name or business name, copyright, registered design, design right, patent, know-how, trade secret, rights in or to
confidential information all goodwill related thereto and any other intellectual property right of any nature whatsoever throughout
the world (whether registered or unregistered and including all applications and rights to apply for the same).

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   2

    	 

    

 

1.15
“Launch Date” shall mean the date [***].

 

1.16
“Loss or Losses” shall mean any and all damages, fines, fees, settlements, payments, obligations, penalties,
deficiencies, losses, costs and expenses, including, without limitation, environmental losses, interest, court costs, reasonable
fees of attorneys, accountants and other experts and other reasonable expenses of litigation or other proceedings or of any claim,
default or assessment.

 

1.17
“Manufacturing Facility” shall mean those areas of CAPSUGEL or CAPSUGEL’s subcontractors manufacturing,
packaging, laboratory and warehousing facilities utilized in the formulation, manufacture, packaging, storage, testing, shipping
or receiving of the Product.

 

1.18
“Materials” mean all excipient(s) and inactive raw materials used in the formulation of the Product. For the
avoidance of doubt, “Materials” does not include any Active Ingredient or work in process or finished goods inventory.

 

1.19
“Net Sales” means [***].

 

1.20
“Product” shall mean Active Ingredient Formulated in CAPSUGEL’s proprietary Lipid Multi-Particulate Technology,
including any improvements or derivatives of such technology.

 

1.21
“Receiving Party” shall have the meaning set forth in the Confidentiality Agreement.

 

1.22
“Regulatory Approvals” means any and all approvals, licenses, registrations, or authorizations of the relevant
Regulatory Authority, necessary for the development, manufacture, use, storage, import, transport, export or commercialization
of the Product in a particular country or jurisdiction.

 

1.23
“Regulatory Authority (ies)” means any governmental regulatory authority within a Territory involved in regulating
any aspect of the development, manufacture, testing, market approval, sale, distribution, packaging or use of the Product.

 

1.24
“Regulatory Filings” shall mean the registrations, permits, licenses, authorizations, presentations, notifications,
filings and/or approvals (together with all applications therefore and all related documents required by the FDA and all other
laws for the development, manufacture, use, importation, export, marketing, sale and distribution of the Product within the Territory.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   3

    	 

    

 

1.25
“Royalty Payment” shall have the meaning set forth in Section 5.1.

 

1.26
“Specifications” shall mean the Product description and attributes agreed upon between the Parties upon conclusion
of the Development Plan and appended to this Agreement as Exhibit B that will be attached hereto and, when attached, will
be a part hereof, prior to commercialization of the Product.

 

1.27
“Territory” shall mean worldwide.

 

Section
2

 

Product
Development, Manufacture and Commercialization

 

	2.1	Governance
    Process Among the Parties. Both CARDAX and CAPSUGEL will agree upon a development plan, which shall be in writing
    and attached hereto as Exhibit A (the “Development Plan”), which shall describe various parameters
    including each Party’s duties, obligations, time schedule and deliverables schedule. The activities performed under
    the Development Plan (the “Development Activities”) shall be administered by a joint project team (“JPT”),
    which shall review/update/amend the Development Plan for the Product in the Territory and coordinate the Formulation, development,
    manufacturing and commercialization of the Product, including identifying and selecting one or more Marketers as contemplated
    under Section 2.4. Each Party shall appoint a project manager to oversee that Party’s performance of its obligations under
    this Agreement and shall notify the other Party of the name and full contact details of its appointed project manager. The
    JPT shall comply with this Agreement for decisions specifically assigned to a Party pursuant to this Agreement. Meetings shall
    take place by telephone or in person and the JPT will operate by consensus. If consensus cannot be reached, the matter will
    be submitted to the Head of Dosage Form Solutions of CAPSUGEL and the President and CEO of CARDAX for resolution. If such
    matter is not resolved, then the Parties may attempt to mediate such issue under the JAMS mediation rules. No member or any
    Affiliate of any member of the JPT shall have any liability under this Agreement and shall be exculpated to the fullest extent
    not prohibited by law from any liability to any Party that such member is not an employee, officer, consultant or acting in
    any similar capacity.
	 	 
	2.2	CAPSUGEL
    Responsibilities. With respect to the Product, CAPSUGEL, [***] shall [***] perform the development work necessary
    to formulate, analytically develop and take all other developmental actions necessary or required to develop the Product and
    manufacture pre-clinical and clinical batches (collectively, the “CAPSUGEL Development Activities”). For
    purposes of further clarification, CAPSUGEL Development Activities shall include, without limitation, each of the following
    performed with all due diligence, care and skill and in accordance with all other Applicable Laws: 
	 	 

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   4

    	 

    

 

	 	(a)	Formulation
    Development. Formulation shall mean a specific combination of Materials that formulate the Active Ingredient, as well
    as compounds other than the Active Ingredient, developed as a result of the work conducted under the Development Plan. The
    development of the Formulation of the Product, includes without limitation, all stability tests and other studies as applicable,
    providing CARDAX reports of such stability tests, using Commercially Reasonable Efforts to modify the Formulation as necessary
    and develop processes capable of scale-up and commercialization in accordance with Applicable Laws.
	 	 	 
	 	(b)	Analytical
    Methods. Developing and validating analytical methods including but not limited to dissolution, assay, and stability as
    agreed upon by the Parties.
	 	 	 
	 	(c)	Manufacture
    of Study Batches. The manufacture [***] of batches of Product in amounts specified on or about the dates determined as
    reasonably necessary for conducting all required for CAPSUGEL/CARDAX funded studies. Any other batches required or reasonably
    required by the Marketer for applying for and all actions related to additional Regulatory Approvals and Regulatory Filings
    of the Product and any related communications, studies or support for the FDA or any other Regulatory Authority (ies), which
    may include human and animal studies, shall be paid for by the Marketer, unless the Parties agree otherwise.
	 	 	 
	 	(d)	Manufacturing
    Development. Development of manufacturing processes and systems in conformance with cGMP requirements of FDA to manufacture
    pilot batches, exhibit batches and commercial batches of Product.
	 	 	 
	 	(e)	Reporting.
    CAPSUGEL shall, throughout the performance of the Development Plan studies, consult with CARDAX on matters including technical,
    intellectual property and regulatory aspects and keep the other apprised of all developments.
	 	 	 
	 	(f)	Commercial
    Manufacturing. CAPSUGEL shall manufacture the Product for each Marketer unless otherwise agreed by the Parties and the
    applicable Marketer.

 

	2.3	CARDAX
    Responsibilities.

 

	 	(a)	CARDAX
    shall be responsible for [***] the Active Ingredient [***], subject to reasonable notice and delivery schedules and reasonable
    amounts required by CAPSUGEL for it to perform its obligations under this Agreement or as otherwise agreed by CARDAX.
	 	 	 
	 	(b)	[***]

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   5

    	 

    

 

	2.4	Joint
    Responsibilities.

 

[***]

 

The
marketing of the Product shall be carried out by one or more mutually identified Marketer(s) by the JPT or otherwise in accordance
with Section 2.1. CAPSUGEL and CARDAX will jointly control identification, decision rights, and terms for a Marketer as determined
by the JPT or otherwise in accordance with Section 2.1. If a Marketer is not identified, or the terms are not determined, by the
JPT or otherwise in accordance with Section 2.1, then the Marketer (and such terms) may be designated by either Party, subject
to the reasonable approval of the other Party.

  

Any
additional costs/activities required from a Marketer will be subject to agreement of the JPT or otherwise as provided in Section
2.1, including but not limited to pre-launch out-of-pocket expenses and the funding of such costs and expenses. These costs will
be shared [***].

 

	2.5	Ownership
    of Application. CARDAX shall own and control all information and rights in, to and under all Regulatory Approvals
    in the Territory (including all associated contents and correspondences) and applications therefore related to the Product
    and any other marketing authorizations within the Territory, unless otherwise mutually agreed upon by the Parties.

