Document:

Exhibit 10.28

 

AMENDMENT NO. 1 TO AMENDED AND RESTATED LICENSE AGREEMENT

 

THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED LICENSE AGREEMENT (this “Amendment”), dated as of January 27, 2015 (the “Amendment Effective Date”) is entered into by and between NAPO PHARMACEUTICALS, INC., a Delaware corporation, with offices at 185 Berry Street, Suite 1300, San Francisco, California 94107 (“Napo”), and Jaguar Animal Health, Inc., a Delaware corporation, with offices at 185 Berry Street, Suite 1300, San Francisco, California 94107 (“JAH”).  Napo and JAH are sometimes referred to herein individual as a “Party” and collectively as the “Parties.”

 

RECITALS

 

WHEREAS, the Parties have previously entered into that License Agreement dated as of January 27, 2014, and amended and restated as of August 6, 2014 (the “Agreement”), where Napo has granted an exclusive license to the Napo Technology and the Napo IP; and

 

WHEREAS, the Parties desire to amend and modify payment structure and the license fee payable to Napo by JAH for the Napo Technology and the Napo IP.

 

NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants and agreements contained in this Amendment, the Agreement is hereby amended as follows:

 

1.                                      Definitions.  All capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Agreement.

 

2.                                      Amendments to the Agreement.

 

a.              Section 5.1 is hereby deleted in its entirety and replaced with the following:

 

“5.1                         License Fee.  In consideration of the development work conducted by Napo prior to the Effective Date with respect to the Napo Technology and Napo IP, and in consideration of the Napo Supplies, JAH shall pay to Napo a non-refundable license fee in an aggregate amount equal to One Million Seven Hundred Fifty Thousand Dollars ($1,750,000), less the fee of One Hundred Fifty Thousand Dollars ($150,000) that JAH already paid to Napo (the “License Fee”).  JAH shall remit the License Fee to Napo in accordance with the below payment schedule:

 

	
Payment Date
    	
 
    	
License Fee Amount
    	
 
    
	
Amendment   Effective Date
    	
 
    	
$
    	
25,000
    	
 
    
	
March 31,   2015
    	
 
    	
$
    	
25,000
    	
 
    
	
June 30,   2015
    	
 
    	
$
    	
150,000
    	
 
    
	
September 30,   2015
    	
 
    	
$
    	
500,000
    	
 
    
	
December 31,   2015
    	
 
    	
$
    	
500,000
    	
 
    
	
March 31,   2016
    	
 
    	
$
    	
550,000
    	
*
    
	
Total:
    	
 
    	
$
    	
1,750,000
    	
 
    

 

 

* The License Fee payment due March 31, 2016 shall be less One Hundred Fifty Thousand Dollars ($150,000) that JAH has already paid to Napo.”

 

b.              Section 5.8 is hereby deleted in its entirety and replaced with the following:

 

“5.8                         Milestone Payments.  JAH shall promptly (and in any event within thirty (30) days) following the occurrence of any event triggering a milestone payment under Section 5.2 or Section 5.3 above, notify Napo in writing of such occurrence, and, within ten (10) days thereafter, pay the triggered milestone payment.”

 

c.               Section 5.13 is hereby deleted in its entirety and replaced with the following:

 

“5.13                  Payments in Equity.

 

5.13.1              JAH may, upon mutual agreement of the Parties, remit the License Fee payable to Napo in March 31, 2015, June 30, 2015, September 30, 2015, December 31, 2015 and March 31, 2016, in the form of JAH common stock, the value of which shall be the fair market value of such common stock, as shall be determined in good faith by the Board of Directors of JAH, on the date such common stock is issued; and, the Parties may, at that time, or at any time thereafter, negotiate a single, lump-sum payment representing the net present value of all future payments of License Fee.

 

5.13.2              JAH may, at its discretion, elect to remit any milestone payments and/or royalties in the form of JAH common stock, the value of which shall be the fair market value of such common stock, as shall be determined in good faith by the Board of Directors of JAH, on the date such common stock is issued; and, the Parties may, at that time, or at any time thereafter, negotiate a single, lump-sum payment representing the net present value of all anticipated future payments of any milestone payments and/or royalties.”

 

3.                                      Effect of this Amendment. This Amendment shall become effective as of the Amendment Effective Date.  There are no further changes to the terms of the Agreement.  Except as would be inconsistent with the terms of this

 

 

Amendment, all other terms and conditions of the Agreement shall remain in full force and effect and be unaffected by this Amendment.

