As filed with the Securities and Exchange Commission on August 20 , 2019

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

___________________________________

FORM S -1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

___________________________________

TFF PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

 

2834

 

82-4344737

(State or other jurisdiction of
Incorporation or organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(IRS Employer
Identification Number)

2600 Via Fortuna, Suite 360

Austin, Texas 78746

(737) 802 -1973

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

___________________________________

Glenn Mattes

President and Chief Executive Officer

TFF Pharmaceuticals, Inc.

2600 Via Fortuna, Suite 360

Austin, Texas 78746

(737) 802 -1973

(Address, including zip code, and telephone number, including area code, of agent for service)

___________________________________

Copies to:

Daniel K. Donahue, Esq.

Christopher M. Piazza, Esq.

Greenberg Traurig, LLP

3161 Michelson Drive, Suite 1000

Irvine, California 92612

Telephone: (949) 732 -6557

 

Kevin K. Leung, Esq.

Dominador D. Tolentino, Jr., Esq.

LKP Global Law, LLP

1901 Avenue of the Stars, Suite 480

Los Angeles, California 90067

Telephone: (424) 239 -1890

___________________________________

Approximate date of commencement of proposed sale to the public : As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. £

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this Form is a post -effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this Form is a post -effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non -accelerated filer, a smaller reporting company or an “emerging growth company” in Rule 12b -2 of the Exchange Act. (Check one):

 

Large accelerated filer £

 

Accelerated filer £

   

Non -accelerated filer S

 

Smaller reporting company S

       

Emerging Growth Company S

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. £

 

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered

 

Proposed Maximum Aggregate Offering Price (1)

 

Amount of Registration Fee

Common Stock, $0.001 par value per share

 

$

25,300,000

 

$

3,066.36

Underwriter Warrant (2)(3)(4)

 

$

100

 

 

Shares of Common Stock underlying Underwriter Warrant

 

$

3,036,000

 

$

367.97

____________

(1)      Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes the aggregate offering price of additional shares that the underwriter has the option to purchase to cover over -allotments , if any.

(2)      No registration fee required pursuant to Rule 457(g) under the Securities Act of 1933.

(3)      Registers a warrant to be granted to the underwriter for an amount equal to 10% of the number of the shares sold to the public.

(4)      Pursuant to Rule 416 under the Securities Act of 1933, this registration statement shall be deemed to cover the additional securities (i) to be offered or issued in connection with any provision of any securities purported to be registered hereby to be offered pursuant to terms which provide for a change in the amount of securities being offered or issued to prevent dilution resulting from stock splits, stock dividends, or similar transactions and (ii) of the same class as the securities covered by this registration statement issued or issuable prior to completion of the distribution of the securities covered by this registration statement as a result of a split of, or a stock dividend on, the registered securities.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment, which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

  

 

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED  AUGUST 20 , 2019

4,400,000 Shares of Common Stock

TFF PHARMACEUTICALS, INC.

TFF Pharmaceuticals, Inc. is offering shares of common stock on a firm commitment basis. This is an initial public offering of our common stock and there is presently no public market for our common stock. The initial public offering price is $5.00 per share. We have applied to list our common stock on the NASDAQ Capital Market under the symbol “TFFP.”

We are an “emerging growth company” under the federal securities laws and will have the option to use reduced public company reporting requirements. Please see “Risk Factors” beginning on page 7 to read about certain factors you should consider before buying our securities.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

Price to Public

 

Underwriting Discounts and Commissions (1)

 

Proceeds to TFF Pharmaceuticals, Inc.

Per Share

 

$

5.00

 

$

0.50

 

$

4.50

Total Offering

 

$

22,000,000

 

$

2,200,000

 

$

19,800,000

____________

(1)      Does not include our obligation to reimburse the underwriter for its expenses in an amount not to exceed $200,000. See “Underwriting” for a description of the compensation payable to the underwriter.

The underwriter may also purchase an additional 660,000 shares of our common stock, amounting to 15% of the number of shares offered to the public, within 45 days of the date of this prospectus, to cover over -allotments , if any, on the same terms set forth above.

The underwriter expects to deliver the shares on or about ______, 2019.

National Securities Corporation

The date of this prospectus is ______, 2019

 

Table of Contents

PROSPECTUS SUMMARY

 

1

RISK FACTORS

 

7

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

27

OUR BUSINESS

 

30

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

 

45

MANAGEMENT

 

47

PRINCIPAL STOCKHOLDERS

 

56

ESTIMATED USE OF PROCEEDS

 

58

CAPITALIZATION

 

59

DILUTION

 

60

DESCRIPTION OF SECURITIES

 

62

SHARES ELIGIBLE FOR FUTURE SALE

 

66

UNDERWRITING

 

68

LEGAL MATTERS

 

72

EXPERTS

 

72

WHERE YOU CAN FIND MORE INFORMATION

 

72

INDEX TO FINANCIAL STATEMENTS

 

F-1

Neither we nor the underwriter has authorized anyone to provide any information or make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriter takes responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.

Through and including _______, 2019 (the 25 th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

For investors outside of the United States: Neither we nor the underwriter has done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States are required to inform themselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.

i

PROSPECTUS SUMMARY

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our financial statements and related notes, before investing in our common stock. If any of the following risks materialize, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

Our Company

We are an early -stage biopharmaceutical company focused on developing and commercializing innovative drug products based on our patented Thin Film Freezing, or TFF, technology platform. We believe, and early testing confirms, that our TFF platform can significantly improve the solubility of poorly water -soluble drugs, a class of drugs that makes up approximately 33% of the major pharmaceuticals worldwide, thereby improving the pharmacokinetic effect of those drugs. We believe that in the case of some new drugs that cannot be developed due to poor water -solubility , our TFF platform has the potential to improve the pharmacokinetic effect of the drug to a level allowing for its development and commercialization. As of the date of this prospectus, we have not progressed the development of any of our drug candidates to human clinical trials, but rather our efforts have focused on the formulation, early stage animal testing and formal toxicology studies of our initial drug candidates in preparation for our first clinical trials.

We intend to initially focus on the development of inhaled dry powder drugs for the treatment of pulmonary diseases and conditions. While our TFF platform was designed to improve solubility of poorly water -soluble drugs generally, we have found that the technology is particularly useful in generating dry powder particles with properties that allow for superior inhalation delivery, especially to the deep lung, which is an area of extreme interest in respiratory medicine. We believe that our TFF platform can significantly increase the number of pulmonary drug products that can be delivered by way of breath -actuated inhalers, which are generally considered to be the most effective and patient -friendly means of delivering medication directly to the lungs. Our dry powder drug products will be designed for use with dry powder inhalers, which are generally considered to be the most effective of all breath -actuated inhalers. We plan to focus on developing inhaled dry powder formulations of existing off -patent drugs intended for lung diseases and conditions, which we believe includes dozens of potential drug candidates, many of which have a potential market ranging from $100 million to over $500 million.

We intend to initially focus on the development of the following product candidates:

•         TFF Vori is an inhaled dry powder drug intended to treat invasive pulmonary aspergillosis, or IPA, a severe fungal pulmonary disease with a mortality rate that can reach 90% in some patient populations. We believe, and early testing confirms, that our TFF platform can be used to formulate a dry powder version of Voriconazole, generally considered to be the best antifungal drug used in the treatment of IPA and which is no longer subject to patent protection. Voriconazole is currently marketed in Australia, Europe and the U.S. as Vfend. As of the date of this prospectus, the Clinical Practice Guidelines released by the Infectious Diseases Society of America recommend Voriconazole as first -line monotherapy for IPA. However, since the registration of Vfend in Europe and the U.S. in 2002, several studies have examined the exposure -response relationship with Voriconazole, identifying a relationship between low Voriconazole exposure and higher rates of treatment failure, as well as a higher propensity for neurotoxicity at higher exposures. We believe a TFF prepared dry powder formulation of Voriconazole administered directly to the lungs can maximize both the prophylactic value for immunocompromised patients susceptible to IPA and the treatment value of patients suffering from chronic IPA. We also believe our dry powder drug formulation would benefit patients by providing the drug at the “port of entry” of invasive fungal infections, while also reducing or eliminating the unpleasant and potentially fatal side effects associated with Voriconazole and other last line antifungals.

•         TFF Tac -Lac is an inhaled dry powder version of tacrolimus, an immunosuppressive drug used in transplant medicine. Prograf tacrolimus is currently the second most commonly administered immunosuppressive drug used in solid organ transplants, despite what we believe to be the many challenges for patients and physicians when used for extended periods. Prograf tacrolimus can cause toxicity in the kidneys, particularly when used in high doses. Tacrolimus is no longer under patent protection, and we intend to develop a dry powder version suitable for use with a dry powder inhaler. Because our dry powder

1

version would provide for a high local lung concentration without the typical systemic toxicity frequently experienced with oral dosage form immunosuppressants, we believe our drug candidate should have a high likelihood of success in competing in the immunosuppressant market for lung and heart/lung transplants.

•         TFF Triple Combination For COPD/Asthma is an inhaled dry powder drug combination intended to treat chronic obstructive pulmonary disease, or COPD, and asthma. There is a trend towards the use of a three -drug combination in the treatment of uncontrolled COPD and asthma. A variety of triple combinations are currently approved for marketing or are under development by large pharmaceutical companies, including GSK, AstraZeneca, and Chiesi Farmaceutici. We are currently pursuing the development of combination dry powder drugs intended for use with a dry powder inhaler containing budesonide, formoterol fumarate and tiotropium bromide for the maintenance treatment of bronchospasm associated with moderate to severe COPD. Unlike most other triple combinations, which are chosen in part from the pharmaceutical company’s list of existing products, our triple combination drug contains what we consider to be the best -in-class drug in each category. Since competition exists, and typically large clinical trials are needed to approve this type of triple combination drug, we expect to develop the triple combination dry powder drug in partnership with a large pharmaceutical company looking to compete in the COPD and asthma markets. However, as of the date of this prospectus, we have no agreements, understandings or arrangements concerning a joint development program and there can be no assurance we will be able to enter into a joint development agreement on terms acceptable to us. As of the date of this prospectus, we do not intend to pursue the development of our triple combination dry powder drug beyond performance characterization and efficacy data through early animal testing until such time, if ever, as we obtain a development partner.

Our business model is to develop proprietary innovative drug product candidates that offer commercial or functional advantages, or both, to currently available alternatives. In our initial evaluation of the market, we have identified a number of potential drug candidates that show promise upon initial assessment. In each case, these are off -patent drugs for which we would directly pursue the development of a dry powder formulation. Because our initial dry powder drug candidates will be established drugs that are off -patent , we believe that our initial drug products will qualify for approval by the U.S. Food and Drug Administration, or FDA, through the FDA’s 505(b)(2) regulatory pathway and in corresponding regulatory paths in other foreign jurisdictions. The 505(b)(2) pathway sometimes does not require clinical trials other than a bioequivalence trial. However, to the extent we claim that our product candidates target a new indication or offer improved safety compared to the existing approved products, and it is our present expectation that we will in many cases, it is likely that we will be required to conduct additional clinical trials in order to obtain marketing approval. For example, and as more fully described below, based on a February 2019 pre -IND meeting with the FDA concerning TFF Vori, we believe we will need to conduct Phase I and Phase II studies prior to filing for marketing approval for TFF Vori. We also believe that TFF Tac -Lac will require Phase I and Phase IIb/IIIa studies prior to filing for marketing approval. However, there can be no assurance that the FDA will not ask for additional clinical data for either TFF Vori or TFF Tac -Lac .

We also believe that in some cases our dry powder drug products may qualify for the FDA’s orphan drug status. Upon and subject to receipt of the requisite approvals, we intend to commercialize our drug products through a combination of our internal direct sales and third -party marketing and distribution partnerships. In some cases, such as the development of combination drugs or the development of dry powder formulations of patented drugs, we intend to pursue the licensing of our TFF platform or a joint development arrangement.

