Exhibit 10.1

 

SUBSCRIPTION AGREEMENT

 

This SUBSCRIPTION AGREEMENT (this “Agreement”) is dated as of January 29, 2018
by and among Innovate Biopharmaceuticals, Inc., a Delaware corporation (the
“Company”), and each purchaser listed on Annex A hereto (each, including its
successors and permitted assigns, a “Purchaser” and collectively, the
“Purchasers”).

 

RECITALS

 

A.           The Company and each Purchaser party hereto 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.           Each Purchaser, severally and not jointly, wishes to purchase, and
the Company wishes to sell, upon the terms and conditions stated in this
Agreement, (i) that aggregate number of shares of the Company’s common stock,
par value $0.001 per share (the “Common Stock” or the “Shares”), and (ii) a
warrant, substantially in the form attached hereto as Exhibit G, to purchase an
aggregate number of Shares (the “Warrants”) of the Company equal to the product
obtained by multiplying (x) 20% by (y) the number of Shares purchased for cash
by such Purchaser, rounded down to the nearest whole share (excluding all Shares
issued in respect of the conversion of Convertible Notes and any Shares issued
or issuable pursuant to any Warrant), and with a per share exercise price equal
to 125% of the Purchase Price, determined as set forth in Section 2.1(a) below
(which aggregate amount of Shares and Warrants for all Purchasers shall
collectively be referred to herein as the “Securities”).

 

C.           Certain of the Purchasers listed on Annex A-1 are holders of
convertible debt instruments (the “Convertible Notes”) issued by the Company
(each such holder, a “Converting Holder” and collectively, the “Converting
Holders”) and have agreed to convert their indebtedness into Securities subject
to the conversion terms therein and otherwise in accordance with the terms and
conditions of this Agreement.

 

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 each Purchaser hereby
agree as follows:

 

Article 1

 

Definitions

 

1.1           Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 1.1:

 

“Actual Cash Subscription Amount” with respect to a Purchaser (other than a
Converting Holder) shall mean the amount set forth opposite such Purchaser’s
name under the column “Actual Cash Subscription Amount” on Annex A.

 

“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, controls, is controlled by or
is under common control with such Person, as such terms are used in and
construed under Rule 144. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same investment
manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.

 

   

 

 

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

 

“Closing” means the closing of sale by the Company of Shares to such Purchasers
pursuant to this Agreement on the Closing Date as provided in Section 2.1(a)
hereof.

 

“Closing Date” means January 29, 2018 or such earlier or later date as the
parties hereto shall mutually agree.

 

“Common Stock” has the meaning set forth in the Recitals.

 

“Company Counsel” means Wilson Sonsini Goodrich & Rosati, P.C.

 

“Company Deliverables” has the meaning set forth in Section 2.2(a).

 

“Company’s Knowledge” means with respect to any statement made to the knowledge
of the Company, that the statement is based upon the actual knowledge of
Christopher Prior and Steve Laumas or any of the foregoing individuals would
reasonably be expected to know such fact in the ordinary course of the
performance of such individual’s employment capacity.

 

“Compliance Certificate” has the meaning set forth in Section 2.2(a)(vii).

 

“Disclosure Schedules” has the meaning set forth in Section 3.1.

 

“Disqualification Event” has the meaning set forth in Section 3.1(j).

 

“Encumbrance” means any lien, pledge, hypothecation, charge, mortgage, security
interest, encumbrance, claim, infringement, interference, option, right of first
refusal, preemptive right, community property interest or restriction of any
nature (including any restriction on the voting of any security, any restriction
on the transfer of any security or other asset, any restriction on the receipt
of any income derived from any asset, any restriction on the use of any asset
and any restriction on the possession, exercise or transfer of any other
attribute of ownership of any asset).

 

“Escrow Account” means the escrow account established by the Company with
Delaware Trust Company, Delaware Trust Company serving as escrow agent, which
escrow (as more particularly described in Section 2.2(c) hereof) shall be
conducted pursuant to the terms of an escrow agreement entered into by the
Company, the escrow agent and the Placement Agents.

 

“GAAP” means U.S. generally accepted accounting principles, as applied by the
Company.

 

“Governmental Authority” means any court or tribunal, governmental,
quasi-governmental or regulatory body, administrative agency or bureau,
commission or authority or other body exercising similar powers or authority.

 

   

 

 

“Governmental Body” means any: (a) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government; (c)
governmental or quasi-governmental body of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, ministry, fund, foundation, center, organization, unit, body or entity
and any court or other tribunal, and for the avoidance of doubt, any Tax
authority); or (d) self-regulatory organization (including NASDAQ and the
Financial Industry Regulatory Authority).

 

“Legal Proceeding” means any action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding), hearing, inquiry, audit, examination or investigation commenced,
brought, conducted or heard by or before, or otherwise involving, any court or
other Governmental Body or any arbitrator or arbitration panel.

 

“Legal Requirement” means any federal, state, foreign, material local or
municipal or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.

 

“Material Adverse Effect” means any effect that, considered together with all
other effects that have occurred prior to the date of determination of the
occurrence of the Material Adverse Effect, is or would reasonably be expected to
be materially adverse to, or has or would reasonably be expected to have or
result in a material adverse effect on: (a) the business, condition (financial
or otherwise), capitalization, assets, operations or financial performance of
the Company and its Subsidiaries taken as a whole; or (b) the ability of the
Company to consummate the Merger or any transactions contemplated by this
Agreement or the Merger Agreement or to perform any of its covenants or
obligations under this Agreement or the Merger Agreement in all material
respects; provided, however, that effects from the following shall not be deemed
to constitute (nor shall effects from any of the following be taken into account
in determining whether there has occurred) a Material Adverse Effect: (i) any
rejection by a Governmental Body of a registration or filing by the Company
relating to the IP Rights; (ii) any change in the cash position of the Company
which results from operations in the ordinary course of business; (iii)
conditions generally affecting the industries in which the Company and its
Subsidiaries participate or the United States or global economy or capital
markets as a whole, to the extent that such conditions do not have a
disproportionate impact on the Company and its Subsidiaries taken as a whole;
(iv) any failure by the Company or any of its Subsidiaries to meet internal
projections or forecasts on or after the date of this Agreement (it being
understood, however, that any effect causing or contributing to any such failure
to meet projections or forecasts may constitute a Material Adverse Effect and
may be taken into account in determining whether a Material Adverse Effect has
occurred); (v) the execution, delivery, announcement or performance of the
obligations under this Agreement or the Merger Agreement or the announcement,
pendency or anticipated consummation of the Merger or the consummation of the
transactions contemplated by this Agreement; (vi) any natural disaster or any
acts of terrorism, sabotage, military action or war or any escalation or
worsening thereof; or (vii) any changes (after the date of this Agreement) in
GAAP or applicable Legal Requirements.

 

“Merger” means the transaction whereby a wholly owned subsidiary (“Merger Sub”)
of Monster Digital, Inc., a Delaware corporation (“Monster”), will merge with
and into the Company, with the Company surviving the merger as a wholly owned
subsidiary of Monster, and pursuant to which all of the outstanding shares of
the Company’s capital stock will be exchanged for shares of the common stock,
$0.001 par value per share, of Monster (“Monster Common Stock”) in accordance
with the terms and conditions set forth in the Agreement and Plan of Merger and
Reorganization by and among the Company, Monster, and Merger Sub dated as of
July 3, 2017, as amended (the “Merger Agreement”).

 

“Minimum Offering Amount” means an amount equal to at least $17,000,000 minus an
amount equal to the Company’s unrestricted cash as of the Closing Date.

 

   

 

 

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, Governmental Authority or any
other form of entity not specifically listed herein.

 

“Purchase Price” means $0.9609 per share of Common Stock.

 

“Purchaser Deliverables” has the meaning set forth in Section 2.2(b).

 

“Required Approvals” has the meaning set forth in Section 3.1(c).

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

“Secretary’s Certificate” has the meaning set forth in Section 2.2(a)(vi).

 

“Stock Certificates” has the meaning set forth in Section 2.2(a)(i).

 

“Tax” means any federal, state, local, foreign or other tax, including any
income tax, franchise tax, capital gains tax, gross receipts tax, value-added
tax, surtax, estimated tax, unemployment tax, national health insurance tax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, withholding tax, payroll tax, customs duty,
alternative or add-on minimum or other tax of any kind whatsoever, and including
any fine, penalty, addition to tax or interest, whether disputed or not.

 

“Transaction Documents” means this Agreement, the Investor Questionnaire
attached as Exhibit A-1 hereto, the Stock Certificate Questionnaire attached as
Exhibit A-2 hereto, the Placement Agent Questionnaire attached as Exhibit B
hereto, the Secretary’s Certificate and the Compliance Certificate.

 

“Transfer Agent” means the transfer agent for the Company, any successor
transfer agent for the Company, or the Company, if the Company functions as its
transfer agent.

 

Article 2

 

Purchase and Sale

 

2.1           Closing.

 

(a)          Cash Purchasers. Subject to the terms and conditions set forth in
this Agreement, at the Closing, the Company shall issue and sell to each
Purchaser (other than the Converting Holders) listed on Annex A hereto, as it
may be amended, and each Purchaser listed on Annex A hereto, as it may be
amended, shall, severally and not jointly, purchase from the Company, such
number of Shares equal to the quotient resulting from dividing (i) the Actual
Cash Subscription Amount for such Purchaser, as indicated opposite such
Purchaser’s name on Annex A hereto, by (ii) the Purchase Price, which Share
amount shall be rounded down to the nearest whole share.

 

   

 

 

(b)          Converting Noteholders. Subject to the terms and conditions set
forth in this Agreement, at the Closing the Company shall issue and sell to each
Purchaser that constitutes a Converting Holder listed on Annex A-1 hereto, and
each such Converting Holder listed on Annex A-1 hereto, shall, severally and not
jointly, acquire from the Company, by converting such Convertible Note(s) held
by such Converting Holder, such number of Shares as indicated opposite such
Converting Holder’s name on Annex A hereto (the “Note Conversion”). At the
Closing, the Company shall issue to each Purchaser a Warrant, substantially in
the form attached hereto as Exhibit G, to purchase an aggregate number of Shares
equal to the product obtained by multiplying (x) 20% by (y) the number of Shares
purchased for cash by such Purchaser (excluding all Shares issued in respect of
the conversion of Convertible Notes and any Shares issued or issuable pursuant
to any Warrant), with a per share exercise price equal to 125% of the Purchase
Price, rounded down to the nearest whole share.

 

(c)          Closing Time and Place. The Closing of the purchase and sale of the
Shares and Warrants shall take place at the offices of Company Counsel, 12235 El
Camino Real, San Diego, California 92130, on the Closing Date or at such other
locations or remotely by facsimile transmission or other electronic means as the
parties may mutually agree.

 

2.2           Closing Deliveries.

 

(a)          On or prior to each Closing, the Company shall issue, deliver or
cause to be delivered to each Purchaser (other than the Converting Holders with
respect to Section 2.2(a)(ii) – (iv)) the following (the “Company
Deliverables”):

 

(i)          book entry evidence of the Shares or a copy of the stock
certificates, free and clear of all restrictive and other legends except as
provided in Section 4.1(b) hereof, evidencing the Shares subscribed for by the
Purchasers hereunder to be registered in the names provided by the Purchasers as
set forth on the Stock Certificate Questionnaire attached as Exhibit A-2 hereto
(the “Stock Certificates”), with the original Stock Certificates, if the Shares
will be represented by stock certificates instead of book entry evidence, to be
delivered to the addresses provided by the Purchasers on such Stock Certificate
Questionnaires within five Business Days following the Closing. Upon closing of
the Merger, the Shares purchased pursuant to this Agreement will be treated as
Innovate Common Stock (as defined in the Merger Agreement), which will be
converted into Monster Common Stock in accordance with the terms of the Merger
Agreement;

 

(ii)         this Agreement duly executed by the Company;

 

(iii)        a Warrant registered in the name of such Purchaser to purchase up
to a number of shares of Common Stock equal to 20% of the number of Shares
purchased for cash by such Purchaser, pursuant to this Agreement (excluding all
Shares issued in respect of the conversion of Convertible Notes and any Shares
issued or issuable pursuant to any Warrant), such Warrant having a per share
exercise price equal to $1.2011 per Share, subject to adjustment therein (such
Warrant may be delivered within three Trading Days of the applicable Closing
Date). The Warrants issued pursuant to this Agreement will constitute Innovate
Warrants (as defined in the Merger Agreement), and will be converted into
warrants to purchase Monster Common Stock in accordance with the terms of the
Merger Agreement;

 

(iv)        90–day Lock-Up Agreements executed by each of the officers and
directors of the Company;

 

(v)         the Declaration of Registration Rights Agreement substantially in
the form attached hereto as Exhibit E duly executed by the Company;

 

(vi)        a certificate of the Company’s Secretary (the “Secretary’s
Certificate”), dated as of the Closing Date, (A) certifying the resolutions
adopted by the Company’s Board of Directors or a duly authorized committee
thereof approving the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Shares, (B) certifying the current
versions of the Company’s certificate of incorporation and bylaws (as the same
may have been amended between the date hereof and the Closing Date) and
(C) certifying as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the Company, in the
form attached hereto as Exhibit C;

 

   

 

 

(vii)       a certificate (the “Compliance Certificate”), dated as of the
Closing Date and signed by an authorized officer of the Company, certifying to
the fulfillment of the conditions specified in Sections 5.1(a) and 5.1(b) in the
form attached hereto as Exhibit D; and

 

(viii)      a certificate evidencing the good standing of the Company issued by
the Secretary of State of the State of Delaware, as of a date within five days
of the Closing Date.

 

(b)          On or prior to the applicable Closing, each Purchaser (other than
Converting Holders) shall deliver or cause to be delivered to the Company (the
“Purchaser Deliverables”), a fully completed and duly executed Investor
Questionnaire and Stock Certificate Questionnaire in the forms attached hereto
as Exhibits A-1 and A-2, respectively.

 

(c)          At least 2 days before each Closing Date, each Purchaser (other
than Converting Holders) shall deliver its Actual Cash Subscription Amount in
United States dollars and in immediately available funds by wire transfer to the
following Escrow Account:

 

PNC Bank

300 Delaware Avenue

Wilmington, DE 19899

ABA #: 031100089

Account Number: 5605012373

Account Name: Delaware Trust Company

FFC: Innovate Biopharmaceuticals, Inc. Acct #: 79-3232

(MUST INCLUDE SUBSCRIBER’S NAME)

 

provided that if the Closing or Merger is not consummated by 5:00 p.m., New York
City time, on the Outside Date, as defined in the Merger Agreement, upon request
by a Purchaser (other than Converting Holders), the Company shall, within three
(3) Business days thereof, return, or cause to be returned, the Actual Cash
Subscription Amount (in United States dollars and in immediately available funds
by wire transfer) paid by such Purchaser to an account specified by such
Purchaser.

 

(d)          On or prior to the Closing, each Placement Agent shall deliver or
cause to be delivered to the Company, a fully completed and duly executed
Placement Agent Questionnaire in the form attached hereto as Exhibit B.

 

2.3           Note Conversion. Notwithstanding any provision in the Convertible
Notes, each Converting Holder listed on Annex A-1 hereby acknowledges and agrees
that: (a) the Convertible Notes are hereby automatically exchanged for the
number of shares of Common Stock listed opposite such Converting Holder’s name
on the Schedule of Purchasers; (b) all rights, title and interest arising under
each such Convertible Note held by such Converting Holder is hereby canceled,
released, extinguished and of no further force and effect; (c) upon the Closing,
the Company will be forever released from any and all of its obligations and
liabilities under the Convertible Notes and such Convertible Notes shall be
extinguished and cancelled; (d) no fractional Shares shall be issued upon
conversion of the Convertible Notes and the right to receive cash in lieu of any
fractional Share shall be waived; and (e) each Converting Holder hereby waives
in connection with such conversion any notices required by the terms of such
Convertible Notes. For the avoidance of doubt, each Converting Holder hereby
acknowledges that no Warrants will be issued to Converting Holder for Shares
issued in respect of the conversion of the Convertible Notes.

 

   

 

 

Article 3

 

Representations and Warranties

 

3.1           Representations and Warranties of the Company. The Company
represents and warrants to each of the Purchasers as follows, except as set
forth in the disclosure schedules delivered by the Company to the Purchasers at
the applicable Closing (the “Disclosure Schedules”) (it being understood that
the representations and warranties in this Article 3 are qualified by: (x) any
exceptions and disclosures set forth in the section or subsection of the
Disclosure Schedules corresponding to the particular section or subsection in
this Article 3 in which such representation and warranty appears; (y) any
exceptions or disclosures explicitly cross-referenced in such section or
subsection of the Disclosure Schedules by reference to another section or
subsection of the Disclosure Schedules; and (z) any exceptions or disclosures
set forth in any other section or subsection of the Disclosure Schedules to the
extent it is reasonably apparent from the wording of such exception or
disclosure that such exception or disclosure qualifies such representation and
warranty). The inclusion of any information in the Disclosure Schedules shall
not be deemed to be an admission or acknowledgement, in and of itself, that such
information is required by the terms hereof to be disclosed, is material, has
resulted in or would result in a Material Adverse Effect, or is outside the
ordinary course of business.

 

(a)          Authorization; Enforcement; Validity. The Company has the requisite
corporate power to enter into and to consummate the transactions contemplated by
each of the Transaction Documents to which it is a party 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 Shares) have been,
or will be prior to the Closing, duly authorized by all necessary corporate
action on the part of the Company, and no further corporate action is required
by the Company, its Board of Directors or its stockholders in connection
therewith other than in connection with the Required Approvals. Each of the
Transaction Documents to which it is a party has been (or upon delivery will
have 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 Legal Requirements.
There are no shareholder agreements, voting agreements, or other similar
arrangements with respect to the Company’s capital stock to which the Company is
a party.

 

(b)          No Conflicts. The Company is not in violation or default of any
term of its charter documents, each as amended, or of any provision of any
mortgage, indenture, contract, lease, agreement, instrument or contract to which
it is party or by which it is bound or of any judgment, decree, order or writ,
other than any such violation that would not have a Material Adverse Effect. The
execution, delivery, and performance of and compliance with the Transaction
Documents and the issuance and sale of the Shares and Warrants pursuant to this
Agreement will not, with or without the passage of time or giving of notice,
result in any such violation, or be in conflict with or constitute a material
default under any such term or provision, or result in the creation of any
Encumbrance upon any of the properties or assets of the Company or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.

 

   

 

 

(c)          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 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 Shares and Warrants), other
than (i) filings required by applicable state securities laws, (ii) the filing
of a Notice of Sale of Shares on Form D with the Commission under Regulation D
and (iii) those that have been made or obtained prior to the date of this
Agreement (collectively, the “Required Approvals”).

 

(d)          Issuance of the Shares and Warrants. The Shares and Warrants 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 Encumbrances imposed 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. Assuming the accuracy of the representations and
warranties of the Purchasers in this Agreement, the Shares and Warrants will be
issued in compliance with all applicable federal and state securities laws. The
Company has reserved from its duly authorized capital stock the maximum number
of shares of Common Stock issuable pursuant to this Agreement and the Warrants.

 

(e)          Additional Representations and Warranties. The Company’s
representations and warranties set forth in the Merger Agreement in Section 2.1
(Due Organization; Organizational Documents), 2.4 (Capitalization), 2.5
(Financial Statements), Section 2.6 (Absence of Changes), Section 2.7 (Title to
Assets), Section 2.8 (Real Property; Leaseholds), 2.9 (Intellectual Property),
Section 2.10 (Material Contracts), Section 2.11 (Undisclosed Liabilities),
Section 2.12 (Compliance; Permits; Restrictions), Section 2.13 (Tax Matters),
Section 2.14 (Employee and Labor Matters; Benefit Plans), Section 2.15
(Insurance), Section 2.16 (Legal Proceedings; Orders) and Section 2.18 (No
Financial Advisor) are hereby incorporated by reference and are qualified by the
disclosures in the Innovate Disclosure Schedules (as defined in the Merger
Agreement), provided that for purposes of this Agreement any representation as
to the making available or delivery of documents to Monster shall mean the
making available or delivery of documents to each Purchaser and all such
representations and warranties are made as of the date of this Agreement (and
not as of the date of the Merger Agreement) except for those representations and
warranties that speak as of a different specified date (which representations
and warranties shall be made as of such different specified date).

 

(f)          Certain Fees. Other than GP Nurmenkari Inc., and H.C. Wainwright &
Co., LLC (each a “Placement Agent” and together the “Placement Agents”) in each
of their capacities as placement agent, no Person will have, as a result of the
Company’s issuance of the Shares and Warrants pursuant to the terms of this
Agreement, any valid right, interest or claim against or upon the Company or a
Purchaser for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of the
Company. The Company shall indemnify, pay, and hold each Purchaser harmless
against, any liability, loss or expense (including, without limitation,
attorneys’ fees and out-of-pocket expenses) arising in connection with any such
right, interest or claim.

 

   

 

 

(g)          Private Placement. Assuming the accuracy of the representations and
warranties of Purchasers contained in Section 3.2 hereof, the accuracy of the
information disclosed by each Purchaser in the Investor Questionnaires delivered
pursuant to Section 2.2(b) and Section 5.2(d) and the accuracy of the
information disclosed by Placement Agents in the Placement Agent Questionnaire
delivered pursuant to Section 2.2(d) and Section 5.2(h), the offer, sale and
issuance of the Shares and Warrants will be exempt from the registration
requirements of the Securities Act, and will have been registered or qualified
(or are exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable state securities laws.
Neither the Company nor any agent on its behalf has solicited or will solicit
any offers to sell or has offered to sell or will offer to sell all or any part
of the Shares or Warrants to any person or persons so as to bring the sale of
such Shares and Warrants by the Company within the registration provisions of
the Securities Act or any state securities laws. Assuming the accuracy of the
Purchasers’ representations and warranties set forth in Section 3.2 (without
giving effect to any materiality qualifiers therein), neither the Company nor
any Person acting on its behalf has, directly or indirectly, at any time within
the past six months, made any offers or sales of any Company security or
solicited any offers to buy any security under circumstances that would
eliminate the availability of the exemption from registration under Regulation D
in connection with the offer and sale by the Company of the Shares and Warrants
as contemplated hereby.

 

(h)          Investment Company. The Company is not required to be registered
as, and is not an Affiliate of, and immediately following the Closing and the
Merger will not be required to register as, an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.

 

(i)          Foreign Corrupt Practices. Neither the Company, nor to the
Company’s Knowledge, any agent or other person acting on behalf of the Company,
has: (i) directly or indirectly, used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law or (iv) violated in any
material respect any provision of the Foreign Corrupt Practices Act of 1977, as
amended.

 

(j)          No Disqualification Events. The Company has exercised reasonable
care, in accordance with Commission rules and guidance, to determine whether any
Covered Person (as defined below) is subject to any of the “bad actor”
disqualifications described in Rule 506(d)(1)(i) through (viii) under the
Securities Act (“Disqualification Events”). To the Company’s Knowledge, no
Covered Person is subject to a Disqualification Event, except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3) under the Securities
Act. The Company has complied, to the extent applicable, with any disclosure
obligations under Rule 506(e) under the Securities Act. “Covered Persons” are
those persons specified in Rule 506(d)(1) under the Securities Act, including
the Company; any predecessor or Affiliate of the Company; any director,
executive officer, other officer participating in the offering, general partner
or managing member of the Company; any beneficial owner of 20% or more of the
Company’s outstanding voting equity securities, calculated on the basis of
voting power; any promoter (as defined in Rule 405 under the Securities Act)
connected with the Company in any capacity at the time of the sale of the
Shares; and any person that has been or will be paid (directly or indirectly)
remuneration for solicitation of purchasers in connection with the sale of the
Shares (a “Solicitor”), any general partner or managing member of any Solicitor,
and any director, executive officer or other officer participating in the
offering of any Solicitor or general partner or managing member of any
Solicitor.

 

(k)          Merger Agreement. Except for that certain Amendment to Agreement
and Plan of Merger and Reorganization, dated January 3, 2018, by and among the
Company, Monster, and Merger Sub, the Merger Agreement has not been amended or
modified. The Merger Agreement is in full force and effect and represents a
valid, binding and enforceable obligation of the Company and, to the Company’s
Knowledge, of each party thereto, subject to the qualification that such
enforceability may be limited by bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting rights of creditors.

 

   

 

 

(l)          Shell Company Status. Monster is not an issuer identified in Rule
144(i)(1) or of the Securities Act or a shell company as defined in Rule 12b-2
of the Exchange Act (as defined in the Merger Agreement).

 

(m)          FDA. As to each product subject to the jurisdiction of the U.S.
Food and Drug Administration (“FDA”) under the Federal Food, Drug and Cosmetic
Act, as amended, and the regulations thereunder (“FDCA”) that is manufactured,
packaged, labeled, tested, distributed, sold, and/or marketed by the Company,
Monster or any of their subsidiaries (each such product, a “Pharmaceutical
Product”), such Pharmaceutical Product is being manufactured, packaged, labeled,
tested, distributed, sold and/or marketed by the Company or Monster, as
applicable, in compliance with all applicable requirements under FDCA and
similar laws, rules and regulations relating to registration, investigational
use, premarket clearance, licensure, or application approval, good manufacturing
practices, good laboratory practices, good clinical practices, product listing,
quotas, labeling, advertising, record keeping and filing of reports, except
where the failure to be in compliance could not have a Material Adverse Effect.
There is no pending, completed or, to the Company's knowledge, threatened,
action (including any lawsuit, arbitration, or legal or administrative or
regulatory proceeding, charge, complaint, or investigation) against the Company,
Monster or any of their Subsidiaries, and none of the Company, Monster or any of
their subsidiaries has received any notice, warning letter or other
communication from the FDA or any other governmental entity, which (i) contests
the premarket clearance, licensure, registration, or approval of, the uses of,
the distribution of, the manufacturing or packaging of, the testing of, the sale
of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws
its approval of, requests the recall, suspension, or seizure of, or withdraws or
orders the withdrawal of advertising or sales promotional materials relating to,
any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical
investigation by the Company, Monster or any of their subsidiaries, (iv) enjoins
production at any facility of the Company, Monster or any of their subsidiaries,
(v) enters or proposes to enter into a consent decree of permanent injunction
with the Company, Monster or any of their subsidiaries, or (vi) otherwise
alleges any violation of any laws, rules or regulations by the Company, Monster
or any of their subsidiaries, and which, either individually or in the
aggregate, could have a Material Adverse Effect. The properties, business and
operations of the Company, and Monster have been and are being conducted in all
material respects in accordance with all applicable laws, rules and regulations
of the FDA.  Neither the Company nor Monster has been informed by the FDA that
the FDA will prohibit the marketing, sale, license or use in the United States
of any product proposed to be developed, produced or marketed by the Company or
Monster nor has the FDA expressed any concern as to approving or clearing for
marketing any product being developed or proposed to be developed by the Company
or Monster.