 

4.                                      Facsimile and Counterparts.  This Amendment may be executed in counterparts, each of which shall be deemed to be an original, and all of which, taken together, shall constitute one and the same instrument.  Delivery of an executed counterpart of a signature page of this Amendment (and each amendment, modification and waiver in respect of it) by facsimile or other electronic transmission, if identified, legible and complete, will be regarded as an original signature and shall be as effective as delivery of a manually executed original counterpart of each such instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the Amendment Effective Date.

 

 

	
NAPO   PHARMACEUTICALS, INC.
    	
 
    	
JAGUAR   ANIMAL HEALTH, INC.
    
	
 
    	
 
    	
 
    
	
By: 
    	
/s/   Lisa A. Conte
    	
 
    	
By:   
    	
/s/   John Kallassy
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Name: 
    	
Lisa   A. Conte
    	
 
    	
Name:   
    	
John   Kallassy
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Title: 
    	
CEO
    	
 
    	
Title:   
    	
Chief   Financial Officer
    

 

[Signature Page to Amendment No. 1 to Amended and Restated License Agreement]Exhibit 10.29

 

THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR UNDER ANY STATE SECURITIES LAWS (“BLUE SKY LAWS”), AND MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT, AND AS REQUIRED BY BLUE SKY LAWS IN EFFECT AS TO SUCH TRANSFER, UNLESS AN EXEMPTION FROM SUCH REGISTRATION UNDER STATE AND FEDERAL LAW IS AVAILABLE. THE CONVERTIBLE PROMISSORY NOTE PURCHASED UNDER THIS AGREEMENT AND ANY SECURITIES INTO WHICH THE CONVERTIBLE PROMISSORY NOTE IS CONVERTIBLE ARE ALSO SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED IN THIS PURCHASE AGREEMENT.

 

FORM OF CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT

 

THIS CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT (the “Agreement”) is dated for references purposes as of December 23, 2014 (the “Effective Date”), by and between Jaguar Animal Health, Inc., a Delaware corporation (the “Company”) and the investor whose name and signature are set forth on the signature page to this Agreement (the “Investor”).

 

RECITALS

 

Investor desires to purchase from the Company, and the Company desires to sell to Investor, a Convertible Promissory Note in form and substance attached hereto as Exhibit A (the “Note”) and a Warrant in form and substance attached hereto as Exhibit B (the “Warrant”) to purchase the Company’s Common Stock, all on the terms and conditions hereinafter set forth.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual agreements, covenants, representations and warranties contained in this Agreement, the parties hereby agree as follows:

 

1.                                      Purchase and Sale of Note and Warrant.

 

a.                                      Sale and Issuance of Note and Warrant.  Subject to the terms and conditions of this Agreement, Investor agrees to purchase at the Closing (as defined below), and the Company agrees to sell and issue to Investor at the Closing, the Note in the principal amount set forth on the signature page and a Warrant to purchase that number of Shares as calculated and set forth on the signature page (and where the reference is applicable, the Note and Warrant and all equity underlying the Note and Warrant, collectively, the “Securities”). The Note is one of a duly authorized series of Notes of the Company which are substantively substantially identical except for the variations necessary to express the name of the Investor, number, interest commencement date and the principal amount under each Note.

 

b.                                      Payment and Delivery. Investor shall purchase the Note and Warrant by making payment to the Company in cash, by check or wire transfer of funds of the aggregate purchase price of the Note and Warrant as set forth on the signature page

 

 

(the “Purchase Price”) delivered to the Company on the date set forth on the signature page (the “Closing”).

 

c.               Delivery of Note.  Upon Investor’s delivery of the Purchase Price in full and a fully executed and completed original of this Purchase Agreement, the Note and Warrant, and after the Company determines that all applicable securities laws have been satisfied, the Company will deliver the Note and Warrant to Investor (the “Closing”).