Private Placements of Series A Preferred Stock

In March 2018, we conducted a private placement of 5,662,000 shares of our Series A preferred stock, at an offering price of $2.50 per share, for the gross proceeds of approximately $14.2 million ($12.5 million after deducting offering expenses), and in May 2019 we conducted a private placement of 3,268,000 shares of our Series A preferred stock, at an offering price of $2.50 per share, for the gross proceeds of approximately $8.2 million ($7.3 million after deducting offering expenses) . The shares of our Series A preferred stock accumulate dividends at the rate of 6% per annum . The shares of Series A preferred stock, including all accrued but unpaid dividends on the Series A preferred stock, will automatically convert into shares of our common stock concurrent with the completion of this offering at the conversion price of $2.50 . Assuming that this offering was completed on June 30, 2019 at a price of $5.00 per share, and based on dividends accrued through such date in the amount of $1.2 million, the Series A preferred stock would have converted into 9,425,436 shares of our common stock.

2

Risks Related to Our Business

Our business is subject to numerous risks, which are highlighted in the section “Risk Factors” immediately following this prospectus summary . Some of those risks include:

•         our future financial and operating results;

•         our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;

•         the timing and success of our plan of commercialization;

•         our ability to successfully develop and clinically test our product candidates;

•         our ability to file for FDA approval of our product candidates through the 505(b)(2) regulatory pathway;

•         our ability to obtain FDA approval for any of our product candidates;

•         our ability to comply with all U.S. and foreign regulations concerning the development, manufacture and sale of our product candidates;

•         our reliance on third parties to manufacture our product candidates;

•         the adequacy of the net proceeds of this offering;

•         the effects of market conditions on our stock price and operating results;

•         our ability to maintain, protect and enhance our intellectual property;

•         the effects of increased competition in our market and our ability to compete effectively;

•         our plans to use the proceeds from this offering;

•         costs associated with initiating and defending intellectual property infringement and other claims;

•         the attraction and retention of qualified employees and key personnel;

•         future acquisitions of or investments in complementary companies or technologies; and

•         our ability to comply with evolving legal standards and regulations, particularly concerning requirements for being a public company.

Corporate Information

We were incorporated under the laws of the state of Delaware on January 24, 2018 by Lung Therapeutics, Inc., or LTI. In March 2018, we completed a Series A preferred stock financing with third -party investors, at which time we acquired certain of LTI’s non -core intellectual property rights and other assets, all of which relate to our Thin Film Freezing technology, for 4,000,000 shares of our common stock. LTI is an early stage biotechnology company focused on the development of certain technologies in the pulmonary field. As of the date of this prospectus, LTI owns 4,000,000 shares of our common stock, or approximately 22.4% of our capital stock after giving effect to the close of this offering and the conversion of our Series A preferred stock. We are no longer a subsidiary of LTI; however, LTI currently provides us with office space and certain administrative services and equipment for no charge, from time to time on an as -needed basis, and three of our directors, Aaron Fletcher, Robert Mills and Brian Windsor, are members of the board of directors of LTI. Our principal executive offices are located at 2600 Via Fortuna, Suite 360, Austin, Texas 78746, and our telephone number is (737) 802 -1973 . Our website address is www.tffpharma.com. The information contained in, or accessible through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained in, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.

We own unregistered trademarks, including our company name. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the symbols ® and ™, but such references should not be construed as any indication that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

3

Emerging Growth Company

The Jumpstart Our Business Startups Act, or the JOBS Act, was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “emerging growth companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public reporting requirements, including:

•         the requirement that our internal control over financial reporting be attested to by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes -Oxley Act of 2002;

•         certain requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements;

•         the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments; and

•         the ability to delay compliance with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standard.

We may take advantage of the exemptions under the JOBS Act discussed above until we are no longer an emerging growth company. We will remain an emerging growth company until the earliest to occur of (1) the last day of the fiscal year in which we have $1.07 billion or more in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non -affiliates ; (3) the date on which we have issued, in any three -year period, more than $1.0 billion in non -convertible debt securities; or (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We are choosing to take advantage of all of the other exemptions discussed above. Accordingly, the information contained herein and in our subsequent filing with the Securities and Exchange Commission may be different than the information you receive from other public companies in which you hold stock.

For certain risks related to our status as an emerging growth company, see the disclosure elsewhere in this prospectus under “Risk Factors—Risks Related to this Offering and Owning Our Common Stock - We are an ‘emerging growth company’ under the JOBS Act of 2012 and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.”

4

The Offering

Common stock offered by us

 

4,400,000 shares

     

Common stock to be outstanding after this offering

 

17,825,436 shares

     

Over -allotment option offered by us

 

660,000 shares

     

Proposed NASDAQ symbol

 

“TFFP”

     

Use of proceeds

 

We estimate that the net proceeds from the sale of the shares of common stock in this offering will be approximately $19.3 million, or approximately $22.3 million if the underwriters exercise their option to purchase additional shares in full, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for pre -clinical development, analysis and preparation; clinical manufacturing; and Phase I and Phase II studies, as well as for other general corporate purposes, including general and administrative expenses and working capital. See “Estimated Use of Proceeds”.

The number of shares of our common stock to be outstanding after this offering is based on 13,425,436 shares of common stock outstanding as of the date of this prospectus (including preferred stock on an as -converted basis as of June 30, 2019 assuming a conversion price of $2.50 per share of the Series A preferred stock), and excludes:

•         1,333,594 shares of our common stock issuable upon exercise of outstanding options as of June 30, 2019, with a weighted average exercise price of $2.51 per share, granted pursuant to our 2018 Equity Incentive Plan, or the 2018 Plan;

•         approximately 1,434,556 shares of our common stock issuable upon exercise of outstanding warrants, with a weighted average exercise price of $1.81 per share, which includes an estimated 942,544 shares of our common stock issuable upon exercise of warrants issued to the underwriter as placement agent compensation in connection with the offerings of our Series A preferred stock;

•         up to 660,000 shares of our common stock issuable pursuant to the underwriter’s over -allotment option;

•         440,000 shares of our common stock issuable upon exercise of a warrant to be issued to the underwriter as part of its compensation in connection with this offering (up to 506,000 shares if the overallotment option is exercised) at an exercise price of $6.00 per share; and

•         296,406 shares of our common stock reserved for future grants under our 2018 Plan as of June 30, 2019; however, upon completion of this offering the number of shares reserved for issuance under the 2018 Plan shall increase to 15% of our then outstanding shares of common stock calculated on a fully diluted basis.

Except as otherwise indicated, all information in this prospectus assumes:

•         the automatic conversion of all outstanding shares of our Series A preferred stock into an aggregate of 9,425,436 shares of common stock in connection with the closing of this offering (assuming a conversion as of June 30, 2019 at a conversion price of $2.50 per share of the Series A preferred stock);

•         no exercise of outstanding warrants or options described above; and

•         no exercise of the underwriter’s over -allotment option.

5

Summary Financial Data

The following tables summarize our financial data. You should read this summary financial data together with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes that are included elsewhere in this prospectus. The financial information as of and for the fiscal years ended December 31, 2018 and 2017 is derived from the audited financial statements that are included elsewhere in this prospectus. The financial information as of and for the six months ended June 30, 2019 and 2018 is derived from our unaudited condensed financial statements that are included elsewhere in this prospectus. The unaudited condensed financial statements were prepared on a basis consistent with our audited financial statements and include, in management’s opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full year or any other period. In connection with our organization on January 24, 2018, we entered into a Contribution and Subscription Agreement with LTI, our former parent, pursuant to which we agreed to acquire from LTI certain intellectual property rights and other assets, or the Acquired Assets. We closed on the acquisition of the Acquired Assets concurrent with the close of the initial Series A preferred stock financing in March 2018. The operations surrounding the Acquired Assets are deemed to be our accounting predecessor and the results of operations in the financial summary below for the periods January 1, 2017 through January 23, 2018 reflect the results of operations of the Acquired Assets, which were immaterial, while owned by LTI.

     

Six Months Ended
June 30 ,
2019

 

January 24,
2018 to
June 30 ,
2018
(1)

   

Years Ended December 31,

 
   

2018

 

2017

 
       

(Predecessor)

 

(unaudited)

 

(unaudited)

(in thousands)

           

Revenues

 

$

 

 

 

 

$

 

 

 

Net loss

 

$

(3,898

)

 

(179

)

 

$

(4,370

)

 

(2,385

)

 

June 30 , 2019

(in thousands)

 

Actual

 

Pro Forma (2)

 

Pro Forma as
Adjusted
(3)

   

(unaudited)

 

(unaudited)

 

(unaudited)

Balance Sheet Data:

 

 

 

 

 

 

   

 

 

Cash and cash equivalents

 

$

13,632

 

 

$

13,632

 

$

32,932

Working capital

 

$

12,036

 

 

$

12,036

 

$

31,336

Total assets

 

$

13,804

 

 

$

13,804

 

$

33,104

Series A preferred stock

 

$

19,694

 

 

$

 

$

Total common stock

 

$

4

 

 

$

13

 

$

35

Additional paid-in capital

 

$

694

 

 

$

20,379

 

$

39,679

Total stockholders’ (deficit) equity

 

$

(7,514

)

 

$

12,180

 

$

31,480

____________

(1)      The operations surrounding the Acquired Assets during the period January 1, 2018 to January 23, 2018 are deemed to be immaterial.

(2)      The pro forma column reflects the automatic conversion of 8,930,000 shares of our Series A preferred stock at the close of this offering into 9,425,436 shares of our common stock and the resultant reclassification into common stock and additional paid -in capital and the reclassification of the warrant liability into additional paid -in capital.

(3)      The pro forma as adjusted column reflects all adjustments included in the pro forma column and gives effect to the sale by us of 4,400,000 shares of common stock offered by this prospectus at the public offering price of $5.00, less estimated underwriting discounts and commissions and estimated offering expenses of $500,000.

6

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before investing in our common stock. If any of the following risks materialize, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

Risks Relating to Our Business

We are an early -stage biopharmaceutical company with limited operating history .    We are a biopharmaceutical company, newly -formed in January 2018, and have limited operating history. We have not commenced revenue -producing operations. To date, our operations have consisted of preliminary research and development, drug formulation and characterization and testing of our initial product candidates. Our limited operating history makes it difficult for potential investors to evaluate our technology or prospective operations. As a development stage biopharmaceutical company, we are subject to all the risks inherent in the organization, financing, expenditures, complications and delays involved with a new business. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially clinical -stage biopharmaceutical companies such as ours. Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential investors should consider that we may be unable to:

•         successfully implement or execute our business plan, or that our business plan is sound;

•         successfully complete pre -clinical and clinical trials and obtain regulatory approval for the marketing of our product candidates;

•         successfully demonstrate a favorable differentiation between our dry powder candidates and the current products on the market;

•         successfully contract for the manufacture of our clinical drug products and establish a commercial drug supply;

•         secure market exclusivity and/or adequate intellectual property protection for our product candidates;

•         attract and retain an experienced management and advisory team; and

•         raise sufficient funds in the capital markets to effectuate our business plan, including product and clinical development, regulatory approval and commercialization for our product candidates.

Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a competitive environment. There can be no assurance that our efforts will be successful or that we will ultimately be able to attain profitability. If we cannot successfully execute any one of the foregoing, our business may not succeed and your investment will be adversely affected. You must be prepared to lose all of your investment.

We have a history of significant operating losses and anticipate continued operating losses for the foreseeable future .    For the fiscal years ended December 31, 2018 and 2017, and for the six months ended June 30, 2019, we incurred a net loss of $4.6 million, $178,605 and $4.4 million, respectively. As of June 30, 2019, we had an accumulated deficit of $8.2 million. Following completion of this offering, we expect to continue to incur substantial expenses without any corresponding revenues unless and until we are able to obtain regulatory approval and successfully commercialize at least one of our product candidates. However, there can be no assurance we will be able to obtain regulatory approval for any of our product candidates. Even if we are able to obtain regulatory approval and subsequently commercialize our product candidates, there can be no assurance that we will generate significant revenues or ever achieve profitability.