 

(n)          Form S-3 Eligibility. Following the Merger, Monster will be
eligible to register the resale of the Securities for resale by the Purchasers
on Form S-3 promulgated under the Securities Act.

 

3.2           Representations and Warranties of the Purchasers. Each Purchaser
hereby represents and warrants severally and not jointly to the Company as
follows:

 

(a)          Requisite Power and Authority. Such Purchaser has all necessary
power and authority to execute and deliver the Transaction Documents to which
such Purchaser is a party and to carry out their provisions. All action on such
Purchaser’s part required for the lawful execution and delivery of the
Transaction Documents to which such Purchaser is a party has been taken. Upon
their execution and delivery, the Transaction Documents will be valid and
binding obligations of such Purchaser, enforceable against such Purchaser in
accordance with their respective terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights, (b) as limited by
general principles of equity that restrict the availability of equitable
remedies, and (c) to the extent that the enforceability of the indemnification
provisions may be limited by applicable Legal Requirements.

 

   

 

 

(b)          Investment Representations. Such Purchaser understands that the
Securities have not been registered under the Securities Act. Such Purchaser
also understands that the Securities are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
such Purchaser’s representations contained in the Agreement and in such
Purchaser’s Investor Questionnaire. Such Purchaser hereby represents and
warrants as follows:

 

(i)          Purchaser Bears Economic Risk. Such Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that such Purchaser is capable
of evaluating the merits and risks of such Purchaser’s investment in the Company
and has the capacity to protect such Purchaser’s own interests. Such Purchaser
must bear the economic risk of this investment indefinitely unless the Shares
and the shares underlying the Warrants (the “Warrant Shares”) are registered
pursuant to the Securities Act, or an exemption from registration is available.
Such Purchaser also understands that there is no assurance that any exemption
from registration under the Securities Act will be available and that, even if
available, such exemption may not allow such Purchaser to transfer all or any
portion of the Shares, Warrants or Warrant Shares under the circumstances, in
the amounts or at the times such Purchaser might propose.

 

(ii)         Acquisition for Own Account. Such Purchaser is acquiring the Shares
and Warrants for Purchaser’s own account for investment only, and not with a
view towards their distribution.

 

(iii)        Purchaser Can Protect Its Interest. Such Purchaser represents that
by reason of such Purchaser’s, or of such Purchaser’s management’s, business or
financial experience, such Purchaser has the capacity to protect such
Purchaser’s own interests in connection with the transactions contemplated in
the Transaction Documents. Further, such Purchaser is aware of no publication of
any advertisement in connection with the transactions contemplated in the
Agreement.

 

(iv)        Accredited Investor. Such Purchaser represents that such Purchaser
is an accredited investor within the meaning of Regulation D under the
Securities Act.

 

(v)         Company Information. Such Purchaser has received and read the
applicable financial statements of the Company and has had an opportunity to
discuss the Company’s business, management and financial affairs with directors,
officers and management of the Company and has had the opportunity to review the
Company’s operations and facilities. Such Purchaser has also had the opportunity
to ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.

 

(vi)        Rule 144. Such Purchaser acknowledges and agrees that the Shares,
Warrants and Warrant Shares are “restricted securities” as defined in Rule 144
promulgated under the Securities Act as in effect from time to time and must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Such Purchaser has been
advised or is aware of the provisions of Rule 144, which permits limited resale
of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things: the availability of certain
current public information about the Company, the resale occurring following the
required holding period under Rule 144 and the number of shares being sold
during any three-month period not exceeding specified limitations.

 

   

 

 

(vii)       “Bad Actor” Matters. Such Purchaser hereby represents that no
Disqualification Events are applicable to such Purchaser or any of such
Purchaser’s Rule 506(d) Related Parties (as defined below), except, if
applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii)
or (d)(3) is applicable. Such Purchaser hereby agrees that such Purchaser shall
notify the Company promptly in writing in the event a Disqualification Event
becomes applicable to such Purchaser or any of such Purchaser’s Rule 506(d)
Related Parties, except, if applicable, for a Disqualification Event as to which
Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable. For purposes of this
Section 3.2(b), “Rule 506(d) Related Party” shall mean a Person that is a
beneficial owner of Purchaser’s securities for purposes of Rule 506(d) of the
Securities Act.

 

(viii)      Residence. If such Purchaser is an individual, then such Purchaser
resides in the state or province identified in the address of such Purchaser set
forth on Annex A; if such Purchaser is a partnership, corporation, limited
liability company or other entity, then the office or offices of such Purchaser
in which such Purchaser’s investment decision was made is located at the address
or addresses of such Purchaser set forth on Annex A.

 

(ix)         Foreign Investors. If such Purchaser is not a United States person
(as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended, or if such Purchaser is a U.S. subsidiary or Affiliate of a foreign
parent company, “Foreign Purchaser”), such Purchaser hereby represents that such
Purchaser has satisfied itself as to the full observance of the laws of such
Purchaser’s jurisdiction in connection with any invitation to subscribe for the
Shares or any use of this Agreement, including (i) the legal requirements within
such Purchaser’s jurisdiction for the purchase of the Shares and Warrants, (ii)
any foreign exchange restrictions applicable to such purchase, (iii) any
government or other consents that may need to be obtained, and (iv) the Tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale or transfer of the Shares, Warrants and Warrant Shares. Each Foreign
Purchaser further represents that either (x) such Purchaser does not now, nor
will such Purchaser after any Closing, hold 10% or greater, directly or
indirectly, of the voting interest in the Company or (y) if such Purchaser does
or will, such Foreign Purchaser shall notify the Company and shall provide such
information as the Company may request to comply with state, federal, or local
regulations. The Company’s offer and sale and such Foreign Purchaser’s
subscription and payment for and continued beneficial ownership of the Shares,
Warrants and Warrant Shares will not violate any applicable securities or other
laws of such Foreign Purchaser’s jurisdiction.

 

(c)          Brokers and Finders. No Person will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or any Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of such Purchaser.

 

(d)          Independent Investment Decision. Such Purchaser has independently
evaluated the merits of such Purchaser’s decision to purchase Shares and
Warrants pursuant to the Transaction Documents, and such Purchaser confirms that
such Purchaser has not relied on the advice of any other Purchaser’s business
and/or legal counsel in making such decision. Such Purchaser understands that
nothing in this Agreement or any other materials presented by or on behalf of
the Company to such Purchaser in connection with the purchase of the Shares and
Warrants constitutes legal, tax or investment advice. Such Purchaser has
consulted such legal, tax and investment advisors as such Purchaser, in such
Purchaser’s sole discretion, has deemed necessary or appropriate in connection
with such Purchaser’s purchase of the Shares and Warrants. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or such Purchaser’s representatives or counsel shall modify, amend or
affect such Purchaser’s right to rely on the truth, accuracy and completeness of
the Company’s representations and warranties contained in the Transaction
Documents (as qualified by the Disclosure Schedules).

 

   

 

 

(e)          Reliance on Exemptions. Such Purchaser understands that the Shares
are being offered and sold to such Purchaser 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
such Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgements and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Shares and Warrants.

 

(f)          No Governmental Review. Such Purchaser understands that no
Governmental Authority has passed on or made any recommendation or endorsement
of the Shares and Warrants or the fairness or suitability of the investment in
the Shares and Warrants nor has any such authority passed upon or endorsed the
merits of the offering of the Shares and Warrants.

 

(g)          Acknowledgment. Such Purchaser acknowledges that such Purchaser is
entering into this Agreement without any representation or warranty, express or
implied, by the Company or Monster or any of their respective Affiliates, except
as expressly set forth Section 3.2 or in any certificate or other document or
instrument to be delivered to such Purchaser pursuant to this Agreement. Such
Purchaser is not relying, nor has such Purchaser relied, on any representation
or warranty (or the accuracy or completeness thereof), express or implied, with
respect to the Company or Monster or any of their respective Affiliates, except
as expressly set forth Section 3.2 or in any certificate or other document or
instrument to be delivered to such Purchaser pursuant to this Agreement.

 

(h)          Risk Factors. Such Purchaser recognizes that the purchase of the
Common Stock and Warrants involves a high degree of risk including, but not
limited to, those risks set forth in the Statement of Risk Factors annexed
hereto as Annex C.

 

The Company and each of the Purchasers 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 3 and the Transaction Documents.

 

Article 4

 

Other Agreements of the Parties

 

4.1           Transfer Restrictions.

 

(a)          Compliance with Laws. Notwithstanding any other provision of the
Transaction Documents, until the Shares are converted into shares of Monster
Common Stock (as defined in the Merger Agreement) and the Warrants are converted
into warrants to purchase shares of Monster Common Stock in accordance with the
terms of the Merger Agreement, each Purchaser covenants that the Shares and
Warrants 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 Shares or Warrants other than (i) pursuant to an effective registration
statement or (ii) to the Company, the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, 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 Shares or Warrants
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement.

 

   

 

 

(b)          Legends. Stock Certificates evidencing the Shares, Warrants and
Warrant Shares shall bear any legend as required by the “Blue Sky” laws of any
state and a restrictive legend in substantially the following form until such
time as they are not required under Section 4.1(c) (and a stock transfer order
may be placed against transfer of the Stock Certificates for the Shares):

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE, AND THE TRANSFER THEREOF, ARE
SUBJECT TO THE RESTRICTIONS ON TRANSFER PROVISIONS OF THE BYLAWS OF THE COMPANY,
INCLUDING A RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY AND/OR ITS
ASSIGNEE(S), A COPY OF WHICH IS ON FILE IN, AND MAY BE EXAMINED AT, THE
PRINCIPAL OFFICE OF THE COMPANY.

 

In addition, if any Purchaser is an Affiliate of the Company, Stock Certificates
evidencing the Shares or Warrant Shares issued to such Purchaser shall bear a
customary “affiliates” legend.

 

(c)          Removal of Legends. Subject to the Company’s right to request an
opinion of counsel as set forth in Section 4.1(a), the legend set forth in
Section 4.1(b) above shall be removable and the Company shall issue or cause to
be issued a Stock Certificate without such legend or any other legend (except
for any “affiliates” legend as set forth in Section 4.1(b)) to the holder of the
applicable Shares upon which it is stamped, if (i) such Shares or Warrant Shares
are registered for resale and resold pursuant to an effective registration
statement under the Securities Act, (ii) such Shares or Warrant Shares are sold
or transferred in compliance with Rule 144 (if the transferor is not an
Affiliate of the Company), including without limitation in compliance with the
current public information requirements of Rule 144 if applicable to the Company
at the time of such sale or transfer, and the holder and its broker have
delivered customary documents reasonably requested by counsel to the Company in
connection with such sale or transfer, or (iii) such Shares or Warrant Shares
are eligible for sale under Rule 144 without the requirement that the Company be
in compliance with the current public information requirements of Rule 144 and
without other restriction and counsel to the Company has provided written
confirmation of such eligibility to the Company. Any fees (with respect to the
counsel to the Company or otherwise) associated with the removal of such legend
shall be borne by the Company.

 

4.2           Form D and Blue Sky. The Company agrees to timely file a Form D
with respect to the Shares as required under Regulation D and to provide a copy
thereof to each Purchaser who requests a copy in writing promptly after such
filing. The Company shall take such action as the Company shall reasonably
determine is necessary in order to qualify the Shares for sale to the Purchasers
at the Closing pursuant to this Agreement under applicable securities or “Blue
Sky” laws of the states of the United States (or to obtain an exemption from
such qualification), which, subject to the accuracy of the Company’s and the
Purchaser’s representations and warranties set forth herein, shall consist of
the submission of all filings and reports relating to the offer and sale of the
Shares pursuant to Rule 506 of Regulation D required under applicable securities
or “Blue Sky” laws of the states of the United States following the Closing
Date, and shall provide evidence of any such action so taken to the Purchasers
who request in writing such evidence.

 

   

 

 

4.3           No Integration. The Company shall not, and shall use its
commercially reasonable efforts to ensure that Monster and the Affiliates of the
Company and the Affiliates of Monster, shall not, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that will be integrated with the
offer or sale of the Shares and Warrants in a manner that would require the
registration under the Securities Act of the sale of the Shares and Warrants to
the Purchasers.

 

4.4           Use of Proceeds. The Company intends to use the net proceeds from
the sale of the Shares and Warrants hereunder for general working capital.

 

4.5           Declaration of Registration Rights. At, or promptly following, the
Closing, the Company will cause Monster to execute and deliver to the Purchasers
the declaration of registration rights in substantially the form attached hereto
as Exhibit E.

 

4.6           Listing of Monster Common Stock. Following the Merger, the Company
hereby agrees to use commercially reasonable efforts to maintain the listing or
quotation of common stock of Monster (the “Monster Common Stock”) on the trading
market on which Monster is currently listed. In connection with the closing of
the Merger, the Company shall use commercially reasonable efforts to apply to
list or quote all of the Shares and Warrant Shares on such trading market and
promptly secure the listing of all of the Shares and Warrant Shares on such
trading market. The Company further agrees, if the Company applies to have the
Monster Common Stock traded on any other trading market, it will then include in
such application all of the Shares and Warrant Shares, and will take such other
action as is necessary to cause all of the Shares and Warrant Shares to be
listed or quoted on such other trading market as promptly as possible. The
Company will then take all action reasonably necessary to continue the listing
or quotation and trading of the Monster Common Stock on a trading market and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the trading market. The Company agrees
to maintain the eligibility of the Monster Common Stock for electronic transfer
through the Depository Trust Company or another established clearing
corporation, including, without limitation, by timely payment of fees to the
Depository Trust Company or such other established clearing corporation in
connection with such electronic transfer.

 

4.7           Furnishing of Information; Public Information. Following the
closing of the Merger and until the earliest of the time that (i) no Purchaser
owns Securities or (ii) the Warrants have expired, the Company covenants to
cause Monster to maintain the registration of the Monster Common Stock under
Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by Monster after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the
Securities, including without limitation, under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, to the extent required from time to time to enable such
Person to sell such Securities without registration under the Securities Act,
including without limitation, within the requirements of the exemption provided
by Rule 144.

 

Article 5

 

Conditions Precedent to Closing

 

5.1           Conditions Precedent to the Obligations of the Purchasers (other
than Converting Holders) to Purchase Shares and Warrants at Closing. The
obligation of each Purchaser (other than Converting Holders) to acquire Shares
and Warrants at the Closing is subject to the fulfillment, on or prior to the
applicable Closing Date, of each of the following conditions, any of which may
be waived by such Purchaser (as to itself only):

 

   

 

 

(a)          Representations and Warranties. The representations and warranties
of the Company are true and correct in all respects as of the date of this
Agreement and are true and correct in all respects on and as of the applicable
Closing Date with the same force and effect as if made on the Closing Date,
except (i) for those representations and warranties which address matters only
as of a particular date (which representations were so true and correct as of
such particular date); and (ii) where the failure of those representations and
warranties would not have a Material Adverse Effect (disregarding all
materiality qualifiers included in such representations and warranties).

 

(b)          Performance. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by it on
or prior to the Closing Date.

 

(c)          No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any Governmental Authority of competent jurisdiction that prohibits
the consummation of the sale of the Shares.

 

(d)          Consents. The Company shall have obtained any and all consents,
permits, approvals, registrations and waivers necessary for consummation of the
purchase and sale of the Shares at the Closing (except for the Required
Approvals that may be obtained after the Closing), all of which shall be and
remain so long as necessary in full force and effect.

 

(e)          Company Deliverables. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a).

 

(f)          Merger. Each of the conditions to the consummation of the Merger
set forth in the Merger Agreement shall have been satisfied or waived and the
parties to the Merger Agreement shall be ready, willing and able to consummate
the Merger immediately after the Closing on the terms and conditions set forth
therein.

 

(g)          Termination. This Agreement shall not have been terminated as to
such Purchaser in accordance with Section 6.16.

 

(h)          Aggregate Actual Cash Subscription Amounts. At the Closing, the
aggregate Actual Cash Subscription Amounts from all Purchasers shall be no less
than the Minimum Offering Amount, and no more than $30,000,000 (the “Maximum
Offering Amount”).

 

(i)          Funding. The Actual Cash Subscription Amount with respect to each
Purchaser (other than Converting Holders) shall have been received by the
Company (or its agent or other designee) in accordance with Section 2.2(c).

 

5.2           Conditions Precedent to the Obligations of the Company to sell
Shares and Warrants at each Closing. The Company’s obligation to sell and issue
the Shares and Warrants to each Purchaser (other than Converting Holders) at a
Closing is subject to the fulfillment on or prior to the applicable Closing Date
of the following conditions, any of which may be waived by the Company:

 

(a)          Representations and Warranties. The representations and warranties
made by such Purchaser in Section 3.2 hereof shall be true and correct in all
material respects (except for those representations and warranties which are
qualified as to materiality, in which case such representations and warranties
shall be true and correct in all respects) as of the date of this Agreement, and
as of the applicable Closing Date as though made on and as of such date, except
for representations and warranties that speak as of a different specified date
(which representations shall have been so true and correct as of such specified
date).

 

   

 

 

(b)          Performance. Such Purchaser shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by such Purchaser on or prior to the applicable Closing Date.

 

(c)          No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any Governmental Authority of competent jurisdiction that prohibits
the consummation of the sale of the Shares or Warrants.

 

(d)          Purchaser Deliverables. Such Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section 2.2(b).

 

(e)          Merger. Each of the conditions to the consummation of the Merger
set forth in the Merger Agreement shall have been satisfied or waived and the
parties to the Merger Agreement shall be ready, willing and able to consummate
the Merger immediately after the Closing, on the terms and conditions set forth
therein.

 

(f)          Termination. This Agreement shall not have been terminated as to
such Purchaser in accordance with Section 6.16.

 

(g)          Receipt of Funds. The Actual Cash Subscription Amount with respect
to each Purchaser (other than Converting Holders) shall have been received by
the Company (or its agent or other designee) in accordance with Section 2.2(c).

 

(h)          Placement Agent Questionnaire. Each Placement Agent shall have
delivered the Placement Agent Questionnaire in accordance with Section 2.2(d).

 

Article 6

 

Miscellaneous

 

6.1           Fees and Expenses. The Company and the Purchasers 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.

 

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 Purchasers 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 and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) or e-mail
delivery of a .PDF format data file at the facsimile number or e-mail address,
as applicable, specified in this Section 6.3 during the recipient’s normal
business hours on a Business Day, (b) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile
(provided the sender receives a machine-generated confirmation of successful
transmission) or e-mail delivery of a .PDF format data file at the facsimile
number or e-mail address, as applicable, specified in this Section 6.3 on a day
that is not a Business Day or not during the recipient’s normal business hours
on any Business Day, (c) the Business Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service with next day delivery
specified, (d) two Business Days after deposit with an internationally
recognized expedited delivery services company, freight prepaid for delivery to
a non-U.S. address, specifying next available Business Day delivery, with
written verification of receipt, or (e) upon actual receipt by the party to whom
such notice is required to be given. The address for such notices and
communications shall be as follows:

 

If to the Company: Innovate Biopharmaceuticals Inc.   8480 Honeycutt Road  
Suite 120   Raleigh, NC 27615   Telephone No.:(919) 275-1933  
E-Mail:corplegal@innovatebiopharma.com   Attention: Christopher Prior     With a
copy to: Wilson Sonsini Goodrich & Rosati, P.C.:   12235 El Camino Real   San
Diego, CA 92130   Attention:  Martin J. Waters   Facsimile No.:  (858) 350-2399
  Email: mwaters@wsgr.com     If to a Purchaser: To the address set forth under
such Purchaser’s name on its signature page hereof or such other address as may
be designated in writing hereafter, in the same manner, by such Person.

 

6.4           Amendments; Waivers; No Additional Consideration. No provision of
this Agreement may be waived or amended except in a written instrument signed by
the Company and the Purchasers holding at least a majority of the then
outstanding Shares sold pursuant to this Agreement, provided, however, that
additional Purchasers may become parties to this Agreement without any amendment
of this Agreement pursuant to this paragraph or any consent or approval of any
other Purchasers. Any such amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities have been converted or exchanged or for which such securities have
been exercised) and each future holder of all such securities. Each Purchaser
acknowledges that by the operation of this paragraph, the Purchasers holding at
least a majority of the Shares issued pursuant to this Agreement will have the
right and power to diminish or eliminate all rights of such Purchaser under this
Agreement. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right. No consideration shall be offered or paid to any Purchaser to amend or
consent to a waiver or modification of any provision of any Transaction Document
unless the same consideration is also offered to all Purchasers who then hold
Shares, Warrants or Warrant Shares.

 

   

 

 

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.

 

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
Purchasers (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). Any Purchaser may assign its rights hereunder in whole or in
part to any Person to whom such Purchaser assigns or transfers any Shares,
Warrants or Warrant Shares in compliance with the Transaction Documents and
applicable Legal Requirements, provided such transferee shall agree in writing
to be bound, with respect to the transferred Shares, by the terms and conditions
of this Agreement that apply to the Purchasers.

 

6.7           Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and, except as provided in the immediately preceding Section 6.6 and the
immediately succeeding sentence, is not for the benefit of, nor may any
provision hereof be enforced by, any other Person. Notwithstanding the
foregoing, the parties acknowledge and agree that Monster shall be an express
and intended third party beneficiary under this Agreement, with the right of
enforcement of the terms and conditions of this Agreement.

 

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
Delaware, without regard to the principles of conflicts of law thereof. Each
party agrees that all Legal 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 state and federal courts located in the State of Delaware. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts located in the State of Delaware 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 Legal Proceeding, any claim that it is not personally subject to
the jurisdiction of the state or federal courts located in the State of
Delaware, or that such Legal 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 Legal 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. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

6.9           Survival. The representations and warranties contained herein
shall terminate at the Closing and only the agreements and covenants contained
herein that by their terms survive the Closing shall survive the applicable
Closing in accordance with their terms.

 

   

 

 

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.

 

6.12         Replacement of Shares, Warrants and Warrant Shares. If any Stock
Certificate, Warrant or other instrument evidencing any Shares, Warrants or
Warrant Shares 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 Stock Certificate,
Warrant or other instrument, but only upon receipt of evidence reasonably
satisfactory to the Company and the Transfer Agent, if other than the Company,
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, if other than the Company,
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 Stock Certificate, Warrant or other instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Shares or Warrants. If a replacement Stock
Certificate, Warrant or other instrument evidencing any Shares or Warrants is
requested due to a mutilation thereof, the Company may require delivery of such
mutilated Stock Certificate, Warrant or other instrument as a condition
precedent to any issuance of a replacement.

 

6.13         Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that irreparable damage may occur in
the event that any of the provisions of the Transaction Documents were not
performed in accordance with their specific terms or were otherwise breached and
that monetary damages may not be adequate compensation for any loss incurred by
the Purchasers, the Company by reason of any breach of any such provisions.

 

6.14         Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination,
recapitalization, merger, consolidation or other reorganization or similar event
occurring after the date hereof, each reference in any Transaction Document to
the Shares, Warrants or Warrant Shares, a number of shares, a price per share or
the class or type of securities with respect to the Shares or Warrant Shares
shall be deemed to be amended to appropriately account for such event.

 

   

 

 

6.15         Independent Nature of the Purchasers’ Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Shares and Warrants pursuant to the Transaction Documents has been made
by such Purchaser independently of any other Purchaser and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or
given by any other Purchaser or by any agent or employee of any other Purchaser,
and no Purchaser and any of its agents or employees shall have any liability to
any other Purchaser (or any other Person) relating to or arising from any such
information, materials, statement or opinions. Nothing contained herein or in
any other Transaction Document, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no Purchaser will be acting as agent of such Purchaser in
connection with monitoring its investment in the Shares or enforcing its rights
under the Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any Proceeding for such purpose. The Company acknowledges
that each of the Purchasers has been provided with the same Transaction
Documents for the purpose of closing a transaction with multiple Purchasers and
not because it was required or requested to do so by any Purchaser. The
Company’s obligations to each Purchaser under this Agreement and the other
Transaction Documents are identical to its obligations to each other Purchaser
other than such differences resulting solely from the number of Shares and
Warrants purchased by such Purchaser.