 

d.              Tax Matters.   The Company and the Investor, as a result of the arm’s length bargaining, agree that: neither the Investor  nor any affiliated  company has rendered any services to the Company in connection with this Agreement; none of the Warrants are being or will be issued as compensation. . The Investor hereby certifies, under penalty of perjury, that 1) the number shown below my signature is my correct taxpayer identification number; and 2) I am not subject to back-up withholding because a) I am exempt from back-up withholding, or b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to back-up withholding as a result of a failure to report all interest and dividends, or c) the IRS has notified me that I am no longer subject to back-up withholding; and 3) I am a U.S citizen or other U.S. person (defined below).  For federal tax purposes, you are considered a U.S. person if you are an individual who is a U.S. citizen or U.S. resident alien; a partnership, corporation, company, or association created or organized in the United States or under the laws of the United States; an estate (other than a foreign estate); or a domestic trust (as defined in Regulations section 301.7701-7).

 

2.                                      Company’s Representations and Warranties.  Except as set forth on the Schedule of Exceptions attached hereto, the Company hereby represents and warrants to Investor as of the Effective Date as follows:

 

a.                                      Organization, Good Standing and Qualification.  The Company is a corporation duly organized and validly existing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement and sell the Securities, and to carry out the provisions of this Agreement and to carry on its business as presently conducted. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business.

 

b.                                      Authorization; Binding Obligations.  All corporate action on the part of the Company, its managers, officers, directors and members necessary for the authorization of this Agreement, and the Securities and the performance of all obligations of the Company hereunder and thereunder at the Closing has been taken or will be taken prior to the Closing

 

c.                                       Liabilities/Capitalization. Other than obligations of the Company arising from trade payables, lease obligations and the like and any accrued salaries or consulting fees incurred in the ordinary course of business, the Company does not have any (i) material liabilities in the aggregate in excess of $650,000 under the Notes and (ii) equity issued or rights to acquire equity other than those disclosed in (x) the Company’s Amendment #4 to its S-1 Registration Statement filed with the Securities & Exchange

 

 

Commission (“Registration Statement”) and (y) as otherwise incurred under that certain Amended and Restated Standby Bridge Financing Agreement dated on, or about, December 3, 2015, by and among 31 GROUP, LLC, GPB Life Science Holdings LLC and the Company providing for the issuances of warrants and $1 Million of secured debt as previously disclosed to the Investor.

 

3.                                      Investor Representations and Warranties.  Investor represents and warrants to the Company that:

 

a.                                      Requisite Power and Authority. Investor has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and to carry out their provisions.  All action on Investor’s part required for the lawful execution and delivery of this Agreement and the Note and Warrant have been or will be effectively taken prior to the Closing.

 

b.                                      Account.  Investor is acquiring the Securities for investment for Investor’s own account, and not with a view to, or for resale in connection with, any distribution thereof, and Investor has no present intention of selling or distributing any of the Securities.  Investor understands that the Securities have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment as expressed herein.

 

c.                                       Access to Data.  Investor has had an opportunity to discuss the Company’s business, management and financial affairs with its management and to obtain any additional information which Investor has deemed necessary or appropriate for deciding whether or not to purchase the Securities, including an opportunity to receive, review and understand the information set forth in the charter documents of the Company and the Company’s financial statements, capitalization and other business information as Investor deems prudent. Investor acknowledges that no other representations or warranties, oral or written, have been made by the Company or any agent thereof except as set forth in this Agreement.

 

d.                                      No Fairness Determination.  Investor is aware that no federal, state or other agency has made any finding or determination as to the fairness of the investment, nor made any recommendation or endorsement of the Securities.

 

e.                                       Knowledge and Experience.  Investor has such knowledge and experience in financial and business matters, including investments in other start-up companies that such individual is capable of evaluating the merits and risks of the investment in the Securities and it is able to bear the economic risk of such investment. Investor is an “accredited” investor as that term is defined under Regulation D promulgated under the Securities Act of 1933, as amended (as more fully set forth on Schedule 1 attached hereto).  Further, Investor has such knowledge and experience in financial and business matters that such individual is capable of utilizing the information made available in connection with the offering of the Securities, of evaluating the merits and risks of an investment in the Securities and of making an informed investment decision with respect to the Securities.

 

 

f.                                        No Public Market.  Investor is aware that there is currently no public market for the Company’s securities.  There is no guarantee that a public market will develop at any time in the future.  Investor understands that the Securities are all unregistered and may not presently be sold. Investor understands that the Securities cannot be readily sold or liquidated in case of an emergency or other financial need.  Investor has sufficient liquid assets available so that the purchase and holding of the Securities will not cause Investor undue financial difficulties.

 

g.                                       Rule 144.  Investor acknowledges and agrees that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available.  Investor has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act as in effect from time to time, 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.