We expect to have significant research, regulatory and development expenses as we advance our product candidates towards commercialization. As a result, we expect to incur substantial losses for the foreseeable future, and these losses will be increasing. We are uncertain when or if we will be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable may impair our ability to sustain operations and adversely affect our business and our ability to raise capital. If we are unable to generate positive cash flow within a reasonable period of time, we may be unable to further pursue our business plan or continue operations, in which case you may lose your entire investment.

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We expect we will need additional financing to execute our business plan and fund operations, which additional financing may not be available on reasonable terms or at all.     As of June 30, 2019, we had total assets of $13.8 million and working capital of $12.0 million. As of June 30, 2019, our liquidity included $13.6 million of cash and cash equivalents. We believe that we require a minimum of $19.3 million of capital, in addition to our cash on hand, in order to fund the development of our two initial product candidates, TFF Vori and TFF Tac -Lac , through the completion of their Phase II studies. We have undertaken this initial public offering of our common stock to fund the aforementioned development. However, as of the date of this prospectus, we believe that we will need additional capital to obtain marketing approval for TFF Vori and TFF Tac -Lac , assuming such approval can be obtained at all. We intend to seek additional funds through various financing sources, including the sale of our equity and debt securities, licensing fees for our technology and joint ventures with industry or capital partners. In addition, we will consider alternatives to our current business plan that may enable to us to achieve revenue producing operations and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations, in which case you may lose your entire investment.

Our business model is entirely dependent on certain patent rights licensed to us from the University of Texas at Austin, and the loss of those license rights would, in all likelihood, cause our business, as presently contemplated, to fail.     In July 2015, the University of Texas at Austin, or UT, granted to our former parent, LTI, an exclusive worldwide, royalty bearing license to the patent rights for the TFF platform in all fields of use, other than vaccines. In March 2018, LTI assigned to us all of its interest to the TFF platform, including the patent license agreement with UT. In November 2018, we and UT amended the patent license agreement such that our exclusive patent rights to the TFF platform were expanded to all fields of use. Our current business model, which focuses exclusively on the development of drugs using the TFF technology, is based entirely on the availability of the patent rights licensed to us by UT under the patent license agreement. The patent license agreement requires us to pay royalties and milestone payments and conform to a variety of covenants and agreements, and in the event of our breach of the agreement, UT may elect to terminate the agreement. As of the date of this prospectus, we believe we are in compliance with the patent license agreement and consider our relationship with UT to be excellent. However, in the event of our breach of the patent license agreement for any reason, and our inability to cure such breach within any cure period or obtain a waiver from UT, we could lose the patent license agreement, which would result in our loss of all rights to the TFF technology.

We currently have no sales and marketing organization. If we are unable to establish satisfactory sales and marketing capabilities or secure a third -party sales and marketing relationship, we may not be able to successfully commercialize any of our product candidates .    At present, we have no sales or marketing personnel. Upon and subject to initial receipt of the requisite regulatory approvals for one or more of our drug products, we intend to commercialize our drug products through a combination of our internal direct sales force, third -party marketing and distribution relationships. In some cases, such as involving the development of combination drugs or the development of dry powder formulations of patented drugs, we intend to pursue the licensing of our TFF technology or enter into a joint development arrangement. If we are not successful in recruiting sales and marketing personnel and building a sales and marketing infrastructure or entering into appropriate collaboration arrangements with third parties, we will have difficulty successfully commercializing our product candidates, which would adversely affect our business, operating results and financial condition.

Even if we enter into third -party marketing and distribution arrangements, we may have limited or no control over the sales, marketing and distribution activities of these third parties. Our future revenues may depend heavily on the success of the efforts of these third parties. In terms of establishing a sales and marketing infrastructure, we will have to compete with established and well -funded pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. Factors that may inhibit our efforts to build an internal sales organization or enter into collaboration arrangements with third parties include:

•         our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

•         the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any of our product candidates;

•         the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

•         unforeseen costs and expenses associated with creating an internal sales and marketing organization.

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We will be completely dependent on third parties to manufacture our product candidates, and the commercialization of our product candidates could be halted, delayed or made less profitable if those third parties fail to obtain manufacturing approval from the FDA or comparable foreign regulatory authorities, fail to provide us with sufficient quantities of our product candidates or fail to do so at acceptable quality levels or prices .    We do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture our drug candidates for use in our clinical trials or for commercial sales, if any. As a result, we will be obligated to rely on contract manufacturers, if and when any of our product candidates are approved for commercialization. In June 2018, we entered into a one -year agreement with Patheon Development Services, Inc., pursuant to which Patheon provided to us certain product testing, development and clinical manufacturing services. The agreement expired in June 2019; however, we are currently in discussions with Patheon for a longer -term contract manufacturing agreement that would appoint Patheon as our exclusive contract manufacturer for products incorporating our TFF technology. In the meantime, we have entered into short -term contract manufacturing agreements with IriSys, Inc. and CoreRx, Inc. for their provision of certain product testing, development and clinical manufacturing services for our TFF Vori and TFF Tac -Lac product candidates, respectively. We have not entered into agreements with any contract manufacturers for commercial supply and may not be able to engage contract manufacturers for commercial supply of any of our product candidates on favorable terms to us, or at all, should the need arise.

The facilities used by our current and future contract manufacturers to manufacture our product candidates must be approved by the FDA or comparable foreign regulatory authorities. Such approvals are subject to inspections that will be conducted after we submit a New Drug Application, or NDA, or Biologics License Application, or BLA, to the FDA or their equivalents to other relevant regulatory authorities. We will not control the manufacturing process of our product candidates, and will be completely dependent on our contract manufacturing partners for compliance with Current Good Manufacturing Practices, or cGMPs, for manufacture of both active drug substances and finished drug products. These cGMP regulations cover all aspects of the manufacturing, testing, quality control, storage, distribution and record keeping relating to our product candidates. If our contract manufacturers do not successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we will not be able to secure or maintain regulatory approval for product made at their manufacturing facilities. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, manufacture, obtain regulatory approval for or market our product candidates, if approved. Likewise, we could be negatively impacted if any of our contract manufacturers elect to discontinue their business relationship with us.

Our contract manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. We will not have control over our contract manufacturers’ compliance with these regulations and standards. Failure by any of our contract manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market any of our product candidates, delays, suspensions or withdrawals of approvals, inability to supply product, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. In addition, we will not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Failure by our contract manufacturers to comply with or maintain any of these standards could adversely affect our ability to develop, manufacture, obtain regulatory approval for or market any of our product candidates, if approved.

If, for any reason, these third parties are unable or unwilling to perform we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for our active pharmaceutical ingredients, or APIs, or finished products or should cease doing business with us for any reason, we could experience significant interruptions in the supply of any of our product candidates or may not be able to create a supply of our product candidates at all. Were we to encounter manufacturing difficulties, our ability to produce a sufficient supply of any of our product candidates might be negatively affected. Our inability to coordinate the efforts of our third party manufacturing partners, or the lack of capacity available at our third party manufacturing partners, could impair our ability to supply any of our product candidates at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new bulk drug substance or finished product manufacturer, if we face these or other difficulties with our then current manufacturing partners, we could experience

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significant interruptions in the supply of any of our product candidates if we decided to transfer the manufacture of any of our product candidates to one or more alternative manufacturers in an effort to deal with such difficulties.

Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in development delays and lost sales. Additionally, we will rely on third parties to supply the raw materials needed to manufacture our product candidates. Any such reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to the operation of one of our contract manufacturers caused by problems with suppliers could delay shipment of any of our product candidates, increase our cost of goods sold and result in lost sales.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates .    We will face a potential risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk of such liability if we commercialize any of our product candidates. For example, we may be sued if any product we develop, including any of our product candidates, or any materials that we use in our product candidates allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. In the U.S., claims could also be asserted against us under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense of these claims would require us to employ significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

•         decreased demand for any of our product candidates or any future products that we may develop;

•         injury to our reputation;

•         failure to obtain regulatory approval for our product candidates;

•         withdrawal of participants in our clinical trials;

•         costs associated with our defense of the related litigation;

•         a diversion of our management’s time and our resources;

•         substantial monetary awards to trial participants or patients;

•         product recalls, withdrawals or labeling, marketing or promotional restrictions;

•         the inability to commercialize some or all of our product candidates; and

•         a decline in the value of our stock.

As of the date of this prospectus, we do not carry product liability insurance. However, immediately following this offering, we intend to obtain product liability insurance that we consider adequate for our current level of clinical testing and development. However, we will need additional product liability coverage at the time we commence commercial sale of our initial product. Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. Although we will endeavor to obtain and maintain such insurance in coverage amounts we deem adequate, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies would also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. As a result, we may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

Our business operations could suffer in the event of information technology systems’ failures or security breaches .    While we believe that we have implemented adequate security measures within our internal information technology and networking systems, our information technology systems may be subject to security breaches, damages from computer viruses, natural disasters, terrorism, and telecommunication failures. Any system failure or security breach could cause interruptions in our operations in addition to the possibility of losing proprietary information and

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trade secrets. To the extent that any disruption or security breach results in inappropriate disclosure of our confidential information, our competitive position may be adversely affected and we may incur liability or additional costs to remedy the damages caused by these disruptions or security breaches.

Sales of counterfeit versions of our product candidates, as well as unauthorized sales of our product candidates, may have adverse effects on our revenues, business, results of operations and damage our brand and reputation . Our product candidates may become subject to competition from counterfeit pharmaceutical products, which are pharmaceutical products sold under the same or very similar brand names and/or having a similar appearance to genuine products, but which are sold without proper licenses or approvals. Such products divert sales from genuine products, often are of lower cost and quality (having different ingredients or formulations, for example), and have the potential to damage the reputation for quality and effectiveness of the genuine product. Obtaining regulatory approval for our product candidates is a complex and lengthy process. If during the period while the regulatory approval is pending illegal sales of counterfeit products begin, consumers may buy such counterfeit products, which could have an adverse impact on our revenues, business and results of operations. In addition, if illegal sales of counterfeits result in adverse side effects to consumers, we may be associated with any negative publicity resulting from such incidents. Although pharmaceutical regulation, control and enforcement systems throughout the world have been increasingly active in policing counterfeit pharmaceuticals, we may not be able to prevent third parties from manufacturing, selling or purporting to sell counterfeit products competing with our product candidates. Such sales may also be occurring without our knowledge. The existence and any increase in production or sales of counterfeit products or unauthorized sales could negatively impact our revenues, brand reputation, business and results of operations.

Risks Related to Product Regulation

Our success is entirely dependent on our ability to obtain the marketing approval for our product candidates by the FDA and the regulatory authorities in foreign jurisdictions in which we intend to market our product candidates, of which there can be no assurance.     We are not permitted to market our product candidates as prescription pharmaceutical products in the United States until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from such countries. In the United States, the FDA generally requires the completion of clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality before an NDA is approved. Of the large number of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewer are eventually approved for commercialization. As of the date of this prospectus, we have not submitted an NDA to the FDA or comparable applications to other regulatory authorities for any of our product candidates.

Because our initial dry powder drug candidates will be established drugs that are off -patent , we believe that our initial drug product candidates will qualify for FDA approval through the FDA’s 505(b)(2) regulatory pathway and in corresponding regulatory paths in other foreign jurisdictions. The 505(b)(2) pathway sometimes does not require clinical trials other than a bioequivalence trial; however, to the extent we claim that our product candidates target a new indication or offer improved safety compared to the existing approved products, and it is our present expectation that we will do so in many cases, it is likely that we will be required to conduct additional clinical trials in order to obtain marketing approval. For example, based on a February 2019 pre - Investigational New Drug Application, or IND, meeting with the FDA concerning TFF Vori, we believe we will need to conduct Phase I and Phase II studies prior to filing for marketing approval for TFF Vori. We also believe TFF Tac -Lac will require Phase I and Phase IIb/IIIa studies prior to filing for marketing approval. However, there can be no assurance that the FDA will not ask for additional clinical data for either TFF Vori or TFF Tac -Lac .