 

6.16         Termination. This Agreement may be terminated and the sale and
purchase of the Shares and Warrants abandoned (a) with respect to a particular
Purchaser, at any time prior to the Closing, by mutual written consent of the
Company and such Purchaser; (b) if the Closing has not been consummated on or
prior to 5:00 p.m., New York City time, on the Outside Date, as defined in the
Merger Agreement, by any Purchaser (with respect to itself only), upon written
notice to the Company; (c) if the Merger has not been consummated on or prior to
5:00 p.m., New York City time, on the Outside Date, as defined in the Merger
Agreement, by any Purchaser (with respect to itself only), or (d) by either the
Company or any Purchaser (with respect to such Purchaser only) upon written
notice to the other if consummation of the transactions contemplated hereby
would violate any nonappealable order, degree or judgment of any Governmental
Authority having competent jurisdiction; provided, however, that the right to
terminate this Agreement under this Section 6.16 shall not be available to any
Person whose failure to comply with its obligations under this Agreement has
been the cause of or resulted in the failure of the Closing to occur on or
before such time. Nothing in this Section 6.16 shall be deemed to release any
party from any liability for any breach by such party of the terms and
provisions of this Agreement or the other Transaction Documents or to impair the
right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents. In the
event of a termination pursuant to this Section 6.16, the Company shall promptly
notify all non-terminating Purchasers. Upon a termination in accordance with
this Section 6.16, the Company and the terminating Purchaser(s) shall not have
any further obligation or liability (including arising from such termination) to
the other, and no Purchaser will have any liability to any other Purchaser under
the Transaction Documents as a result therefrom.

 

6.17         Waiver of Conflicts. Each 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. Each Purchaser understands that the Company has been
represented in the preparation, negotiation and execution of this Agreement by
Company Counsel and that Company Counsel now or may in the future represent one
or more Purchasers or their Affiliates in matters unrelated to the transactions
contemplated by this Agreement, including the representation of such Purchasers
or their Affiliates in matters of a nature similar to those contemplated by this
Agreement. The Company and each Purchaser hereby acknowledge that they have had
an opportunity to ask for and have obtained information relevant to such
representation, including disclosure of the reasonably foreseeable adverse
consequences of such representation, and hereby waives any conflict arising out
of such representation solely with respect to the matters contemplated by this
Agreement.

 

[Signature Pages Follow]

 

   

 

 

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

 

  INNOVATE BIOPHARMACEUTICALS, INC.         By: /s/ Jay Madan   Name: Jay Madan
  Title: President

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Adolfo & Donna Carmona         By: /s/Adolfo & Donna Carmona
  Name: Adolfo & Donna Carmona   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Alan Mcintyre         By: /s/Alan McIntyre   Name: Alan
McIntyre   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Alexander J. Brown Trust         By: /s/ Robin L. Brown  
Name: Robin L. Brown   Title: Trustee

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Alexandra Koeppel         By: /s/ Alexandra Koeppel   Name:
Alexandra Koeppel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Andrew and Melissa Fisher         By: /s/ Andrew and Melissa
Fisher   Name: Andrew and Melissa Fisher   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Argjent Mena & Lara Sabani         By: /s/ Argjent Mena &
Lara Sabani   Name: Argjent Mena & Lara Sabani   Title:  

  

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Barry Shemaria         By: /s/ Barry Shemaria   Name: Barry
Shemaria   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Basil Palmeri         By: /s/ Basil Palmeri   Name: Basil
Palmeri   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Bozarth LLC         By: /s/ Donna Bozarth   Name: Donna
Bozarth   Title: Manager

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Brenda & Dave Rickey Family Foundation         By: /s/David
M. Rickey   Name: David M. Rickey   Title: Trustee

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Brian & Andrea Fischhoff         By: /s/ Brian & Andrea
Fischhoff   Name: Brian & Andrea Fischhoff   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Bruce & Mitsie Levy         By: /s/ Bruce & Mitsie Levy  
Name: Bruce & Mitsie Levy   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Carl J. Domino         By: /s/ Carl J. Domino   Name: Carl J.
Domino   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Casimir S. Skrzypczak         By: /s/ Casimir S. Skrzypczak  
Name: Casimir S. Skrzypczak   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Christopher Washburn         By: /s/ Christopher Washburn  
Name: Christopher Washburn   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Clay Lebhar         By: /s/ Clay Lebhar   Name: Clay Lebhar  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Dennis R. DeLoach, Jr. & Faye M. DeLoach         By: /s/
Dennis R. DeLoach, Jr. & Faye M. DeLoach   Name: Dennis R. DeLoach, Jr. & Faye
M. DeLoach   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Donald Sesterhenn         By: /s/ Donald Sesterhenn   Name:
Donald Sesterhenn   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Douglas Rivers         By: /s/ Douglas Rivers   Name: Douglas
Rivers   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Dyke Rogers         By: /s/ Dyke Rogers   Name: Dyke Rogers  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Edward O'Connell         By: /s/ Edward O'Connell   Name:
Edward O'Connell   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Edward P. Swyer LLC         By: /s/ Edward P. Swyer LLC  
Name: Edward P. Swyer LLC   Title: Manager

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Foster Family Trust         By: /s/ Michael L. Foster   Name:
Michael L. Foster   Title: Trustee

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       FourJr Investments LTD         By: /s/ Robert Burke   Name:
Robert Burke   Title: Manager

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Frederick B. Epstein         By: /s/ Frederick B. Epstein  
Name: Frederick B. Epstein   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Gubbay Investments, LLC         By: /s/ David Gubay   Name:
David Gubay   Title: Manager

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Gwen Swenson-Hale         By: /s/ Gwen Swenson-Hale   Name:
Gwen Swenson-Hale   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Howard & Susan Kalka         By: /s/ Howard & Susan Kalka  
Name: Howard & Susan Kalka   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Howard Stringer         By: /s/ Howard Stringer   Name:
Howard Stringer   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Irwin Gruverman         By: /s/ Irwin Gruverman   Name: Irwin
Gruverman   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       James H. Wiesenberg         By: /s/ James H. Wiesenberg  
Name: James H. Wiesenberg   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Jan Arnett         By: /s/ Jan Arnett   Name: Jan Arnett  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       James J. Watson         By: /s/ James J. Watson   Name: James
J. Watson   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       James L. Dritz         By: /s/ James L. Dritz   Name: James
L. Dritz   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Jimmy R. Hasley         By: /s/ Jimmy R. Hasley   Name: Jimmy
R. Hasley   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Jay M. Haft         By: /s/ Jay M. Haft   Name: Jay M. Haft  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Joan L Bonanno TTE U/A DTD 12/05/2002 By Joan L Bonanno      
  By: /s/ Joan L Bonanno   Name: Joan L Bonanno   Title: Trustee

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       John Q Joubert & Terri L Joubert         By: /s/ John Q
Joubert & Terri L Joubert   Name: John Q Joubert & Terri L Joubert   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       John E. Kyees         By: /s/ John E. Kyees   Name: John E.
Kyees   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       John V. Wagner, Jr.         By: /s/ John V. Wagner, Jr.  
Name: John V. Wagner, Jr.   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Juli-Ann Cialone         By: /s/ Juli-Ann Cialone   Name:
Juli-Ann Cialone   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Kara Lynn Hart         By: /s/ Kara Lynn Hart   Name: Kara
Lynn Hart   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Keith J. Gelles         By: /s/ Keith J. Gelles   Name: Keith
J. Gelles   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Lars Bader         By: /s/ Lars Bader   Name: Lars Bader  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Lee J. Seidler Revocable Trust DTD 4/12/1990         By: /s/
Lee J. Seidler   Name: Lee J. Seidler   Title: Trustee

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Mackie Klingbeil         By: /s/ Mackie Klingbeil   Name:
Mackie Klingbeil   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Meryle Evans Family Trust         By: /s/ Steven Evans  
Name: Steven Evans   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Michael J. Pierce         By: /s/ Michael J. Pierce   Name:
Michael J. Pierce   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Michael M. Mainero         By: /s/ Michael M. Mainero   Name:
Michael M. Mainero   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Michael Stark         By: /s/ Michael Stark   Name: Michael
Stark   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       N. Michael Wolsonovich, Jr.         By: /s/ N. Michael
Wolsonovich, Jr.   Name: N. Michael Wolsonovich, Jr.   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Northlea Partners LLLP         By: /s/ John Abeles   Name:
John Abeles   Title: Manager of General Partner

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       OHB Family Trust         By: /s/ Lisa O’Connell   Name: Lisa
O’Connell   Title: Trustee

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Pamela M. Baker & Russell S. Baker         By: /s/ Pamela M.
Baker & Russell S. Baker   Name: Pamela M. Baker & Russell S. Baker   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       The Peierls Bypass Trust   UD E.F. Peierls for Brian E.
Peierls   UD E.F. Peierls for E. Jeffrey Peierls   UD J.N. Peierls for Brian
Eliot Peierls   UD J.N. Peierls for E. Jeffrey Peierls   UW J.N. Peierls for
Brian E. Peierls   UW J.N. Peierls for E. Jeffrey Peierls   UD Ethel F. Peierls
Charitable Lead Trust   UD E.S. Peierls for E.F. Peierls et al   UW E.S. Peierls
for Brian E. Peierls - Accumulation   UW E.S. Peierls for E. Jeffrey Peierls -
Accumulation         By: /s/ Deserae B. Smith   Name: Deserae B. Smith   Title:
Vice President, The Northern Trust Company of Delaware, As Trustee

  

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Peter S. Kastner         By: /s/ Peter S. Kastner   Name:
Peter S. Kastner   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Provident Trust Group LLC FBO Universal Technology Inc. 401K
Plan FBO Robert G. Curtin         By: /s/ Robert G. Curtin   Name: Robert G.
Curtin   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Raphael Tshibangu         By: /s/ Raphael Tshibangu   Name:
Raphael Tshibangu   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Raymond J Bonanno TTE U/A DTD 12/05/2002 By Raymond J Bonanno
        By: /s/ Raymond J Bonanno   Name: Raymond J Bonanno   Title: Trustee

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Renald J. & Catherine C. Anelle         By: /s/ Renald J. &
Catherine C. Anelle   Name: Renald J. & Catherine C. Anelle   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Richard A Brown Trust         By: /s/ Richard A Brown Trust  
Name: Richard A Brown Trust   Title: Trustee

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Rickey Family Trust dtd 3/22/16         By: /s/ David M
Rickey   Name: David M. Ricket   Title: Trustee

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Richard David         By: /s/ Richard David   Name: Richard
David   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Robert Caione         By: /s/ Robert Caione   Name: Robert
Caione   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Robert G. Curtin         By: /s/ Robert G. Curtin   Name:
Robert G. Curtin   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Robert Harrigan         By: /s/ Robert Harrigan   Name:
Robert Harrigan   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       RS & VS LTD         By: /s/ Rodney Schorlemmer   Name: Rodney
Schorlemmer   Title: Manager

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Russell S. Dritz         By: /s/ Russell S. Dritz   Name:
Russell S. Dritz   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Sal DeStefano         By: /s/ Sal DeStefano   Name: Sal
DeStefano   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Satterfield Vintage Investments, LP         By: /s/ Thomas A.
Satterfield   Name: Thomas A. Satterfield   Title: Managing Partner

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       SDL Ventures, LLC         By: /s/ Donald R. Scifres   Name:
Donald R. Scifres   Title: Managing Director

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Stephen A. Dichiara         By: /s/ Stephen A. Dichiara  
Name: Stephen A. Dichiara   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Steven M. Cohen         By: /s/ Steven M. Cohen   Name:
Steven M. Cohen   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Suresh Patel         By: /s/ Suresh Patel   Name: Suresh
Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       The Fourys Co. LTD         By: /s/ Alan Yanowitz   Name: Alan
Yanowitz   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Walter G. Gans         By: /s/ Walter G. Gans   Name: Walter
G. Gans   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Yisroel Brauner & Chana Brauner         By: /s/ Yisroel
Brauner & Chana Brauner   Name: Yisroel Brauner & Chana Brauner   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       B3 Group LLC         By: /s/Stephen Saft   Name: Stephen Saft
  Title: Manager

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Nomis Bay LTD         By: /s/ Peter Poole   Name: Peter Poole
  Title: Director

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       MITZ ZHU YAN,LP         By: /s/Stephen Saft   Name: Stephen
Saft   Title: President of the General Partner

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Charmi Vijapura         By: /s/ Charmi Vijapura   Name:
Charmi Vijapura   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       GSB Holdings, Inc.         By: /s/ David H. Clarke   Name:
David H. Clarke   Title: Vice President

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Jai V. Desai         By: /s/ Jai V. Desai   Name: Jai V.
Desai   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Jayesh K. Patel & Bela J. Patel         By: /s/ Jayesh K.
Patel & Bela J. Patel   Name: Jayesh K. Patel & Bela J. Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Jesal Kothari         By: /s/ Jesal Kothari   Name: Jesal
Kothari   Title: Individual

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Mahendra Doobay         By: /s/ Mahendra Doobay   Name:
Mahendra Doobay   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Rameshchandra Dabhi         By: /s/ Rameshchandra Dabhi  
Name: Rameshchandra Dabhi   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Saha Living LLC         By: /s/ C.K. Singla   Name: C.K.
Singla   Title: General Partner

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       UKR Partners LLC         By: /s/Irene Mazue   Name: Irene
Mazue   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       RS Irrevocable Trust         By: /s/ RS Irrevocable Trust  
Name: RS Irrevocable Trust   Title: Trustee

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Valley Forge Investments LLC         By: /s/ Valley Forge
Investments LLC   Name: Valley Forge Investments LLC   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       V.M. Patel and Tejal Patel         By: /s/ V.M. Patel and
Tejal Patel   Name: V.M. Patel and Tejal Patel   Title: MA

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Sphera Global Healthcare Master Fund         By: /s/Doran
Breen   Name: Doran Breen   Title: Director

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Intracoastal Capital, LLC         By: /s/ Keith A. Goodman  
Name: Keith A. Goodman   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Iroquois Capital Investment Group LLC         By: /s/ Richard
Abbe   Name: Richard Abbe   Title: Managing Member

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Iroquois Master Fund Ltd         By: /s/ Kim Page   Name: Kim
Page   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Amit Patel         By: /s/ Amit Patel   Name: Amit Patel  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Anthony Barrett         By: /s/ Anthony Barrett   Name:
Anthony Barrett   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Ashit Vijapura         By: /s/ Ashit Vijapura   Name: Ashit
Vijapura   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Atul and Namrata Wadhwa         By: /s/ Atul and Namrata
Wadhwa   Name: Atul and Namrata Wadhwa   Title: Investors

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Atul Wadhwa         By: /s/ Atul Wadhwa   Name: Atul Wadhwa  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Bearing Circle Capital LLC         By: /s/ Bearing Circle
Capital LLC   Name: Bearing Circle Capital LLC   Title: Member

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Bhavesh Patel         By: /s/ Bhavesh Patel   Name: Bhavesh
Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Bijal Patel         By: /s/ Bijal Patel   Name: Bijal Patel  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Bhikabhai Nayi         By: /s/ Bhikabhai Nayi   Name:
Bhikabhai Nayi   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Bindu Sangani         By: /s/ Bindu Sangani   Name: Bindu
Sangani   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Charles Mosseri-Marlio         By: /s/ Charles Mosseri-Marlio
  Name: Charles Mosseri-Marlio   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       David Cassimus         By: /s/ David Cassimus   Name: David
Cassimus   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       David Purdy         By: /s/ David Purdy   Name: David Purdy  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Deepen R. Patel         By: /s/ Deepen R. Patel   Name:
Deepen R. Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Himanshu M. Patel         By: /s/ Himanshu M. Patel   Name:
Himanshu M. Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Hiren K. Patel         By: /s/ Hiren K. Patel   Name: Hiren
K. Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Howard Yee         By: /s/ Howard Yee   Name: Howard Yee  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Hygient Corporation         By: /s/ Hygient Corporation  
Name: Hygient Corporation   Title: President

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Janet League Katzin         By: /s/ Janet League Katzin  
Name: Janet League Katzin   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Jay Madan         By: /s/ Jay Madan   Name: Jay Madan  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Jigar J. Patel         By: /s/ Jigar J. Patel   Name: Jigar
J. Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Jonathan Barrett         By: /s/ Jonathan Barrett   Name:
Jonathan Barrett   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       JRK Inc.         By: /s/ JRK Inc.   Name: JRK Inc.   Title:
President

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Justin Prior         By: /s/ Justin Prior   Name: Justin
Prior   Title: Mechanical Engineer

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Karl Pinto         By: /s/ Karl Pinto   Name: Karl Pinto  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Kumar Patel         By: /s/ Kumar Patel   Name: Kumar Patel  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Malika Sangani         By: /s/ Malika Sangani   Name: Malika
Sangani   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Malur R. Balaji         By: /s/ Malur R. Balaji   Name: Malur
R. Balaji   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Marilyn Hemani         By: /s/ Marilyn Hemani   Name: Marilyn
Hemani   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Mary Cheeran         By: /s/ Mary Cheeran   Name: Mary
Cheeran   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Michael Mindlin         By: /s/ Michael Mindlin   Name:
Michael Mindlin   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Nalini Krishnankutty         By: /s/ Nalini Krishnankutty  
Name: Nalini Krishnankutty   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Niranjana Patel         By: /s/ Niranjana Patel   Name:
Niranjana Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       ONE by NP         By: /s/ ONE by NP   Name: ONE by NP  
Title: Member

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Parul T. Patel         By: /s/ Parul T. Patel   Name: Parul
T. Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Piyush Patel         By: /s/ Piyush Patel   Name: Piyush
Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Praful Patel         By: /s/ Praful Patel   Name: Praful
Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Prentice Lending II LLC         By: /s/ Prentice Lending II
LLC   Name: Prentice Lending II LLC   Title: Mark Hossein, CFO

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Raj S. Shah         By: /s/ Raj S. Shah   Name: Raj S. Shah  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Rajesh and Suny Patel         By: /s/ Rajesh and Suny Patel  
Name: Rajesh and Suny Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Rajesh Patel         By: /s/ Rajesh Patel   Name: Rajesh
Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Rakesh Shah         By: /s/ Rakesh Shah   Name: Rakesh Shah  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Ramesh Donthamsetty         By: /s/ Ramesh Donthamsetty  
Name: Ramesh Donthamsetty   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Rathin Patel         By: /s/ Rathin Patel   Name: Rathin
Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Saurabh Shah         By: /s/ Saurabh Shah   Name: Saurabh
Shah   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       SDS Capital Partners II, LLC         By: /s/ SDS Capital
Partners II, LLC   Name: SDS Capital Partners II, LLC   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Sebastian Prior         By: /s/ Sebastian Prior   Name:
Sebastian Prior   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Sireesh Appajosyula         By: /s/ Sireesh Appajosyula  
Name: Sireesh Appajosyula   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Subhashini Chandran         By: /s/ Subhashini Chandran  
Name: Subhashini Chandran   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Suchin Bajaj         By: /s/ Suchin Bajaj   Name: Suchin
Bajaj   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Sujata Shah         By: /s/ Sujata Shah   Name: Sujata Shah  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Sunil Kumar S. Reddy         By: /s/ Sunil Kumar S. Reddy  
Name: Sunil Kumar S. Reddy   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Todd Gallinek         By: /s/ Todd Gallinek   Name: Todd
Gallinek   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Vijay Taunk         By: /s/ Vijay Taunk   Name: Vijay Taunk  
Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Vikram Patel         By: /s/ Vikram Patel   Name: Vikram
Patel   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

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

 

  PURCHASER:       Wallace R. Nelms         By: /s/ Wallace R. Nelms   Name:
Wallace R. Nelms   Title:  

 

[Signature Page to Subscription Agreement]

 

   

 

 

ANNEX A: - Schedule of Purchasers ANNEX A-1: - Schedule of Converting Holders
ANNEX B: - Agreement and Plan of Merger and Reorganization ANNEX C: - Statement
of Risk Factors

 

EXHIBITS:

 

A-1: - Investor Questionnaire       A-2: - Stock Certificate Questionnaire      
B: - Placement Agent Questionnaire       C: - Form of Secretary’s Certificate  
    D: - Form of Compliance Certificate       E: - Form of Declaration of
Registration Rights       F: - Form of Lock-Up Agreement       G: - Form of
Warrant

 

   

 

 

ANNEX A

 

SCHEDULE OF PURCHASERS

 

   

 

 

ANNEX A-1

 

SCHEDULE OF CONVERTING HOLDERS

 

   

 

 

ANNEX B

 

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

 

   

 

 

ANNEX C

 

RISK FACTORS

 

   

 

  

STATEMENT OF RISK FACTORS

 

You should carefully consider the following risk factors. If any of the
following risks and uncertainties develops into actual events, these events
could have a material adverse effect on Innovate’s businesses, financial
conditions or results of operations. In addition, past financial performance may
not be a reliable indicator of future performance, and historical trends should
not be used to anticipate results or trends in future periods.

 

We believe that Monster will likely be delisted from NASDAQ prior to the closing
of this offering. , The delisting could adversely affect the market liquidity of
Monster’s common stock, impair the value of your investment, adversely affect
our ability to raise needed funds (following the closing of the anticipated
Merger) and subject us (following the closing of the anticipated Merger) to
additional trading restrictions and regulations.

 

Companies listed on The NASDAQ Stock Market, or NASDAQ, are subject to delisting
for, among other things, failure to maintain a minimum stockholders’ equity of
$2.5 million. On April 17, 2017, Monster received a deficiency notice from
NASDAQ notifying Monster that, based on Monster’s Form 10-K for the year ended
December 31, 2016, NASDAQ determined that Monster’s stockholders’ equity does
not comply with the minimum $2.5 million stockholders’ equity requirement for
continued listing on the NASDAQ Capital Market. NASDAQ provided Monster with 45
calendar days, or until June 1, 2017, to submit a plan to regain compliance with
the minimum stockholders’ equity standard. The plan to regain compliance was
accepted and NASDAQ granted an extension until October 14, 2017 to provide
evidence of compliance. By letter dated October 19, 2017, NASDAQ informed
Monster that based upon Monsters’s continued non-compliance with the minimum
$2.5 million stockholders equity requirement for continued listing on the Nasdaq
Capital Market, Monster’s common stock would be subject to delisting from NASDAQ
unless Monster timely requests a hearing before the NASDAQ Hearings Panel (the
“Panel”).

 

On October 24, 2017, Monster requested a hearing before the Panel, which request
would stay any delisting action by the NASDAQ at least pending the issuance of
the Panel’s decision following the hearing and the expiration of any extension
period that may be granted by the Panel. By letter dated October 25, 2017, the
request for a hearing before the Panel was granted, and such hearing was held on
December 7, 2017. At the hearing, NASDAQ provided Monster until January 3, 2017
to regain compliance with the minimum stockholders’ equity standard.

 

On June 15, 2017, Monster received a letter from NASDAQ notifying Monster that
it is not in compliance with NASDAQ Listing Rule 5810(b) that requires Monster
to maintain a minimum bid price of One Dollar ($1.00) per share. This
determination was based upon the closing bid price of Monster’s common stock for
the preceding thirty (30) consecutive business days. NASDAQ provided Monster
with 180 calendar days, or until December 12, 2017, to regain compliance by
maintaining a closing bid price of One Dollar ($1.00) for at least ten (10)
consecutive business days.

 

As of January 3, 2017, Monster has failed to regain compliance with the minimum
stockholders’ equity standard and a minimum bid price of One Dollar ($1.00) per
share. Monster requested an additional extension period to regain compliance,
which is under consideration by NASDAQ. We believe that is unlikely that NASDAQ
will grant this extension and, as such, we believe Monster’s common stock will
delisted from The Nasdaq Capital Market prior to the closing of this offering
and the merger with Monster (the “Merger”). Therefore, at the closing of the
Merger, Monster common stock shares that will be issued in respect of the
Innovate common stock shares will likely not be traded on NASDAQ.

 

   

 

 

Monster’s common stock is currently traded on the NASDAQ Capital Market under
the trading symbol “MSDI.” Monster has filed an application and is taking the
steps necessary to have its common stock quoted for trading in the OTCQB US
Market (“OTCQB”), operated by OTC Markets, Inc., under the same trading symbol
of “MSDI.” Monster expects to hear back from the Panel during the week of
January 8, 2017, but cannot give any assurance that a decision will be reached
by then. If the Panel does not grant an extension and Monster’s common stock is
delisted from the NASDAQ Capital Market, trading will commence on the OTCQB the
next trading day. To the extent that Monster’s common stock is delisted and
following commencement of trading of its common stock on the OTCQB, Monster’s
common stock will continue to be registered under the Exchange Act and Monster
will continue to file financial reports that will be available on the SEC’s
website, www.sec.gov.

 

If Monster’s shares are delisted from the NASDAQ Capital Market and then traded
on the OTCQB, investors that purchase Innovate common stock shares in this
offering will receive Monster’s common stock shares that are trading on the
OTCQB. Trading Monster common stock shares on the OTCQB may be difficult because
smaller quantities of shares would likely be bought and sold, transactions could
be delayed, and any security analysts’ coverage may be reduced. In addition, in
the event Monster common stock is delisted, broker-dealers have certain
regulatory burdens imposed upon them, which may discourage broker-dealers from
effecting transactions in such common stock, further limiting the liquidity.
These factors could result in lower prices and larger spreads in the bid and ask
prices for Monster common stock. Such delisting from the NASDAQ Capital Market
and continued or further declines in Monster’s share price could also greatly
impair Monster ability to raise additional necessary capital through equity or
debt financing and could significantly increase the ownership dilution to
shareholders caused by our issuing equity in a financing or other transactions.

 

Risks Related to Innovate’s Capital Requirements and Financial Condition

 

Innovate has a limited operating history and has incurred significant losses
since inception, and expects that it will continue to incur losses for the
foreseeable future, which makes it difficult to assess Innovate’s future
viability.

 

Innovate is a clinical development-stage biopharmaceutical company with a
limited operating history upon which to evaluate its business and prospects.
Innovate has not been profitable since it commenced operations in 2012, and may
never achieve or sustain profitability. In addition, Innovate has limited
history as an organization and has not yet demonstrated an ability to
successfully overcome many of the risks and uncertainties frequently encountered
by companies in new and rapidly evolving fields, particularly in the
biopharmaceutical industry. Drug development is a highly speculative undertaking
and involves a substantial degree of risk. Innovate has not yet obtained any
regulatory approvals for any of its product candidates, commercialized any of
its product candidates, or generated any revenue from sales of products.
Innovate has devoted significant resources to research and development and other
expenses related to its ongoing clinical trials and operations, in addition to
acquiring product candidates.