 

h.                                      Residence.   Investor resides in the state identified in the address set forth on the signature page.

 

4.                                      Public Offering Lock-Up.  In addition to the lock-up restrictions set forth in the Note and Warrant, Investor shall execute the lock-up agreement as requested by the Company in connection with its Registration Statement.

 

5.                                      Restrictive Legends.   Each instrument evidencing the Securities which Investor may purchase hereunder and any other securities issued upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event (unless no longer required in the opinion of the counsel for the Company) may be imprinted with legends substantially in the following form:

 

THE SECURITIES OF THE COMPANY OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE ACT, AND THE SECURITIES OFFERED HEREBY HAVE NOT BEEN QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS IN THE STATES WHERE THIS OFFERING IS MADE.  THEREFORE, THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT OR QUALIFICATION UNDER SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION AND QUALIFICATION IS NOT REQUIRED.  THESE SECURITIES MAY BE SUBJECT TO ADDITIONAL RESTRICTIONS PURSUANT TO EXEMPTIONS IN THE VARIOUS STATES WHERE THEY ARE BEING SOLD.

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THAT CERTAIN CONVERTIBLE NOTE AND

 

 

WARRANT PURCHASE AGREEMENT DATED EFFECTIVE DECEMBER 23, 2014 BY AND BETWEEN THE ORIGINAL HOLDER HEREOF AND THE COMPANY AS WELL AS THE COMPANY’S BYLAWS, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST.

 

The Company shall be entitled to enter stop transfer notices on its transfer books with respect to the Securities.

 

6.                                      Reliance/Bad Actor Disqualification.  Investor is aware that the Company is relying on the accuracy of the above representations to establish compliance with Federal and State securities laws.  If any such warranties or representations are not true and accurate in any respect as of the Closing, Investor shall so notify the Company in writing immediately and shall be cause for rescission by the Company at its sole election. Investor shall indemnify the Company and its affiliates, legal counsel and agents against all losses, claims, costs, expenses and damages or liabilities, including reasonable attorneys’ fees, which such parties may suffer or incur caused or in connection with or arising out of, directly or indirectly, from their reliance on such warranties and representations. Investor represents that neither Investor, nor  any person or entity with whom Investor shares beneficial ownership of the Company’s securities, is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act, attached hereto as Annex I.

 

7.                                      Miscellaneous.

 

a.                                      Survival. The representations, warranties, covenants and agreements made herein shall survive the closing of the transactions contemplated hereby.

 

b.                                      Successors and Assigns.  Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

 

c.                                       Entire Agreement.  This Agreement, the Exhibits, Schedule and Annex  attached hereto and the Company’s charter documents constitute the entire agreement and understanding between the parties with respect to the subject matters herein, and supersede and replace any prior agreements and understandings, whether oral or written between and among them with respect to such matters.  The provisions of this Agreement may be waived, altered, amended or repealed, in whole or in part, only upon the written consent of the Company and Investor.  Investor acknowledges, however, that the Note and Warrant may be amended by a majority in interest of the holders thereof as set forth in the Note and Warrant.

 

d.                                      Title and Subtitles. The titles of the Sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

 

e.                                       Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

 

 

f.                                        Applicable Law.  This Agreement shall be governed by and construed in accordance with laws of the State of Delaware, applicable to contracts between Delaware residents entered into and to be performed entirely within the State of Delaware.

 

g.                                      Venue.  Any action, arbitration, or proceeding arising directly or indirectly from this Agreement or any other instrument or security referenced herein shall be litigated or arbitrated, as appropriate, in San Francisco, California.

 

h.                                      Authority.  If Investor is a corporation, partnership, trust or estate: (i) the individual executing and delivering this Agreement on behalf of Investor has been duly authorized and is duly qualified to execute and deliver this Agreement in connection with the purchase of the Securities and (ii) the signature of such individual is binding upon Investor.

 

i.                                         Notices.  All notices and other communications provided for or permitted hereunder shall be made by hand-delivery, or may be sent by email at the email address set forth below or by facsimile to any phone number provided by the parties hereto, or overnight air courier guaranteeing next day delivery at the addresses set forth on the signature page hereof to the Investor and with respect to the Company at its principal place of business. All such notices and communications shall be deemed to have been duly given at the time delivered by hand, if personally delivered; if emailed or telecopied, during regular business hours in San Francisco, California,  on the date transmitted or the next business day if transmitted after such regular business hours; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.  The parties may change the addresses to which notices are to be given by giving five days prior notice of such change in accordance herewith.