Our success depends on our receipt of the regulatory approvals described above, and the issuance of such regulatory approvals is uncertain and subject to a number of risks, including the following:

•         the results of toxicology studies may not support the filing of an IND for our product candidates;

•         the FDA or comparable foreign regulatory authorities or Institutional Review Boards, or IRB, may disagree with the design or implementation of our clinical trials;

•         we may not be able to provide acceptable evidence of our product candidates’ safety and efficacy;

•         the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA, European Medicines Agency, or EMA, or other regulatory agencies for us to receive marketing approval for any of our product candidates;

•         the dosing of our product candidates in a particular clinical trial may not be at an optimal level;

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•         patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to our product candidates;

•         the data collected from clinical trials may not be sufficient to support the submission of an NDA, BLA or other submission or to obtain regulatory approval in the United States or elsewhere;

•         the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third -party manufacturers with which we contract for clinical and commercial supplies; and

•         the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval of our product candidates.

The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon, among other things, the type, complexity and novelty of the product candidates involved, the jurisdiction in which regulatory approval is sought and the substantial discretion of the regulatory authorities. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an application. Regulatory approval obtained in one jurisdiction does not necessarily mean that a product candidate will receive regulatory approval in all jurisdictions in which we may seek approval, but the failure to obtain approval in one jurisdiction may negatively impact our ability to seek approval in a different jurisdiction. Failure to obtain regulatory approval for our product candidates for the foregoing, or any other reasons, will prevent us from commercializing our product candidates, and our ability to generate revenue will be materially impaired.

Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome .    Our business model depends entirely on the successful development, regulatory approval and commercialization of our product candidates, which may never occur. Our product candidates are in the early stages of development and as of the date of this prospectus we have not progressed any of our product candidates beyond performance characterization and animal testing. We have not submitted an IND to the FDA, nor an application to any comparable foreign regulatory authority, for any of our product candidates, which is the means by which drug companies obtain approval to initiate clinical trials in humans in the United States or other countries. As of the date of this prospectus, we had a pre -IND meeting for TFF Vori in February 2019 and plan on submitting our initial IND for TFF Vori in late 2019. In addition, we have scheduled a pre -IND meeting with the FDA on September 26, 2019 for our TFF Tac -Lac product candidate and plan on submitting an IND for that product candidate in the first quarter of 2020. We may not be successful in obtaining approval from the FDA or comparable foreign regulatory authorities to start clinical trials for any of our product candidates. If we do not obtain such approvals as presently planned, the time in which we expect to commence clinical programs for any product candidate will be extended and such extension will increase our expenses, delay our potential receipt of any revenues, and increase our need for additional capital. Moreover, there is no guarantee that we will receive approval to commence human clinical trials or, if we do receive approval, that our clinical trials will be successful or that we will continue clinical development in support of an approval from the FDA or comparable foreign regulatory authorities for any indication. We note that most product candidates never reach the clinical development stage and even those that do commence clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval. Success in early phases of pre -clinical and clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates. Therefore, our business currently depends entirely on the successful development, regulatory approval and commercialization of our product candidates, which may never occur.

Even if we receive regulatory approval for any of our product candidates, we may not be able to successfully commercialize the product and the revenue that we generate from its sales, if any, may be limited.     If approved for marketing, the commercial success of our product candidates will depend upon each product’s acceptance by the medical community, including physicians, patients and health care payors. The degree of market acceptance for any of our product candidates will depend on a number of factors, including:

•         demonstration of clinical safety and efficacy;

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•         relative convenience, dosing burden and ease of administration;

•         the prevalence and severity of any adverse effects;

•         the willingness of physicians to prescribe our product candidates, and the target patient population to try new therapies;

•         efficacy of our product candidates compared to competing products;

•         the introduction of any new products that may in the future become available targeting indications for which our product candidates may be approved;

•         new procedures or therapies that may reduce the incidences of any of the indications in which our product candidates may show utility;

•         pricing and cost -effectiveness ;

•         the inclusion or omission of our product candidates in applicable therapeutic and vaccine guidelines;

•         the effectiveness of our own or any future collaborators’ sales and marketing strategies;

•         limitations or warnings contained in approved labeling from regulatory authorities;

•         our ability to obtain and maintain sufficient third -party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third -party payors or to receive the necessary pricing approvals from government bodies regulating the pricing and usage of therapeutics; and

•         the willingness of patients to pay out -of-pocket in the absence of third -party coverage or reimbursement or government pricing approvals.

If any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors, and patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to educate the medical community and third -party payors on the benefits of our product candidates may require significant resources and may never be successful.

In addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our product candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post -approval commitments that render our product candidates not commercially viable. For example, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for any of our product candidates, may grant approval contingent on the performance of costly post -marketing clinical trials, or may approve any of our product candidates with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that indication. Further, the FDA or comparable foreign regulatory authorities may place conditions on approvals or require risk management plans or a Risk Evaluation and Mitigation Strategy, or REMS, to assure the safe use of the drug. Moreover, product approvals may be withdrawn for non -compliance with regulatory standards or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial success of our product candidates.

Even if we obtain marketing approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates could be subject to labeling and other restrictions and withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates.     Even if we obtain regulatory approval for any of our product candidates for an indication, the FDA or foreign equivalent may still impose significant restrictions on their indicated uses or marketing or the conditions of approval, or impose ongoing requirements for potentially costly and time -consuming post -approval studies, including Phase 4 clinical trials, and post -market surveillance to monitor safety and efficacy. Our product candidates will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post -market information. These requirements include registration with the FDA, as well as continued

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compliance with current Good Clinical Practices regulations, or cGCPs, for any clinical trials that we conduct post -approval . In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current cGMPs, requirements relating to quality control, quality assurance and corresponding maintenance of records and documents.

The FDA has the authority to require a REMS as part of an NDA or after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe -use criteria or requiring patient testing, monitoring and/or enrollment in a registry.

With respect to sales and marketing activities related to our product candidates, advertising and promotional materials must comply with FDA rules in addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries. In the United States, the distribution of product samples to physicians must comply with the requirements of the U.S. Prescription Drug Marketing Act. Application holders must obtain FDA approval for product and manufacturing changes, depending on the nature of the change. We may also be subject, directly or indirectly through our customers and partners, to various fraud and abuse laws, including, without limitation, the U.S. Anti -Kickback Statute, U.S. False Claims Act, and similar state laws, which impact, among other things, our proposed sales, marketing, and scientific/educational grant programs. If we participate in the U.S. Medicaid Drug Rebate Program, the Federal Supply Schedule of the U.S. Department of Veterans Affairs, or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially subject to U.S. federal and state consumer protection and unfair competition laws. Similar requirements exist in many of these areas in other countries.

In addition, if any of our product candidates are approved for a particular indication, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for our product candidates, physicians may nevertheless legally prescribe our products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off -label uses, we may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off -label uses, and a company that is found to have improperly promoted off -label uses may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off -label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed or curtailed.

If we or a regulatory agency discover previously unknown problems with a product candidate, such as adverse events of unanticipated severity or frequency, problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable regulatory requirements, we may be subject to the following administrative or judicial sanctions:

•         restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

•         issuance of warning letters or untitled letters;

•         clinical holds;

•         injunctions or the imposition of civil or criminal penalties or monetary fines;

•         suspension or withdrawal of regulatory approval;

•         suspension of any ongoing clinical trials;

•         refusal to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;

•         suspension or imposition of restrictions on operations, including costly new manufacturing requirements; or

•         product seizure or detention or refusal to permit the import or export of product.

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The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue. Adverse regulatory action, whether pre- or post -approval , can also potentially lead to product liability claims and increase our product liability exposure.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.     Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials, as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our product candidates in certain countries. If we fail to comply with the regulatory requirements in international markets and/ or to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

Even though we may apply for orphan drug designation for a product candidate, we may not be able to obtain orphan drug marketing exclusivity.     We believe that in some cases our dry powder drug products may qualify for the FDA’s orphan drug status. There is no guarantee that the FDA will grant any future application for orphan drug designation for any of our product candidates, which would make us ineligible for the additional exclusivity and other benefits of orphan drug designation.

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of regulatory review and approval process. In addition to the potential period of exclusivity, orphan designation makes a company eligible for grant funding of up to $400,000 per year for four years to defray costs of clinical trial expenses, tax credits for clinical research expenses and potential exemption from the FDA application user fee.

If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation is revoked; (ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing of clinical superiority to the product with orphan exclusivity by a competitor product. If a drug designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan drug exclusivity. There can be no assurance that we will receive orphan drug designation for any of our product candidates in the indications for which we think they might qualify, if we elect to seek such applications.

Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.     In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or regulate post -approval activities and affect our ability to profitably sell our product candidates. Legislative and regulatory proposals have been made to expand post -approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the

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FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post -marketing testing and other requirements.

In the United States, the Medicare Modernization Act, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for our product candidates and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 or, collectively, the Health Care Reform Law, is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The Health Care Reform Law revised the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, the law imposed a significant annual fee on companies that manufacture or import branded prescription drug products.

The Health Care Reform Law remains subject to legislative efforts to repeal, modify or delay the implementation of the law. If the Health Care Reform Law is repealed or modified, or if implementation of certain aspects of the Health Care Reform Law are delayed, such repeal, modification or delay may materially adversely impact our business, strategies, prospects, operating results or financial condition. We are unable to predict the full impact of any repeal, modification or delay in the implementation of the Health Care Reform Law on us at this time. Due to the substantial regulatory changes that will need to be implemented by Centers for Medicare & Medicaid Services, or CMS, and others, and the numerous processes required to implement these reforms, we cannot predict which healthcare initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on our business.

In addition, other legislative changes have been proposed and adopted in the United States since the Health Care Reform Law was enacted. We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce or eliminate our profitability.

Any termination or suspension of, or delays in the commencement or completion of, any necessary studies of any of our product candidates for any indications could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects .    The commencement and completion of clinical studies can be delayed for a number of reasons, including delays related to:

•         the FDA or a comparable foreign regulatory authority failing to grant permission to proceed and placing the clinical study on hold;

•         subjects for clinical testing failing to enroll or remain enrolled in our trials at the rate we expect;

•         a facility manufacturing any of our product candidates being ordered by the FDA or other government or regulatory authorities to temporarily or permanently shut down due to violations of cGMP requirements or other applicable requirements, or cross -contaminations of product candidates in the manufacturing process;

•         any changes to our manufacturing process that may be necessary or desired;

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•         subjects choosing an alternative treatment for the indications for which we are developing our product candidates, or participating in competing clinical studies;

•         subjects experiencing severe or unexpected drug -related adverse effects;

•         reports from clinical testing on similar technologies and products raising safety and/or efficacy concerns;

•         third -party clinical investigators losing their license or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or employing methods consistent with the clinical trial protocol, cGMP requirements, or other third parties not performing data collection and analysis in a timely or accurate manner;

•         inspections of clinical study sites by the FDA, comparable foreign regulatory authorities, or IRBs finding regulatory violations that require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a clinical hold on the entire study, or that prohibit us from using some or all of the data in support of our marketing applications;

•         third -party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or any of the data produced by such contractors in support of our marketing applications;

•         one or more IRBs refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial; reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

•         deviations of the clinical sites from trial protocols or dropping out of a trial;

•         adding new clinical trial sites;

•         the inability of the CRO to execute any clinical trials for any reason; and

•         government or regulatory delays or “clinical holds” requiring suspension or termination of a trial.

Product development costs for any of our product candidates will increase if we have delays in testing or approval or if we need to perform more or larger clinical studies than planned. Additionally, changes in regulatory requirements and policies may occur and we may need to amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA, comparable foreign regulatory authorities, and IRBs for reexamination, which may impact the costs, timing or successful completion of that study. If we experience delays in completion of, or if we, the FDA or other regulatory authorities, the IRB, or other reviewing entities, or any of our clinical study sites suspend or terminate any of our clinical studies of any of our product candidates, its commercial prospects may be materially harmed and our ability to generate product revenues will be delayed. Any delays in completing our clinical trials will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical studies may also ultimately lead to the denial of regulatory approval of our product candidates. In addition, if one or more clinical studies are delayed, our competitors may be able to bring competing products to market before we do, and the commercial viability of any of our affected product candidates could be significantly reduced.