 

Section
3

 

Intellectual
Property Matters

 

3.1
Background IP. This Agreement shall not change, modify or otherwise affect any rights
to any confidential information, inventions, patents, patent applications or other Intellectual Property Rights owned or developed
by either Party before the Effective Date or developed by a Party after the Effective Date other than under the terms of this
Agreement (“Background IP”). This Agreement shall not confer on either Party
any rights in and/or to any Background IP of the other party, except as otherwise provided in this Agreement. 

 

3.2
CAPSUGEL Property. CARDAX acknowledges that CAPSUGEL possesses certain inventions,
processes, know-how, trade secrets, improvements, other intellectual properties and other assets, including but not limited to
formulation recipes, processing details, laboratory analyses, analytical methods, procedures and techniques, computer technical
expertise and software, which have been independently developed by CAPSUGEL, including but not limited to, the Background IP of
CAPSUGEL (collectively “Capsugel Property”). CARDAX and CAPSUGEL agree that
any Capsugel Property or improvements thereto which are used, improved, modified or developed by CAPSUGEL under or during the
term of this Agreement are the product of CAPSGUEL’s technical expertise possessed and developed by CAPSUGEL prior to the
Effective Date and are the sole and exclusive property of CAPSUGEL.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   6

    	 

    

 

 

3.3
CARDAX Property. CAPSUGEL acknowledges that CARDAX possesses certain inventions,
processes, know-how, trade secrets, improvements, other intellectual properties and other assets, which have been independently
developed by CARDAX, including but not limited to, the Background IP of CARDAX (collectively “CARDAX Property”).
CAPSUGEL and CARDAX agree that any CARDAX Property or improvements thereto which are used, improved, modified or developed by
CARDAX under or during the term of this Agreement are the product of CARDAX’s technical expertise possessed and developed
by CARDAX prior to the Effective Date and are the sole and exclusive property of CARDAX.

 

3.4
Use of Confidential Information. CARDAX may use the confidential information of CAPSUGEL generated under this Agreement,
except for CAPSUGEL’s internal technical protocols and Background IP, to the extent necessary (i) in connection with seeking
regulatory approval for a Compound Formulation or the Product and/or (ii) filing a patent application. “Compound Formulation”
means any specific combination of excipient(s) and the Active Ingredient developed as a result of the work conducted under
this Agreement. CARDAX may use and disclose CAPSUGEL’s internal technical protocols and Background IP, to the extent necessary
for Regulatory Approvals as contemplated by Section 2.3(b) to the extent reasonably determined by CAPSUGEL after notice and consultation
with CAPSUGEL by CARDAX.

 

3.5
Inventions. Each Party will own all of its inventions and other Intellectual Property Rights made under this Agreement,
including any patents, patent applications and other Intellectual Property Rights related to such inventions, if any, made solely
by its employees or independent contractors or employees or independent contractors of its Affiliates, unless otherwise expressly
set forth herein.

 

3.6
Joint Inventions. The Parties will jointly own all inventions and other Intellectual Property Rights jointly made under
this Agreement that are directly resulting from work conducted under this Agreement in accordance with the Development Plan and
related specifically to the Product or the Compound Formulation, including any patents, patent applications and other Intellectual
Property Rights related to such inventions, if any, unless otherwise expressly set forth herein. During the Term, each Party hereby
provides a worldwide, exclusive, royalty free, perpetual license of such Intellectual Property Rights for use by each licensee
in its business in connection with the development and marketing and commercialization of the Product. For avoidance of doubt,
no Party or any of its Affiliates shall have any rights to the Background IP of the other Party nor shall any Party have rights
to any trademarks, service marks, trade names, business names or product names developed by the other Party. All decisions regarding
the protection and exploitation of joint investments and other Intellectual Property Rights shall be determined by the JPT or
otherwise in accordance with Section 2.1.

 

3.7
[reserved] 

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   7

    	 

    

  

3.8
Freedom to Operate. CARDAX acknowledges that it shall be solely and fully responsible
to use its Commercially Reasonable Efforts for doing any and all freedom to operate assessments regarding possible infringement
of third party intellectual property rights for the Product in the part of the Territory that the Parties reasonably determine
require such protection; provided, however, each Party shall be solely and fully responsible for doing any and all freedom to
operate assessments regarding possible infringement of third party intellectual property rights for any and all of its Intellectual
Property Rights.

 

Section
4

 

Exclusivity

 

[***]

 

Section
5

 

Consideration

 

5.1
Royalty Payments. CAPSUGEL shall pay to CARDAX a royalty equal to [***]
of the Adjusted Net Sales (“Royalty Payment”) within [***] after
the end of [***]. 

 

5.2
Mode of Payment. CAPSUGEL will endeavor to contract with Marketer to receive profit sharing payments in U.S. dollars
and CAPSUGEL will in turn pay CARDAX its share in U.S. dollars. Should Marketer require that local currency based payments be
made to CAPSUGEL then CAPSUGEL will pay CARDAX its share in such local currency unless otherwise agreed. For instances in which
Marketer sells the product in a local currency other than U.S. dollars but agrees to pay CAPSUGEL in U.S. dollars, the conversion
of local currency to USD will be a mutually agreeable methodology with such Marketer (e.g., using the Marketer’s standard
accounting methodology such as its average daily rate for its accounting month).

 

5.3
Taxes. All federal, national, regional, district, local or other governmental income tax or similar tax that is imposed
on either Party as a result of income, shall be the responsibility of such Party. All amounts payable by CAPSUGEL to CARDAX under
this Agreement shall be paid free and clear of all deductions or withholdings whatsoever, except as may be required by law. If
any deductions or withholdings are required by law to be made from any of the amounts payable by CAPSUGEL to CARDAX, the amount
of any such withholding may be treated as part of the Royalty Payment, depending on the timing and the applicable legal requirements
and CAPSUGEL shall provide CARDAX a receipt of any such withholdings.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   8

    	 

    

 

Section
6

 

Regulatory
Requirements 

 

6.1
Regulatory Contacts. [***] CAPSUGEL shall notify CARDAX immediately, and in no event, no later than three (3) business
day(s), after it receives any contact or communication from any governmental or regulatory authority, including without limitation
the FDA, that in any way relates to or may have an impact on a Product or the CAPSUGEL Development Activities.

 

6.2
Regulatory Inspections. Throughout the Term of this Agreement, CAPSUGEL agrees to cooperate with any governmental or
regulatory body, particularly the FDA, which requests a general GMP inspection or audit or any inspection or audit relative to
the manufacture, storage, handling, or shipment of Product manufactured, stored, handled, or shipped by CAPSUGEL. In addition,
CAPSUGEL shall use its Commercially Reasonable Efforts to meet all reasonable U.S. FDA and other appropriate regulatory demands.

 

6.3
CARDAX Inspection. CARDAX shall have the right to audit CAPSUGEL’s facilities, quality systems and records from
time to time upon reasonable notice and CARDAX shall have the right to have a third party accounting firm, subject to a non-disclosure
agreement, audit CAPSUGEL’s financials as they relate to Net Sales and Adjusted Net Sales. In the event that the amount
of the Royalty Payment for any quarter is 10% or more than the amount reported by CAPSUGEL, then CAPSUGEL will pay the costs and
expenses of the audit or investigation.

 

6.4
Regulatory Notices. CAPSUGEL shall provide prompt written notice to CARDAX of the occurrence of, and the results of
any regulatory notices including inspections as referenced in this Section 6 relating to the manufacture of Product.