 

Since inception, most of Innovate’s resources have been dedicated to the
acquisition and development of its product candidates, INN-202 (Larazotide
Acetate), INN-108 and INN-329 (Secretin). Innovate will require significant
additional capital to continue operations and to execute on its current business
strategy to develop INN-202 through to regulatory approval and further develop
INN-108 and INN-329 for eventually seeking regulatory approval. Innovate cannot
estimate with reasonable certainty the actual amounts necessary to successfully
complete the development and commercialization of its product candidates and
there is no certainty that Innovate will be able to raise the necessary capital
on reasonable terms or at all.

 

   

 

 

Innovate’s auditor has expressed substantial doubt about its ability to continue
as a going concern.

 

The audit report on Innovate’s financial statements for the years ended December
31, 2016 and 2015 includes an explanatory paragraph related to Innovate’s
recurring losses from operations and dependence on additional financing to
continue as a going concern. Innovate has incurred net losses for the years
ended December 31, 2016 and 2015, and had an accumulated deficit of $7.7 million
as of December 31, 2016.  In view of these matters, Innovate’s ability to
continue as a going concern is dependent upon its ability to raise additional
debt or equity financing or enter into strategic partnerships. Since its
inception, Innovate has financed its operations through convertible debt
financings. Innovate intends to continue to finance its operations through debt
or equity financing and/or strategic partnerships.  The failure to obtain
sufficient financing or strategic partnerships could adversely affect Innovate’s
ability to achieve its business objectives and continue as a going concern.

 

Innovate will require substantial additional financing to obtain regulatory
approval for INN-202 for celiac disease, and for further development of INN-108
(for ulcerative colitis) and INN-329 (for magnetic resonance
cholangiopancreatography or MRCP), and a failure to obtain this necessary
capital when needed on acceptable terms, or at all, could force Innovate to
delay, limit, reduce or terminate Innovate’s product development efforts or
other operations.

 

For the year ended December 31, 2016, and the nine months ended September 30,
2017, Innovate incurred losses from operations of $5.4 million and $8.9 million,
respectively, and net cash used in operating activities was $2.2 million and
$3.2 million, respectively. At September 30, 2017, Innovate had an accumulated
deficit of $17 million, its cash, cash equivalents and investment securities
were $1.5 million, and its working capital deficit was $11.1 million. Innovate
expects to continue to incur substantial operating losses for the next several
years as it advances its product candidates through clinical development, US and
other regional regulatory approvals, and commercialization. No revenue from
operations will likely be available until, and unless, one of its product
candidates is approved by the FDA or another regulatory agency and successfully
marketed, or Innovate enters into an arrangement that provides for licensing
revenue or other partnering-related funding, outcomes which Innovate may not
achieve on a timely basis, or at all.

 

Innovate’s capital requirements for the foreseeable future will depend in large
part on, and could increase significantly as a result of, its expenditures on
its development programs. Future expenditures on its development programs are
subject to many uncertainties, and will depend on, and could increase
significantly as a result of, many factors, including:

 

·the number, size, complexity, results and timing of its drug development
programs;

 

·the number of clinical and nonclinical studies necessary to demonstrate
acceptable evidence of the safety and efficacy of its product candidates;

 

·the terms of any collaborative or other strategic arrangement that Innovate may
establish;

 

·changes in standards of care which could increase the size and complexity of
clinical studies;

 

·the ability to locate patients to participate in a study given the limited
number of patients available for orphan or ultra-orphan indications;

 

·the number of patients who participate, the rate of enrollment, and the ratio
of randomized to evaluable patients in each clinical study;

 

   

 

 

·the number and location of sites and the rate of site initiation in each study;

 

·the duration of patient treatment and follow-up;

 

·the potential for additional safety monitoring or other post-marketing studies
that may be requested by regulatory agencies;

 

·the time and cost to manufacture clinical trial material and commercial
product, including process development and scale-up activities, and to conduct
stability studies, which can last several years;

 

·the degree of difficulty and cost involved in securing alternate manufacturers
or suppliers of drug product, components or delivery devices, as necessary to
meet FDA requirements and/or commercial demand;

 

·the costs, requirements, timing of, and the ability to, secure regulatory
approvals;

 

·the extent to which Innovate increases its workforce and the costs involved in
recruiting, training and incentivizing new employees;

 

·the costs related to developing, acquiring and/or contracting for sales,
marketing and distribution capabilities, supply chain management capabilities,
and regulatory compliance capabilities, if Innovate obtains regulatory approval
for a product candidate and commercializes it without a partner;

 

·the costs involved in evaluating competing technologies and market developments
or the loss in sales in case of such competition; and

 

·the costs involved in establishing, enforcing or defending patent claims and
other proprietary rights.

 

Additional capital may not be available when Innovate needs it, on terms that
are acceptable to it or at all. If adequate funds are not available to Innovate
on a timely basis, it will be required to delay, limit, reduce or terminate its
establishment of sales and marketing, manufacturing or distribution
capabilities, development activities or other activities that may be necessary
to commercialize its product candidates, conduct preclinical or clinical
studies, or other development activities.

 

If Innovate raises additional capital through marketing and distribution
arrangements or other collaborations, strategic alliances or licensing
arrangements with third parties, it may have to relinquish certain valuable
rights to its product candidates, technologies, future revenue streams or
research programs or grant licenses on terms that may not be favorable. If
Innovate raises additional capital through public or private equity offerings,
the ownership interest of its stockholders will be diluted and the terms of any
new equity securities may have preferential rights over its common stock. If
Innovate raises additional capital through debt financing, it may be subject to
covenants limiting or restricting its ability to take specific actions, such as
incurring additional debt or making capital expenditures, or subject to
specified financial ratios, any of which could restrict its ability to develop
and commercialize its product candidates or operate as a business.

 

   

 

 

Innovate has not generated any revenue from product sales and may never be
profitable.

 

Innovate has no products approved for commercialization and has never generated
any revenue from product sales. Innovate’s ability to generate revenue and
achieve profitability depends on its ability, alone or with strategic
collaboration partners, to successfully complete the development of, and obtain
the requisite regulatory approvals necessary to commercialize, one or more of
its product candidates.

 

Innovate has not paid cash dividends in the past and does not expect to pay
dividends in the future. Any return on investment may be limited to the value of
its common stock.

 

Innovate has never paid cash dividends on our common stock and does not
anticipate paying cash dividends in the near future. The payment of dividends on
its common stock will depend on earnings, financial condition and other business
and economic factors affecting Innovate at such time as the board of directors
may consider relevant. If Innovate does not pay dividends, its common stock may
be less valuable because a return on your investment will only occur if its
stock price appreciates.

 

Risks Related to Innovate’s Business Strategy and Operations

 

Innovate does not have any products that are approved for commercial sale.

 

Innovate currently does not have any therapeutic products approved for
commercial sale. Innovate has not received, and may not receive within the next
several years, if at all, any revenues from the commercialization of its product
candidates if approved.

 

Innovate is substantially dependent upon the clinical, regulatory and commercial
success of its three product candidates, INN-202, INN-108 and INN-329. Clinical
drug development involves a lengthy and expensive process with an uncertain
outcome, results of earlier studies and trials may not be predictive of future
trial results, and Innovate’s clinical trials may fail to adequately demonstrate
to the satisfaction of regulatory authorities the safety and efficacy of its
three product candidates.

 

The success of Innovate’s business is dependent on its ability to advance the
clinical development of INN-202 for the treatment of celiac disease, INN-108 for
the treatment of mild to moderate ulcerative colitis, and INN-329 for MRCP.
INN-202 has had successful completion of Phase 2 trials and Phase 3 pivotal
studies and long-term safety studies remain to be conducted. INN-108 will be
entering into Phase 2 efficacy trials for mild to moderate ulcerative colitis.
INN-329 requires some additional studies to be performed for completion of Phase
3 trials.

 

Clinical testing is expensive and can take many years to complete. The outcome
of this testing is inherently uncertain. A failure of one or more of Innovate’s
clinical trials can occur at any time during the clinical trial process. The
results of preclinical studies and early clinical trials of Innovate’s product
candidates may not necessarily be predictive of the results of later-stage
clinical trials. There is a high failure rate for drugs proceeding through
clinical trials, and product candidates in later stages of clinical trials may
fail to show the required safety and efficacy despite having progressed through
preclinical studies and initial clinical trials. Many companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical
trials due to lack of efficacy or adverse safety profiles, notwithstanding
promising results in earlier clinical trials, and Innovate cannot be certain
that it will not face similar setbacks. Even if Innovate’s clinical trials are
completed, the results may not be sufficient to obtain regulatory approval for
its product candidates.

 

   

 

 

Because of the developmental nature of Innovate’s product candidates, Innovate
is subject to risks associated with initiating, completing and achieving
positive outcomes from its current and future clinical trials, including:

 

·inability to enroll enough patients in the clinical trials;

 

·slow implementation, enrollment and completion of the clinical trials;

 

·low patient compliance and adherence to dosing and reporting requirements, such
as incomplete reporting of patient reported outcomes in the clinical trials or
missed doses;

 

·lack of safety and efficacy in the clinical trials;

 

·delays in the manufacture of supplies for drug components due to delays in
formulation, process development, or manufacturing activities;

 

·requirements for additional nonclinical or clinical studies based on changes to
formulation and/or changes to regulatory requirements;

 

·requirements for additional clinical studies based on inconclusive clinical
results or changes in market, standard of care, and/or regulatory requirements;

 

If Innovate successfully completes the necessary clinical trials for its product
candidates, its success will be subject to the risks associated with obtaining
regulatory approvals, product launch, and commercialization, including:

 

·delays during regulatory review and/or requirements for additional CMC,
nonclinical, or clinical studies, resulting in increased costs and/or delays in
marketing approval and subsequent commercialization of the product candidates in
the United States and other markets;

 

·FDA rejection of Innovate’s New Drug Application (“NDA”) submissions for its
product candidates;

 

·regulatory rejection in the EU, Japan, and other markets;

 

·inability to consistently manufacture commercial supplies of drug and delivery
devices resulting in slowed market development and lower revenue;

 

·poor commercial sales due to:

 

othe ability of Innovate’s future sales organization or its potential
commercialization partners to effectively sell the product candidates;

 

oInnovate’s lack of success in educating physicians and patients about the
benefits, administration, and use of its product candidates;

 

olow patient demand for the product candidates;

 

othe availability, perceived advantages, relative cost, relative safety and
relative efficacy of other products or treatments for the targeted indications
of the product candidates;

 

   

 

 

opoor prescription coverage and inadequate reimbursement for its product
candidates;

 

·Innovate’s inability to enforce its intellectual property rights in and to its
product candidates; and

 

·reduction in the safety profile of its product candidates following approval.

 

Many of these clinical, regulatory and commercial matters are beyond Innovate’s
control and are subject to other risks described elsewhere in this “Risk
Factors” annex. Accordingly, Innovate cannot assure that it will be able to
advance its product candidates further through final clinical development, or
obtain regulatory approval of, commercialize or generate significant revenue
from them. If Innovate cannot do so, or is significantly delayed in doing so,
its business will be materially harmed.

 

If Innovate fails to attract and retain senior management and key scientific
personnel, it may be unable to successfully develop and commercialize its
product candidates.

 

Innovate has historically operated with a limited number of employees. As of
July 31, 2017, Innovate had four full-time employees, including one employee
engaged in research and development. Therefore, institutional knowledge is
concentrated within a small number of employees. Innovate’s success depends in
part on its continued ability to attract, retain and motivate highly qualified
management, clinical and scientific personnel. Innovate’s future success is
highly dependent upon the contributions of its senior management team. The loss
of services of any of these individuals could delay or prevent the successful
development of its product pipeline, completion of its planned clinical trials
or the commercialization of its product candidates.

 

There may be intense competition from other companies and organizations for
qualified personnel. Other companies and organizations with which Innovate
competes for personnel may have greater financial and other resources and
different risk profiles than Innovate, and a history of successful development
and commercialization of its product candidates. Replacing key employees may be
difficult and costly; and Innovate may not have other personnel with the
capacity to assume all the responsibilities of a key employee upon his/her
departure. If Innovate cannot attract and retain skilled personnel, as needed,
Innovate may not achieve its development and other goals.

 

In addition, the success of Innovate’s business will depend on its ability to
develop and maintain relationships with respected service providers and
industry-leading consultants and advisers. If Innovate cannot develop and
maintain such relationships, as needed, the rate and success at which Innovate
can develop and commercialize product candidates may be limited. In addition,
its outsourcing strategy, which has included engaging consultants to manage key
functional areas, may subject Innovate to scrutiny under labor laws and
regulations, which may divert management time and attention and have an adverse
effect on its business and financial condition.

 

   

 

 

Innovate has identified a material weakness in its internal control over
financial reporting and may identify additional material weaknesses in the
future or otherwise fail to maintain an effective system of internal control,
which may impair its ability to produce accurate financial statements or prevent
fraud.

 

Currently, Innovate is a private company and has limited resources to address
its internal controls and procedures and relies on part-time consultants to
assist Innovate with its financial accounting and compliance obligations. In
connection with the preparation of Innovate’s audited financial statements for
the year ended December 31, 2016, Innovate’s independent auditors advised
management that a material weakness existed in internal controls over financial
reporting due to Innovate’s inability to adequately segregate duties as a result
of Innovate’s limited number of accounting personnel. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of the subject company’s annual or interim financial statements
will not be prevented or detected on a timely basis. Although Innovate is
committed to continuing to improve its internal control processes and intends to
implement a plan to remediate this material weakness, Innovate cannot be certain
of the effectiveness of such plan or that, in the future, additional material
weaknesses or significant deficiencies will not exist or otherwise be
discovered. If Innovate is unable to maintain proper and effective internal
controls, it may not be able to produce timely and accurate financial statements
and prevent fraud.

 

Innovate’s employees, independent contractors and consultants, principal
investigators, CROs, CMOs and other vendors, and any future commercial partners
may engage in misconduct or other improper activities, including noncompliance
with regulatory standards and requirements, which could cause significant
liability for Innovate and harm its reputation.

 

Innovate is exposed to the risk that its employees, independent contractors and
consultants, principal investigators, clinical research organizations (CROs),
contract manufacturing organizations (CMOs) and other vendors, and any future
commercial partners may engage in fraudulent conduct or other misconduct. This
type of misconduct may include intentional failures to comply with FDA
regulations or similar regulations of comparable foreign regulatory authorities,
to provide accurate information to the FDA or comparable foreign regulatory
authorities, to comply with manufacturing standards required by cGMP or Innovate
standards, to comply with federal and state healthcare fraud and abuse laws and
regulations and similar laws and regulations established and enforced by
comparable foreign regulatory authorities, and to report financial information
or data accurately or disclose unauthorized activities to them. The misconduct
of its employees and other Innovate service providers could involve the improper
use of information obtained in the course of clinical trials, which could result
in regulatory sanctions and serious harm to its reputation. Innovate intends to
adopt a code of business ethics and conduct, but it is not always possible to
identify and deter such misconduct, and the precautions Innovate takes to detect
and prevent this activity, such as the implementation of a quality system which
entails vendor audits by quality experts, may not be effective in controlling
unknown or unmanaged risks or losses or in protecting Innovate from governmental
investigations or other actions or lawsuits stemming from a failure to be in
compliance with such laws or regulations. If any such actions are instituted
against them, and Innovate is not successful in defending itself or asserting
its rights, those actions could have a significant impact on its business and
results of operations, including the imposition of significant fines or other
sanctions.

 

Innovate does not have, and does not have plans to establish manufacturing
facilities. Innovate completely relies on third parties for the manufacture and
supply of its clinical trial drug and delivery device supplies and, if approved,
commercial product materials. The loss of any of these vendors or a vendor’s
failure to provide Innovate with an adequate supply of clinical trial or
commercial product material in a timely manner and on commercially acceptable
terms, or at all, could harm its business.

 

Innovate outsources the manufacture of its product candidates and does not plan
to establish its own manufacturing facilities. To manufacture Innovate’s product
candidates, Innovate has made numerous custom modifications at CMOs, making
Innovate highly dependent on these CMOs. For clinical and commercial supplies,
if approved, Innovate has supply agreements with third party CMOs for drug
substance and finished drug product. While Innovate has secured long-term
commercial supply agreements with many of the third party CMOs, Innovate would
need to negotiate agreements for commercial supply with several important CMOs,
and Innovate may not be able to reach agreement on acceptable terms. In
addition, Innovate relies on these third parties to conduct or assist Innovate
in key manufacturing development activities, including qualification of
equipment, developing and validating methods, defining critical process
parameters, releasing component materials and conducting stability testing,
among other things. If these third parties are unable to perform their tasks
successfully in a timely manner, whether for technical, financial or other
reasons, Innovate may be unable to secure clinical trial material, or commercial
supply material if approved, which likely would delay the initiation, conduct or
completion of its clinical studies or prevent Innovate from having enough
commercial supply material for sale, which would have a material and adverse
effect on its business.

 

   

 

 

Currently, Innovate does not have alternative vendors to back up its primary
vendors of clinical trial material or, if approved, commercial supply material.
Identification of and discussions with other vendors may be protracted and/or
unsuccessful, or these new vendors may be unsuccessful in producing the same
results as the current primary vendors producing the material. Therefore, if its
primary vendors become unable or unwilling to perform their required activities,
Innovate could experience protracted delays or interruptions in the supply of
clinical trial material and, ultimately, product for commercial sale, which
would materially and adversely affect its development programs, commercial
activities, operating results and financial condition. In addition, the FDA or
regulatory authorities outside of the United States may require Innovate to have
an alternate manufacturer of a drug product before approving it for marketing
and sale in the United States or abroad and securing such alternate manufacturer
before approval of an NDA could result in considerable additional time and cost
prior to NDA approval.

 

Any new manufacturer or supplier of finished drug product or its component
materials, including drug substance and delivery devices, would be required to
qualify under applicable regulatory requirements and would need to have
sufficient rights under applicable intellectual property laws to the method of
manufacturing of such product or ingredients required by Innovate. The FDA or
foreign regulatory agency may require Innovate to conduct additional clinical
studies, collect stability data and provide additional information concerning
any new supplier, or change in a validated manufacturing process, including
scaling-up production, before Innovate could distribute products from that
manufacturer or supplier or revised process. For example, if Innovate were to
engage a third party other than its current CMOs to supply the drug substance or
drug product for future clinical trial, or commercial product, the FDA or
regulatory authorities outside of the United States may require Innovate to
conduct additional clinical and nonclinical studies to ensure comparability of
the drug substance or drug product manufactured by its current CMOs to that
manufactured by the new supplier.

 

The manufacture of pharmaceutical products requires significant expertise and
capital investment, including the development of advanced manufacturing
techniques and process controls. Manufacturers of pharmaceutical products often
encounter difficulties in production, particularly in scaling-up initial
production. These problems include difficulties with production costs and
yields, quality control, including stability of the product candidate and
quality assurance testing, and shortages of qualified personnel. Innovate’s
product candidates have not been manufactured at the scale Innovate believes
will be necessary to maximize its commercial value and, accordingly, Innovate
may encounter difficulties in attempting to scale-up production and may not
succeed in that effort on a timely basis or at all. In addition, the FDA or
other regulatory authorities may impose additional requirements as Innovate
scales-up initial production capabilities, which may delay its scale-up
activities and/or add expense.

 

All manufacturers of Innovate’s clinical trial material and, if approved,
commercial product, including drug substance manufacturers, must comply with
cGMP requirements enforced by the FDA through its facilities inspection program
and applicable requirements of foreign regulatory authorities. These
requirements include quality control, quality assurance and the maintenance of
records and documentation. Manufacturers of Innovate’s clinical trial material
may be unable to comply with these cGMP requirements and with other FDA, state
and foreign regulatory requirements. While Innovate or its representatives
generally monitor and audit its manufacturers’ systems, Innovate does not have
full control over their ongoing compliance with these regulations. And while the
responsibility to maintain cGMP compliance is shared between Innovate and the
third-party manufacturer, Innovate bears ultimate responsibility for its supply
chain and compliance with regulatory standards. Failure to comply with these
requirements may result in fines and civil penalties, suspension of production,
suspension or delay or failure to obtain product approval, product seizure or
recall, or withdrawal of product approval.

 

   

 

 

If Innovate’s manufacturers encounter any of the aforementioned difficulties or
otherwise fail to comply with their contractual obligations or there are delays
entering commercial supply agreements due to capital constraints, Innovate may
have insufficient quantities of material to support ongoing and/or planned
clinical studies or to meet commercial demand, if approved. In addition, any
delay or interruption in the supply of materials necessary or useful to
manufacture its product candidates could delay the completion of its clinical
studies, increase the costs associated with its development programs and,
depending upon the period of delay, require Innovate to commence new clinical
studies at significant additional expense or terminate the studies completely.
Delays or interruptions in the supply of commercial product could result in
increased cost of goods sold and lost sales. Innovate cannot provide assurance
that manufacturing or quality control problems will not arise in connection with
the manufacture of its clinical trial material or commercial product, if
approved, or that third-party manufacturers will be able to maintain the
necessary governmental licenses and approvals to continue manufacturing such
clinical trial material or commercial product, as applicable. In addition, if
Innovate products are manufactured entirely or partially outside the United
States, Innovate may experience interruptions in supply due to shipping or
customs difficulties or regional instability. Furthermore, changes in currency
fluctuations, shipping costs, or import tariffs could adversely affect cost of
goods sold. Any of the above factors could cause Innovate to delay or suspend
anticipated or ongoing trials, regulatory submissions or commercialization of
its product candidates, entail higher costs or result in Innovate being unable
to effectively commercialize its products. Innovate’s dependence upon third
parties for the manufacture of its clinical trial material may adversely affect
its future costs and its ability to develop and commercialize its product
candidates on a timely and competitive basis.

 

Innovate currently relies significantly on third parties to conduct its
nonclinical testing and clinical studies and other aspects of its development
programs and if those third parties do not satisfactorily perform their
contractual obligations or meet anticipated deadlines, the development of its
product candidates could be adversely affected.

 

Innovate does not currently employ personnel or possess the facilities necessary
to conduct many of the activities associated with its programs. Innovate engages
consultants, advisors, clinical research organizations (CROs), and others to
assist in the design and conduct of nonclinical and clinical studies of its
product candidates, with interpretation of the results of those studies and with
regulatory activities, and Innovate expects to continue to outsource all or a
significant amount of such activities. As a result, many important aspects of
its development programs are and will continue to be outside its direct control,
and its third-party service providers may not perform their activities as
required or expected including the maintenance of GCP, GLP and GMP compliance,
which are ultimately Innovate’s responsibility to ensure. Further, such third
parties may not be as committed to the success of Innovate’s programs as
Innovate’s own employees and, therefore, may not devote the same time,
thoughtfulness or creativity to completing projects or problem-solving as
Innovate’s own employees would. To the extent Innovate is unable to successfully
manage the performance of third-party service providers, its business may be
adversely affected.

 

   

 

 

The CROs that Innovate may engage to execute its clinical studies play a
significant role in the conduct of the studies, including the collection and
analysis of study data, and Innovate likely will depend on CROs and clinical
investigators to conduct future clinical studies and to assist in analyzing data
from completed studies and developing regulatory strategies for its product
candidates. Individuals working at the CROs with which it will contract, as well
as investigators at the sites at which its studies are conducted, are not
Innovate’s employees, and Innovate has limited control over the amount or timing
of resources that they devote to their programs. If Innovate’s CROs, study
investigators, and/or third-party sponsors fail to devote sufficient time and
resources to studies of its product candidates, if Innovate and/or its CROs do
not comply with all GLP and GCP regulatory and contractual requirements, or if
their performance is substandard, it may delay commencement and/or completion of
these studies, submission of applications for regulatory approval, regulatory
approval, and commercialization of its product candidates. Failure of CROs to
meet their obligations to Innovate could adversely affect development of its
product candidates.

 

In addition, CROs Innovate engages may have relationships with other commercial
entities, some of which may compete with Innovate. Through intentional or
unintentional means, Innovate’s competitors may benefit from lessons learned on
the Innovate project that could ultimately harm Innovate’s competitive position.
Moreover, if a CRO fails to properly, or at all, perform its activities during a
clinical study, Innovate may not be able to enter into arrangements with
alternative CROs on acceptable terms or in a timely manner, or at all. Switching
CROs may increase costs and divert management time and attention. In addition,
there likely would be a transition period before a new CRO commences work. These
challenges could result in delays in the commencement or completion of
Innovate’s clinical studies, which could materially impact its ability to meet
its desired and/or announced development timelines and have a material adverse
impact on its business and financial condition.

 

Innovate may not achieve its projected development goals within the time frames
that Innovate has announced.

 

Innovate has set goals for accomplishing certain objectives material to the
successful development of its product candidates. The actual timing of these
events may vary due to many factors, including delays or failures in its
nonclinical testing, clinical studies and manufacturing and regulatory
activities and the uncertainties inherent in the regulatory approval process.
From time to time, Innovate creates estimates for the completion of enrollment
of or announcement of data from clinical studies of its product candidates.
However, predicting the rate of enrollment or the time from completion of
enrollment to announcement of data for any clinical study requires Innovate to
make significant assumptions that may prove to be incorrect. As discussed in
other risk factors above, its estimated enrollment rates and the actual rates
may differ materially and the time required to complete enrollment of any
clinical study may be considerably longer than Innovate estimates. Such delays
may adversely affect its financial condition and results of operations.