Third -party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues.     Our ability to successfully market our product candidates will depend in part on the level of reimbursement that government health administration authorities, private health coverage insurers and other organizations provide for the cost of our product candidates and related treatments. Countries in which any of our product candidates are sold through reimbursement schemes under national health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial prices and any subsequent price increases. In certain countries, including the United States, government -funded and private medical care plans can exert significant indirect pressure on prices. We may not be able to sell our product candidates profitably if adequate

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prices are not approved or coverage and reimbursement is unavailable or limited in scope. Increasingly, third -party payors attempt to contain health care costs in ways that are likely to impact our development of products including:

•         failing to approve or challenging the prices charged for health care products;

•         introducing reimportation schemes from lower priced jurisdictions;

•         limiting both coverage and the amount of reimbursement for new therapeutic products;

•         denying or limiting coverage for products that are approved by the regulatory agencies but are considered to be experimental or investigational by third -party payors; and

•         refusing to provide coverage when an approved product is used in a way that has not received regulatory marketing approval.

Any product candidates we develop that incorporate CBD will be subject to U.S. controlled substance laws and regulations and failure to comply with these laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business operations, both during clinical development and post approval, and our financial condition.       We believe that our TFF platform could be used to formulate a dry powder version of cannabidiol, or CBD, and we are in the early stages of developing an inhaled dry powder drug that could incorporate a dry powder form of CBD. CBD is a controlled substance as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the federal Drug Enforcement Agency, or DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, have no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription.

While cannabis and certain of its derivatives, including CBD, are Schedule I controlled substances, products approved for medical use in the United States that contain cannabis or cannabis extracts must be placed in Schedules II through V, since approval by the FDA satisfies the “accepted medical use” requirement. In 2018, the FDA approved Epidiolex, a sesame oil oral solution of CBD, and the DEA scheduled Epidiolex to Schedule V. To our knowledge, Epidiolex is the only CBD -based drug to have received FDA marketing approval. If we are able to develop a CBD -based dry powder drug candidate, and the FDA provides market approval for such drug candidate, of which there can be no assurance, the DEA will make a scheduling determination and place our dry powder CBD -based drug candidate in a schedule other than Schedule I in order for it to be prescribed to patients in the United States. While it is our intention to pursue the development of a dry powder formulation of CBD that could favorably cite Epidiolex for purposes of DEA scheduling, there can be no assurance that any CBD -based drug candidate we develop will be listed by the DEA as a Schedule V controlled substance. Furthermore, if the FDA, DEA or any foreign regulatory authority determines that any of our CBD -based drug candidates may have potential for abuse, it may require us to generate more clinical data than would otherwise be required, which could increase the cost or delay the launch of such drug candidate.

Facilities conducting research, manufacturing, distributing, importing or exporting, or dispensing controlled substances must be registered (licensed) to perform these activities and have the security, control, recordkeeping, reporting and inventory mechanisms required by the DEA to prevent drug loss and diversion. All these facilities must renew their registrations annually, except dispensing facilities, which must renew every three years. The DEA conducts periodic inspections of certain registered establishments that handle controlled substances. Obtaining the necessary registrations may result in delay of the importation, manufacturing or distribution of any CBD -based drug candidates we may develop. Furthermore, failure to maintain compliance with the CSA, particularly non -compliance resulting in loss or diversion, can result in regulatory action that could have a material adverse effect on our business, financial condition and results of operations. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to restrict, suspend or revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.

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Individual states have also established controlled substance laws and regulations. Though state controlled substance laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule our product candidates as well. While some states automatically schedule a drug based on federal action, other states schedule drugs through rulemaking or a legislative action. State scheduling may delay commercial sale of any product for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness of such product. We must also obtain separate state registrations, permits or licenses in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions by the states in addition to those from the DEA or otherwise arising under federal law.

The passage of the 2018 Farm Bill will impact our development of a dry powder version of CBD.       The Agriculture Improvement Act of 2018, or the 2018 Farm Bill, was signed into law on December 20, 2018. This new law excludes hemp from the definition of marijuana for purposes of the CSA, and legalizes the cultivation and commercial sale of hemp in the United States, subject to state regulation and continuing oversight by federal regulatory agencies. However, the 2018 Farm Bill does not legalize hemp -derived CBDs. CBDs generally remain a Schedule I controlled substance under the CSA and the 2018 Farm Bill provides that a CBD will be removed from Schedule I status if, among other requirements, the CBD is derived from hemp produced by a licensed grower in a manner consistent with the 2018 Farm Bill and associated federal and state regulations.

In addition, the 2018 Farm Bill did not alter the FDA’s authority to regulate products containing cannabis or cannabis -derived compounds, including CBD, under the Federal Food, Drug, and Cosmetic Act. Hemp products, including CBDs, that qualify as drugs, food, dietary supplements, veterinary products, and cosmetics will continue to be regulated by the FDA under the applicable regulatory frameworks. Following passage of the 2018 Farm Bill, the FDA reaffirmed its enforcement authority and reiterated the requirement that a CBD product (hemp -derived or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, be approved by the FDA for its intended use before it may be introduced into interstate commerce. While we believe that recent legislation, most notably the 2018 Farm Bill, has reduced the amount of DEA regulation of CBDs, this is a rapidly evolving area of law and there remains some uncertainty surrounding future state regulation of CBDs. In addition, as of the date of this prospectus, the FDA has approved for marketing only one CBD -based product, Epidiolex, and there can be no assurance that we will not encounter increased costs or delays in pursuing FDA market approval of a CBD -based dry powder formula, assuming we can obtain approval at all.

Risks Relating to Our Intellectual Property Rights

We are dependent on rights to certain technologies licensed to us. We do not have complete control over these technologies and any loss of our rights to them could prevent us from selling our product candidates.     As noted above, our business model is entirely dependent on certain patent rights licensed to us by the University of Texas at Austin, or UT. See, “ Risk Factors — Risks Relating to Our Business — Our business model is entirely dependent on certain patent rights licensed to us from the University of Texas at Austin, and the loss of those license rights would, in all likelihood, cause our business, as presently contemplated, to fail.” Because we will hold those rights as a licensee, we have limited control over certain important aspects of those patent rights. Pursuant to the patent license agreement, UT has reserved the right to control all decisions concerning the prosecution and maintenance of all U.S. and foreign patents, as well as all decisions concerning the enforcement of any actions against potential infringers of the patent rights. We believe that UT shares a common interest in these matters with us, and UT has agreed to consult with us on the prosecution and enforcement of possible infringement claims as well as other matters for which UT has retained control. However, there can be no assurance that UT will agree with our views as to how best to prosecute, maintain and defend the patent rights subject to the patent license agreement.

It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights.     Our commercial success will depend, in part, on our ability to successfully defend the patent rights subject to our patent license agreement with UT against third -party challenges and successfully enforcing these patent rights against third party competitors. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowable or enforceable in the patent applications subject to the UT patent license agreement. The patents and patent applications relating to our TFF platform and related technologies may be challenged, invalidated or circumvented by third parties and might not protect us against competitors with similar products or technologies.

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The degree of future protection afforded by the patent rights licensed to us is uncertain, because legal means afford only limited protection and may not adequately protect our rights, permit us to gain or keep our competitive advantage, or provide us with any competitive advantage at all. We cannot be certain that any patent application owned by a third party will not have priority over patent applications in which we hold license rights or that we will not be involved in interference, opposition or invalidity proceedings before United States or foreign patent offices.

Additionally, if UT were to initiate legal proceedings against a third party to enforce a patent covering any of our product candidates, the defendant could counterclaim that such patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non -enablement . Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the United States Patent and Trademark Office, or the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re -examination , post grant review and equivalent proceedings in foreign jurisdictions, e.g. opposition proceedings. Such proceedings could result in revocation or amendment of UT’s patents in such a way that they no longer cover our product candidates or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which UT and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on any of our product candidates. Such a loss of patent protection would have a material adverse impact on our business.

In the future, we may rely on know -how and trade secrets to protect technology, especially in cases in which we believe patent protection is not appropriate or obtainable. However, know -how and trade secrets are difficult to protect. While we intend to require employees, academic collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors have rights to publish data and information in which we may have rights. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts are sometimes less willing to protect trade secrets than patents. Moreover, our competitors may independently develop equivalent knowledge, methods and know -how .

If we fail to obtain or maintain patent protection or trade secret protection for our product candidates or our technologies, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and attain profitability.

Our product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts.     Our success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third -party patent rights that may be relevant to our proprietary technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, we may be unaware of third -party patents that may be infringed by commercialization of any of our product candidates or any future product candidate. There may be certain issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop or commercialize any of our product candidates, and we do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time -consuming and may:

•         result in costly litigation;

•         divert the time and attention of our technical personnel and management;

•         prevent us from commercializing a product until the asserted patent expires or is held finally invalid or not infringed in a court of law;

•         require us to cease or modify our use of the technology and/or develop non -infringing technology; or

•         require us to enter into royalty or licensing agreements.

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Third parties may hold proprietary rights that could prevent any of our product candidates from being marketed. Any patent -related legal action against us claiming damages and seeking to enjoin commercial activities relating to any of our product candidates or our processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market any of our product candidates or any future product candidates. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could redesign our product candidates or any future product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing any of our product candidates or a future product candidate, which could harm our business, financial condition and operating results.

We expect that there are other companies, including major pharmaceutical companies, working in the areas competitive to our product candidates which either has resulted, or may result, in the filing of patent applications that may be deemed related to our activities. If we were to challenge the validity of these or any issued United States patent in court, we would need to overcome a statutory presumption of validity that attaches to every issued United States patent. This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims. If we were to challenge the validity of these or any issued United States patent in an administrative trial before the Patent Trial and Appeal Board in the U.S. PTO, we would have to prove that the claims are unpatentable by a preponderance of the evidence. There is no assurance that a jury and/or court would find in our favor on questions of infringement, validity or enforceability. Even if we are successful, litigation could result in substantial costs and be a distraction to management.

We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.     As is commonplace in our industry, we will employ individuals who were previously employed at other pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject in the future to claims that our employees or prospective employees are subject to a continuing obligation to their former employers (such as non -competition or non -solicitation obligations) or claims that our employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Risks Related to this Offering and Owning Our Common Stock

An active, liquid and orderly trading market for our shares may not develop, which may inhibit the ability of our stockholders to sell shares following this offering .    The offering under this prospectus is an initial public offering of our common shares. Prior to this offering there has been no public market for our shares. Upon completion of this offering, our common stock will commence trading on the NASDAQ Capital Market under the symbol “TFFP.” However, an active, liquid or orderly trading market in our shares may not develop upon completion of this offering, or if it does develop, it may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies by using our shares as consideration.

Our failure to meet the continued listing requirements of NASDAQ could result in a delisting of our common stock.     If, after listing, we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, NASDAQ may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ minimum bid price requirement or prevent future non -compliance with NASDAQ’s listing requirements.

Future capital raises may dilute your ownership and/or have other adverse effects on our operations .    If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership will be reduced and these stockholders may experience substantial dilution. If we raise additional funds by issuing debt securities, these debt securities would have rights senior to those of our common stock and the terms of the debt securities issued

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could impose significant restrictions on our operations, including liens on our assets. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our intellectual property or candidate products, or to grant licenses on terms that are not favorable to us.