 

j.                                         Reliance.  Investor is aware that the Company is relying on the accuracy of the above representations to establish compliance with Federal and State securities laws.  If any such warranties or representations are not true and accurate in any respect as of the Closing, Investor shall so notify the Company in writing immediately and shall be cause for rescission by the Company at its sole election. Investor shall indemnify the Company and its affiliates, legal counsel and agents against all losses, claims, costs, expenses and damages or liabilities, including reasonable attorneys’ fees, which such parties may suffer or incur caused or in connection with or arising out of, directly or indirectly, from their reliance on such warranties and representations.

 

k.                                      Tax Matters, Etc.  INVESTOR HAS BEEN ADVISED TO CONSULT WITH MY OWN ATTORNEY OR TAX ADVISOR REGARDING THE LEGAL AND TAX CONSEQUENCES OF MY INVESTMENT IN THE NOTE AND WARRANT.  I AM NOT RELYING DIRECTLY OR INDIRECTLY ON ANY ADVICE WHICH LEGAL COUNSEL TO THE COMPANY MAY HAVE GIVEN, AND AGREE THAT SUCH LEGAL COUNSEL DOES NOT REPRESENT OR UNDERTAKE TO REPRESENT MY INDIVIDUAL INTEREST OR OTHERWISE.  IN PARTICULAR, I AGREE THAT SUCH LEGAL COUNSEL HAS NOT GIVEN ANY TAX ADVICE, DIRECTLY OR  INDIRECTLY, TO ME OR FOR MY BENEFIT, THAT NO “TAX OPINION” HAS BEEN PREPARED OR GIVEN IN CONNECTION WITH THE NOTE AND THAT NO “TAX SHELTER” BENEFITS HAVE BEEN PROMISED TO ME BY ANYONE.  I FURTHER AGREE THAT I AM NOT RELYING ON OR EXPECTING LEGAL COUNSEL

 

 

TO THE COMPANY TO UNDERTAKE ANY “DUE DILIGENCE” IN CONNECTION WITH THE OFFER AND SALE OF THE NOTE AND WARRANT AND THAT THE SCOPE OF LEGAL COUNSEL’S ENGAGEMENT SHALL BE DETERMINED SOLELY BY AGREEMENT BETWEEN COUNSEL AND THE COMPANY.  I AGREE THAT COUNSEL TO THE COMPANY SHALL HAVE NO DUTY TO ME TO VERIFY OR INVESTIGATE ANY MATERIAL FACTS STATED OR OMITTED IN CONNECTION WITH THE ISSUANCE OF THE NOTE AND WARRANT.

 

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

 

IN WITNESS WHEREOF, the parties hereto have each executed this Agreement as of the respective dates set forth below each signature.

 

	
INVESTOR
    	
 
    	
JAGUAR   ANIMAL HEALTH, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
(Print   Name & Title if applicable)
    	
 
    	
(Signature)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(Signature)
    	
 
    	
(Name   and Title)
    
	
 
    	
 
    	
 
    
	
Date:
    	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(Investor   Address for Notices and Investment Decisions)
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(Telephone   Number and Facsimile Number)
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(Email   Address)
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(Federal   Taxpayer Identification Number)
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Purchase   Price $
    	
                                        
    	
 
    	
 
    
							

 

Number of Warrant Shares (rounded down to nearest whole number and qualified in its entirety by the terms of the Warrant) = (50% of Note Principal Divided by the Exercise Price as established in the Warrant).

 

	
Closing   Date:
    	
 
    	
 (To Be Completed By Company)
    

 

 

SCHEDULE 1

 

ACCREDITED INVESTOR

 

I am an accredited investor because I had individual income in excess of $200,000 in each of the last two calendar years or joint income with my spouse in excess of $300,000 in each of the last two calendar years and I reasonably expect to attain levels of income this year at least equal to these amounts.  For the purposes of this Agreement, individual income means adjusted gross income, as reported for federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, increased by the following amounts (but not including any amounts attributable to a spouse or property owned by a spouse): (i) the amount of any tax exempt interest income received; (ii) the amount of losses claimed as a limited partner in a limited partnership; (iii) any deduction claimed for depletion, (iv) amounts contributed to an IRA or Keogh retirement plan; (v) alimony paid; and (vi) any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income pursuant to the provisions of Section 1202 of the Internal Revenue Code.