 

Even if Innovate completes a clinical study with successful results, Innovate
may not achieve its projected development goals within the periods Innovate
initially anticipates or announces. If a development plan for a product
candidate becomes more extensive and costly than anticipated, Innovate may
determine that the associated time and cost are not financially justifiable and,
as a result, may discontinue development in a particular indication or of the
product candidate as a whole. In addition, even if a study did complete with
successful results, changes may occur in regulatory requirements or policy
during the period of product development and/or regulatory review of an NDA that
relate to the data required to be included in NDAs which may require additional
studies that may be costly and time consuming. Any of these actions may be
viewed negatively, which could adversely impact its financial condition.

 

Further, throughout development, Innovate must provide adequate assurance to the
FDA and other regulatory authorities that Innovate can consistently develop and
produce its product candidates in conformance with GLP, GCP, cGMP, and other
regulatory standards. As discussed above, Innovate relies on CMOs for the
manufacture of clinical, and future commercial, quantities of its product
candidates. If future FDA or other regulatory authority inspections identify
cGMP compliance deficiencies at these third-party facilities, production of its
clinical trial material or, in the future, commercial product, could be
disrupted, causing potentially substantial delay in or failure of development or
commercialization of its product candidates.

 

   

 

 

Innovate currently has limited marketing capabilities and no sales organization.
If Innovate is unable to establish sales and marketing capabilities on its own
or through third parties, it will be unable to successfully commercialize its
products, if approved, or generate product revenue.

 

To commercialize Innovate’s products, if approved, in the United States and
other jurisdictions it seeks to enter, Innovate must build its marketing, sales,
managerial and other non-technical capabilities or make arrangements with third
parties to perform these services, and it may not be successful in doing so. If
Innovate’s products receive regulatory approval, it expects to market such
products in the United States through a focused, specialized sales force, which
will be costly and time consuming. Innovate has no prior experience in the
marketing and sale of pharmaceutical products and there are significant risks
involved in building and managing a sales organization, including its ability to
hire, retain and incentivize qualified individuals, generate sufficient sales
leads, provide adequate training to sales and marketing personnel and
effectively manage a geographically dispersed sales and marketing team. Outside
of the United States, Innovate may consider collaboration arrangements. If
Innovate is unable to enter into such arrangements on acceptable terms or at
all, it may not be able to successfully commercialize its products in certain
markets. Any failure or delay in the development of its internal sales,
marketing and distribution capabilities would adversely impact the
commercialization of its products. If Innovate is not successful in
commercializing its products, either on its own or through collaborations with
one or more third parties, its future product revenue will suffer and it would
incur significant additional losses.

 

To establish a sales and marketing infrastructure and expand its manufacturing
capabilities, Innovate will need to increase the size of its organization, and
Innovate may experience difficulties in managing this growth.

 

As of July 31, 2017, Innovate had four full-time employees, including one
employee engaged in research and development. As Innovate advances its product
candidates through the development process and to commercialization, it will
need to continue to expand its development, regulatory, quality, managerial,
sales and marketing, operational, finance and other resources to manage its
operations and clinical trials, continue its development activities and
commercialize its product candidates, if approved. As its operations expand,
Innovate expects that it will need to manage additional relationships with
various manufacturers and collaborative partners, suppliers and other
organizations.

 

Due to Innovate’s limited financial resources and its limited experience in
managing a company with such anticipated growth, Innovate may not be able to
effectively manage the expansion of its operations or recruit and train
additional qualified personnel. In addition, the physical expansion of its
operations may lead to significant costs and may divert its management and
resources. Any inability to manage growth could delay the execution of its
development and strategic objectives, or disrupt its operations, which could
materially impact its business, revenue and operating results.

 

   

 

 

Innovate’s product candidates may cause undesirable side effects or adverse
events, or have other properties that could delay or prevent its clinical
development, regulatory approval or commercialization.

 

As with many pharmaceutical products, undesirable side effects or adverse events
caused by Innovate’s product candidates could interrupt, delay or halt clinical
studies and could result in the denial of regulatory approval by the FDA or
other regulatory authorities for any or all indications, and in turn prevent
Innovate from commercializing its product candidates. A significant challenge in
clinical development is that the patient population in early studies, where
small numbers of patients are required, is different from the patient population
observed in later stage studies, where larger groups of patients are required.
For example, patients in earlier stage studies may be sicker, more compliant, or
otherwise motivated than patients in larger studies.

 

If undesirable side effects occur, they could possibly prevent approval, which
would have a material and adverse effect on its business.

 

If any of its product candidates receive marketing approval and Innovate or
others later identify undesirable side effects caused by the product:

 

·regulatory authorities may require the addition of labeling statements, such as
a “black box” warning or a contraindication;

 

·Innovate may be required to change the way the product is administered, conduct
additional clinical studies or change the labeling of the product; and

 

·regulatory authorities may withdraw approval of the product;

 

·its reputation may suffer.

 

Any of these events could prevent Innovate from achieving or maintaining market
acceptance of the affected product or could substantially increase the costs and
expenses of commercializing the product, which in turn could delay or prevent
Innovate from generating significant revenue from its sale.

 

Innovate’s business and operations would suffer in the event of third-party
computer system failures, cyber-attacks on third-party systems or deficiency in
its cyber security.

 

Innovate relies on information technology systems, including third-party “cloud
based” service providers, to keep financial records, maintain laboratory data,
clinical data and corporate records, to communicate with staff and external
parties, and to operate other critical functions. This includes critical systems
such as email, other communication tools, electronic document repositories, and
archives. If any of these third-party information technology (IT) providers are
compromised due to computer viruses, unauthorized access, malware, natural
disasters, fire, terrorism, war and telecommunication failures, electrical
failures, cyber-attacks or cyber-intrusions over the internet, then sensitive
emails or documents could be exposed or deleted. Similarly, Innovate could incur
business disruption if its access to the internet is compromised and Innovate is
unable to connect with third-party IT providers. The risk of a security breach
or disruption, particularly through cyber-attacks or cyber intrusion, including
by computer hackers, foreign governments, and cyber terrorists, has generally
increased as the number, intensity and sophistication of attempted attacks and
intrusions from around the world have increased. In addition, Innovate relies on
those third parties to safeguard important confidential personal data regarding
its employees and patients enrolled in its clinical trials. If a disruption
event were to occur and cause interruptions in a third-party IT provider’s
operations, it could result in a disruption of its drug development programs.
For example, the loss of clinical trial data from completed, ongoing or planned
clinical trials could result in delays in its regulatory approval efforts and
significantly increase its costs to recover or reproduce the data. To the extent
that any disruption or security breach results in a loss of or damage to its
data or applications, or inappropriate disclosure of confidential or proprietary
information, Innovate could incur liability and development of its product
candidates could be delayed, or could fail.

 

   

 

 

Risks Related to Drug Development and Commercialization

 

Innovate depends on the successful completion of clinical studies of its product
candidates, and any positive results in prior clinical studies do not ensure
that ongoing or future clinical studies will be successful.

 

Pharmaceutical products are subject to stringent regulatory requirements
covering quality, safety, and efficacy. The burden of proof is on the
manufacturer, such as Innovate, to show with substantial clinical data that the
risk/benefit profile for any new drug is favorable. Only after successfully
completing extensive pharmaceutical development, nonclinical testing, and
clinical studies may a product be considered for regulatory approval.

 

If Innovate licenses rights to develop its product candidates to independent
third parties or otherwise permit such third parties to evaluate its product
candidates in clinical studies, Innovate may have limited control over those
clinical studies. Any safety or efficacy concern identified in a third-party
sponsored study could adversely affect its or another licensee’s development of
its product candidate and prospects for its regulatory approval, even if the
data from that study are subject to varying interpretations and analyses.

 

There is significant risk that ongoing and future clinical studies of its
product candidates are unsuccessful. Negative or inconclusive results could
cause the FDA and other regulatory authorities to require Innovate to repeat or
conduct additional clinical studies, which could significantly increase the time
and expense associated with development of that product candidate or cause
Innovate to elect to discontinue one or more clinical programs. Failure to
complete a clinical study of a product candidate or an unsuccessful result of a
clinical study could have a material adverse effect on its business.

 

Clinical drug development involves a lengthy and expensive process, with an
uncertain outcome. We may incur additional costs or experience delays in
completing, or ultimately be unable to complete, the development and
commercialization of our drug candidates.

 

Clinical studies are expensive, difficult to design and implement, may take many
years to complete, and outcomes are inherently uncertain. A drug product may
fail to demonstrate positive results at any stage of testing despite having
progressed satisfactorily through nonclinical testing and initial clinical
studies. There is significant risk in clinical development where later stage
clinical studies are designed and powered based on the analysis of data from
earlier studies, with these earlier studies involving a smaller number of
patients, and the results of the earlier studies being driven primarily by a
subset of responsive patients. In addition, interim results of a clinical study
do not necessarily predict final results. Further, clinical study data
frequently are susceptible to varying interpretations. Medical professionals
and/or regulatory authorities may analyze or weigh study data differently than
the sponsor company, resulting in delay or failure to obtain marketing approval
for a product candidate. Additionally, the possible lack of standardization
across multiple investigative sites may induce variability in the results, which
can interfere with the evaluation of treatment effects.

 

Delays in commencement and completion of clinical studies are common and have
many causes. Delays in clinical studies of Innovate’s product candidates could
increase overall development costs and jeopardize its ability to obtain
regulatory approval and successfully commercialize any approved products.

 

Clinical studies may not commence on time or be completed on schedule, if at
all. The commencement and completion of clinical studies can be delayed for a
variety of reasons, including:

 

   

 

 

·inability to raise sufficient funding to initiate or to continue a clinical
study;

 

·delays in obtaining regulatory approval to commence a clinical study;

 

·delays in identifying and reaching agreement on acceptable terms with
prospective contract research organizations, or CROs, and clinical study sites
and investigators, which agreements can be subject to extensive negotiation and
may vary significantly among study sites;

 

·delays in obtaining regulatory approval in a prospective country;

 

·delays in obtaining ethic committee approval to conduct a clinical study at a
prospective site;

 

·delays in reaching agreements on acceptable terms with prospective contract
manufacturing organizations, or CMOs, or other vendors for the production and
supply of clinical trial material and, if necessary, drug administration
devices, which agreements can be subject to extensive negotiation;

 

·delays in the production or delivery of sufficient quantities of clinical trial
material from its CMOs and other vendors to initiate or continue a clinical
study;

 

·delays due to product candidate recalls as a result of stability failure,
excessive product complaints or other failures of the product candidate during
its use or testing;

 

·invalidation of clinical data caused by premature unblinding or integrity
issues;

 

·invalidation of clinical data caused by mixing up of the active drug and
placebo through randomization or manufacturing errors;

 

·delays on the part of its CROs, CMOs, and other third-party contractors in
developing procedures and protocols or otherwise conducting activities in
accordance with applicable policies and procedures and in accordance with agreed
upon timelines;

 

·delays in identifying and hiring or engaging, as applicable, additional
employees or consultants to assist in managing clinical study-related
activities;

 

·delays in recruiting and enrolling individuals to participate in a clinical
study, which historically can be challenging in orphan diseases;

 

·delays caused by patients dropping out of a clinical study due to side effects,
concurrent disorders, difficulties in adhering to the study protocol, unknown
issues related to different patient profiles than in previous studies, or
otherwise;

 

·delays in having patients complete participation in a clinical study, including
returning for post-treatment follow-up;

 

·delays resulting from study sites dropping out of a trial, providing inadequate
staff support for the study, problems with shipment of study supplies to
clinical sites, or focusing its staff’s efforts on enrolling studies that
compete for the same patient population;

 

   

 

 

·suspension of enrollment at a study site or the imposition of a clinical hold
by the FDA or other regulatory authority following an inspection of clinical
study operations at study sites or finding of a drug-related serious adverse
event; and

 

·delays in quality control/quality assurance procedures necessary for study
database lock and analysis of unblinded data.

 

Innovate may experience difficulties in the enrollment of patients in its
clinical trials, which may delay or prevent Innovate from obtaining regulatory
approval.

 

Innovate may not be able to continue clinical trials for its product candidates
if Innovate is unable to locate and enroll a sufficient number of eligible
patients to participate in these trials as required by the FDA or similar
regulatory authorities outside the United States. In particular, because
Innovate is focused on diseases in genomically defined patient populations, our
ability to enroll eligible patients may be limited or may result in slower
enrollment than we anticipate. In addition, some of our competitors have ongoing
clinical trials for drug candidates that treat the same indications as our drug
candidates, and patients who would otherwise be eligible for our clinical trials
may instead enroll in clinical trials of our competitors’ drug candidates.

 

Patient enrollment, a critical component to successful completion of a clinical
study, is affected by many factors, including:

 

·the size of the target patient population;

 

·other ongoing studies competing for the same patient population;

 

·the eligibility criteria for the clinical trial;

 

·the design of the clinical study;

 

·the perceived risks and benefits of the product candidate under study;

 

·the efforts to facilitate timely enrollment in clinical trials;

 

·the proximity and availability of clinical trial sites for prospective
patients; and

 

·the ability to monitor patients adequately during and after treatment.

 

Clinical studies may not begin on time or be completed in the time frames
Innovate anticipates. The length of time necessary to successfully complete
clinical studies varies significantly and is difficult to predict accurately.
Innovate may make statements regarding anticipated timing for completion of
enrollment in and/or availability of results from its clinical studies, but such
predictions are subject to a number of significant assumptions and actual timing
may differ materially for a variety of reasons, including patient enrollment
rates, length of time needed to prepare raw study data for analysis and then to
review and analyze it, and other factors described above. If Innovate
experiences delays in the completion of a clinical study, if a clinical study is
terminated, or if failure to conduct a study in accordance with regulatory
requirements or the study’s protocol leads to deficient safety and/or efficacy
data, the regulatory approval and/or commercial prospects for its product
candidates may be harmed and its ability to generate product revenue will be
delayed. In addition, any delays in completing its clinical studies likely will
increase its development costs. Further, many of the factors that cause, or lead
to, a delay in the commencement or completion of clinical studies may ultimately
lead to the denial of regulatory approval of a product candidate. Even if
Innovate ultimately commercializes its product candidates, the standard of care
may have changed or other therapies for the same indications may have been
introduced to the market in the interim and may establish a competitive threat
to Innovate or may diminish the need for Innovate’s products.

 

   

 

 

Clinical studies are very expensive, difficult to design and implement, often
take many years to complete, and the outcome is inherently uncertain.

 

Clinical development of pharmaceutical products for humans is generally very
expensive, takes many years to complete and failures can occur at any stage of
clinical testing. Innovate estimates that clinical development of its product
candidates will take several additional years to complete, but because of the
variety of factors that can affect the design, timing, and outcome of clinical
studies, Innovate is unable to estimate the exact funds required to complete
research and development, to obtain regulatory approval and to commercialize all
of its product candidates. Innovate will need significant additional capital to
continue to advance its products as per current business plans.

 

Failure at any stage of clinical testing is not uncommon and Innovate may
encounter problems that would require additional, unplanned studies or cause
Innovate to abandon a clinical development program.

 

In addition, a clinical study may be suspended or terminated by Innovate, an
IRB, a data safety monitoring board, the FDA or other regulatory authorities due
to a number of factors, including:

 

·lack of adequate funding to continue the study;

 

·failure to conduct the study in accordance with regulatory requirements or the
study’s protocol;

 

·inspection of clinical study operations or sites by the FDA or other regulatory
authorities resulting in the imposition of a clinical hold;

 

·unforeseen safety issues, including adverse side effects; or

 

·changes in governmental regulations or administrative actions.

 

Changes in governmental regulations and guidance relating to clinical studies
may occur and Innovate may need to amend study protocols to reflect these
changes, or Innovate may amend study protocols for other reasons. Amendments may
require Innovate to resubmit protocols to IRBs for reexamination and approval or
renegotiate terms with CROs, study sites and investigators, all of which may
adversely impact the costs or timing of or its ability to successfully complete
a trial.

 

There is significant uncertainty regarding the regulatory approval process for
any investigational new drug, substantial further testing and validation of its
product candidates and related manufacturing processes may be required, and
regulatory approval may be conditioned, delayed or denied, any of which could
delay or prevent Innovate from successfully marketing its product candidates and
substantially harm its business.

 

Pharmaceutical products generally are subject to rigorous nonclinical testing
and clinical studies and other approval procedures mandated by the FDA and
foreign regulatory authorities. Various federal and foreign statutes and
regulations also govern or materially influence the manufacturing, safety,
labeling, storage, record keeping and marketing of pharmaceutical products. The
process of obtaining these approvals and the subsequent compliance with
appropriate U.S. and foreign statutes and regulations is time-consuming and
requires the expenditure of substantial resources.

 

   

 

 

Innovate is preparing INN-202, larazotide acetate, for a Phase 3 clinical trial,
the success of which will be needed for FDA approval to market INN-202 in the
United States to treat celiac disease in patients with persistent symptoms while
adhering to a gluten free diet. While significant communication with the FDA on
the Phase 3 study design has occurred, even if the Phase 3 clinical study meets
all of its statistical goals and protocol end points, the FDA may not view the
results as robust and convincing. They may require additional clinical studies
and/or other costly studies, which could require Innovate to expend substantial
additional resources and could significantly extend the timeline for clinical
development prior to market approval. Additionally, Innovate is required by the
FDA to conduct a long-term safety study. The results of this study will not be
known until a short time prior to potential submission of an NDA for INN-202. If
the safety study cannot be completed for technical or other reasons, or provides
results that the FDA determines to be concerning, this may cause a delay or
failure in obtaining approval for INN-202.

 

INN-108 plans to initiate Phase 2 clinical trials for mild to moderate
ulcerative colitis. Concurrently, Innovate plans to make formulation changes to
INN-108 that would simplify the composition for use in pediatric patients. While
this change is expected by Innovate to reduce studies and/or other documentation
requirements, the regulatory agencies may require additional clinical or
nonclinical studies prior to approval, even if current clinical studies are
deemed successful, which could require Innovate to expend substantial additional
resources and significantly extend the timeline for clinical development of
INN-108.

 

Innovate is preparing INN-329, secretin, for additional testing in its Phase 3
clinical trial, the success of which will be needed for FDA approval to market
INN-329 in the United States for MRCP procedures. While significant
communication with the FDA on the Phase 3 study design has occurred in the past,
Innovate will be required to initiate communication with the FDA to finalize the
study design and to seek their approval for the additional Phase 3 trial design.
Even if the Phase 3 clinical study meets all of its statistical goals and
protocol end points, the FDA may not view the results as robust and convincing.
The FDA may require additional clinical studies and/or other costly studies,
which could require Innovate to expend substantial additional resources and
could significantly extend the timeline for clinical development prior to market
approval. Additionally, Innovate is required by the FDA to conduct a long term
safety study. The results of this study will not be known until a short time
prior to potential submission of an NDA for INN-329. If the safety study cannot
be completed for technical or other reasons, or provides results that the FDA
determines to be concerning, this may cause a delay or failure in obtaining
approval for INN-329.

 

Significant uncertainty exists with respect to the regulatory approval process
for any investigational new drug, including INN-202, INN-108 and INN-329.
Regardless of any guidance the FDA or foreign regulatory agencies may provide a
drug’s sponsor during its development, the FDA or foreign regulatory agencies
retain complete discretion in deciding whether to accept an NDA or the
equivalent foreign regulatory approval submission for filing or, if accepted,
approve an NDA. There are many components to an NDA or marketing authorization
application submission in addition to clinical study data. For example, the FDA
or foreign regulatory agencies will review the sponsor’s internal systems and
processes, as well as those of its CROs, CMOs and other vendors, related to
development of its product candidates, including those pertaining to its
clinical studies and manufacturing processes. Before accepting an NDA for review
or before approving the NDA, the FDA or foreign regulatory agencies may request
that Innovate provide additional information that may require significant
resources and time to generate and there is no guarantee that its product
candidates will be approved for any indication for which Innovate may apply. The
FDA or foreign regulatory agencies may choose not to approve an NDA for any of a
variety of reasons, including a decision related to the safety or efficacy data,
manufacturing controls or systems, or for any other issues that the agency may
identify related to the development of its product candidates. Even if one or
more Phase 3 clinical studies are successful in providing statistically
significant evidence of the efficacy and safety of the investigational drug, the
FDA or foreign regulatory agencies may not consider efficacy and safety data
from the submitted studies adequate scientific support for a conclusion of
effectiveness and/or safety and may require one or more additional Phase 3 or
other studies prior to granting marketing approval. If this were to occur, the
overall development cost for the product candidate would be substantially
greater and its competitors may bring products to market before Innovate, which
could impair its ability to generate revenues from the product candidates, or
even seek approval, if blocked by a competitor’s Orphan Drug exclusivity, which
would have a material adverse effect on Innovate’s business, financial condition
and results of operations.

 

   

 

 

Further, development of Innovate’s product candidates and/or regulatory approval
may be delayed for reasons beyond its control. For example, U.S. federal
government shut-down or budget sequestration, such as one that occurred during
2013, may result in significant reductions to the FDA’s budget, employees and
operations, which may lead to slower response times and longer review periods,
potentially affecting Innovate’s ability to progress development of its product
candidates or obtain regulatory approval for its product candidates.

 

Even if the FDA or foreign regulatory agencies grant approvals for Innovate’s
product candidates, the conditions or scope of the approval(s) may limit
successful commercialization of the product candidates and impair Innovate’s
ability to generate substantial sales revenue. The FDA or foreign regulatory
agencies may also only grant marketing approval contingent on the performance of
costly post-approval nonclinical or clinical studies, or subject to warnings or
contraindications that limit commercialization. Additionally, even after
granting approval, the manufacturing processes, labeling, packaging,
distribution, adverse event reporting, storage, advertising, promotion and
recordkeeping for its products will be subject to extensive and ongoing
regulatory requirements. These requirements include submissions of safety and
other post-marketing information and reports, registration, and continued
compliance with current good manufacturing processes, or cGMP, good clinical
practices, international conference on harmonization regulations and good
laboratory practices, which are regulations and guidelines that are enforced by
the FDA or foreign regulatory agencies for all of its clinical development and
for any clinical studies that Innovate conducts post-approval. The FDA or
foreign regulatory agencies may decide to withdraw approval, add warnings or
narrow the approved indications in the product label, or establish risk
management programs that could restrict distribution of its products. These
actions could result from, among other things, safety concerns, including
unexpected side effects or drug-drug interaction problems, or concerns over
misuse of a product. If any of these actions were to occur following approval,
Innovate may have to discontinue commercialization of the product, limit its
sales and marketing efforts, implement risk minimization procedures, and/or
conduct post-approval studies, which in turn could result in significant expense
and delay or limit its ability to generate sales revenues.

 

Regulations may be changed prior to submission of an NDA that require higher
hurdles than currently anticipated. These may occur as a result of drug
scandals, recalls, or a political environment unrelated to Innovate’s products.

 

   

 

 

Even if Innovate receives regulatory approval for a product candidate, Innovate
may face regulatory difficulties that could materially and adversely affect its
business, financial condition and results of operations.

 

Even if initial regulatory approval is obtained, as a condition to the initial
approval the FDA or a foreign regulatory agency may impose significant
restrictions on a product’s indicated uses or marketing or impose ongoing
requirements for potentially costly post-approval studies or marketing
surveillance programs, any of which would limit the commercial potential of the
product. Its product candidates also will be subject to ongoing FDA requirements
related to the manufacturing processes, labeling, packaging, storage,
distribution, advertising, promotion, record-keeping and submission of safety
and other post-market information regarding the product. For instance, the FDA
may require changes to approved drug labels, require post-approval clinical
studies and impose distribution and use restrictions on certain drug products.
In addition, approved products, manufacturers and manufacturers’ facilities are
subject to continuing regulatory review and periodic inspections. If previously
unknown problems with a product are discovered, such as adverse events of
unanticipated severity or frequency, or problems with the facility where the
product is manufactured, the FDA may impose restrictions on that product or
Innovate, including requiring withdrawal of the product from the market. If
Innovate or a CMO of Innovate’s fails to comply with applicable regulatory
requirements, a regulatory agency may:

 

·issue warning letters or untitled letters;

 

·impose civil or criminal penalties;

 

·suspend or terminate any ongoing clinical studies;

 

·close the facilities of a CMO;

 

·refuse to approve pending applications or supplements to approved applications;

 

·suspend or withdraw regulatory approval;

 

·exclude its product from reimbursement under government healthcare programs,
including Medicaid or Medicare;

 

·impose restrictions or affirmative obligations on Innovate’s or its CMO’s
operations, including costly new manufacturing requirements; or

 

·seize or detain products or require a product recall.

 

If any of Innovate’s product candidates for which Innovate receives regulatory
approval fails to achieve significant market acceptance among the medical
community, patients or third-party payers, the revenue Innovate generates from
its sales will be limited and its business may not be profitable.

 

Innovate’s success will depend in substantial part on the extent to which its
product candidates, if approved, are accepted by the medical community and
patients and reimbursed by third-party payers, including government payers.
Innovate cannot predict with reasonable accuracy whether physicians, patients,
healthcare insurers or health maintenance organizations, or the medical
community in general, will accept or utilize any of its products, if approved.
If its product candidates are approved but do not achieve an adequate level of
acceptance by these parties, Innovate may not generate sufficient revenue to
become or to remain profitable. In addition, its efforts to educate the medical
community and third-party payers regarding benefits of its products may require
significant resources and may never be successful.

 

The degree of market acceptance with respect to each of its approved products,
if any, will depend upon a number of factors, including:

 

·the safety and efficacy of its products as demonstrated in clinical studies;

 

   

 

 

·acceptance in the medical and patient communities of its products as a safe and
effective treatment;

 

·the perceived advantages of its product over alternative treatments, including
with respect to the incidence and severity of any adverse side effects and the
cost of treatment;

 

·the indications for which its product is approved;

 

·claims or other information (including limitations or warnings) in its
product’s approved labeling;

 

·reimbursement and coverage policies of government and other third-party payers;

 

·smaller than expected market size due to lack of disease awareness of a rare
disease, or the patient population with a specific rare disease being smaller
than anticipated;

 

·availability of alternative treatments;

 

·pricing and cost-effectiveness of its product relative to alternative
treatments;

 

·inappropriate diagnostic efforts due to limited knowledge and/or resources
among clinicians;

 

·the prevalence of off-label substitution of chemically equivalent products or
alternative treatments; and

 

·the resources Innovate devotes to marketing its product and restrictions on
promotional claims Innovate can make with respect to the product.