 

6.5
Recordkeeping. CAPSUGEL shall keep true, accurate, and complete books, records, reports, and accounts (hereinafter
“Records”) of all business or activities in connection with or relating to the manufacture, storage, handling,
and shipment, including all validations, qualification, and validation protocols, of Product and this Agreement. CARDAX has the
right, upon reasonable prior notice and during normal business hours, to inspect and examine such Records. CAPSUGEL agrees to
retain all such Records for a period of five (5) years after the expiration of the Term or after termination of this Agreement.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   9

    	 

    

 

6.6
Recall. In the event that either Party believes it may be necessary to conduct a recall, field correction, market withdrawal,
stock recovery, or other similar action with respect to any Product which was sold under this Agreement (a “Recall”),
CARDAX and CAPSUGEL shall promptly consult with each other in good faith as to how best to proceed, it being understood and agreed
that the final decision as to any Recall of any Product sold by Marketer(s) shall be made jointly; provided, however, that neither
Party shall be prohibited hereunder from taking any action that it is required to take by Applicable Law or taking Commercially
Reasonable Efforts to mitigate the loss from any Recall or seizure or to protect the public. Each of CAPSUGEL and CARDAX shall
make a permanent, complete and accurate record of all costs incurred by it in connection with any Product Recall or seizure. With
respect to any Recall or seizure of any Product caused by the negligence, mistake or omission of CAPSUGEL, CAPSUGEL shall (i)
reimburse CARDAX for all out-of-pocket costs and expenses reasonably incurred by CARDAX in connection with the Recall or seizure,
including, without limitation, replacing the Product subject to the Recall or seizure in accordance with this Agreement; and (ii)
as provided in Section 8.1, indemnify and save CARDAX and its Affiliates harmless from and against any and all damages to or claims
by third parties associated (or Affiliated) with or resulting from any such Recall or seizure. With respect to any Recall or seizure
caused by the negligence, mistake or omission of CARDAX (including but not limited to failure of the Active Ingredient to meet
the Specifications), CARDAX shall: (i) reimburse CAPSUGEL for all out-of-pocket costs and expenses reasonably incurred by CAPSUGEL
in connection with the Recall or seizure; and (ii) as provided in Section 8.2, indemnify and save CAPSUGEL and its Affiliates
harmless from and against any and all damages to or claims by third parties associated with or resulting from any such Recall
or seizure.

 

With
respect to any Recall or seizure of a Product not caused by the negligence, mistake or omission of either Party, each Party shall
bear [***] of the aggregate costs of any and all out-of-pocket costs, expenses and losses reasonably incurred by either Party
in connection with the Recall or seizure.

 

If
CAPSUGEL and CARDAX cannot agree which party is at fault or whether a Recall or seizure was reasonably beyond the control of the
Parties, then an independent technical expert, acceptable to both Parties, shall be designated to make such determination. The
designated technical expert shall not be an employee, consultant, officer, director or shareholder of, or otherwise associated
with, CAPSUGEL, CARDAX or their respective Affiliates. The technical expert’s determination will be, in the absence of fraud
or manifest error, binding and conclusive upon the Parties.

 

Each
Party shall keep the other fully informed of any notification or other information, whether received directly or indirectly, which
might affect the marketability, safety or effectiveness of a Product, or which might result in liability issues or otherwise necessitate
action on the part of either party, or which might result in Recall or seizure of the Product.

 

Prior
to any reimbursement pursuant to this Section 6 the Party claiming reimbursement shall provide the other Party with all available
documentation of all reimbursable costs and expenses.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   10

    	 

    

 

Section
7

 

Representations
and Warranties

 

7.1
Representations and Warranties of CAPSUGEL. CAPSUGEL hereby represents and warrants to CARDAX as follows:

 

	 	(a)	CAPSUGEL
    is a corporation in good standing under the laws of the jurisdiction of its organization and authorized to do business wherever
    necessary to fulfill the terms and conditions of this Agreement;
	 	 	 
	 	(b)	CAPSUGEL
    has the full power and authority to execute and deliver this Agreement and perform its covenants, duties and obligations described
    in this Agreement;
	 	 	 
	 	(c)	This
    Agreement is the valid, legal and binding obligation of CAPSUGEL, enforceable in accordance with its terms;
	 	 	 
	 	(d)	Neither
    the execution and delivery of this Agreement nor the performance of CAPSUGEL’s covenants, duties and obligations described
    in this Agreement constitute or will constitute a default under or conflict with any judgment, decree or order of any court
    or other governmental body to which CAPSUGEL is subject and will not conflict or be inconsistent with or result in the termination,
    modification, breach or default under the terms of any contract, commitment, covenant, agreement, instrument, document or
    understanding to which CAPSUGEL is a party;
	 	 	 
	 	(e)	CAPSUGEL
    is not a party to, nor to CAPSUGEL’s knowledge is CAPSUGEL as of the Effective Date threatened with, any legal or equitable
    action or proceeding before any court, arbitrator, administrative agency or other tribunal which is reasonably likely to adversely
    affect its ability to execute and deliver this Agreement or fully and timely perform its covenants, duties and obligations
    described in this Agreement;
	 	 	 
	 	(f)	CAPSUGEL
    has obtained and continuously maintained all permits, authorizations and licenses issued by all federal, state and local governmental
    agencies and authorities necessary for the conduct of CAPSUGEL’s businesses as of the Effective Date;
	 	 	 
	 	(g)	CAPSUGEL
    has and shall continue to follow, comply with and adhere to all Applicable Laws necessary for the conduct of CAPSUGEL’s
    businesses; 

 

CAPSUGEL
shall during the performance of the CAPSUGEL Development Activities ensure that, at all times, its employees, contractors, consultants,
sub-contractors carry out their duties with all reasonable skill and care customary for the type of scientific research and development
work covered by this Agreement and shall at all times comply with all applicable laws and regulations; record experimental data
and all other material information relating to the CAPSUGEL Development Activities in individual notebooks or other appropriate
formats and treat the same as Confidential Information; ensure that, at all times, its employees, contractors, consultants and
sub-contractors are fully aware of and comply with the confidentiality provisions of their respective contracts which, for the
avoidance of doubt, are comparable to the confidentiality provisions set out in this Agreement; keep CARDAX informed of the progress
of the CAPSUGEL Development Activities by providing bi-weekly written reports and such other interim reports or updates as CARDAX
may reasonably request.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   11

    	 

    

  

7.2
Representations and Warranties of CARDAX. CARDAX hereby represents and warrants to CAPSUGEL as follows:

 

	 	(a)	CARDAX
    is a corporation in good standing under the laws of the jurisdiction of its organization and authorized to do business wherever
    necessary to fulfill the terms and conditions of this Agreement;
	 	 	 
	 	(b)	CARDAX
    has the full power and authority to execute and deliver this Agreement and perform its covenants, duties and obligations described
    in this Agreement;
	 	 	 
	 	(c)	This
    Agreement is the valid, legal and binding obligation of CARDAX, enforceable in accordance with its terms;
	 	 	 
	 	(d)	Neither
    the execution and delivery of this Agreement nor the performance of CARDAX’s covenants, duties and obligations described
    in this Agreement constitute or will constitute a default under or conflict with any judgment, decree or order of any court
    or other governmental body to which CARDAX is subject and will not conflict or be inconsistent with or result in the termination,
    modification, breach or default under the terms of any contract, commitment, covenant, agreement, instrument, document or
    understanding to which CARDAX is a party;
	 	 	 
	 	(e)	CARDAX
    is not a party to, nor to CARDAX’s knowledge is CARDAX as of the Effective Date threatened with, any legal or equitable
    action or proceeding before any court, arbitrator, administrative agency or other tribunal which is reasonably likely to adversely
    affect its ability to execute and deliver this Agreement or fully and timely perform its covenants, duties and obligations
    described in this Agreement; and
	 	 	 
	 	(f)	CARDAX
    has obtained and continuously maintains all permits, authorizations and licenses issued by all federal, state and local governmental
    agencies and authorities necessary for the conduct of CARDAX’s businesses as of the Effective Date. 

 

Disclaimer.
THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT ARE THE PARTIES’ ONLY WARRANTIES AND NO OTHER WARRANTY, EXPRESS,
IMPLIED OR STATUTORY, WILL APPLY. EACH PARTY EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY,
INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. FOR THE AVOIDANCE OF DOUBT, EACH PARTY EXPRESSLY
DISCLAIMS ANY AND ALL WARRANTIES OF NON-INFRINGEMENT THAT ARE NOT EXPRESSLY SET FORTH IN THIS AGREEMENT.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   12

    	 

    

 

Section
8

 

Indemnification

 

8.1
CAPSUGEL’s Indemnification of CARDAX. CAPSUGEL shall indemnify, defend and hold CARDAX, its Affiliates and their
respective officers, directors, employees and agents harmless from and against any and all third party Losses suffered, incurred
or sustained by CARDAX or to which CARDAX becomes subject at any time, to the extent arising out of or resulting, directly or
indirectly, from: (a) any breach of CAPSUGEL’s representations, warranties or obligations under this Agreement; (b) any
personal injury, death or property damage caused by the possession, use, or consumption by any person of any Product that does
not comply with the Specification in any way or is the result of actions or inactions of CAPSUGEL in its manufacturing or is alleged
to result from any inherent risk of the Formulation or a defect in the Formulation; and (c) any other negligent act or omission
on the part of CAPSUGEL, its Affiliates or their respective employees or agents except, in each case, to the extent such claims
are attributable to the gross negligence or willful misconduct of CARDAX.