The market price of our shares may be subject to fluctuation and volatility. You could lose all or part of your investment .    The initial public offering price for the shares will be determined by negotiations between us and the underwriter and may not be indicative of prices that will prevail in the trading market. The price of our shares may decline following this offering. The stock market in general, and early stage public companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. The stock market in general has been, and the market price of our shares in particular will likely be, subject to fluctuation, whether due to, or irrespective of, our operating results and financial condition. The market price of our shares on the NASDAQ Capital Market may fluctuate as a result of a number of factors, some of which are beyond our control, including, but not limited to:

•         actual or anticipated variations in our and our competitors’ results of operations and financial condition;

•         market acceptance of our product candidates;

•         changes in earnings estimates or recommendations by securities analysts, if our shares are covered by analysts;

•         development of technological innovations or new competitive products by others;

•         announcements of technological innovations or new products by us;

•         publication of the results of preclinical or clinical trials for our product candidates;

•         failure by us to achieve a publicly announced milestone;

•         delays between our expenditures to develop and market new or enhanced products and the generation of sales from those products;

•         developments concerning intellectual property rights, including our involvement in litigation brought by or against us;

•         regulatory developments and the decisions of regulatory authorities as to the approval or rejection of new or modified products;

•         changes in the amounts that we spend to develop, acquire or license new products, technologies or businesses;

•         changes in our expenditures to promote our product candidates;

•         our sale or proposed sale, or the sale by our significant stockholders, of our shares or other securities in the future;

•         changes in key personnel;

•         success or failure of our research and development projects or those of our competitors;

•         the trading volume of our shares; and

•         general economic and market conditions and other factors, including factors unrelated to our operating performance.

These factors and any corresponding price fluctuations may materially and adversely affect the market price of our shares and result in substantial losses being incurred by our investors. In the past, following periods of market volatility, public company stockholders have often instituted securities class action litigation. If we were involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attention of our management from our business.

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We are an “emerging growth company” under the JOBS Act of 2012 and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors .    We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 or JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:

•         not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes -Oxley Act;

•         reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements;

•         exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments; and

•         extended transition periods available for complying with new or revised accounting standards.

We have chosen to take advantage of all of the benefits available under the JOBS Act, including the exemptions discussed above. We cannot predict if investors will find our common stock less attractive because we may rely 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 our stock price may be more volatile.

We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenues exceed $1.07 billion, if we issue more than $1 billion in non -convertible debt in a three year period, or if the market value of our common stock that is held by non -affiliates exceeds $700 million as of June 30 in any future year.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud .    Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes -Oxley Act, or the subsequent testing by our independent registered public accounting firm when required, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retrospective changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common shares. There is also a risk that neither we nor our independent registered public accounting firm (when applicable in the future) will be able to conclude within the prescribed timeframe that internal controls over financial reporting is effective as required by Section 404. As a result, investors could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

Our status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need it .    Because of the exemptions from various reporting requirements provided to us as an “emerging growth company,” we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our reporting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

We have not paid dividends in the past and have no immediate plans to pay dividends .    We plan to reinvest all of our earnings, to the extent we have earnings, to cover operating costs and otherwise become and remain competitive. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend. Therefore, you should not expect to receive cash dividends on the common stock we are offering.

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If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our shares, the price of our shares could decline .    The trading market for our shares will rely in part on the research and reports that equity research analysts publish about us and our business, if at all. We do not have control over these analysts and we do not have commitments from them to write research reports about us. The price of our shares could decline if no research reports are published about us or our business, or if one or more equity research analysts downgrades our shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

We will incur significant increased costs as a result of becoming a public company that reports to the Securities and Exchange Commission and our management will be required to devote substantial time to meet compliance obligations .    As a public company reporting to the Securities and Exchange Commission after this offering, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, and the reporting and governance provisions of the Sarbanes -Oxley Act of 2002 and the Dodd -Frank Wall Street Reform and Protection Act, as well as rules subsequently implemented by the Securities and Exchange Commission, that impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. There are significant corporate governance and reporting provisions in these laws that will increase our legal and financial compliance costs, make some activities more difficult, time -consuming or costly and may also place undue strain on our personnel, systems and resources. Our management and other personnel will need to devote a substantial amount of time to these regulations. In addition, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, or Board, our Board committees or as executive officers.

Assuming a market for our common stock develops, shares eligible for future sale may adversely affect the market for our common stock .    We, all of our directors and officers, and all of our common shares outstanding prior to this offering, are subject to lock -up agreements whereby the holder has agreed not to sell, transfer, pledge or lend, or offer to do any of the same, directly or indirectly, any of our securities for a period of one year following the close of this offering. The holders of common shares issuable upon conversion of our Series A preferred stock have agreed not to sell, transfer, pledge or lend, or offer to do any of the same, directly or indirectly, any of our securities for 180 days following the close of this offering. Notwithstanding the lock -up agreements, we have agreed to register for resale shares of common stock expected to be issued upon conversion of our Series A preferred stock and shares of common stock underlying certain warrants. Furthermore, after the 180 th day following the close of this offering, certain stockholders will be eligible to begin publicly selling their shares under Rule 144, promulgated under the Securities Act of 1933, or the Securities Act. Rule 144 becomes available to the holders of our restricted stock on the 90 th day following the close of this offering. However, as noted above, the holders of our restricted stock have agreed not to publicly sell any restricted stock pursuant to Rule 144 or otherwise for at least 180 days following the close of this offering. See “Shares Eligible for Future Sale”.

Any substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus (including sales by investors of securities acquired in connection with this offering) may have a material adverse effect on the market price of our common stock.

You will experience immediate dilution in the book value per share of the common stock you purchase.     Because the price per share of our common stock being offered is substantially higher than the book value per share of our common stock, you will experience substantial dilution in the net tangible book value of the common stock you purchase in this offering. Based on the offering price of $5.00 per share, if you purchase shares of common stock in this offering, you will experience immediate and substantial dilution of $3.17 per share in the net tangible book value of the common stock at June 30, 2019.

We may be at an increased risk of securities class action litigation.     Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies have experienced significant stock price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

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We have broad discretion in how we use the proceeds of this offering and may not use these proceeds effectively, which could affect our results of operations and cause our stock price to decline .    We may invest or spend these proceeds in ways with which you do not agree and in ways that may not yield a return on your investment. Our management will have considerable discretion in the application of the net proceeds of this offering, including for any purpose described in the section of this prospectus entitled “Estimated Use of Proceeds”. However, our needs may change as our business and industry evolve and, as a result, the proceeds we receive from this offering may be used in a manner substantially different from our current expectations. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. The failure by our management to apply these funds effectively could result in financial losses that could harm our business, cause the price of our common stock to decline and delay the development of our product candidates. You will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately and, as a result, you will be relying on our management’s judgment.

Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable.     Upon the closing of this offering, provisions of our second amended and restated certificate of incorporation, or Certificate, and amended and restated bylaws and applicable provisions of Delaware law may delay or discourage transactions involving an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. The provisions in our Certificate and amended and restated bylaws:

•         limit who may call stockholder meetings;

•         do not provide for cumulative voting rights; and

•         provide that all board vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.

In addition, once we become a publicly traded corporation, Section 203 of the Delaware General Corporation Law may limit our ability to engage in any business combination with a person who beneficially owns 15% or more of our outstanding voting stock unless certain conditions are satisfied. This restriction lasts for a period of three years following the share acquisition. These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability to obtain a control premium could reduce the price of our common stock.

Our Certificate and amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees .    Provisions in our Certificate and amended and restated bylaws in effect upon the closing of this offering provide that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for:

•         any derivative action or proceeding brought on our behalf;

•         any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers or other employees;

•         any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of Delaware law or our charter documents; or

•         any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine, but excluding actions to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.

These exclusive forum provisions do not apply to claims under the Securities Act or the Exchange Act. These exclusive forums provisions, however, do provide that if no state court located in the State of Delaware has jurisdiction, the federal district court for the District of Delaware shall be the exclusive forum. By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our Certificate and amended and restated bylaws related to choice of forum, but will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. The choice of forum provisions in our Certificate and amended

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and restated bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or any of our directors, officers or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our Certificate and amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.

Ownership portions held by our executives and directors, as well as by our former parent company, LTI, may limit your ability to influence corporate matters .    Following this offering, and after giving effect to the conversion of our Series A preferred stock, our directors and executive officers will beneficially own approximately 3.0% of our common stock. Additionally, LTI, our former parent company, will beneficially own approximately 22.4% of our outstanding common stock. Accordingly, these parties, together, will be able to significantly influence, though not independently determine, the outcome of matters required to be submitted to our stockholders for approval, including decisions relating to the election of our Board and the outcome of any proposed merger or consolidation of our company. These interests may not be consistent with those of our other stockholders. In addition, the significant interest held by these parties, and particularly by LTI, may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our shares.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Estimated Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Our Business,” contains forward -looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward -looking statements. These forward -looking statements include, but are not limited to, statements concerning the following:

•         our future financial and operating results;

•         our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;

•         the timing and success of our plan of commercialization;

•         our ability to successfully develop and clinically test our product candidates;

•         our ability to file for FDA approval of our product candidates through the 505(b)(2) regulatory pathway;

•         our ability to obtain FDA approval for any of our product candidates;

•         our ability to comply with all U.S. and foreign regulations concerning the development, manufacture and sale of our product candidates;

•         the adequacy of the net proceeds of this offering;

•         the effects of market conditions on our stock price and operating results;

•         our ability to maintain, protect and enhance our intellectual property;

•         the effects of increased competition in our market and our ability to compete effectively;

•         our plans to use the proceeds from this offering;

•         costs associated with initiating and defending intellectual property infringement and other claims;

•         the attraction and retention of qualified employees and key personnel;

•         future acquisitions of or investments in complementary companies or technologies; and

•         our ability to comply with evolving legal standards and regulations, particularly concerning requirements for being a public company.

These forward -looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward -looking statements we may make. In light of these risks, uncertainties and assumptions, the forward -looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in our forward -looking statements.

You should not rely upon forward -looking statements as predictions of future events. Although we believe that the expectations reflected in our forward -looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward -looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward -looking statements. We undertake no obligation to update publicly any forward -looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations, except as required by law.

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You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

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INDUSTRY AND MARKET DATA

This prospectus, particularly the sections “Our Business – The Problem We Address”, “– Our Thin Film Freezing Platform” and “– Our Initial Drug Targets”, contain observations, statistical data, estimates, and forecasts that are based on independent industry, government and non -government organization publications or other publicly available information, as well as other information based on our internal sources. Although we believe that the third -party sources referred to in this prospectus are reliable, estimates as they relate to projections involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Certain information in the text of this prospectus is contained in independent industry government and non -governmental organizational publications. The sources of these publications are provided below:

•         Lipinski, C. (2002). Poor aqueous solubility: An industry wide problem in drug discovery. Am Pharm Rev 5, 82 -5 ;

•         Denning, DW; Pleuvry, A; Cole, DC (May 2013). “Global burden of allergic bronchopulmonary aspergillosis with asthma and its complication chronic pulmonary aspergillosis in adults”. Medical mycology. 51 (4): 361–70. doi:10.3109/13693786.2012.738312. PMID 23210682;

•         Kasim, N.A., Whitehouse, M., Ramachandran, C., Bermejo, M., Lennernäs, H., Hussain, A.S., Junginger, H.E., Stavchansky, S.A., Midha, K.K., Shah, V.P., Amidon, G.L. (2004). Molecular Properties of WHO Essential Drugs and Provisional Biopharmaceutical Classification. Mol. Pharm., 1(1):85 -96 ; and

•         Global Biologics Market, Industry and R&D: Forecasts 2015 -2025 – Challenges and Opportunities from Rising Drug Demand and Biosimilar Competition.

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OUR BUSINESS

Overview

We are an early -stage biopharmaceutical company focused on developing and commercializing innovative drug products based on our patented Thin Film Freezing, or TFF, technology platform. We believe, and early testing confirms, that our TFF platform can significantly improve the solubility of poorly water -soluble drugs, a class of drugs that makes up approximately 33% of the major pharmaceuticals worldwide, thereby improving the pharmacokinetic effect of those drugs. We believe that in the case of some new drugs that cannot be developed due to poor water -solubility , our TFF platform has the potential to increase the pharmacokinetic effect of the drug to a level allowing for its development and commercialization. As of the date of this prospectus, we have not progressed the development of any of our drug candidates to human clinical trials, but rather our efforts have focused on the formulation, early stage animal testing and formal toxicology studies of our initial drug candidates in preparation for our first clinical trials.