 

If Innovate determines that a product candidate may not achieve adequate market
acceptance or that the potential market size does not justify additional
expenditure on the program, Innovate may reduce its expenditures on the
development and/or the process of seeking regulatory approval of the product
candidate while Innovate evaluates whether and on what timeline to move the
program forward.

 

Even if Innovate receives regulatory approval to market one or more of its
product candidates in the United States, Innovate may never receive approval or
commercialize its products outside of the United States, which would limit its
ability to realize the full commercial potential of its product candidates.

 

In order to market products outside of the United States, Innovate must
establish and comply with the numerous and varying regulatory requirements of
other countries regarding safety and efficacy. Approval procedures vary among
countries and can involve additional product testing and validation and
additional administrative review periods. The time required to obtain approval
in other countries generally differs from that required to obtain FDA approval.
The regulatory approval process in other countries may include all of the risks
detailed above regarding FDA approval in the United States, as well as other
risks. Regulatory approval in one country does not ensure regulatory approval in
another, but a failure or delay in obtaining regulatory approval in one country
may have a negative effect on the regulatory process in others. Failure to
obtain regulatory approval in other countries or any delay or setback in
obtaining such approval could have the same adverse effects detailed above
regarding FDA approval in the United States. As described above, such effects
include the risks that its product candidates may not be approved for all
indications requested, which could limit the uses of its product candidates and
have an adverse effect on product sales, and that such approval may be subject
to limitations on the indicated uses for which the product may be marketed or
require costly, post-marketing follow-up studies.

 

   

 

 

Conversely, if the product candidates do receive approval outside the US in the
future, Innovate may not meet the FDA requirements in the United States for
approval.

 

Innovate must comply with the U.S. Foreign Corrupt Practices Act and similar
foreign anti-corruption laws.

 

The U.S. Foreign Corrupt Practices Act, to which Innovate is subject, prohibits
corporations and individuals from engaging in certain activities to obtain or
retain business or to influence a person working in an official capacity. It is
illegal to pay, to offer to pay or to authorize the payment of anything of value
to any foreign government official, government staff member, political party or
political candidate in an attempt to obtain or retain business or to otherwise
influence a person working in an official capacity. Other countries, such as the
U.K., have similar laws with which Innovate must comply. Innovate faces the risk
that an employee or agent could be accused of violating one or more of these
laws, particularly in geographies where significant overlap exists between local
government and healthcare industries. Such an accusation, even if unwarranted,
could prove disruptive to Innovate’s developmental and commercialization
efforts.

 

Risks Related to Innovate’s Intellectual Property

 

Innovate’s success will depend in part on obtaining and maintaining effective
patent and other intellectual property protection for its product candidates and
proprietary technology.

 

Innovate relies on patents and other intellectual property to maintain
exclusivity for its product candidates. INN-202 and INN-108 are covered by
several issued patents in the U.S. as well as patents outside the U.S., with
patent applications pending in several jurisdictions. INN-329 is not protected
by patents. Further, the INN-202 primary end point is a proprietary Patient
Report Outcome measure (CeD PRO) that is protected by copyright. Intellectual
property relating to the INN-202 program is exclusively licensed from Alba
Therapeutics Corp. Intellectual property relating to INN-108 program is
exclusively licensed from Seachaid Pharmaceuticals Inc. Innovate’s success will
depend in part on its ability to:

 

·obtain and maintain patents and other exclusivity with respect to its products;

 

·prevent third parties from infringing upon its proprietary rights;

 

·maintain proprietary know-how and trade secrets;

 

·operate without infringing upon the patents and proprietary rights of others;
and

 

·obtain and maintain appropriate licenses to patents or proprietary rights held
by third parties if infringement would otherwise occur or if necessary to secure
exclusive rights to them, both in the United States and in foreign countries.

 

The patent and intellectual property positions of biopharmaceutical companies
generally are highly uncertain, involve complex legal and factual questions, and
have been and continue to be the subject of much litigation. There is no
guarantee that Innovate has or will develop or obtain the rights to products or
processes that are patentable, that patents will issue from any pending
applications or that claims issued will be sufficient to protect the technology
Innovate develops or has developed or that is used by Innovate, its CMOs or its
other service providers. In addition, any patents that are issued and/or
licensed to Innovate may be limited in scope or challenged, invalidated,
infringed or circumvented, including by its competitors, and any rights Innovate
has under issued and/or licensed patents may not provide competitive advantages
to Innovate. If competitors can develop and commercialize technology and
products similar to Innovate’s, its ability to successfully commercialize its
technology and products may be impaired.

 

   

 

 

Patent applications in the United States are confidential for a period of time
until they are published, and publication of discoveries in scientific or patent
literature typically lags actual discoveries by several months. As a result,
Innovate cannot be certain that the inventors listed in any patent or patent
application owned or licensed by Innovate were the first to conceive of the
inventions covered by such patents and patent applications (for U.S. patent
applications filed before March 16, 2013), or that such inventors were the first
to file patent applications for such inventions outside the United States and,
after March 15, 2013, in the United States. In addition, changes in or different
interpretations of patent laws in the United States and foreign countries may
affect Innovate’s patent rights and limit the patents Innovate can obtain, which
could permit others to use its discoveries or to develop and to commercialize
Innovate’s technology and products without any compensation to Innovate.

 

Innovate also relies on unpatented know-how and trade secrets and continuing
technological innovation to develop and maintain its competitive position, which
Innovate seeks to protect, in part, through confidentiality agreements with
employees, consultants, collaborators and others. Innovate also has invention or
patent assignment agreements with its employees and certain consultants. The
steps Innovate has taken to protect its proprietary rights, however, may not be
adequate to preclude misappropriation of or otherwise protect its proprietary
information or prevent infringement of its intellectual property rights, and
Innovate may not have adequate remedies for any such misappropriation or
infringement. In addition, it is possible that inventions relevant to Innovate’s
business could be developed by a person not bound by an invention assignment
agreement with Innovate or independently discovered by a competitor.

 

Innovate also intends to rely on regulatory exclusivity for protection of its
product candidates, if approved for commercial sale. Implementation and
enforcement of regulatory exclusivity, which may consist of regulatory data
protection and market protection, varies widely from country to country. Failure
to qualify for regulatory exclusivity, or failure to obtain or to maintain the
extent or duration of such protections that Innovate expects for its product
candidates, if approved, could affect its decision on whether to market the
products in a particular country or countries or could otherwise have an adverse
impact on its revenue or results of operations.

 

Innovate may rely on trademarks, trade names and brand names to distinguish its
products, if approved for commercial sale, from the products of its competitors.
However, Innovate’s trademark applications may not be approved. Third parties
may also oppose Innovate’s trademark applications or otherwise challenge its use
of the trademarks in which case Innovate may expend substantial resources to
defend its proposed or approved trademarks and may enter into agreements with
third parties that may limit Innovate’s use of its trademarks. In the event that
Innovate’s trademarks are successfully challenged, Innovate could be forced to
rebrand its products, which could result in loss of brand recognition and could
require Innovate to devote significant resources to advertising and marketing
these new brands. Further, Innovate’s competitors may infringe its trademarks or
Innovate may not have adequate resources to enforce its trademarks.

 

   

 

 

Innovate’s success depends on its ability to prevent competitors from
duplicating or developing and commercializing equivalent versions of its product
candidates, and intellectual property protection may not be sufficient or
effective to exclude this competition.

 

Innovate has patent protection in the United States and other countries to cover
the composition of matter, formulation and method of use for INN-202 and
INN-108. However, these patents may not provide Innovate with significant
competitive advantages, because the validity, scope, term, or enforceability of
the patents may be challenged and, if instituted, one or more of the challenges
may be successful. Patents may be challenged in the United States under
post-grant review proceedings, inter partes reexamination, ex parte
re-examination, or challenged in district court. Any patents issued in foreign
jurisdictions may be subjected to comparable proceedings lodged in various
foreign patent offices, or courts. These proceedings could result in either loss
of the patent or loss or reduction in the scope of one or more of the claims of
the patent. Even if a patent issues, and is held valid and enforceable,
competitors may be able to design around Innovate’s patent rights, such as by
using pre-existing or newly developed technology, in which case competitors may
not infringe Innovate’s issued claims and may be able to market and sell
products that compete directly with Innovate’s before and after its patents
expire.

 

Further, the INN-202 primary end point is a proprietary Patient Report Outcome
measure (CeD PRO) that is protected by copyright. However, copyright protection
may not be sufficient to exclude others from developing products that compete
with INN-202.

 

The patent prosecution process is expensive and time-consuming. Innovate and any
future licensors and licensees may not apply for or prosecute patents on certain
aspects of its product candidates at a reasonable cost, in a timely fashion, or
at all. Innovate may not have the right to control the preparation, filing and
prosecution of some patent applications related to its product candidates or
technologies. As a result, these patents and patent applications may not be
prosecuted and enforced in a manner consistent with the best interests of
Innovate. It is also possible that Innovate or any future or present licensors
or licensees will fail to identify patentable aspects of inventions made in the
course of development and commercialization activities before it is too late to
obtain patent protection on them. Further, it is possible that defects of form
in the preparation or filing of Innovate’s patent applications may exist, or may
arise in the future, such as with respect to proper priority claims,
inventorship, assignment, term or claim scope. If there are material defects in
the form or preparation of its patents or patent applications, such patents or
applications may be invalid or unenforceable. In addition, one or more parties
may independently develop similar technologies or methods, duplicate its
technologies or methods, or design around the patented aspects of its products,
technologies or methods. Any of these circumstances could impair Innovate’s
ability to protect its products, if approved, in ways which may have an adverse
impact on Innovate’s business, financial condition and operating results.

 

Furthermore, the issuance of a patent is not conclusive as to its inventorship,
scope, validity or enforceability, and Innovate’s owned and licensed patents may
be challenged in the courts or patent offices in and outside of the United
States. Such challenges may result in loss of exclusivity or freedom to operate
or in patent claims being narrowed, invalidated or held unenforceable, in whole
or in part, which could limit Innovate’s ability to use its patents to stop
others from using or commercializing similar or identical products or
technology, or to limit the duration of the patent protection of its technology
and drugs. Given the amount of time required for the development, testing and
regulatory review of new drug candidates, patents protecting such candidates
might expire before or shortly after such candidates are commercialized. As a
result, Innovate’s owned and licensed patent portfolio may not provide Innovate
with sufficient rights to exclude others from commercializing drugs similar to
or identical to those of Innovate.

 

Enforcement of intellectual property rights in certain countries outside the
United States, including China in particular, has been limited or non-existent.
Future enforcement of patents and proprietary rights in many other countries
will likely be problematic or unpredictable. Moreover, the issuance of a patent
in one country does not assure the issuance of a similar patent in another
country. Claim interpretation and infringement laws vary by nation, so the
extent of any patent protection is uncertain and may vary in different
jurisdictions.

 

   

 

 

Obtaining and maintaining patent protection depends on compliance with various
procedural, document submission, fee payment and other requirements imposed by
governmental patent agencies, and Innovate’s patent protection could be reduced
or eliminated for non-compliance with these requirements.

 

Periodic maintenance fees, renewal fees, annuity fees and various other
governmental fees on patents and applications are required to be paid to the
United States Patent and Trademark Office, or USPTO, and various governmental
patent agencies outside of the United States in several stages over the lifetime
of the patents and applications. The USPTO and various non-U.S. governmental
patent agencies require compliance with a number of procedural, documentary, fee
payment and other similar provisions during the patent application process and
after a patent has issued. There are situations in which non-compliance can
result in decreased patent term or in abandonment or lapse of the patent or
patent application, leading to partial or complete loss of patent rights in the
relevant jurisdiction.

 

Third parties may claim that Innovate’s products, if approved, infringe on their
proprietary rights and may challenge the approved use or uses of a product or
its patent rights through litigation or administrative proceedings, and
defending such actions may be costly and time consuming, divert management
attention away from Innovate’s business, and result in an unfavorable outcome
that could have an adverse effect on Innovate’s business.

 

Innovate’s commercial success depends on its ability and the ability of its CMOs
and component suppliers to develop, manufacture, market and sell its products
and product candidates and use its proprietary technologies without infringing
the proprietary rights of third parties. Numerous U.S. and foreign issued
patents and pending patent applications, which are owned by third parties, exist
in the fields in which Innovate is or may be developing products. Because patent
applications can take many years to publish and issue, there currently may be
pending applications, unknown to Innovate, that may later result in issued
patents that its products, product candidates or technologies infringe, or that
the process of manufacturing its products or any of its respective component
materials, or the component materials themselves, infringe, or that the use of
its products, product candidates or technologies infringe.

 

Innovate or its CMOs or component material suppliers may be exposed to, or
threatened with, litigation by third parties alleging that Innovate’s products,
product candidates and/or technologies infringe its patents and/or other
intellectual property rights, or that one or more of the processes for
manufacturing its products or any of its respective component materials, or the
component materials themselves, or the use of its products, product candidates
or technologies, infringe its patents and/or other intellectual property rights.
If a third-party patent or other intellectual property right is found to cover
its products, product candidates, technologies or its uses, or any of the
underlying manufacturing processes or components, Innovate could be required to
pay damages and could be unable to commercialize its products or to use its
technologies or methods unless Innovate is able to obtain a license to the
patent or intellectual property right. A license may not be available to
Innovate in a timely manner or on acceptable terms, or at all. In addition,
during litigation, the third-party alleging infringement could obtain a
preliminary injunction or other equitable remedy that could prohibit Innovate
from making, using, selling or importing its products, technologies or methods.

 

There generally is a substantial amount of litigation involving patent and other
intellectual property rights in the industries in which Innovate operates and
the cost of such litigation may be considerable. Innovate can provide no
assurance that its product candidates or technologies will not infringe patents
or rights owned by others, licenses to which might not be available to Innovate
in a timely manner or on acceptable terms, or at all. If a third party claims
that Innovate or its CMOs or component material suppliers infringe its
intellectual property rights, Innovate may face a number of issues, including,
but not limited to:

 

   

 

 

·infringement and other intellectual property claims which, with or without
merit, may be expensive and time consuming to litigate and may divert
management’s time and attention from Innovate’s core business;

 

·substantial damages for infringement, including the potential for treble
damages and attorneys’ fees, which Innovate may have to pay if it is determined
that the product and/or its use at issue infringes or violates the third party’s
rights;

 

·a court prohibiting Innovate from selling or licensing the product unless the
third-party licenses its intellectual property rights to Innovate, which it may
not be required to do;

 

·if a license is available from the third party, Innovate may have to pay
substantial royalties, fees and/or grant cross-licenses to the third party; and

 

·redesigning Innovate’s products or processes so they do not infringe, which may
not be possible or may require substantial expense and time.

 

No assurance can be given that patents do not exist, have not been filed, or
could not be filed or issued, which contain claims covering Innovate’s products,
product candidates or technology or those of its CMOs or component material
suppliers or the use of its products, product candidates or technologies.
Because of the large number of patents issued and patent applications filed in
the industries in which Innovate operates, there is a risk that third parties
may allege they have patent rights encompassing Innovate’s products, product
candidates or technologies, or those of its CMOs or component material
suppliers, or uses of its products, product candidates or technologies.

 

In the future, it may be necessary for Innovate to enforce its proprietary
rights, or to determine the scope, validity and unenforceability of other
parties’ proprietary rights, through litigation or other dispute proceedings,
which may be costly, and to the extent Innovate is unsuccessful, adversely
affect its rights. In these proceedings, a court or administrative body could
determine that its claims, including those related to enforcing patent rights,
are not valid or that an alleged infringer has not infringed its rights. The
uncertainty resulting from the mere institution and continuation of any patent-
or other proprietary rights-related litigation or interference proceeding could
have a material and adverse effect on its business prospects, operating results
and financial condition.

 

Risks Related to Innovate’s Industry

 

Innovate is subject to uncertainty relating to healthcare reform measures and
reimbursement policies that, if not favorable to its products, could hinder or
prevent its products’ commercial successes, if any of its product candidates are
approved.

 

The unavailability or inadequacy of third-party payer coverage and reimbursement
could negatively affect the market acceptance of its product candidates and the
future revenues Innovate may expect to receive from those products. The
commercial success of its product candidates, if approved, will depend in part
on the extent to which the costs of such products will be covered by third-party
payers, such as government health programs, commercial insurance and other
organizations. Third-party payers are increasingly challenging the prices and
examining the medical necessity and cost-effectiveness of medical products and
services, in addition to their safety and efficacy. If these third-party payers
do not consider its products to be cost-effective compared to other therapies,
Innovate may not obtain coverage for its products after approval as a benefit
under the third-party payers’ plans or, even if Innovate does, the level of
coverage or payment may not be sufficient to allow Innovate to sell its products
on a profitable basis.

 

   

 

 

Significant uncertainty exists as to the reimbursement status for newly approved
drug products, including coding, coverage and payment. There is no uniform
policy requirement for coverage and reimbursement for drug products among
third-party payers in the United States, therefore coverage and reimbursement
for drug products can differ significantly from payer to payer. The coverage
determination process is often a time-consuming and costly process that will
require Innovate to provide scientific and clinical support for the use of its
products to each payer separately, with no assurance that coverage and adequate
payment will be applied consistently or obtained. The process for determining
whether a payer will cover and how much it will reimburse a product may be
separate from the process of seeking approval of the product or for setting the
price of the product. Even if reimbursement is provided, market acceptance of
its products may be adversely affected if the amount of payment for its products
proves to be unprofitable for healthcare providers or less profitable than
alternative treatments or if administrative burdens make its products less
desirable to use. Third-party payer reimbursement to providers of its products,
if approved, may be subject to a bundled payment that also includes the
procedure of administering its products or third-party payers may require
providers to perform additional patient testing to justify the use of its
products. To the extent there is no separate payment for its product(s), there
may be further uncertainty as to the adequacy of reimbursement amounts.

 

The continuing efforts of governments, private insurance companies, and other
organizations to contain or to reduce costs of healthcare may adversely affect:

 

·Innovate’s ability to set an appropriate price for its products;

 

·the rate and scope of adoption of its products by healthcare providers;

 

·its ability to generate revenue or achieve or maintain profitability;

 

·the future revenue and profitability of its potential customers, suppliers and
collaborators; and

 

·its access to additional capital.

 

Innovate’s ability to successfully commercialize its products will depend in
part on the extent to which governmental authorities, private health insurers
and other organizations establish what Innovate believes are appropriate
coverage and reimbursement for its products. The containment of healthcare costs
has become a priority of federal and state governments worldwide and the prices
of drug products have been a focus in this effort. For example, there have been
several recent U.S. Congressional inquiries and proposed bills designed to,
among other things, bring more transparency to drug pricing, review the
relationship between pricing and manufacturer patient programs, and reform
government program reimbursement methodologies for drugs, and the new U.S.
President has stated that reducing drug pricing is a priority for his
administration. Innovate expects that federal, state and local governments in
the United States, as well as in other countries, will continue to consider
legislation directed at lowering the total cost of healthcare. In addition, in
certain foreign markets, the pricing of drug products is subject to government
control and reimbursement may in some cases be unavailable or insufficient. It
is uncertain whether and how future legislation, whether domestic or abroad,
could affect prospects for its product candidates or what actions federal,
state, or private payers for healthcare treatment and services may take in
response to any such healthcare reform proposals or legislation. Adoption of
price controls and cost-containment measures, and adoption of more restrictive
policies in jurisdictions with existing controls and measures reforms may
prevent or limit its ability to generate revenue, attain profitability or
commercialize its product candidates, especially in light of Innovate’s plans to
price its product candidates at a high level.

 

   

 

 

Furthermore, Innovate expects that Congress will again attempt to pass reform
measures that may be adopted in the future, including the possible repeal and
replacement of the Affordable Care Act, which the Trump administration has
stated is a priority. These potential courses of action are unpredictable; and
the potential impact of new legislation on Innovate’s operations and financial
position is uncertain, but may result in more rigorous coverage criteria, lower
reimbursement, and additional downward pressure on the price Innovate may
receive for an approved product. Any reduction in reimbursement from Medicare or
other government-funded programs may result in a similar reduction in payments
from private payers. The implementation of cost containment measures or other
healthcare reforms may prevent Innovate from being able to generate revenue,
attain profitability or commercialize its products, if approved.

 

Innovate expects competition in the marketplace for its product candidates,
should any of them receive regulatory approval.

 

Larazotide Acetate has issued patents for composition of matter, method of use
and its formulation in the United States, Innovate’s primary market. INN-202 has
either been issued patents or is prosecuting patent applications in numerous
countries outside the United States. The barrier to entry for any company
developing larazotide acetate for celiac disease is very high. Innovate believes
that INN-202 is the first drug entering into Phase 3 clinical trials for celiac
disease. Additionally, if Innovate has the first drug approved for celiac
disease, any competitor bringing any other molecule into market for celiac
disease may need to license or to seek approval from Innovate for the usage of
its CeD-PRO as an endpoint.

 

Innovate has applied for Orphan Drug Designation from the FDA for INN-108.
Orphan Drug Designation will provide market exclusivity in the U.S. for seven
years, but only if (1) INN-108 receives market approval before a competitor
using the same active compound for the same indication, (2) Innovate is able to
produce sufficient supply to meet demand in the marketplace, and (3) another
product with the same active ingredient(s) is not deemed clinically superior.

 

INN-329, secretin, has received Orphan Drug Designation from the FDA. Orphan
Drug Designation will provide market exclusivity in the U.S. for seven years,
but only if (1) INN-329 receives market approval before a competitor using the
similar peptide for the same indication, (2) Innovate is able produce sufficient
supply to meet demand in the marketplace, and (3) another product with the same
active ingredient is not deemed clinically superior.

 

The industries in which Innovate operates (biopharmaceutical, specialty
pharmaceutical, biotechnology and pharmaceutical) are highly competitive and
subject to rapid and significant change. Developments by others may render
potential application of any of its product candidates in a particular
indication obsolete or noncompetitive, even prior to completion of its
development and approval for that indication.

 

If successfully developed and approved, Innovate expects its product candidates
will face competition. Innovate may not be able to compete successfully against
organizations with competitive products, particularly large pharmaceutical
companies. Many of its potential competitors have significantly greater
financial, technical and human resources than Innovate, and may be better
equipped to develop, manufacture, market and distribute products. Many of these
companies operate large, well-funded research, development and commercialization
programs, have extensive experience in nonclinical and clinical studies,
obtaining FDA and other regulatory approvals and manufacturing and marketing
products, and have multiple products that have been approved or are in
late-stage development. These advantages may enable them to receive approval
from the FDA or any foreign regulatory agency before Innovate and prevent
Innovate from competing due to their orphan drug protections. Smaller companies
may also prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical and biotechnology companies. Furthermore,
heightened awareness on the part of academic institutions, government agencies
and other public and private research organizations of the potential commercial
value of their inventions have led them to actively seek to commercialize the
technologies they develop, which increases competition for investment in
Innovate’s programs. Competitive products may be more effective, easier to dose,
or more effectively marketed and sold, than theirs, which would have a material
adverse effect on Innovate’s ability to generate revenue.

 

   

 

 

Innovate faces potential product liability exposure and, if successful claims
are brought against it, Innovate may incur substantial liability for a product
or product candidate and may have to limit its commercialization. In the future,
Innovate anticipates that it will need to obtain additional or increased product
liability insurance coverage and it is uncertain whether such increased or
additional insurance coverage can be obtained on commercially reasonable terms,
if at all.

 

Innovate’s business (in particular, the use of its product candidates in
clinical studies and the sale of any products for which it obtains marketing
approval) will expose Innovate to product liability risks. Product liability
claims might be brought against Innovate by patients, healthcare providers,
pharmaceutical companies or others selling or involved in the use of its
products. If Innovate cannot successfully defend itself against any such claims,
Innovate will incur substantial liabilities. Regardless of merit or eventual
outcome, liability claims may result in:

 

·significant costs of related litigation;

 

·decreased demand for its products and loss of revenue;

 

·impairment of its business reputation;

 

·a “clinical hold,” suspension or termination of a clinical study or amendments
to a study design;

 

·delays in enrolling patients to participate in its clinical studies;

 

·withdrawal of clinical study participants;

 

·substantial monetary awards to patients or other claimants; and

 

·the inability to commercialize its products and product candidates.

 

Innovate maintains limited product liability insurance for its clinical studies,
but its insurance coverage may not reimburse Innovate or may not be sufficient
to reimburse Innovate for all expenses or losses it may suffer. Moreover,
insurance coverage is becoming increasingly expensive and, in the future,
Innovate may not be able to maintain insurance coverage at a reasonable cost or
in sufficient amounts to protect itself against losses.

 

Innovate expects that it will expand its insurance coverage to include the sale
of commercial products if it obtains marketing approval for any of its product
candidates, but Innovate may be unable to obtain product liability insurance on
commercially acceptable terms or may not be able to maintain such insurance at a
reasonable cost or in sufficient amounts to protect Innovate against potential
losses. Large judgments have been awarded in class action lawsuits based on drug
products that had unanticipated side effects. A successful product liability
claim or series of claims brought against Innovate, if judgments exceed its
insurance coverage, could decrease its cash and adversely affect its business.

 

   

 

 

Risks Related to this Offering and Our Common Stock

 

An active trading market for Monster common stock that you would receive upon
the closing of the Merger may not develop.