 

8.2
CARDAX’s Indemnification of CAPSUGEL. CARDAX shall indemnify, defend and hold CAPSUGEL, its Affiliates and their respective
officers, directors, employees and agents harmless from and against any and all third party Losses suffered, incurred or sustained
by CAPSUGEL or to which CAPSUGEL becomes subject at any time, to the extent arising out of or resulting, directly or indirectly,
from (a) any breach of CARDAX’s representations, warranties or obligations under this Agreement; (b) any personal injury,
death or property damage caused by the possession, use or consumption by any person of any Product supplied by CAPSUGEL under
this Agreement that does not comply with the Specifications as a result of actions or inactions of CARDAX or is alleged to result
from any inherent risk of the Product or a defect in the Active Ingredient; and (c) any other negligent act or omission on the
part of CARDAX, its Affiliates or their respective employees or agents except, in each case, to the extent such claims are attributable
to the gross negligence or willful misconduct of CAPSUGEL.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   13

    	 

    

 

8.3
Indemnification Process. If CARDAX, Affiliates or their respective employees, servants or agents, or CAPSUGEL, its
Affiliates or their respective employees, servants or agents (in each case an “Indemnified Party”), receive
any written claim which such Indemnified Party believes is the subject of indemnity hereunder by the other Party hereto (an “Indemnifying
Party”), the Indemnified Party shall, as soon as reasonably practicable after forming such belief, give notice thereof
to the Indemnifying Party, provided that the failure to give timely notice to the Indemnifying Party as contemplated hereby
shall not release the Indemnifying Party from any liability to the Indemnified Party unless the Indemnifying Party demonstrates
that the defense of such claim is prejudiced by such failure. The Indemnifying Party shall have the right, by prompt notice to
the Indemnified Party to assume the defense of such claim at its cost, with counsel reasonably satisfactory to the Indemnified
Party. If the Indemnifying Party does not so assume the defense of such claim or, having done so, does not diligently pursue such
defense, the Indemnified Party may assume the defense, with counsel of its choice, but at the cost of the Indemnifying Party.
If the Indemnifying Party so assumes the defense, it shall have absolute control of the litigation; the Indemnified Party may,
nevertheless, participate therein through counsel of its choice and at its cost. The Party not assuming the defense of any such
claim shall render all reasonable assistance to the Party assuming such defense, and out-of-pocket costs of such assistance shall
be for the account of the Indemnifying Party. No such claim shall be settled other than by the Party defending the same, and then
only with the consent of the other Party, which consent shall not be unreasonably withheld; provided that the Indemnified
Party shall have no obligation to consent to any settlement of any such claim which (i) imposes on the Indemnified Party
any liability or obligation which cannot be assumed or performed in full by the Indemnifying Party, (ii) does not unconditionally
release the Indemnified Party, (iii) does require a statement as to or an admission of fault, culpability or failure to act
by or on behalf of Indemnified Party or any of its Affiliates or (iv) does impose any restrictions on the conduct of business
by the Indemnified Party or its Affiliates.

 

8.4
Limitation of Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES
OR LOST PROFITS ARISING UNDER OR RELATING TO THIS AGREEMENT. Except in the event of (i) a Party’s gross negligence or willful
misconduct and/or (ii) a Party’s breach of its confidentiality obligation, the total liability of one Party to the other
Party (and its Affiliates) arising out of or in connection with this Agreement or the Products, whether in contract, tort (including
negligence), statute or otherwise, shall, to the maximum extent permitted by Applicable Law, be limited to the amount of revenues
it receives under this Agreement.

 

8.5
Insurance. During the Term and for a period of two (2) years after the termination of the Agreement or the expiry date
of the last batch manufactured whichever is later, thereafter, each Party shall obtain and maintain, at its sole expense adequate
product liability insurance for the Product as it reasonably deems necessary and appropriate. Evidence of coverage, in the form
of certificates of insurance, shall be provided promptly upon registration of the Product in given countries and as reasonably
requested thereafter.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   14

    	 

    

 

Section
9

 

Confidentiality
and Publicity

 

Confidentiality.
The Parties agree that the terms of the Confidentiality Agreement entered into between the parties dated Nov 19, 2013 shall govern
this Agreement.

 

Section
10

 

Term
and Termination

 

10.1
Term and Renewal. [***] In addition, any contract entered into by the Parties with a Marketer for the Product shall
survive termination of this Agreement in accordance with its terms, including any renewal rights provided therein.

 

10.2
Termination for Breach. A material breach that is subject to cure that is not cured within [***] of written notice
of breach shall be cause for termination, provided that if the breaching party is diligently pursuing in good faith the remedy
of the breach at the expiration of such [***] cure period, then such [***] cure period shall be extended for a reasonable period
to effect the cure. Upon any breach by CAPSUGEL, CARDAX shall be permitted to use all Intellectual Property of CAPSUGEL used in
the Formulation and the Product to the extent necessary for the development and marketing of the Product. Upon any breach by CARDAX,
CAPSUGEL shall be permitted to use all Intellectual Property of CARDAX used in the Active Ingredient and the Product to the extent
necessary for the development and marketing of the Product in accordance with the terms of this Agreement as of the date of such
termination.

 

10.3
Termination for Bankruptcy. This Agreement may be terminated by either Party, forthwith, or at any time thereafter
by notice to the other if the other becomes bankrupt or insolvent, or enters into liquidation whether compulsorily or voluntarily,
or convenes a meeting of its creditors, or has a receiver appointed over all or part of its assets, or ceases for any reason to
carry on business.

 

10.4
Development or Commercial Non-Viability.

 

In
the event that CAPSUGEL reasonably determines that the development of the Compound Formulation is not feasible with Commercially
Reasonable Efforts in accordance with the Development Plan, with such changes as reasonably requested by CAPSUGEL, then CAPSUGEL
may discontinue the development of the Compound Formulation and Product and terminate this Agreement, in which case, CARDAX shall
have the right to license the Intellectual Property Rights as provided in Section 4.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   15

    	 

    

 

In
the event that CARDAX reasonably determines that, with Commercially Reasonable Efforts by the Parties, the development of a Product
is not feasible due to any legal, or technical developments with respect to the Product, including but not limited to conflicts
of Intellectual Property Rights; withdrawal of a Product by a major regulatory agency for safety or efficacy reasons; or inability
of the Parties to produce a Product that passes FDA required biostudies, in which such developments make the Product nonviable
or that the Product is not acceptable to any applicable Marketer, then, CARDAX may elect to discontinue the development of the
Product and terminate this Agreement.

 

10.5
Termination for Force Majeure. Neither Party shall be liable to the other for default or delay in the performance of
any of its obligations under this Agreement if such default or delay shall be caused directly or indirectly by accident, fire,
flood, riot, war, terrorism, act of God, embargo, strike, failure or delay of normal source of supply of materials, or delay of
carriers, equipment failure or complete or partial shutdown of plant by any of the foregoing causes or other causes beyond its
reasonable control, including FDA action (“Force Majeure”).

 

10.6
No Waiver. The failure of either Party to terminate this Agreement by reason of the breach of any of its provisions
by the other Party shall not be construed as a waiver of the rights or remedies available for any subsequent breach of the terms
and provisions of this Agreement.

 

10.7
Property. In the event of termination of this Agreement for whatever cause, in addition to the other obligations of
the Parties hereunder, each Party shall return to the other Party or to the other Party’s designee no later than thirty
(30) days after the effective date of termination all of such other Party’s property, including all proprietary information,
in its possession, except to the extent required to be retained by law or to comply with such Party’s continuing obligations
hereunder.