OR

 

I am an accredited investor because I have an individual net worth, or my spouse and I have a combined individual net worth, in excess of $1,000,000.

 

As used herein, the term “net worth” means the excess of total assets at fair market value over total liabilities.  For the purpose of determining a person’s net worth, the principal residence owned by an individual must be excluded, while “income” means actual economic income, which may differ from adjusted gross income for income tax purposes.  Accordingly, Investor should consider whether it should add any or all of the following items to its adjusted gross income for income tax purposes in order to reflect more accurately its actual economic income:  Any amounts attributable to tax-exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depletion, contributions to an IRA or Keogh retirement plan, and alimony payments.

OR

 

ACCREDITED PARTNERSHIPS, CORPORATIONS, TRUSTS OR OTHER ENTITIES

 

Investor was not formed for the specific purpose of investing in the Company and;

Investor has a net worth of at least $5,000,000.

OR

All of the beneficial owners of equity in the investor qualify as accredited individual investors as set forth above.

AND

If a trust, Investor is a trust whose purchase is directed by a sophisticated person having such knowledge and experience in financial matters that he is capable of evaluating the merits and risks of an investment in the Company.

 

 

BAD ACTOR

ANNEX I

Rule 506(d)(1)(i) to (viii) under the Securities Act of 1933, as amended

 

(i) Has been convicted, within ten years before such sale (or five years, in the case of issuers, their predecessors and affiliated issuers), of any felony or misdemeanor:

(A) In connection with the purchase or sale of any security;

(B) Involving the making of any false filing with the Commission; or

(C) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities;

 

(ii) Is subject to any order, judgment or decree of any court of competent jurisdiction, entered within five years before such sale, that, at the time of such sale, restrains or enjoins such person from engaging or continuing to engage in any conduct or practice:

(A) In connection with the purchase or sale of any security;

(B) Involving the making of any false filing with the Commission; or

(C) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities;

 

(iii) Is subject to a final order of a state securities commission (or an agency or officer of a state performing like functions); a state authority that supervises or examines banks, savings associations, or credit unions; a state insurance commission (or an agency or officer of a state performing like functions); an appropriate federal banking agency; the U.S. Commodity Futures Trading Commission; or the National Credit Union Administration that:

(A) At the time of such sale, bars the person from:

(1) Association with an entity regulated by such commission, authority, agency, or officer;

(2) Engaging in the business of securities, insurance or banking; or

(3) Engaging in savings association or credit union activities; or

 

(B) Constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within ten years before such sale;

 

(iv) Is subject to an order of the Commission entered pursuant to section 15(b) or 15B(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b) or 78o-4(c)) or section 203(e) or (f) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(e) or (f)) that, at the time of such sale:

(A) Suspends or revokes such person’s registration as a broker, dealer, municipal securities dealer or investment adviser;

(B) Places limitations on the activities, functions or operations of such person; or

(C)Bars such person from being associated with any entity or from participating in the offering of any penny stock;

 

(v) Is subject to any order of the Commission entered within five years before such sale that, at the time of such sale, orders the person to cease and desist from committing or causing a violation or future violation of:

(A) Any scienter-based anti-fraud provision of the federal securities laws, including without limitation section 17(a)(1) of the Securities Act of 1933 (15 U.S.C. 77q(a)(1)), section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78j(b)) and 17 CFR 240.10b-5, section 15(c)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(c)(1)) and section 206(1) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-6(1)), or any other rule or regulation thereunder; or

(B) Section 5 of the Securities Act of 1933 (15 U.S.C. 77e).

 

(vi) Is suspended or expelled from membership in, or suspended or barred from association with a member of, a registered national securities exchange or a registered national or affiliated securities association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade;

 

(vii) Has filed (as a registrant or issuer), or was or was named as an underwriter in, any registration statement or Regulation A offering statement filed with the Commission that, within five years before such sale, was the subject of a refusal order, stop order, or order suspending the Regulation A exemption, or is, at the time of such sale, the subject of an investigation or proceeding to determine whether a stop order or suspension order should be issued; or

 

(viii) Is subject to a United States Postal Service false representation order entered within five years before such sale, or is, at the time of such sale, subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations.

 

 

EXHIBIT A

 

FORM OF CONVERTIBLE NOTE

 

 

EXHIBIT B

 

FORM OF WARRANT

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