 

The offering price for our common stock was determined through negotiations with
investors and may bear no relationship to the price at which the Monster common
stock that you would receive upon the closing of the Merger will trade following
the closing of the Merger. An active trading market for the Monster common stock
that you would receive upon the closing of the Merger may never develop or be
sustained. If an active market for such shares does not develop, it may be
difficult for you to sell the Monster common stock that you would receive upon
the closing of the Merger without depressing the market price for such common
stock or to sell your shares at all.

 

The market price of the Monster common stock you would receive upon the closing
of the Merger is likely to be volatile, and you may not be able to sell such
shares at or above the effective price per share that you receive them.

 

The offering price of our common stock will not necessarily reflect the price at
which investors in the public market will be willing to buy and sell the shares
of Monster common stock that you would receive in connection with the closing of
the Merger. The stock market in general and the market for pharmaceutical
companies in particular have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies. A certain degree
of market price volatility may also occur as a result of the completion of the
Merger and listing of the shares of the combined company following this
offering. As a result of this volatility, investors may not be able to sell
their common stock at or above the effective price per share that you receive
them. The market price of the Monster common stock following the closing of the
Merger may be highly volatile and could be subject to wide fluctuations in
response to various factors, some of which are beyond our control, including:

 

·regulatory or legal developments in the United States and foreign countries;

 

·results from or delays in clinical trials of our product candidates;

 

·announcements of regulatory approval or disapproval of INN-202 (for celiac
disease), INN-108 (for ulcerative colitis), INN-329 (for magnetic resonance
cholangiopancreatography or MRCP) or any future product candidates;

 

·commercialization of our product candidates;

 

·FDA or other U.S. or foreign regulatory actions affecting us or our industry;

 

·introductions and announcements of new products by us, any commercialization
partners or our competitors, and the timing of these introductions and
announcements;

 

·variations in our financial results or those of companies that are perceived to
be similar to us;

 

·changes in the structure of healthcare payment systems;

 

·announcements by us or our competitors of significant acquisitions, licenses,
strategic partnerships, joint ventures or capital commitments;

 

   

 

 

·market conditions in the pharmaceutical and biopharmaceutical sectors and
issuance of securities analysts’ reports or recommendations;

 

·actual or anticipated quarterly variations in our results of operations or
those of our future competitors;

 

·changes in financial estimates or guidance, including our ability to meet our
future revenue and operating profit or loss estimates or guidance;

 

·sales of substantial amounts of our stock by insiders and large stockholders,
or the expectation that such sales might occur;

 

·general economic, industry and market conditions;

 

·additions or departures of key personnel;

 

·intellectual property, product liability or other litigation against us;

 

·expiration or termination of our potential relationships with strategic
partners; and

 

·the other factors described in this “Risk Factors” annex.

 

If securities or industry analysts do not publish research or publish
unfavorable research about our business, the Monster common stock stock price
and trading volume could decline.

 

Equity research analysts do not currently provide research coverage of the
Monster common stock, and we cannot assure you that any equity research analysts
will provide research coverage of the Monster common stock after the closing of
the Merger. In particular, as a smaller company, it may be difficult for us to
attract the interest of equity research analysts. A lack of research coverage
may adversely affect the liquidity of and market price of the Monster common
stock. To the extent we obtain equity research analyst coverage, we will not
have any control of the analysts or the content and opinions included in their
reports. The market price of the Monster stock could decline if one or more
equity research analysts downgrade the Monster common stock or issue other
unfavorable commentary or research. If one or more equity research analysts
ceases coverage of our company, or fails to publish reports on us regularly,
demand for the Monster common stock could decrease, which in turn could cause
the market price of the Monster common stock or trading volume to decline.

 

Sales of substantial amounts of the Monster common stock in the public markets,
or the perception that such sales might occur, could cause the market price of
the Monster common stock to drop significantly, even if our business is doing
well.

 

Sales of a substantial number of shares of Monster common stock following the
Merger in the public market could occur at any time. If our stockholders sell,
or the market perceives that our stockholders intend to sell, substantial
amounts of the Monster common stock in the public market following the closing
of the Merger, the market price of the Monster common stock could decline
significantly.

 

   

 

 

Claims for indemnification by our directors and officers may reduce our
available funds to satisfy successful third-party claims against us and may
reduce the amount of money available to us.

 

Our certificate of incorporation and restated bylaws following as they will be
in effect following this offering and Merger provide that we will indemnify our
directors and officers, in each case to the fullest extent permitted by Delaware
law.

 

To the extent that a claim for indemnification is brought by any of our
directors or officers, it would reduce the amount of funds available for use in
our business.

 

If you purchase our common stock in this offering, because the offering price of
our common stock will be substantially higher than our pro forma as adjusted net
tangible book value per share following this offering, you will incur immediate
and substantial dilution in the book value of your shares.

 

Investors purchasing common stock in this offering will pay a price per share
that substantially exceeds the net tangible book value per share. Net tangible
book value is our tangible assets after subtracting our liabilities. As a
result, investors purchasing common stock in this offering will incur immediate
dilution, based on the difference between the initial public offering price and
the pro forma as adjusted net tangible book value per share of our outstanding
common stock as.

 

This dilution is due to our investors who purchased shares prior to this
offering having paid substantially less than the price offered to the public in
this offering when they purchased their shares. In addition, options to purchase
shares of our common stock and warrants to purchase shares of our common stock
were outstanding. The exercise of any of these options would result in
additional dilution. As a result of the dilution to investors purchasing shares
in this offering, investors may receive significantly less than the purchase
price paid in this offering, if anything, in the event of our liquidation.
Further, because we will need to raise additional capital to fund our clinical
development programs, we may in the future sell substantial amounts of common
stock or securities convertible into or exchangeable for common stock.

 

These future issuances of common stock or common stock-related securities,
together with the exercise of outstanding options and any additional shares
issued in connection with acquisitions, if any, may result in further dilution.

 

If Monster sells shares of Monster common stock in future financings,
stockholders may experience immediate dilution and, as a result, the market
price of Monster common stock may decline.

 

Monster may from time to time issue additional shares of its common stock at a
discount from the current trading price of its common stock or the effective
price at which you would receive shares of Monster common stock in connection
with the closing of the Merger. As a result, our stockholders would experience
immediate dilution upon the purchase of any shares of such common stock sold at
such discount. In addition, as opportunities present themselves, Monster may
enter into financing or similar arrangements in the future, including the
issuance of debt securities, preferred stock or common stock. If Monster issue
common stock or securities convertible into common stock, our common
stockholders would experience additional dilution and, as a result, the market
price of Monster common stock may decline.

 

   

 

 

Concentration of ownership of our common stock among our existing principal
stockholders after this offering may effectively limit the voting power of other
stockholders, including purchasers in this offering.

 

Upon the closing of this offering, our executive officers, directors and current
beneficial owners of 5% or more of our common stock will, in aggregate,
beneficially own approximately 12.5% of our outstanding common stock, assuming
exercise of the underwriters’ option to purchase additional shares. Accordingly,
these stockholders, acting together, will continue to be able to significantly
influence all matters requiring stockholder approval, including the election and
removal of directors and any merger or other significant corporate transactions.
These stockholders may therefore delay or prevent a change of control of us,
even if such a change of control would benefit our other stockholders. The
significant concentration of stock ownership may adversely affect the market
price of our common stock due to investors’ perception that conflicts of
interest may exist or arise.

 

Anti-takeover provisions in our corporate charter documents and under Delaware
law could make an acquisition of us more difficult, which could discourage
takeover attempts and lead to management entrenchment, and the market price of
our common stock may be lower as a result.

 

Certain provisions in our certificate of incorporation and bylaws that will be
in effect upon the closing of this offering may make it difficult for a third
party to acquire, or attempt to acquire, control of our company, even if a
change in control was considered favorable by you and other stockholders. For
example, our board of directors will have the authority to issue up to
10,000,000 shares of preferred stock. Our board of directors can fix the price,
rights, preferences, privileges, and restrictions of the preferred stock without
any further vote or action by our stockholders. The issuance of shares of
preferred stock may delay or prevent a change in control transaction. As a
result, the market price of our common stock and the voting and other rights of
our stockholders may be adversely affected. An issuance of shares of preferred
stock may result in the loss of voting control to other stockholders.

 

Our charter documents will also contain other provisions that could have an
anti-takeover effect, including provisions that:

 

·establish that our board of directors is divided into three classes, Class I,
Class II and Class III, with each class serving staggered three year terms;

 

·provide that vacancies on our board of directors may be filled only by a
majority of directors then in office, even though less than a quorum;

 

·provide that our directors may only be removed for cause;

 

·eliminate cumulative voting in the election of directors;

 

·authorize our board of directors to issues shares of preferred stock and
determine the price and other terms of those shares, including preferences and
voting rights, without stockholder approval;

 

·provide our board of directors with the exclusive right to elect a director to
fill a vacancy or newly created directorship;

 

·permit stockholders to only take actions at a duly called annual or special
meeting and not by written consent;

 

·prohibit stockholders from calling a special meeting of stockholders;

 

·require that stockholders give advance notice to nominate directors or submit
proposals for consideration at stockholder meetings;

 

·authorize our board of directors, by a majority vote, to amend the bylaws; and

 

   

 

 

·require the affirmative vote of at least 66 2/3% or more of the outstanding
common stock to amend many of the provisions described above.

 

In addition, we are subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which limits the ability of stockholders
owning in excess of 15% of our outstanding voting stock to merge or combine with
us. Finally, our amended and restated certificate of incorporation will also
provide that the Court of Chancery of the State of Delaware will be the
exclusive forum for substantially all disputes between us and our stockholders.
These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control transaction. They could also have the
effect of discouraging others from making tender offers for our common stock,
including transactions that may be in your best interests. These provisions may
also prevent changes in our management or limit the price that certain investors
are willing to pay for our stock.

 

We will have broad discretion in the use of proceeds from this offering and may
invest or spend the proceeds in ways with which you do not agree and in ways
that may not yield a return.

 

We will have broad discretion in the application of the net proceeds from this
offering. You may not agree with our decisions, and our use of the proceeds may
not improve our results of operation or enhance the value of our common stock.
We intend to use the net proceeds from this offering to fund our ongoing and
planned clinical development and commercialization of INN-202, to fund the costs
of the clinical development of INN-108, to fund the costs of the clinical
development of INN-329, and the remainder of the net proceeds for the research
and development of other product candidates, working capital, capital
expenditures and other general corporate purposes. We may also use a portion of
our net proceeds to acquire and invest in complementary products or businesses;
however, we currently have no agreements or commitments to complete any such
transaction. You will not have the opportunity to influence our management’s
decisions on how to use the net proceeds from this offering. Our failure to
apply the net proceeds of this offering effectively could result in financial
losses that could materially impair our ability to pursue our growth strategy,
cause the market price of our common stock to decline, delay development of our
product candidates or require us to raise additional capital.

 

We may be subject to securities litigation, which is expensive and could divert
management attention.

 

The market price of our common stock may be volatile, and in the past companies
that have experienced volatility in the market price of their stock have been
subject to securities class action litigation. We may be the target of this type
of litigation in the future. Securities litigation against us could result in
substantial costs and divert our management’s attention from other business
concerns, which could seriously harm our business.

 

Because we do not anticipate paying any cash dividends on our common stock in
the foreseeable future, capital appreciation, if any, will be your sole source
of gains.

 

We have not declared or paid cash dividends on our common stock to date. We
currently intend to retain our future earnings, if any, to fund the development
and growth of our business. In addition, our loan and security agreement with
Square 1 contains a negative covenant which prohibits us from paying cash
dividends without the prior written consent of Square 1. As a result, capital
appreciation, if any, of our common stock will be your sole source of gain for
the foreseeable future.

 

   

 

 

Our ability to use our net operating loss carryforwards and certain other tax
attributes to offset future taxable income may be subject to certain
limitations.

 

As of December 31, 2017 we had U.S. federal and California net operating loss
carryforwards, or NOLs, which expire in various years if not utilized. As of
December 31, 2017, we had federal and California research and development credit
carryforwards. The federal research and development credit carryforwards expire
in various years if not utilized. The California research and development credit
will carry forward indefinitely. Under Sections 382 and 383 of Internal Revenue
Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership
change,” the corporation’s ability to use its pre-change NOLs and other
pre-change tax attributes, such as research tax credits, to offset its future
post-change income and taxes may be limited. In general, an “ownership change”
occurs if there is a cumulative change in our ownership by “5% shareholders”
that exceeds 50 percentage points over a rolling three-year period. Similar
rules may apply under state tax laws. We believe we have experienced certain
ownership changes in the past and have reduced our deferred tax assets related
to NOLs and research and development tax credit carryovers accordingly. In the
event that it is determined that we have in the past experienced additional
ownership changes, or if we experience one or more ownership changes as a result
of this offering or future transactions in our stock, then we may be further
limited in our ability to use our NOLs and other tax assets to reduce taxes owed
on the net taxable income that we earn in the event that we attain
profitability. Any such limitations on the ability to use our NOLs and other tax
assets could adversely impact our business, financial condition and operating
results in the event that we attain profitability.

 

We will incur costs as a result of operating as a public company and our
management will be required to devote substantial time to new compliance
initiatives and corporate governance practices, including maintaining an
effective system of internal control over financial reporting.

 

As a public company listed in the United States, and increasingly after we are
no longer an “emerging growth company,” we will incur significant additional
legal, accounting and other expenses that we did not incur as a private company.
In addition, changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley Act and
regulations implemented by the SEC and the exchange on which the shares of our
Common Stock may trade, may increase legal and financial compliance costs and
make some activities more time consuming. These laws, regulations and standards
are subject to varying interpretations and, as a result, their application in
practice may evolve over time as new guidance is provided by regulatory and
governing bodies. We intend to invest resources to comply with evolving laws,
regulations and standards, and this investment may result in increased general
and administrative expenses and a diversion of management’s time and attention
from revenue-generating activities to compliance activities. If notwithstanding
our efforts to comply with new laws, regulations and standards, we fail to
comply, regulatory authorities may initiate legal proceedings against us and our
business may be harmed.

 

As a public company in the United States, we will be required, pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, to furnish a
report by management on, among other things, the effectiveness of our internal
control over financial reporting. We will need to disclose any material
weaknesses identified by our management in our internal control over financial
reporting, and, when we are no longer an “emerging growth company,” we will need
to provide a statement that our independent registered public accounting firm
has issued an opinion on our internal control over financial reporting. We
expect that our first report on compliance with Section 404 will be furnished in
connection with our financial statements for the year ending December 31, 2018.

 

The controls and other procedures are designed to ensure that information
required to be disclosed by us in the reports that we file with the Securities
and Exchange Commission, or SEC, is disclosed accurately and is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms. We are in the early stages of conforming our internal control
procedures to the requirements of Section 404 and we may not be able to complete
our evaluation, testing and any required remediation needed to comply with
Section 404 in a timely fashion. Our independent registered public accounting
firm was not engaged to perform an audit of our internal control over financial
reporting for the year ended December 31, 2017 or for any other period.
Accordingly, no such opinion was expressed.

 

   

 

 

Even after we develop these new procedures, these new controls may become
inadequate because of changes in conditions or the degree of compliance with
these policies or procedures may deteriorate and material weaknesses in our
internal control over financial reporting may be discovered. We may err in the
design or operation of our controls, and all internal control systems, no matter
how well designed and operated, can provide only reasonable assurance that the
objectives of the control system are met. Because there are inherent limitations
in all control systems, there can be no absolute assurance that all control
issues have been or will be detected. If we are unable, or are perceived as
unable, to produce reliable financial reports due to internal control
deficiencies, investors could lose confidence in our reported financial
information and operating results, which could result in a negative market
reaction.

 

To fully comply with Section 404, we will need to retain additional employees to
supplement our current finance staff, and we may not be able to do so in a
timely manner, or at all. In addition, in the process of evaluating our internal
control over financial reporting, we expect that certain of our internal control
practices will need to be updated to comply with the requirements of Section 404
and the regulations promulgated thereunder, and we may not be able to do so on a
timely basis, or at all. In the event that we are not able to demonstrate
compliance with Section 404 in a timely manner, or are unable to produce timely
or accurate financial statements, we may be subject to sanctions or
investigations by regulatory authorities, such as the SEC or the stock exchange
on which our stock is listed, and investors may lose confidence in our operating
results and the price of our common stock could decline. Furthermore, if we are
unable to certify that our internal control over financial reporting is
effective and in compliance with Section 404, we may be subject to sanctions or
investigations by regulatory authorities, such as the SEC or stock exchanges,
and we could lose investor confidence in the accuracy and completeness of our
financial reports, which could hurt our business, the price of our common stock
and our ability to access the capital markets.

 

We also expect that being a public company will make it more expensive for us to
obtain director and officer liability insurance, and we may be required to
accept reduced coverage or incur substantially higher costs to obtain coverage.
These factors could also make it more difficult for us to attract and retain
qualified persons to serve on our board of directors, on committees of our board
of directors or as members of senior management.

 

We are an “emerging growth company,” and the reduced disclosure requirements
applicable to emerging growth companies could make our common stock could be
less attractive to investors.

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business
Startups, or JOBS, Act enacted in April 2012, and may remain an “emerging growth
company” for up to five years following the completion of this offering,
although, if we have more than $1.0 billion in annual revenue, the market value
of our common stock that is held by non-affiliates exceeds $700 million as of
June 30 of any year, or we issue more than $1.0 billion of non-convertible debt
over a three-year period before the end of that five-year period, we would cease
to be an “emerging growth company” as of the following December 31. For as long
as we remain an “emerging growth company,” we are permitted and intend to rely
on exemptions from certain disclosure requirements that are applicable to other
public companies that are not “emerging growth companies.” These exemptions
include:

 

   

 

 

·being permitted to provide only two years of audited financial statements, in
addition to any required unaudited interim financial statements, with
correspondingly reduced “Management’s discussion and analysis of financial
condition and results of operations” disclosure;

 

·not being required to comply with the auditor attestation requirements in the
assessment of our internal control over financial reporting;

 

·not being required to comply with any requirement that may be adopted by the
Public Company Accounting Oversight Board regarding mandatory audit firm
rotation or a supplement to the auditor’s report providing additional
information about the audit and the financial statements;

 

·reduced disclosure obligations regarding executive compensation; and

 

·exemptions from the requirements of holding a nonbinding advisory vote on
executive compensation and shareholder approval of any golden parachute payments
not previously approved.

 

In addition, the JOBS Act provides that an emerging growth company can take
advantage of an extended transition period for complying with new or revised
accounting standards, delaying the adoption of these accounting standards until
they would apply to private companies. We have irrevocably elected not to avail
ourselves of this exemption and, as a result, our financial statements may not
be comparable to the financial statements of issuers who are required to comply
with the effective dates for new or revised accounting standards that are
applicable to public companies. We cannot predict whether investors will find
our common stock less attractive as a result of our reliance on these
exemptions. If some investors find our common stock less attractive as a result,
there may be a less active trading market for our common stock and the market
price of our common stock may be reduced or more volatile.

 

Risks Related to the Merger

 

The market price of Monster common stock following the Merger may decline as a
result of the merger.

 

The market price of Monster common stock may decline as a result of the Merger
for a number of reasons including if:

 

·investors react negatively to the prospects of the combined organization’s
business and prospects from the Merger;

 

·the effect of the Merger on the combined organization’s business and prospects
is not consistent with the expectations of financial or industry analysts; or

 

·the combined organization does not achieve the perceived benefits of the Merger
as rapidly or to the extent anticipated by financial or industry analysts.

 

Monster and Innovate stockholders may not realize a benefit from the Merger
commensurate with the ownership dilution they will experience in connection with
the Merger.

 

If the combined organization is unable to realize the full strategic and
financial benefits currently anticipated from the Merger, Monster and Innovate
stockholders will have experienced substantial dilution of their ownership
interests in their respective companies without receiving any commensurate
benefit, or only receiving part of the commensurate benefit to the extent the
combined organization is able to realize only part of the strategic and
financial benefits currently anticipated from the Merger.

 

   

 

 

Because the lack of a public market for Innovate shares makes it difficult to
evaluate the fairness of the Merger, the stockholders of Innovate may receive
consideration in the Merger that is less than the fair market value of the
Innovate shares.

 

The outstanding capital stock of Innovate is privately held and is not traded in
any public market. The lack of a public market makes it extremely difficult to
determine the fair market value of Innovate. Because the percentage of Monster
equity to be issued to Innovate stockholders was determined based on
negotiations between the parties, it is possible that the value of Monster
common stock to be received by Innovate stockholders in the Merger will be less
than the fair market value of Innovate.

 

   

 

 

EXHIBIT A-1

 

Investor Questionnaire

 

 2 

 

 

EXHIBIT A-2

 

Stock Certificate Questionnaire

 

 3 

 

 

EXHIBIT B

 

Placement Agent Questionnaire

 

 4 

 

 

EXHIBIT C

 

Form of Secretary’s Certificate

 

 5 

 

 

EXHIBIT D

 

Form of Compliance Certificate

 

 6 

 

 

EXHIBIT E

 

MONSTER DIGITAL, INC.

 

DECLARATION OF REGISTRATION RIGHTS

 

This Declaration of Registration Rights (this “Declaration”) is provided by
Monster Digital, Inc., a Delaware corporation (the “Company”) on January 29,
2018 in connection with the Subscription Agreement (the “Subscription
Agreement”), dated as of January 29, 2018 by and among Innovate
Biopharmaceuticals Inc., a Delaware corporation (“Innovate”) and each purchaser
listed on Annex A set forth on Schedule A thereto (each a “Stockholder,” and
collectively, the “Stockholders”). Unless otherwise defined herein, capitalized
terms used in this Agreement have the meanings ascribed to them in the
Subscription Agreement. This Declaration is provided for the benefit of each of
the Stockholders identified on Schedule 1 attached hereto and entitled to
receive Common Stock pursuant to the terms set forth in the Subscription
Agreement.

 

RECITALS

 

Whereas, pursuant to the Subscription Agreement, each Stockholder will, at the
applicable Closing, receive that number of shares of Common Stock as set forth
opposite such Stockholder’s name on Schedule 1 hereto; and

 

Whereas, in connection with the execution and delivery of the Subscription
Agreement and the consummation of the transactions contemplated thereby, the
Company has agreed to grant the Stockholders certain registration rights as set
forth below.

 

Now, Therefore, in consideration of the mutual promises and covenants herein
contained, and other consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:

 

Article I.

Definitions

 

1.1           Definitions. As used in this Declaration, the following terms
shall have the meanings set forth below:

 

(a)          “Additional Shares” means any shares of Common Stock issued to the
Stockholders pursuant to a stock split, stock dividend or other distribution
with respect to, or in exchange or in replacement of, the Shares.

 

(b)          “Affiliate” means, with respect to any specified Person, any other
Person who or which, directly or indirectly, controls, is controlled by, or is
under common control with such specified Person, including, without limitation,
any general partner, limited partner, member, officer, director or manager of
such Person and any venture capital or private equity fund now or hereafter
existing that is controlled by one or more general partners or managing members
of, or shares the same management company with, such Person. For purposes of
this definition, the terms “controls,” “controlled by,” or “under common control
with” means the possession, direct or indirect, of power to direct or cause the
direction of management or policies (whether through ownership of voting
securities, by contract or otherwise).

 

 7 

 

 

(c)          “Business Day” means a weekday on which banks are open for general
banking business in San Diego, California.

 

(d)          “Entity” means any corporation (including any nonprofit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.

 

(e)          “Exchange Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.

 

(f)          “Governmental Body” means any domestic or foreign multinational,
federal, state, provincial, municipal or local government (or any political
subdivision thereof) or any domestic or foreign governmental, regulatory or
administrative authority or any department, commission, board, agency, court,
tribunal, judicial body or instrumentality thereof, or any other body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power of any nature
(including any arbitral body).

 

(g)          “Holder” (collectively, “Holders”) means any Stockholder and any
transferee permitted under Section 3.1, in each case, to the extent holding
Registrable Securities.

 

(h)          “Person” means any individual, Entity, trust, Governmental Body or
other organization.

 

(i)          “register,” “registered” and “registration” refer to a registration
effected by filing with the SEC a registration statement in compliance with the
Securities Act, and the declaration or ordering by the SEC of the effectiveness
of such registration statement.

 

(j)          “Registrable Securities” means: (i) the Shares, and (ii) any
Additional Shares; provided, however, that Shares or Additional Shares shall
cease to be treated as Registrable Securities (and the Company shall not be
required to maintain the effectiveness of any, or file another, Registration
Statement hereunder with respect thereto) for so long as (a) a Registration
Statement with respect to the sale of such Registrable Securities is declared
effective by the SEC under the Securities Act and such Registrable Securities
have been disposed of by the Holder in accordance with such effective
Registration Statement, (b) such Registrable Securities have been previously
sold in accordance with Rule 144, or (c) such securities become eligible for
resale without volume or manner-of-sale restrictions and without current public
information pursuant to Rule 144 as set forth in a written opinion letter to
such effect, addressed, delivered and acceptable to the Transfer Agent and the
affected Holders (assuming that such securities and any securities issuable upon
exercise, conversion or exchange of which, or as a dividend upon which, such
securities were issued or are issuable, were at no time held by any Affiliate of
the Company), as reasonably determined by the Company, upon the advice of
counsel to the Company.