 

10.8
Survival. The provisions of Sections 3.6, 4, 6, 8, 9 and 11 shall survive any termination of this Agreement.

 

Section
11

 

Miscellaneous

 

11.1
Dispute Resolution. This Agreement shall be governed by and interpreted in accordance under the laws of the State of
New York. Any dispute, controversy or claim arising out of this Agreement, or the breach, termination or invalidity thereof, shall
be discussed between the senior management of the Parties who will attempt to resolve the matter amicably. Any disputes which
cannot be resolved in this way within sixty (60) days of one Party notifying the other of the existence of a dispute shall be
finally settled before JAMS in accordance with the expedited arbitration procedures of JAMS. The arbitration shall be conducted
in English in New York, New York, USA. The costs of the arbitration payable to JAMS shall be funded equally by the parties, provided
that the prevailing party shall be reimbursed for such costs and expenses and its own actual out of pocket costs

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   16

    	 

    

 

11.2
Integration and Amendment. This Agreement, the Exhibits hereto contain the complete agreement between the Parties with
respect to the subject matter hereof. All previous and collateral agreements, representations, warranties, promises and conditions
relating to the subject matter of this Agreement are superseded by this Agreement. This Agreement may only be amended by a written
instrument duly executed by the Parties hereto.

 

11.3
Assignment. Neither Party may assign this Agreement without the prior written consent of the other Party; provided,
however that either Party may assign in connection with a merger or sale of all or substantially all of its stock or assets, provided
the assignee agrees to be bound by all of the terms and conditions of this Agreement.

 

11.4
Waiver. No waiver of any default by either Party shall be deemed to constitute a waiver of any subsequent default with
respect to the same or any other provision hereof. No waiver shall be effective unless made in writing with specific reference
to this Agreement and signed by a duly authorized representative of the Party granting the waiver.

 

11.5
Notice. Any notice or request expressly provided for or permitted under this Agreement shall be in writing, delivered
manually or by mail, e-mail, or facsimile and shall be deemed sufficiently given if and when received by the Party to be notified
at its address first set forth below, or if and when mailed by registered mail or certified mail, postage prepaid, addressed to
such Party at such address, or upon delivery confirmation. Either Party, by notice to the other, may change its address for receiving
such notices.

 

 

	If
    to CAPSUGEL:	CAPSUGEL
    US, LLC
	 	412
    Mt. Kemble Ave. Suite 200C
	 	Morristown,
    NJ 07960 USA
	 	Attn:
    President, Dosage Form Solutions
	Telephone:	[***]
	Facsimile:	[***]
	E-mail:	[***]
	 	 
	With
    a copy to 	CAPSUGEL
    US, LLC
	 	412
    Mt. Kemble Ave. Suite 200C
	 	Morristown,
    NJ 07960 USA
	 	Attn:
    General Counsel
	Telephone:	[***]
	Facsimile:	[***]
	E-mail:	[***]

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   17

    	 

    

 

 

	If
    to CARDAX:	CARDAX,
    Inc.
	 	2800
    Woodlawn Dr., Suite 129
	 	Honolulu,
    HI 96822
	 	Attn:
    President and CEO
	Telephone:	[***]
	Facsimile:	[***]
	E-mail:	[***]
	 	 
	With
    a copy to	 Herrick,
    Feinstein LLP
	 	2
    Park Avenue
	 	New
    York, NY 10016
	 	Attn:
    Richard M. Morris
	Telephone:	[***]
	Facsimile:
    	[***]
	E-mail:	[***]

 

11.6
Severability of Provisions. Each provision of this Agreement shall be treated as a separate and independent clause,
and the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses herein. Moreover,
if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope,
activity, subject or otherwise so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate
judicial body or arbitration panel by limiting or reducing such provision or provisions, so as to be enforceable to the maximum
extent allowable under the applicable law as such law shall then be.

 

11.7
Independent Contractors. Each Party hereto shall be an independent contractor of the other. Neither Party shall be
the legal agent of the other for any purpose whatsoever and therefore has no right or authority to make or underwrite any promise,
warranty or representation, to execute any contract or otherwise to assume any obligation or responsibility in the name of or
on behalf of the other Party, except to the extent specifically authorized in writing by the other Party. Neither Party shall
be bound by or liable to any third persons for acts or obligations or debts incurred by the other toward such third party, except
to the extent specifically agreed to in writing by the Party to be so bound. This Agreement shall not create a partnership or
other similar arrangement.

 

11.8
Announcement. The Parties agree to coordinate external communications (e.g. joint press release) regarding this collaboration.

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   18

    	 

    

 

11.9
Headings; Interpretation. The section headings contained in this Agreement are for convenience of reference only, do
not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the
context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “but not limited to.”
All references herein to Sections, Sections and Exhibits shall be deemed references to Sections and Sections of, and Exhibits
to, this Agreement unless the context shall otherwise require. All Exhibits attached to this Agreement shall be deemed incorporated
herein by reference as if fully set forth herein. Words such as “herein,” “hereof,” “hereto,”
“hereby” and “hereunder” refer to this Agreement and to the Exhibits, taken as a whole. Except as otherwise
expressly provided herein: (a) any reference in this Agreement to any agreement shall mean such agreement as amended, restated,
supplemented or otherwise modified from time to time; (b) any reference in this Agreement to any law shall include corresponding
provisions of any successor law and any regulations and rules promulgated pursuant to such law or such successor law; and (c) all
terms of an accounting or financial nature shall be construed in accordance with generally accepted accounting principles, as
in effect in the United States from time to time.

 

11.10
Counterparts. This Agreement may be executed by the Parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original and all of which counterparts taken together shall constitute but one and the
same instrument.

 

*
* * Signature Page Follows * * *

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   19

    	 

    

 

IN
WITNESS WHEREOF, the Parties have caused this this Agreement to be executed by their respective duly authorized representatives
as of the day and year first above written.

 

CAPSUGEL
US, LLC

 

	By:
    	/s/
    Amit Patel	 
	Name:
    	Amit
    Patel	 
	Title:	President,
    Dosage Form Solutions	 

 

CARDAX,
INC. 

 

	By:	/s/
    David G. Watumull	 
	Name:	David
    G. Watumull	 
	Title:	President
    and CEO	 

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   20

    	 

    

 

EXHIBIT
A

 

DEVELOPMENT
PLAN

 

[***]

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   21

    	 

    

 

EXHIBIT
B

 

SPECIFICATIONS

 

As provided
in Section 1.26, to be provided upon conclusion of the Development Plan

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   22

    	 

    

 

EXHIBIT
C

 

[***]

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   23

    	 

    

 

EXHIBIT
D

 

MASS
MARKET CHANNELS

 

[***]

 

    	CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
   24exhibit_10-1.htm

EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this "Agreement') is dated as of August 14, 2014, by and among Torchlight Energy Resources, Inc., a Nevada corporation (the "Company"), and Castleton Commodities Opportunities Master Fund L.P., whose address is 2200 Atlantic Street, Suite 800, Stamford, Connecticut 06902-6834 (the "Purchaser").

 

RECITALS

 

A.           The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 of Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "Commission") under the Securities Act.

 

B.           Purchaser wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement (i) 860,000 shares of its common stock, par value $.001 per share of the Company at a purchase price of $3.50 per share (the "Common Stock" or "Shares") and (ii) Five Year Purchase Warrants in the form as annexed hereto as Exhibit A (the "Warrants") to purchase: (a) 700,000 shares of common stock of the Company at an exercise price of $4.50 per share, and (b) 700,000 shares of common stock of the Company at an exercise price of $7.00 (collectively, the "Warrant Shares").

 

C.           The Shares, Warrants and Warrant Shares are sometimes collectively referred to herein as the "Securities."

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser hereby agree as follows:

 

ARTICLE 1

 

PURCHASE AND SALE

 

1.1          Sale of the Securities.

 

Subject to the terms and conditions set forth in this Agreement, at the Closing, the Purchaser shall purchase and the Company shall sell and issue to Purchaser, 860,000 shares of common stock of the Company and shall issue to the Purchaser Five Year Purchase Warrants to purchase (a) 700,000 shares of common stock of the Company at an exercise price of $4.50 per share, and (b) 700,000 shares of common stock of the Company at an exercise price of $7.00, free and clear of all encumbrances, and shall deliver to Purchaser stock certificates representing the common stock.