We intend to initially focus on the development of inhaled dry powder drugs for the treatment of pulmonary diseases and conditions. While the TFF platform was designed to improve solubility of poorly water -soluble drugs generally, the researchers at UT found that the technology was particularly useful in generating dry powder particles with properties which allow for superior inhalation delivery, especially to the deep lung, which is an area of extreme interest in respiratory medicine. We believe that our TFF platform can significantly increase the number of pulmonary drug products that can be delivered by way of breath -actuated inhalers, which are generally considered to be the most effective and patient -friendly means of delivering medication directly to the lungs. Our dry powder drug products will be designed for use with dry powder inhalers, which are generally considered to be the most effective of all breath -actuated inhalers. We plan to focus on developing inhaled dry powder formulations of existing off -patent drugs intended for lung diseases and conditions, which we believe includes dozens of potential drug candidates, many of which have a potential market ranging from $100 million to over $500 million.

Our business model is to develop proprietary innovative drug product candidates that offer commercial or functional advantages, or both, to currently available alternatives. Because our initial dry powder drug candidates will be established drugs that are off -patent , we believe that our initial drug product candidates will qualify for approval by the U.S. Food and Drug Administration, or FDA, through the FDA’s 505(b)(2) regulatory pathway and in corresponding regulatory paths in other foreign jurisdictions. The 505(b)(2) pathway sometimes does not require clinical trials other than a bioequivalence trial; however, to the extent we claim that our product candidates target a new indication or offer improved safety compared to the existing approved products, and it is our present expectation that we will in many cases, it is likely that we will be required to conduct additional clinical trials in order to obtain marketing approval. For example, and as more fully described below, based on a February 2019 pre -IND meeting with the FDA concerning TFF Vori, we believe we will need to conduct Phase I and Phase II studies prior to filing for marketing approval for TFF Vori. We also believe TFF Tac -Lac will require Phase I and Phase IIb/IIIa studies prior to filing for marketing approval. However, there can be no assurance that the FDA will not ask for additional clinical data for either TFF Vori or TFF Tac -Lac .

We also believe that in some cases our dry powder drug products may qualify for the FDA’s orphan drug status. Upon and subject to receipt of the requisite approvals, we intend to commercialize our drug product candidates through a combination of our internal direct sales and third -party marketing and distribution partnerships. In some cases, such as the development of combination drugs or the development of dry powder formulations of patented drugs, we intend to pursue the licensing of our TFF platform or a joint development arrangement.

Our Intended Regulatory Pathway

The 505(b)(2) pathway is intended for molecules that have been previously approved by the FDA or have already been proven to be safe and effective. A 505(b)(2) product reformulates the known molecule in a new strength or dosage form. 505(b)(2) products have the advantage of potentially significantly lower development costs and shorter development timelines versus traditional new molecular entities. We expect to utilize the 505(b)(2) pathway for all of our current product candidates.

A 505(b)(2) NDA is an application that contains full reports of investigations of safety and effectiveness, but where at least some of the information required for approval comes from studies not conducted by or for the applicant. This alternate regulatory pathway enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy for an existing product, or published literature, in support of its application. A 505(b)(2) product candidate might rely on the clinical studies or literature of a previously FDA -approved drug, or rely on the literature and physician usage

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of an FDA -unapproved , or DESI, drug. The clinical requirements for a 505(b)(2) drug candidate can vary widely from product to product and may include new clinical trials, bioequivalence trials, limited safety and efficacy trials, or full Phase I through III trials. Unless the FDA has released a guidance document, the clinical requirement for a new product candidate is typically not known until the drug sponsor has a Pre -IND meeting with the FDA. We believe there is a significant opportunity to pursue dry powder formulations of off -patent drugs using the 505(b)(2) regulatory pathway.

We also believe that in some cases the indication for some of our dry powder drug product candidates may qualify for the FDA’s orphan drug status. Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition generally affecting fewer than 200,000 individuals in the United States, or in other limited cases. Orphan drug designation provides for seven years of exclusivity, independent of patent protection, to the company that brings a particular orphan drug to market. In addition, companies developing orphan drugs are eligible for certain incentives, including tax credits for qualified clinical testing. In addition, an NDA for a product that has received orphan drug designation is not subject to a prescription drug user fee unless the application includes an indication other than the rare disease or condition for which the drug was designated.

The Problem We Address

Solubility is an issue that all drugs must address. No matter how active or potentially active a new drug is against a particular molecular target, if the drug is not available in solution at the site of action, it is most likely not a viable development candidate. According to Lipinski, 40% of newly discovered drugs have little or no water solubility, and in some therapeutic areas this number can reach 90%, which in most cases will prohibit development since most pharmaceutical companies cannot or will not conduct rigorous preclinical and clinical studies on a molecule that does not have a sufficient pharmacokinetic profile due to poor water solubility. Water solubility can also be an issue for some marketed drugs. According to Kasim, only two -thirds of the drugs on the WHO Essential Drug List were classified as high solubility. A marketed drug with poor water solubility can show performance limitations, such as incomplete or erratic absorption, poor bioavailability, and slow onset of action. Effectiveness can vary from patient to patient, and there can be a strong effect of food on drug absorption. Finally, it may be necessary to increase the dose of a poorly soluble drug to obtain the efficacy required, which can lead to adverse side effects, toxicity issues and increased costs.

In addition to water solubility issues generally, certain drugs that target lung conditions and diseases have poor solubility that prevent them from being delivered by way of a breath -actuated inhaler and can only be given orally or intravenously. Breath actuated inhalers include dry powder inhalers, metered dose inhalers and nebulizers. A dry powder inhaler (such as the Advair Diskus) delivers drugs in a dry powder form directly to the lungs by way of a deep, fast breath on the mouth of the inhaler. A metered dose inhaler (such as the Symbicort asthma inhaler) uses propellant to push medication to the lungs. A nebulizer (such as the Aeroneb Pro) creates a mist that is breathed into the lungs through a mouthpiece. The dry powder inhaler is generally considered to be the most effective and convenient form of breath -actuated inhaler for all users, other than for those whose severe condition does not allow them to take a sufficiently deep breath.

We believe the primary benefit of a breath -actuated inhaler is its ability to administer a greater portion of the drug dosage directly to the target site. Dosing directly to the lungs has been shown to allow for better effect with fewer adverse events. In addition, it has been shown that dosing directly to the lungs requires a much lower dose of drug, sometimes as little as 10%, compared to delivery by oral or parenteral routes. While breath -actuated inhalers allow for a greater portion of the administered drug to reach the treatment site, which should allow for much smaller dosages compared to oral or intravenous delivery, not all drugs targeting lung conditions and diseases can be formulated for use with a breath -actuated inhaler. We believe there are dozens of off -patent drugs targeting lung conditions and diseases that are currently not eligible for delivery by way of breath -actuated inhalers, many of which have a potential market of $100 million to over $500 million. This is the market we intend to initially address through our development of dry powder drugs utilizing our TFF platform.

Our Thin Film Freezing Platform

Our development of dry powder drugs is enabled by technology licensed to us by the University of Texas at Austin, or UT. Researchers at UT have developed a technology employing a process called Thin Film Freezing, or TFF. While the TFF platform was designed to improve solubility of poorly water -soluble drugs generally, the researchers at UT found that the technology was particularly useful in generating dry powder particles with properties suitable for inhalation delivery, especially to the deep lung, an area of extreme interest in respiratory medicine. It was found that

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the TFF platform yields particles that are particularly well suited to dry powder inhaler delivery. The process results in a “Brittle Matrix Particle,” which possess low bulk density, high surface area, and typically an amorphous morphology, allowing them to supersaturate when contacting the target site, such as lung tissue. The aerodynamic properties of the particles are such that the portion of drug deposited to the deep lung may reach as high as 75% or greater of the administered dose, compared to 10% or less when given orally or intravenously.

The TFF process, outlined in the figures below, involves dissolving a drug or drugs in a solvent system, and it will often include agents designed to promote dispersion and avoid clumping and excipients to promote adhesion to the target site. The drug solution is then applied to a cryogenic substrate, such as a liquid nitrogen cooled stainless steel drum. When the drug solution contacts the cryogenic surface it vitrifies, or flash freezes, resulting in a “drug ice” typically with amorphous drug morphology. The solvent system is removed by lyophilization, resulting in Brittle Matrix Particles, shown in the photographs below, that are highly porous, large surface area, low -density particles. The process uses industry standard solvents, lung -approved excipients, a custom -made TFF drum and conventional process equipment.

We believe our TFF platform is a breakthrough platform technology for making dry powders from drugs which previously were not candidates for the dry powder inhaler or any breath -actuated inhaler. We believe our TFF technology opens the way for direct -to-lung delivery of dozens of pharmaceuticals, including the reformulation of existing drugs into a more safe and convenient inhaled dry powder product. We believe the technology can be used with molecules of all types and works with existing and off -the-shelf dry powder inhalers without the need for any additional equipment or devices.

We believe our TFF platform presents the following high value opportunities:

•         Reformulation of drugs for lung conditions.     Today, many drugs intended for lung conditions are only given orally or intravenously due to properties that make them ill -suited for direct delivery by inhalers. Given by these routes, typically only 10% of the drug reaches the lungs, and these drugs may cause unwanted and even deadly side effects. We believe that our TFF platform for the first time will allow many of these medications to be formulated into the convenient, direct -to-lung dry powder inhaler format, thereby enhancing efficacy, reducing or eliminating side effects and providing for delivery of drug direct to the target site.

•         Biologics.     Biopharmaceuticals (or biologics) are by far the fastest growing sector in the pharmaceutical industry today. According to Visiongain, the market for biologics is expected to top $270 billion by 2019. Biologics are most commonly delivered intravenously, and they can be an especially challenging class of drugs for formulation into a dry powder. We believe our TFF platform is uniquely suited to meet many of the challenges of biologic formulations, and our UT collaborators have demonstrated via animal model testing and in vitro testing the effectiveness of the TFF technology to produce dry powder biologics with up to 100% activity retained. We intend to explore dry powder forms of numerous biological drugs, including drugs intended to treat indications other than lung conditions and diseases.

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•         Combination Drugs.     Combination drugs are products with two or more active pharmaceutical ingredients. In addition to providing for increased patient compliance with multiple medications, some drugs act synergistically and provide for superior benefit when given as a combination. However, combining pharmaceutical agents can be challenging, especially for inhalation delivery. Our TFF platform has shown the ability to produce fixed dose combinations of many agents in a manner that delivers the drugs simultaneously to the site of action in a precise amount.

UT initially licensed the TFF technology to The Dow Chemical Company, or Dow, and Dow researchers pursued the development of the TFF platform until Dow’s decision to divest its pharmaceutical assets in 2007. While at Dow, the technology was scaled from laboratory (milligrams) to pilot/commercial quantities (kilos). In addition, the Dow team showed that the scaling process did not alter the morphology or other properties of particles made using TFF. More than a dozen drugs, including both small molecules and biologics, were processed by Dow researchers and UT collaborators using the technology, and the benefits were quantified using both in vivo and analytical techniques. In a report published by Dow researchers in 2008, they reported that in several drugs tested by them, there was evidence of enhanced dissolution rates using the TFF platform compared to bulk drugs. In one instance, the researchers measured that a TFF prepared drug was able to reach 96% dissolution in two minutes compared to 60% dissolution in 30 minutes by the same drug in bulk form.

Following its decision to divest its pharmaceutical assets in 2007, Dow’s license rights to the TFF platform were terminated. In July 2015, UT granted to our former parent, LTI, an exclusive worldwide, royalty bearing license to the patent rights for the TFF platform in all fields of use, other than vaccines, for which LTI was granted a non -exclusive worldwide, royalty bearing license to the patent rights for the TFF platform. In January 2018, we entered into a Contribution and Subscription Agreement with LTI, pursuant to which we agreed to acquire from LTI certain intellectual property rights and other assets, including the UT patent license agreement, all of which relate to our TFF platform. We closed on the acquisition of the LTI assets in March 2018. In November 2018, we and UT amended the UT patent license agreement pursuant to which, among other things, our exclusive patent rights to the TFF platform were expanded to all fields of use.