 

 8 

 

 

(k)          “Registration Expenses” means any and all expenses incident to the
performance of or compliance with this Declaration, including without
limitation: (i) all registration and filing fees; (ii) all fees and expenses
associated with a required listing of the Registrable Securities on any
securities exchange; (iii) fees and expenses with respect to filings required to
be made with an exchange or any securities industry self-regulatory body; (iv)
fees and expenses of compliance with securities or “blue sky” laws (including
reasonable fees and disbursements of counsel for the underwriters or holders of
securities in connection with blue sky qualifications of the securities and
determination of their eligibility for investment under the laws of such
jurisdictions); (v) printing, messenger, telephone and delivery expenses of the
Company; (vi) fees and disbursements of counsel for the Company and customary
fees and expenses for independent certified public accountants retained by the
Company (including the expenses of any comfort letters, or costs associated with
the delivery by independent certified public accountants of a comfort letter or
comfort letters, if such comfort letter or comfort letters is required by the
managing underwriter); (vii) securities acts liability insurance, if the Company
so desires; (viii) all internal expenses of the Company (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties); (ix) the expense of any annual audit; and (x) the
fees and expenses of any Person, including special experts, retained by the
Company; provided, however that “Registration Expenses” shall not include
underwriting fees, discounts or commissions attributable to the sale of such
Registrable Securities or any legal fees and expenses of counsel to the Holders.

 

(l)          “Rule 144” means Rule 144 under the Securities Act.

 

(m)         “SEC” means the Securities and Exchange Commission.

 

(n)          “Securities Act” means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, as the same may be amended
from time to time.

 

(o)          “Shares” means, collectively, (i) any and all shares of Common
Stock issuable pursuant to the Subscription Agreement, (ii) any and all shares
of Common Stock issuable pursuant to the Warrants (as defined in the
Subscription Agreement), and (iii) any and all shares of Common Stock issuable
pursuant to the warrants to purchase Common Stock issued by the Company to GP
Nurmenkari Inc. and H.C. Wainwright & Co., LLC in connection with their services
provided to the Company with respect to shares sold pursuant to the Subscription
Agreement.

 

Article II.

Registration Rights

 

2.1           Resale Registration Statement. Within 45 days following the date
of the Final Closing, the Company shall (a) file with the SEC, or (b) have filed
with the SEC, a Resale Registration Statement (the “Resale Registration
Statement”) pursuant to Rule 415 under the Securities Act pursuant to which all
of the Registrable Securities shall be included (on the initial filing or by
supplement thereto) to enable the public resale on a delayed or continuous basis
of the Registrable Securities by the Holders. The Company shall file the Resale
Registration Statement on such form as the Company may then utilize under the
rules of the SEC and use its commercially reasonable efforts to have the Resale
Registration Statement declared effective under the Securities Act as soon as
practicable, but in no event more than 90 days following the initial filing of
the Registration Statement. In the event the Company is notified by the SEC that
the Resale Registration Statement will not be reviewed or is no longer subject
to further review and comments, the Company shall use its commercially
reasonable efforts to have the Resale Registration Statement declared effective
by the 5th trading day following the date on which the Company is so notified if
such date precedes the dates otherwise required above. The Company agrees to use
its commercially reasonable efforts to maintain the effectiveness of the Resale
Registration Statement, including by filing any necessary post-effective
amendments and prospectus supplements, or, alternatively, by filing new
registration statements relating to the Registrable Securities as required by
Rule 415 under the Securities Act, continuously until the date (the “Resale
Registration Expiration Date”) that is the earlier of (i) three (3) years
following the date of effectiveness of the Resale Registration Statement, or
(ii) the date on which the Holders no longer hold any Registrable Securities
covered by such Resale Registration Statement.

 

 9 

 

 

2.2           Provisions Relating to Registration.

 

(a)          If the Company fails to comply with its obligations in Section 2.1,
the Stockholders shall be entitled to a payment from the Company, as liquidated
damages and not as a penalty, in the amount per month equal to a half of a
percent (0.5%) of the purchase price of the Shares, from (i) the date the
Company was required to file the Registration Statement until it is actually
filed and pro-rated for any partial month, and (ii) from the date the
Registration Statement was required to be declared effective until it is
actually declared effective and pro-rated for any partial month. The maximum
penalty payable by the Company for all such failures shall not exceed five
percent (5%) of the purchase price of the Shares in the aggregate. If the
Company fails to pay any partial liquidated damages pursuant to this Section in
full within seven (7) days after the date payable, the Company will pay interest
thereon at a rate of 12% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Holder, accruing daily from the
date such partial liquidated damages are due until such amounts, plus all such
interest thereon, are paid in full.

 

(b)          Notwithstanding any other provisions of this Declaration to the
contrary, the Company shall cause (i) the Resale Registration Statement (as of
the effective date of the Resale Registration Statement), any amendment thereof
(as of the effective date thereof) or supplement thereto (as of its date), (A)
to comply in all material respects with the applicable requirements of the
Securities Act and the rules and regulations of the SEC, and (B) not to contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, and (ii) any related prospectus, preliminary prospectus
and any amendment thereof or supplement thereto, as of its date, (A) to comply
in all material respects with the applicable requirements of the Securities Act
and the rules and regulations of the SEC, and (B) not to contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, the Company shall have no such obligations or liabilities with respect
to any written information pertaining to a Holder and furnished to the Company
by or on behalf of such Holder specifically for inclusion therein.

 

(c)          The Company shall notify the Holders: (i) when the Resale
Registration Statement or any amendment thereto has been filed with the SEC and
when the Resale Registration Statement or any post-effective amendment thereto
has become effective; (ii) of any request by the SEC for amendments or
supplements to the Resale Registration Statement or the prospectus included
therein or for additional information; (iii) of the issuance by the SEC of any
stop order suspending the effectiveness of the Resale Registration Statement or
the initiation of any proceedings for that purpose and of any other action,
event or failure to act that would cause the Resale Registration Statement not
to remain effective; and (iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of any Registrable Securities for sale in any jurisdiction or the
initiation of any proceeding for such purpose.

 

 10 

 

 

(d)          As promptly as practicable after becoming aware of such event, the
Company shall notify the Holders of the happening of any event (a “Suspension
Event”), of which the Company has knowledge, as a result of which the prospectus
included in the Resale Registration Statement as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Resale Registration Statement to correct such untrue statement
or omission, and deliver such number of copies of such supplement or amendment
to the Holders as the Holders may reasonably request; provided, however, that,
for not more than 45 consecutive trading days (or a total of not more than 90
trading days in any twelve (12) month period), the Company may delay the
disclosure of material non-public information concerning the Company (as well as
prospectus or Resale Registration Statement updating), the disclosure of which
at the time is not, in the good faith opinion of the Company, in the best
interests of the Company; provided, further, that, if the Resale Registration
Statement was not filed on Form S-3, such number of days shall not include the
fifteen (15) calendar days following the filing of any Current Report on Form
8-K, Quarterly Report on Form 10-Q or Annual Report on Form 10-K, or other
comparable form, for purposes of filing a post-effective amendment to the Resale
Registration Statement.

 

(e)          Upon a Suspension Event, the Company shall give written notice (a
”Suspension Notice”) to the Holders to suspend sales of the Registrable
Securities, and such notice shall state that such suspension shall continue only
for so long as the Suspension Event or its effect is continuing and the Company
is pursuing with reasonable diligence the completion of the matter giving rise
to the Suspension Event or otherwise taking all reasonable steps to terminate
suspension of the effectiveness or use of the Resale Registration Statement. In
no event shall the Company, without the prior written consent of the Holders,
disclose to the Holders any of the facts or circumstances giving rise to the
Suspension Event. The Holders shall not effect any sales of the Registrable
Securities pursuant to such Resale Registration Statement (or such filings), at
any time after it has received a Suspension Notice and prior to receipt of an
End of Suspension Notice. The Holders may resume effecting sales of the
Registrable Securities under the Resale Registration Statement (or such
filings), following further notice to such effect (an “End of Suspension
Notice”) from the Company. This End of Suspension Notice shall be given by the
Company to the Holders in the manner described above promptly following the
conclusion of any Suspension Event and its effect.

 

(f)          Notwithstanding any provision herein to the contrary, if the
Company gives a Suspension Notice pursuant to this Section 2.2 with respect to
the Resale Registration Statement, the Company shall extend the period during
which such Resale Registration Statement shall be maintained effective under
this Declaration by the number of days during the period from the date of the
giving of the Suspension Notice to and including the date when the Holders shall
have received the End of Suspension Notice and copies of the supplemented or
amended prospectus necessary to resume sales.

 

(g)          If Form S-3 is not available for the registration of the resale of
Registrable Securities hereunder, the Company shall (i) register the resale of
the Registrable Securities on another appropriate form, and (ii) undertake to
register the Registrable Securities on Form S-3 as soon as such form is
available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.

 

(h)          Notwithstanding anything to the contrary contained herein, in no
event shall the Company be permitted to name any Holder or affiliate of a Holder
as any Underwriter without the prior written consent of such Holder unless such
Holder indicates in writing that it is a registered broker-dealer or affiliated
with a registered broker-dealer and therefore may be named as a “statutory
underwriter” in the Registration Statement.

 

(i)          The Company shall bear all Registration Expenses incurred by the
Company in connection with the registration of the Registrable Securities
pursuant to this Declaration.

 

(j)          Notwithstanding anything to the contrary contained in this
Declaration, the Company shall not be required to include Registrable Securities
in the Resale Registration Statement unless the Holder owning such shares
furnishes to the Company, at least 10 Business Days prior to the scheduled
filing date of such Resale Registration Statement, an executed stockholder
questionnaire in the form attached hereto as Exhibit A.

 

 11 

 

 

2.3           Indemnification.

 

(a)          In the event of the offer and sale of the Registrable Securities
held by the Holders under the Securities Act, the Company agrees to indemnify
and hold harmless each Holder and its directors, officers, employees, Affiliates
and agents and each Person who controls such Holder within the meaning of the
Securities Act or the Exchange Act (collectively, the “Holder Indemnified
Parties”) from and against any losses, claims, damages or liabilities, joint or
several, or any actions in respect thereof to which each Holder Indemnified
Party may become subject under the Securities Act or the Exchange Act, insofar
as such losses, claims, damages, liabilities or actions arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Resale Registration Statement or in any amendment thereof,
in each case at the time such became effective under the Securities Act, or in
any the preliminary prospectus or other information that is deemed, under Rule
159 promulgated under the Securities Act to have been conveyed to purchasers of
securities at the time of sale of such securities (“Disclosure Package”),
prospectus or in any amendment thereof or supplement thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
Disclosure Package or any prospectus, in the light of the circumstances under
which they were made) not misleading, and shall reimburse, as incurred, the
Holder Indemnified Parties for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action in respect thereof; provided, however, that the
Company shall not be liable in any such case to the extent that such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or omission made in the Resale Registration Statement, the Disclosure Package,
any prospectus or in any amendment thereof or supplement thereto in reliance
upon and in conformity with written information pertaining to a Holder and
furnished to the Company by or on behalf of such Holder Indemnified Party
specifically for inclusion therein; provided further, however, that the Company
shall not be liable in any such case to the extent that such loss, claim, damage
or liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in the Disclosure Package,
where (A) such statement or omission had been eliminated or remedied in any
subsequently filed amended prospectus or prospectus supplement (the Disclosure
Package, together with such updated documents, the “Updated Disclosure
Package”), the filing of which such Holder had been notified in accordance with
the terms of this Declaration, (B) such Updated Disclosure Package was available
at the time such Holder sold Registrable Securities under the Resale
Registration Statement, (C) such Updated Disclosure Package was not furnished by
such Holder to the Entity asserting the loss, liability, claim, damage or
liability, or an underwriter involved in the distribution of such Securities, at
or prior to the time such furnishing is required by the Securities Act, and
(D) the Updated Disclosure Package would have cured the defect giving rise to
such loss, liability, claim, damage or action; and provided further, however,
that this indemnity agreement will be in addition to any liability that the
Company may otherwise have to such Holder Indemnified Party. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of any Holder Indemnified Parties and shall survive the transfer of
the Registrable Securities by any Holder.

 

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(b)          As a condition to including any Registrable Securities to be
offered by a Holder in any registration statement filed pursuant to this
Declaration, such Holder agrees to indemnify and hold harmless the Company, each
of its directors, each of its officers who signs the Resale Registration
Statement, as well as any officers, employees, Affiliates and agents of the
Company, and each Person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act (a “Company Indemnified Party”) from and
against any losses, claims, damages or liabilities or any actions in respect
thereof, to which a Company Indemnified Party may become subject under the
Securities Act or the Exchange Act, insofar as such losses, claims, damages,
liabilities or actions arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in the Resale
Registration Statement or in any amendment thereof, in each case at the time
such became effective under the Securities Act, or in any Disclosure Package,
prospectus or in any amendment thereof or supplement thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of the
Disclosure Package or any prospectus, in the light of the circumstances under
which they were made) not misleading, but in each case only to the extent that
the untrue statement or omission or alleged untrue statement or omission was
made in reliance upon and in conformity with written information pertaining to
such Holder and furnished to the Company by or on behalf of the such Holder
specifically for inclusion therein; and, subject to the limitation immediately
preceding this clause, shall reimburse, as incurred, the Company Indemnified
Parties for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any loss, claim, damage, liability or
action in respect thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Holder, or any such
director, officer, employees, Affiliates and agents and shall survive the
transfer of such Registrable Securities by such Holder, and such Holder shall
reimburse the Company, and each such director, officer, employees, Affiliates
and agents for any legal or other expenses reasonably incurred by them in
connection with investigating, defending, or settling and such loss, claim,
damage, liability, action, or proceeding; provided, however, that the indemnity
agreement contained in this Section 2.3 shall in no event exceed the gross
proceeds from the offering received by such Holder. Such indemnity shall remain
in full force and effect, regardless of any investigation made by or on behalf
of the Company or any such director, officer, employees, Affiliates and agents
and shall survive the transfer by a Holder of such Registrable Securities.

 

(c)          Promptly after receipt by a Holder Indemnified Party or a Company
Indemnified Party (each, an “Indemnified Party”) of notice of the commencement
of any action or proceeding (including a governmental investigation), such
Indemnified Party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 2.3, notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party will
not relieve the indemnifying party from liability under Sections 2.3(a) or
2.3(b)  unless and to the extent it did not otherwise learn of such action and
the indemnifying party has been materially prejudiced by such failure. In case
any such action is brought against any Indemnified Party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such Indemnified Party (who
shall not, except with the consent of the Indemnified Party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
Indemnified Party of its election so to assume the defense thereof the
indemnifying party will not be liable to such Indemnified Party under this
Section 2.3 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such Indemnified Party in connection
with the defense thereof; provided, however, if such Indemnified Party shall
have been advised by counsel that there are one or more defenses available to it
that are in conflict with those available to the indemnifying party (in which
case the indemnifying party shall not have the right to direct the defense of
such action on behalf of the Indemnified Party), the reasonable fees and
expenses of such Indemnified Party’s counsel shall be borne by the indemnifying
party. In no event shall the indemnifying party be liable for the fees and
expenses of more than one counsel (together with appropriate local counsel) at
any time for any Indemnified Party in connection with any one action or separate
but substantially similar or related actions arising in the same jurisdiction
out of the same general allegations or circumstances. No indemnifying party
shall, without the prior written consent of the Indemnified Party (not to be
unreasonably withheld or delayed), effect any settlement of any pending or
threatened action in respect of which any Indemnified Party is or could have
been a party and indemnity could have been sought hereunder by such Indemnified
Party unless such settlement (i) includes an unconditional release of such
Indemnified Party from all liability on any claims that are the subject matter
of such action and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act by or on behalf of any Indemnified Party.
If the indemnification provided for in this Section 2.3 is unavailable or
insufficient to hold harmless an Indemnified Party under Sections 2.3(a) or
2.3(b), then each indemnifying party shall contribute to the amount paid or
payable by such Indemnified Party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in Sections 2.3(a) or
2.3(b) in such proportion as is appropriate to reflect the relative fault of the
indemnifying party or parties on the one hand and the Indemnified Party on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as well
as any other relevant equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or a Holder or Holder Indemnified Party, as the case may be, on
the other, and the parties’ relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid by an Indemnified Party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this Section 2.3 shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any action or
claim that is the subject of this Section 2.3(c). The parties agree that it
would not be just and equitable if contributions were determined by pro rata
allocation (even if a Holder was treated as one Entity for such purpose) or any
other method of allocation that does not take account of the equitable
considerations referred to above. Notwithstanding any other provision of this
Section 2.3(c), no Holder shall be required to contribute any amount in excess
of the amount by which the net proceeds received by such Holder from the sale of
the Registrable Securities pursuant to the Resale Registration Statement exceeds
the amount of damages that such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.

 

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(d)          The agreements contained in this Section 2.3 shall survive the sale
of the Registrable Securities pursuant to the Resale Registration Statement and
shall remain in full force and effect, regardless of any termination or
cancellation of this Declaration or any investigation made by or on behalf of
any Indemnified Party.

 

Article III.

Miscellaneous.

 

3.1           Governing Law. This Declaration shall be governed by, and
construed in accordance with, the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws.

 

3.2           Titles and Subtitles. The titles and subtitles used in this
Declaration are for convenience only and are not to be considered in construing
or interpreting this Declaration.

 

3.3           Notices. All notices, requests, claims, demands, consents, waivers
and other communications required or permitted by this Declaration shall be in
writing and shall be deemed given to a party to this Declaration when (a)
delivered to the appropriate address by hand or by nationally recognized
overnight courier service (costs prepaid), or (b) sent e-mail with confirmation
of transmission by the transmitting equipment confirmed with a copy delivered as
provided in clause (a), (i) in the case of the Company, to Chris Prior, Chief
Executive Officer, with a copy (which shall not constitute notice) to Wilson
Sonsini Goodrich & Rosati, P.C., Attention: Martin J. Waters, Email:
mwaters@wsgr.com; and (ii) in the case of a Holder, to the address or e-mail
address and marked to the attention of such Holder (by name or title) as set
forth on Schedule 1 hereto (or to such other address or e-mail address as such
party shall have specified in a written notice given to the other parties
hereto).

 

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3.4           Amendments and Waivers. This registration rights granted hereunder
may only be amended or terminated and the observance of any term hereof may be
waived (either generally or in a particular instance, and either retroactively
or prospectively) only by a written instrument executed by the Company and the
holders of a majority of the Registrable Securities then outstanding.

 

3.5           Severability. In case any one or more of the provisions contained
in this Declaration is for any reason held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of this Declaration, and such invalid,
illegal, or unenforceable provision shall be reformed and construed so that it
will be valid, legal, and enforceable to the maximum extent permitted by law.

 

3.6           Termination. This Declaration shall terminate on the date when
there are no longer any remaining Registrable Securities or upon the dissolution
of liquidation of the Company; provided that Section 2.3 of this Declaration
shall survive such termination.

 

3.7           Parties in Interest. None of the provisions of this Declaration
are intended to provide any rights or remedies to any Person other than the
parties to this Declaration and their respective successors and assigns (if
any).

 

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 15 

 

 

IN WITNESS WHEREOF, the parties hereto have duly executed this Registration
Rights Agreement as of the date first written above.

 

  THE COMPANY:       Monster Digital, Inc.,   a Delaware corporation         By:
      Name:     Title:

 

[Signature Page to Registration Rights Agreement]

 

   

 

 

EXHIBIT F

 

Form of Lock-up Agreement

 

__________, 2018

 

RE: Innovate Biopharmaceuticals, Inc. (the “Company”)

 

Ladies & Gentlemen:

 

 

The undersigned is an owner of shares of common stock, par value $0.001 per
share, of the Company (“Shares”) or of securities convertible into or
exchangeable or exercisable for Shares. The Company proposes to conduct an
offering of Shares pursuant to a proposed Subscription Agreement (the
“Subscription Agreement”) by and among the Company and the Purchasers (as
defined in the Subscription Agreement) (the “Offering”). The undersigned
recognizes that the Offering will benefit each of the Company and the
undersigned. The undersigned acknowledges that the Purchasers are relying on the
representations and agreements of the undersigned contained in this letter
agreement (this “Agreement”) in conducting the Offering.

 

Annex A sets forth definitions for capitalized terms used in this Agreement that
are not defined in the body of this Agreement. Those definitions are a part of
this Agreement.

 

In consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned hereby agrees that, during the Lock-up Period, the undersigned will
not (and will cause any Family Member or Affiliate not to):

 

·Sell or Offer to Sell any Shares or Related Securities currently or hereafter
owned either of record or beneficially (as defined in Rule 13d-3 under the
Exchange Act) by the undersigned or such Family Member or Affiliate,

 

·enter into any Swap,

 

·make any demand for, or exercise any right with respect to, the registration
under the Securities Act of the offer and sale of any Shares or Related
Securities, or cause to be filed a registration statement, prospectus or
prospectus supplement (or an amendment or supplement thereto) with respect to
any such registration, in each case other than the Resale Registration Statement
(as defined in the Declaration of Registration Rights Agreement attached as
Exhibit E to the Subscription Agreement), or

 

·publicly announce any intention to do any of the foregoing.

 

   

 

 

The foregoing will not apply to the registration of the offer and sale of the
Shares as contemplated by the Subscription Agreement. In addition,
notwithstanding the foregoing, the undersigned may transfer any of the Shares or
Related Securities (i) as a bona fide gift or gifts or charitable
contribution(s), (ii) to any trust for the direct or indirect benefit of the
undersigned or the immediate family member of the undersigned, (iii) if the
undersigned is a corporation, partnership, limited liability company, trust or
other business entity (1) to another corporation, partnership, limited liability
company, trust or other business entity that is a direct or indirect affiliate
(as defined in Rule 405 promulgated under the Securities Act) of the undersigned
or (2) as distributions of Shares or Related Securities to limited partners,
limited liability company members or stockholders of the undersigned or holders
of similar equity interests in the undersigned, (iv) if the undersigned is a
trust, to the beneficiary of such trust, (v) by testate succession or intestate
succession, (vi) to any immediate family member, any investment fund, family
partnership, family limited liability company or other entity controlled or
managed by the undersigned, (vii) to a nominee or custodian of a person or
entity to whom a disposition or transfer would be permissible under clauses (i)
through (vi), (viii) to the Company in a transaction exempt from Section 16(b)
of the Exchange Act upon a vesting event of the Shares or Related Securities or
upon the exercise of options or warrants to purchase Shares on a “cashless” or
“net exercise” basis or to cover tax withholding obligations of the undersigned
in connection with such vesting or exercise (but for the avoidance of doubt,
excluding all manners of exercise that would involve a sale in the open market
of any securities relating to such options or warrants, whether to cover the
applicable aggregate exercise price, withholding tax obligations or otherwise),
(ix) acquired by the undersigned in open market transactions after the date
hereof, (x) pursuant to a bona fide third party tender offer, merger,
consolidation or other similar transaction made to all holders of the Company’s
capital stock involving a Change of Control of the Company, provided that in the
event that such tender offer, merger, consolidation or other such transaction is
not completed, the Shares or Related Securities shall remain subject to the
restrictions contained in this Agreement, or (xi) by operation of law, such as
pursuant to a qualified domestic order or in connection with a divorce
settlement or any other court order; provided, in the case of clauses (i)-(vii),
that (A) such transfer shall not involve a disposition for value and (B) the
transferee agrees in writing with the Company to be bound by the terms of this
Agreement.

 

In addition, the foregoing restrictions shall not apply to (i) the exercise of
stock options granted pursuant to the Company’s equity incentive plans (but for
the avoidance of doubt, excluding all manners of exercise that would involve a
sale in the open market of any securities relating to such options, whether to
cover the applicable aggregate exercise price, withholding tax obligations or
otherwise); provided that the foregoing restrictions shall apply to any of the
securities issued upon such exercise, (ii) conversion or exercise of warrants
into Shares or into any other security convertible into or exercisable for
Shares that are outstanding as of the date hereof (but for the avoidance of
doubt, excluding all manners of conversion or exercise that would involve a sale
in the open market of any securities relating to such warrants, whether to cover
the applicable aggregate exercise price, withholding tax obligations or
otherwise); provided that the foregoing restrictions shall apply to any of the
Securities issued upon such conversion or exercise, or (iii) the establishment
of any contract, instruction or plan (a “Plan”) that satisfies all of the
requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act; provided that no
sales of the Securities shall be made pursuant to such a Plan prior to the
expiration of the applicable Lock-Up Period, and such a Plan may only be
established if no public announcement of the establishment or existence thereof
and no filing with the Securities and Exchange Commission or other regulatory
authority in respect thereof or transactions thereunder or contemplated thereby,
by the undersigned, the Company or any other person, shall be required, and no
such announcement or filing is made voluntarily, by the undersigned, the Company
or any other person, prior to the expiration of the applicable Lock-Up Period.

 

The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company’s transfer agent and registrar against the
transfer of Shares or Related Securities held by the undersigned and the
undersigned's Family Members or Affiliates, if any, except in compliance with
the foregoing restrictions.

 

The undersigned confirms that the undersigned has not, and has no knowledge that
any Family Member or Affiliate has, directly or indirectly, taken any action
designed to cause or result in the stabilization or manipulation of the price of
any security of the Company to facilitate the sale of the Shares. The
undersigned will not, and will cause any Family Member or Affiliate not to take
any such action.

 

   

 

 

Whether or not the Offering occurs as currently contemplated or at all depends
on market conditions and other factors. The Offering will only be made pursuant
to the Subscription Agreement, the terms of which are subject to negotiation
between the Company and the Purchasers.

 

The undersigned hereby represents and warrants that the undersigned has full
power, capacity and authority to enter into this Agreement. This Agreement is
irrevocable and will be binding on the undersigned and the successors, heirs,
personal representatives and assigns of the undersigned. This Agreement will
automatically terminate upon the earliest to occur, if any, of (a) the date the
Company advises the Purchasers in writing, prior to the execution of the
Subscription Agreement, that it has determined not to proceed with the Offering,
(b) the date of the termination of the Subscription Agreement if prior to the
closing of the Offering and (c) January 26, 2018 if the Subscription Agreement
has not been executed and delivered by the Company by such date.

 

This Agreement shall be governed by, and construed in accordance with, the laws
of the State of Delaware.

 

   

 

 

  Very truly yours,           Name of Security Holder (Print exact name)        
By:       Signature

 

   

 

 

EXHIBIT G

 

Form of WARRANT