 

1.2          Purchase Price

 

As consideration for purchase of the Common Stock, Purchaser shall pay to the Company a total aggregate consideration of $3,010,000.00 (the "Purchase Price") and shall receive, in addition, Five Year Purchase Warrants to purchase 1,400,000 shares of its common stock. The Purchase Price shall be payable at Closing by cashier's check, certified funds or wire transfer to the Company.

 

 

  

  

  

 

  ARTICLE 2 

 

CLOSING

 

2.1           Closing. The closing of the transactions contemplated by this Agreement shall take place on August 14, 2014 (the "Closing Date") at the offices of the Company, 5700 W. Plano Parkway, Suite 3600, Plano, Texas 75903, or at such other time and place as agreed upon by the parties hereto (the "Closing").

 

2.2           Delivery and Execution. At the Closing:

 

(a)      the Company shall deliver to Purchaser stock certificates evidencing the Shares of the Company, with restrictive legend, free and clear of any liens, claims, equities, charges, options, rights of first refusal or encumbrances, against delivery by the Purchaser to the Company of payment in an amount equal to the Purchase Price of the Shares being purchased by the Purchaser in the manner set forth herein; and

 

(b)      the Company shall issue the Warrants to purchase (a) 700,000 shares of common stock of the Company at an exercise price of $4.50 per share, and (b) 700,000 shares of common stock of the Company at an exercise price of $7.00.

 

ARTICLE 3

 

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchaser, as of the date hereof as follows:

 

(a)          Subsidiaries. The Company has no direct or indirect Subsidiaries other than Torchlight Energy, Inc., a Nevada corporation, and Torchlight Energy Operating, LLC, a Texas LLC.

 

(b)          Organization and Qualification. The Company is an entity duly incorporated, validly existing and in good standing under the laws of the State of Nevada, with the requisite corporate power and authority to own or lease and use its properties and assets and to carry on its business as currently conducted. The Company is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not have a Material Adverse Effect on the Company. "Material Adverse Effect" means any effect on the business, results of operations, prospects, assets or condition (financial or otherwise) of the Company that is material and adverse to the Company.

 

(c)          Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and the Five Year Purchase Warrant Agreement (the "Transaction Documents") and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents to which it is a party by the Company and the consummation by it of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Securities) have been duly authorized by all necessary corporate action on the part of the Company. Each of the Transaction Documents to which it is a party has been duly executed by the Company and is, or when delivered in accordance with the terms hereof, will, constitute the legal, 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, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application or insofar as indemnification and contribution provisions may be limited by applicable law.

 

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(d)          No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents to which it is a party and the consummation by the Company of the transactions contemplated hereby or thereby (including, without limitation, the issuance of the Securities) do not and will not (i) conflict with or violate any provisions of the Company's certificate of incorporation or bylaws or otherwise result in a violation of the organizational documents of the Company, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any material contract or (iii) subject to the Required Approvals, result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations and the rules and regulations, assuming the correctness of the representations and warranties made by the Purchaser herein, of any self-regulatory organization to which the Company or its securities are subject, including all applicable Trading Markets), or by which any property or asset of the Company is bound or affected, except in the case of clause (ii) and clause (iii) such as would not individually have a Material Adverse Effect.

 

(e)          Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents (including the issuance of the Securities), other than (i) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, (ii) the filing of any requisite notices and/or application(s) to the Principal Trading Market for the issuance of the Shares and the listing of the Shares for trading or quotation, as the case may be, thereon in the time and manner required thereby, and (iii) any filings required in accordance with Form 8-K of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (collectively, the "Required Approvals").

 

(f)          Issuance of the Securities. The Securities have been duly authorized and, when issued and paid for in accordance with the terms of the Transaction Documents, will be duly and validly issued, fully paid and nonassessable and free and clear of all Liens suffered or permitted by the Company, other than restrictions on transfer provided for in the Transaction Documents or imposed by applicable securities laws, and shall not be subject to preemptive or similar rights.

 

(g)         Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock, options and other securities of the Company has been set forth in the SEC Reports (as hereinafter defined) and has changed since the date set forth in the most recently filed of the SEC Reports, and may change thereafter to reflect stock issuances, convertible debt conversions, stock option exercises and grants and warrant exercises and grants which will not, individually or in the aggregate, have a material affect on the issued and outstanding capital stock, options and other securities of the Company.

 

(h)         SEC Reports. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for twelve (12) months preceding and including the date hereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the "SEC Reports").

 

 

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(i)          Financial Statements. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries taken as a whole as of and for 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.

 

(j)         Tax Matters. The Company (i) has prepared and filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, with respect to which adequate reserves have been set aside on the books of the Company and (iii) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply, except where the failure to so pay or file or set aside provisions for any such tax, assessment, charge or return would not have a Material Adverse Effect.

 

(k)         Material Changes. Since the date of the latest financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, there have been no events, occurrences or developments that have had or would reasonably be expected to have a Material Adverse Effect.

 

(l)          Environmental Matters. To the Company's Knowledge, the Company (i) is not  in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "Environmental Laws"), (ii) does not own or operate any real property contaminated with any substance that is in violation of any Environmental Laws, (iii) is not liable for any off-site disposal or contamination pursuant to any Environmental Laws, and (iv) is not subject to any claim relating to any Environmental Laws; which violation, contamination, liability or claim has had or would have a Material Adverse Effect; and there is no pending or, to the Company's Knowledge, threatened investigation that might lead to such a claim. "Company's Knowledge" or "Knowledge" means with respect to any statement made to the knowledge of the Company, that the statement is based upon the actual knowledge of the officers of the Company who, as of the date hereof, have responsibility for the matter or matters that are the subject of the statement.

 

(m)        Litigation. There is no action which adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities. Except as disclosed in the SEC Reports, there are no pending actions, suits or proceedings against or affecting the Company or any of its properties; and to the Company's Knowledge, no such actions, suits or proceedings are threatened or contemplated against the Company that reasonably could, if there were an unfavorable decision, have a Material Adverse Effect.

 

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(n)          Employment Matters. No material labor dispute exists or, to the Company's Knowledge, is imminent with respect to any of the employees of the Company which would have a Material Adverse Effect. None of the Company's employees is a member of a union that relates to such employee's relationship with the Company, and the Company is not a party to a collective bargaining agreement, and the Company believes that its relationship with its employees is good.

 

(o)          Compliance. The Company (i) is not in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company), nor has the Company received written notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other material contract (whether or not such default or violation has been waived), (ii) is not in violation of any order of any court, arbitrator or governmental body having jurisdiction over the Company or its properties or assets.

 

(p)          Regulatory Permits. The Company possesses all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct its business as described in the SEC Reports, except where the failure to possess such permits has not had and would not have a Material Adverse Effect ("Material Permits"), and (i) the Company has not received any notice of proceedings relating to the revocation or modification of any such Material Permits and (ii) the Company has no Knowledge of any facts or circumstances that the Company would reasonably expect to give rise to the revocation or modification of any Material Permits.

 

(q)          Title to Assets. The Company does not own any real property, except for interests in oil or gas properties that may be deemed real property under state law. Except as disclosed in the SEC Reports, the Company has good and marketable title to all tangible personal and real property owned by it which is material to the business of the Company, in each case free and clear of all Liens except such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and except for Liens for the payment of federal, state or other taxes for which appropriate reserves have been made in accordance with GAAP and the payment of which is not delinquent or subject to penalties. Any real property and facilities held under lease by the Company are held by it under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made of such property and buildings by the Company.

 

(r)          Intellectual Property. To the Company's Knowledge, the Company or its Subsidiaries owns, possesses, licenses or has other rights to use all foreign and domestic patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, technology and other proprietary rights and processes (collectively, the "Intellectual Property") necessary for the conduct of its businesses as now conducted and which the failure to so own, possess, license or have other rights to use would not have a Material Adverse Effect. Except where any such violations or infringements would not have a Material Adverse Effect, to the Company's Knowledge (i) the Company's or its Subsidiaries' use of any such Intellectual Property in the conduct of its business as presently conducted does not infringe upon the rights of any third parties; (ii) there is no infringement by third parties of any such Intellectual Property; (iii) there is no pending or threatened action challenging the Company's rights in or to any such Intellectual Property; (iv) there is no pending or threatened action challenging the validity or scope of any such Intellectual Property; and (v) there is no pending or threatened action that the Company infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others.

 

(s)        Insurance. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company believes to be prudent in the businesses and locations in which the Company is engaged. The Company has not received any notice of cancellation of any such insurance, nor does the Company have any Knowledge that it will be unable to renew its existing insurance coverage for the Company as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

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(t)          No Directed Selling Efforts or General Solicitation. Neither the Company nor, to its knowledge, any Person acting on its behalf has conducted any "general solicitation" or "general advertising" (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities.

 

(u)          Listing and Maintenance Requirements. The Company's Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to terminate the registration of its common stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.

 

(v)          Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its SEC Reports and is not so disclosed or that otherwise would have a Material Adverse Effect.

 

(w)          No Additional Agreements. The Company does not have any agreement or understanding with the Purchaser with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.

 

3.2          Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company as of the date hereof as follows:

 

(a)          Organization; Authority. Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The execution, delivery and performance by Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary partnership action on the part of Purchaser. Each Transaction Document to which it is a party has been duly executed by Purchaser, and when delivered by Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of Purchaser, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application or insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b)          No Conflicts. The execution, delivery and performance by Purchaser of the Transaction Documents to which it is a party and the consummation by Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of Purchaser, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which Purchaser is a party or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to Purchaser, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the ability of Purchaser to perform its obligations hereunder.

 

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(c)          Investment Intent. Purchaser understands that the Securities are "restricted securities" and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to, or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities laws, provided, however, that by making the representations herein, Purchaser does not agree to hold any of the Securities for any minimum period of time and reserves the right, subject to the provisions of this Agreement, at all times to sell or otherwise dispose of all or any part of such Securities pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws. Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Purchaser does not presently have any agreement, plan or understanding, directly or indirectly, with any Person to distribute or effect any distribution of any of the Securities (or any securities which are derivatives thereof) to or through any person or entity; Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act or an entity engaged in a business that would require it to be so registered as a broker-dealer.

 

(d)          Purchaser Status. At the time Purchaser was offered the Securities, it was, and at the date hereof it is, an "accredited investor" as defined in Rule 501(a) under the Securities Act.

 

(e)          Rule 144. Purchaser understands that the Securities must be held indefinitely unless such Securities are registered under the Securities Act or an exemption from registration is available. Purchaser acknowledges that such person is familiar with Rule 144 of the rules and regulations of the Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"), and that Purchaser has been advised that Rule 144 permits resales only under certain circumstances. Purchaser understands that to the extent that Rule 144 is not available, Purchaser will be unable to sell any Securities without either registration under the Securities Act or the existence of another exemption from such registration requirement.

 

(f)          General Solicitation. Purchaser acknowledges that the Securities were not offered to Purchaser by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which Purchaser was invited by any of the foregoing means of communications.

 

(g)          Experience of Purchaser. Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. Purchaser acknowledges that an investment in the Securities is speculative and involves a high degree of risk.

 

(h)          Access to Information. Purchaser acknowledges that it has had the opportunity to and has reviewed the SEC Reports and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed decision with respect to its acquisition of the Securities.

 

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(i)          Certain Trading Activities. Other than with respect to the transactions contemplated herein, since the time that Purchaser was first contacted by the Company or any other Person regarding the transactions contemplated hereby, neither the Purchaser nor, to the knowledge of Purchaser, any Affiliate of Purchaser which (i) had knowledge of the transactions contemplated hereby, (ii) has or shares discretion relating to Purchaser's investments or trading or information concerning Purchaser's investments, including in respect of the Securities and (iii) is subject to Purchaser's review or input concerning such Affiliate's investments or trading (collectively, "Trading Affiliates") has directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with Purchaser or Trading Affiliate, effected or agreed to effect any transactions in the securities of the Company (including, without limitation, any Short Sales involving the Company's securities). Other than to other Persons party to this Agreement, Purchaser has maintained the confidentiality of all disclosures made to it in connection with the transactions contemplated hereby (including the existence and terms of such transactions).

 

(j)          Independent Investment Decision. Purchaser has independently evaluated the merits of its decision to purchase Securities pursuant to the Transaction Documents. Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Purchaser in connection with the purchase of the Securities constitutes legal, tax or investment advice. Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities.

 

(k)         Reliance on Exemptions. Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and Purchaser's compliance with, the representations, warranties, agreements, acknowledgements and understandings of Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of Purchaser to acquire the Securities.

 

(l)          No Governmental Review. Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

 

(m)        Regulation M. Purchaser is aware that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of Common Stock and other activities with respect to the Common Stock by the Purchaser.

 

(n)         Residency. Purchaser's principal executive offices are in the jurisdiction set forth immediately below Purchaser's name on the applicable signature page attached hereto.

 

The Company and the Purchaser acknowledge and agree that no party to this Agreement has made or makes any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Article III and the Transaction Documents.

 

 

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ARTICLE 4

 

OTHER AGREEMENTS OF THE PARTIES

 

 

 4.1           Transfer Restrictions.

 

(a)          Compliance with Laws. Notwithstanding any other provision of the Transaction Documents, Purchaser covenants that the Securities may be disposed of only pursuant to an effective registration statement under, and in compliance with the requirements of, the Securities Act, or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with any applicable state and federal securities laws. In connection with any transfer of the Securities other than pursuant to an effective registration statement, the Company may require the Purchaser to provide to the Company an opinion of counsel, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.

 

(b)          Legends. Certificates evidencing the Securities shall bear the following restrictive legend in substantially the following form until such time as they are not required under applicable securities laws (and a stock transfer order may be placed against transfer of the certificates for the Securities):

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT'), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY.

 

(c)          Acknowledgement. Purchaser hereunder acknowledges its primary responsibilities under the Securities Act and accordingly will not sell or otherwise transfer the Securities or any interest therein without complying with the requirements of the Securities Act. Only if there is an effective registration statement registering the Shares or the Warrant Shares under the Securities Act or an exemption from registration is available, may Purchaser hereunder sell the Shares or the Warrant Shares. Purchaser acknowledges that the delivery of the Securities and any removal of any legends from certificates representing the Shares or the Warrant Shares as set forth in this Section 4.1 is predicated on the Company's reliance upon the Purchaser's acknowledgement in this Section 4.1(c).

 

4.2           Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of its common stock.

 

4.3           Furnishing of Information. In order to enable the Purchaser to sell the Securities under Rule 144 of the Securities Act, for a period of one year from the Closing Date, the Company shall use its commercially reasonable efforts to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. During such one year period, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchaser and make publicly available in accordance with Rule 144(c) such information as is required for the Purchaser to sell the Shares and the Warrant Shares under Rule 144.

 

 

 

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4.4           Indemnification.

 

(a)         Indemnification of the Purchaser. Subject to this Section 4.4, the Company will indemnify and hold the Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling Person (the "Purchaser Party") harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys' fees and costs of investigation that any Purchaser Party may suffer or incur, as a result of or relating to third party claims against Purchaser relating to any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents. The Company will not be liable to any Purchaser Party under this Agreement to the extent, but only to the extent that a loss, claim, damage or liability is attributable to the Purchaser Party's breach of any of the representations, warranties, covenants or agreements made by the Purchaser Party in this Agreement or in the other Transaction Documents.

 

(b)          Conduct of Indemnification Proceedings. Promptly after receipt by any Person (the "Indemnified Person") of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 4.4(a), such Indemnified Person shall promptly notify the Company in writing and the Company shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person and the assumption of the payment of all fees and expenses; provided, however, that the failure of any Indemnified Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is actually and materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel; (ii) the Company shall have failed promptly to assume the defense of such proceeding and to employ counsel reasonably satisfactory to such Indemnified Person in such proceeding; or (iii) in the reasonable judgment of counsel to such Indemnified Person and counsel to the Company, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, delayed or conditioned. Without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, delayed or conditioned, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is a party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such Proceeding.

 

4.5           Listing of Securities. In the time and manner required by the Principal Trading Market, the Company shall prepare and file with such Trading Market any additional share listing application that may be required by such Trading Market covering all of the Shares and shall use its commercially reasonable efforts to take all steps necessary to maintain, so long as any other shares of common stock shall be so listed, such listing.

 

4.6           Use of Proceeds. The Company intends to use the net proceeds from the sale of the Securities hereunder for working capital and general corporate purposes, which includes, without limitation, drilling capital, lease acquisition capital and repayment of prior debt.

 

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 4.7           Limitations on Exercise of Warrant. The Company shall comply, inter alia, with the provisions of paragraph 3(f) of the Warrants (the "Blocker Provisions"), and each of the Purchaser and the Company confirm that the Blocker Provisions constitute a material inducement to the Purchaser in connection with, part of the negotiations between the Purchaser and the Company related to, and consideration for, the purchase of the Shares and Warrants. The Company (i) irrevocably waives the right to commence or maintain any challenge or action to invalidate the Blocker Provisions, whether derivative or otherwise, (ii) will cause each of its directors, officers, employees or agents not to commerce or maintain any challenge or action to invalidate the Blocker Provisions, whether derivative or otherwise, and (iii) will indemnify the Purchaser for any loss, damage, cost or expense (including reasonable defense costs) arising out of or in any way relating to any challenge or action to invalidate the Blocker Provisions, whether derivative or otherwise. Any failure of the Company to comply with the Blocker Provisions or the provisions of this Section 4.7 shall entitle the Purchaser to equitable remedies, including specific performance and injunctive relief.

 

ARTICLE 5

 

REGISTRATION RIGHTS OF PURCHASER

 

If at any time when there is not an effective registration statement covering the resale of the Shares or the shares of common stock underlying the Warrant Shares, the Company shall determine to prepare and file with the Securities and Exchange Commission a registration statement (other than any registration statement filed prior to the Closing Date which is not effective) relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, the Company shall send to the holder of the Shares or the Warrant Shares written notice of such determination and, if within seven (7) days after receipt of such notice, or within such shorter period of time as may be specified by the Company in such written notice as may be necessary for the Company to comply with its obligations with respect to the timing of the filing of such registration statement, any such holder will so request in writing (which request will specify which Shares or Warrant Shares are intended to be disposed of by the holder), the Company will cause the registration under the Securities Act of such Shares or Warrant Shares which the Company has been so requested to register by the holders, to the extent requisite to permit the disposition of such shares to be registered, provided that if at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any securities in connection with such registration, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any securities being registered. The Company shall include in such registration statement all such Shares or Warrant Shares that such holder requests to be registered; provided, however, that the Company will not be required to register any securities that are eligible for sale pursuant to Rule 144 of the Securities Act.

 

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ARTICLE 6

 

MISCELLANEOUS

 

6.1           Fees and Expenses. The Company and the Purchaser shall each pay the fees and expenses of their respective advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party in connection with the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and issuance of the Securities to the Purchaser.

 

6.2           Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter thereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. At or after the Closing, and without further consideration, the Company and the Purchaser will execute and deliver to the other such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.

 

6.3          Notices. Any notices or other communications required or permitted hereunder shall be sufficiently given if in writing and delivered in person or sent by registered or certified mail (return receipt requested) or nationally recognized overnight delivery service, postage pre-paid, addressed as follows, or to such other address has such party may notify to the other parties in writing:

 

	
If to the Company:

 

	
Torchlight Energy Resources, Inc. 

5700 Plano Parkway, Suite 3600 

Plano, Texas 75093

Telephone No.: (214) 432-8002 

Facsimile No.: (214) 432-8005 

Attention: John Brda, President

 

	If to Purchaser:	
Castleton Commodities International, LLC 

2200 Atlantic Street, Suite 800 

Stamford, CT 06902-6834

Facsimile No.: (203) 564-8217

Attention: General Counsel

 

A notice or communication will be effective (i) if delivered in person or by overnight courier, on the business day it is delivered and (ii) if sent by registered or certified mail, three (3) business days after dispatch.

 

6.4           Amendments; Waivers. Neither this Agreement nor any provision hereof may be amended, modified or supplemented unless in writing, executed by all the parties hereto. Except as otherwise expressly provided herein, no waiver with respect to this Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought. Except as otherwise expressly provided herein, no failure to exercise, delay in exercising, or single or partial exercise of any right, power or remedy by any party, and no course of dealing between or among any of the parties, shall constitute a waiver of, or shall preclude any other or further exercise of, any right, power or remedy.

 

6.5           Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 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. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

 

Page 12 — Securities Purchase Agreement

  

  

  

 

6.6            Successors and Assigns. The provisions of this Agreement shall inure to the benefit of and be binding upon the parties and their successors and permitted assigns. This Agreement, or any rights or obligations hereunder, may not be assigned by the Company without the prior written consent of the Purchaser (other than by merger or consolidation or to an entity which acquires the Company, including by way of acquiring all or substantially all of the Company's assets). The Purchaser may assign its rights hereunder in whole or in part to any Person to whom Purchaser assigns or transfers any Securities in compliance with the Transaction Documents and applicable law, provided such transferee shall agree in writing to be bound, with respect to the transferred Securities, by the terms and conditions of this Agreement that apply to the Purchaser.

 

6.7           No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

6.8           Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas, without regard to the principles of conflicts of law thereof. Each party agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the Dallas Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Dallas Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such Dallas Court, or that such proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

 

6.9           Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities for a period of one (1) year from the Closing Date. The agreements and covenants contained herein shall survive for the applicable statute of limitations.

 

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

 

6.11         Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor and achieves that same or substantially the same effect or result, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

 

Page 13 — Securities Purchase Agreement

 

 

  

  

  

 

6.12         Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company and the Transfer Agent of such loss, theft or destruction and the execution by the holder thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and hold harmless the Company and the Transfer Agent for any losses in connection therewith or, if required by the Transfer Agent, a bond in such form and amount as is required by the Transfer Agent. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. If a replacement certificate or instrument evidencing any Securities is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

 

6.13         Exhibits Not Attached Any exhibits not attached hereto on the date of execution of this Agreement shall be deemed to be and shall become a part of this Agreement as if executed on the date hereof upon each of the parties initialing and dating each such exhibit, upon their respective acceptance of its terms, conditions and/or form.

 

6.14         Independent Counsel. Purchaser acknowledges that: (a) it has read this Agreement; (b)

it has been represented in the preparation, negotiation and execution of this Agreement by legal counsel of its own choice or has voluntarily declined to seek such counsel; and (c) it understands the terms and consequences of this Agreement and is fully aware of the legal and binding effect of this Agreement.

 

6.15        Gender. All personal pronouns used in this Agreement shall include the other genders, whether used in the masculine, feminine or neuter gender and the singular shall include the plural and vice versa, wherever appropriate.

 

[SIGNATURES ON FOLLOWING PAGE]

 

 

 

Page 14 — Securities Purchase Agreement

  

  

  

 

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

 

 

	 	
 TORCHLIGHT ENERGY RESOURCES, INC.

	 
	 	 	 
	 	 	 
	 	 By: /s/ John Brda	 
	 	 Name: John Brda	 
	 	 Title: President	 
	 	 	 
	 	 	 
	 	 CASTLETON COMMODITIES OPPORTUNITIES MAST FUND L.P.	 
	 	 By: Castleton Commodities Advisors LLC	 
	 	 It's Authorized Representative	 
	 	 	 
	 	 By: /s/ David A. Wallace	 
	 	 Name: David A. Wallace	 
	 	 Title: Executive Vice President	 

 

 

INVESTMENT AMOUNT:

 

$3,010,000.00

 

NUMBER OF SHARES OF  

COMMON STOCK OF 

THE COMPANY PURCHASED:

 

860,000

 

NUMBER OF FIVE YEAR 

PURCHASE WARRANTS TO  

PURCHASE SHARES OF COMMON

STOCK OF THE COMPANY:

 

1,400,000

 

 

Page 15 — Securities Purchase Agreement

 

 

  

  

  

 

 

EXHIBITS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page 16 — Securities Purchase Agreement

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