We continue to work with the inventors of the TFF platform through a series of Sponsored Research Agreements, or SRAs, with UT. Our SRAs with UT are industry standard sponsored research agreements pursuant to which UT provides to us certain product formulation, characterization and evaluation services with regard to our product candidates incorporating our TFF technology in exchange for our payment of UT’s expenses and reasonable overhead.  The services conducted by UT are to be carried out under the direction of a principal investigator at UT who is the principal inventor of the TFF technology. The current SRA expires in April 2022 and is subject to renewal upon mutual agreement of the parties.  The SRAs includes customary provisions concerning confidentiality, indemnification and intellectual property rights, including each party’s exclusive ownership of all intellectual property developed solely by them and the parties’ joint ownership of all intellectual property developed jointly.  All patented intellectual property rights relating to the TFF technology developed solely or jointly by UT are subject to our patent license agreement with UT and are included among our licensed patent rights.  Pursuant to those SRAs, the research scientists, together with their labs and collaborators, provide expertise and initial development work, including:

•         the preliminary development and in vitro evaluation of our drug candidates;

•         the determination of the key characteristics influencing performance of our product candidates;

•         the determination of the formulation and manufacturing parameters that influence the key characteristics of our product candidates;

•         supply of bulk dry powders for initial good laboratory practice, or GLP, and non -GLP toxicity studies;

•         supportive stability for future GLP and GMP studies; and

•         the evaluation of the in vivo performance of our product candidates in various animal models.

In addition to our continuing collaboration with UT, in June 2018 we entered into a one -year agreement with Patheon Development Services, Inc., an international company engaged in the business of providing, among other things, contract testing, development and manufacturing services to the pharmaceutical industry. Our agreement with Patheon was an industry standard fee -for-service contract manufacturing agreement pursuant to which Patheon provided to us certain product testing, development and manufacturing services. The Patheon agreement expired in June 2019; however, we are currently in discussions with Patheon for a longer -term contract manufacturing agreement that would appoint Patheon as our exclusive contract manufacturer for products incorporating our TFF technology. In the meantime, we

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have entered into short -term contract manufacturing agreements with IriSys, Inc. and CoreRx, Inc. for their provision of certain product testing, development and clinical manufacturing services for our TFF Vori and TFF Tac -Lac product candidates, respectively. Our agreements with Patheon, IriSys and CoreRx include customary provisions concerning confidentiality, indemnification and intellectual property rights, including our exclusive ownership of all intellectual property developed severally or jointly relating to our TFF technology. We have not entered into agreements with any contract manufacturers for the commercial supply, and may not be able to engage other contract manufacturers for the commercial supply, of any of our product candidates on favorable terms to us, or at all, should the need arise.

Each of Patheon’s, CoreRx’s and IriSys’ facilities and services are conducted in accordance with the FDA’s current good manufacturing practices, or cGMPs, regulations, and IriSys and CoreRx are in the process of onboarding the TFF technology to support preclinical and clinical supply of our TFF Vori and TFF Tac -L ac drug product candidates, respectively.

Pursuant to the agreements with CoreRx and IriSys, they will generate clinical supplies and provide release and stability testing of the respective TFF drug product candidate. Specific tasks will include:

•         Engineering review and TFF technology installation;

•         Familiarization with TFF technology, including powder processing and handling;

•         Analytical method transfer, development, and validation;

•         Conducting process development trials and short -term supportive stability analysis;

•         Scale -up and demonstration batches of the product candidate;

•         Manufacture and analytical characterization of materials to support toxicology studies, both, placebo and active;

•         Process train qualification for cGMP manufacturing;

•         Manufacturing and release of cGMP batches for clinical trials; and

•         Conducting formal stability study under the guidelines of International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use, or ICH.

Because our dry powder drug candidates will represent a new formulation of an existing drug, we will need to obtain FDA approval of the TFF prepared drug candidate before we can begin commercialization. However, because we begin our formulation with a drug that has previously received FDA approval in another form, we believe that in most cases we should qualify for the FDA’s 505(b)(2) regulatory pathway, which potentially will take less time and investment than the standard FDA approval process.

Our Initial Drug Targets

We intend to initially focus on the development of inhaled dry powder drugs for the treatment of pulmonary diseases and conditions. Our dry powder drug product candidates will be designed for use with dry powder inhalers, which are generally considered to be the most effective of all breath -actuated inhalers. We intend to develop dry powder drugs that can be used with existing dry powder inhalers that are commercially available without licensing. We plan to focus on developing dry powder drugs intended for lung diseases and conditions that are off -patent , which we believe includes dozens of potential drug candidates, many of which have a potential market ranging from $100 million to over $500 million. As of the date of this prospectus, we have identified three initial drug candidates and with each we are in the early stages of formulation and testing.

TFF Vori - For the Treatment of Invasive Pulmonary Aspergillosis

We are developing an inhaled dry powder drug intended to treat invasive pulmonary aspergillosis, or IPA, a severe fungal pulmonary disease with a mortality rate that can reach 90% in some patient populations. IPA occurs primarily in patients with severe immunodeficiency, such as bone marrow transplant recipients, other transplant patients, patients with chemotherapy -induced immunodeficiency, and HIV patients. To date, the antifungals used to treat IPA have been delivered orally or intravenously. However, these delivery methods have resulted in low drug concentrations in the lung due to poor bioavailability. We believe these antifungals have serious side effects and drug interaction issues, which places a premium on any solution that can provide effective treatment in more limited dosages. Due to the nature of these drugs, it has not been possible to make formulations for breath -actuated inhalers that might maximize lung concentration while limiting side effects.

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We believe, and early in vitro and animal testing confirms, that our TFF platform can be used to formulate a dry powder version of Voriconazole, generally considered to be one of the best antifungal drugs used in the treatment of IPA. Voriconazole is an off -patent drug and our TFF prepared version of Voriconazole would represent the first inhaled antifungal medication for the treatment of IPA, which has the potential to put the drug exactly where it is needed while minimizing off target effects.

Voriconazole is currently marketed in Australia, Europe and the U.S. as Vfend, and is available in several strengths and presentations for oral delivery or IV infusion. As of the date of this prospectus, the Clinical Practice Guidelines released by the Infectious Diseases Society of America recommend Voriconazole as first -line monotherapy for IPA. However, since the registration of Vfend in Europe and the U.S. in 2002, several studies have examined the exposure -response relationship with Voriconazole, identifying a relationship between low Voriconazole exposure and higher rates of treatment failure, as well as a higher propensity for neurotoxicity at higher exposures. Studies have shown that when delivered orally or intravenously Voriconazole can have differing bioavailability, and therefore differing concentration of the drug available to the lungs, based on whether the patient recently had food. In addition, Voriconazole when delivered orally or intravenously has been shown to have various side effects including nausea and headaches, and adverse events including optic neuritis and papilledema, hepatic toxicity, galactose intolerance, arrhythmias and QT prolongation. These studies confirm that when administered orally or intravenously, Voriconazole provides a narrow therapeutic window between treatment failure and unacceptable treatment toxicity.

We believe a TFF prepared dry powder formulation of Voriconazole can maximize both the prophylactic value to the lungs for immunocompromised patients susceptible to IPA and the treatment value of patients suffering from chronic IPA. We also believe our dry powder drug would benefit patients by providing the drug at the “port of entry” of invasive fungal infections, while also reducing or eliminating the unpleasant and potentially fatal side effects associated with Voriconazole and other last line antifungals. We also believe that the administration of our TFF prepared dry powder formulation directly to the lungs will significantly reduce any potential differences in bioavailability due to the effects of eating or fasting. In addition, animal and in vitro studies have shown that our TFF prepared dry powder formulation will improve the solubility of Voriconazole compared to oral or intravenous delivery. We believe that the combination of improved solubility and direct -to-lung administration of our TFF prepared dry powder formulation will allow for a lower dose directly to the lungs and thereby reduce the high systemic exposure of oral administration and associated side effects, including optic neuritis and papilledema, hepatic toxicity, galactose intolerance, arrhythmias and QT prolongation.

Through our work with UT, we have already completed performance characterization of a TFF formulation of Voriconazole, early animal model testing and, in 2018, a seven -day toxicology study in rats. Through our drug characterization activities, we have worked with researchers at UT to define the appropriate dosage, particle size, porosity, density and other dosage characteristics of a TFF prepared dry powder formulation of Voriconazole and related excipients. Previous third -party studies suggest that inhaled Voriconazole may be effective in animal models and as a therapy in humans when delivered to the lung by nebulization. Our TFF formulation of Voriconazole has been used to produce a 95% Voriconazole powder for inhalation that has been tested in rats and at inhaled doses up to 4 mg/kg, with no local or systemic toxicity while showing good exposure in lung tissue and plasma.

On February 4, 2019, we participated in a pre -IND meeting with the FDA for purposes of discussing our proposed regulatory pathway for TFF Vori and obtaining guidance from the FDA on the pre -clinical plan leading to the filing and acceptance of an IND application for TFF Vori. We were successful in gaining agreement that a 505(b)(2) approach would be appropriate for TFF Vori. However, the FDA requested that we perform an additional 28 -day toxicity study in rats and a 14 -day study in dogs, both of which have been completed, as well as a Phase I study in healthy human subjects. In addition, we believe we will need to complete a Phase II study prior to filing for marketing approval. However, there can be no assurance that the FDA will not ask for additional clinical data. We also believe that our dry powder formulation may qualify as an orphan drug, as there are an estimated 50,000 transplants in the U.S. each year as well as approximately 50,000 patients suffering with chronic IPA.

The objectives of the 28 -day and 14 -day studies outlined above were to determine the toxicity and toxicokinetics profile of 95% Voriconazole for inhalation following inhalation administration as a dry powder, utilizing a range of doses and exposure times, over the 28 -day and 14 -day test periods. The inhalation of the 95% Voriconazole, at inhaled doses of up to 45.7 mg/kg/day by the rats for 28 consecutive days and up to 22.1 mg/kg/day by the dogs for 14 consecutive days, did not result in any test item related mortality, clinical signs or clear effects on body weight, food consumption, clinical pathology, ophthalmoscopy, electrocardiography, or organ weights in any treated groups, and no Voriconazole -related macroscopic or microscopic findings were observed.

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TFF Tac-Lac — For Immunosuppr ession to Prevent Organ Trans plant Rejection

We are developing a dry powder version of Tacrolimus, an immunosuppressive drug used in transplant medicine. Prograf Tacrolimus is currently the second most commonly administered immunosuppressive agent in solid organ transplantation despite what we believe to be the many challenges for patients and physicians when used for extended periods. Prograf Tacrolimus can cause nephrotoxicity, particularly when used in high doses. According to product labeling and prescribing information for Prograf Tacrolimus, nephrotoxicity was reported in approximately 52% of kidney transplantation patients and in 40% and 36% of liver transplantation patients receiving Prograf in the U.S. and European randomized trials, respectively, and in 59% of heart transplantation patients in a European randomized trial.

Although Tacrolimus has been shown via animal models to be beneficial for a number of immunological diseases that affect the lung, systemic toxicity (including renal failure, hypertension, hirsutism, diabetes) has limited its use. In addition, Tacrolimus when delivered orally or intravenously has been shown to have side effects including nausea, indigestion, stomach pain and headaches. Adverse events associated with Tacrolimus when delivered orally or intravenously include increase in cancer, increase in infections, anemia, kidney problems, nervous system problems (including seizures, coma, tremors, confusion, headaches), high blood pressure, QT prolongation, high level of potassium in the blood, myocardial hypertrophy, diabetes, damage to the brain, high level of fats or lipids or phosphates in the blood, constipation, diarrhea, bronchitis, inability to sleep, high magnesium levels, reduction in white blood cells, lack of energy, damage to the peripheral nerves, and fluid around the heart.

Tacrolimus is an off -patent drug and we intend to develop a dry powder version suitable for use with a dry powder inhaler. Because our dry powder version would provide for a high local lung concentration without the typical systemic toxicity frequently experienced with oral dosage form immunosuppressants, we believe our drug candidate should have a high likelihood of success in competing in the immunosuppressant market for lung and heart/lung transplants.

Through our partners at UT, we have already completed development work and performance characterization of our dry powder formulation of Tacrolimus through early animal modeling testing. Through our drug characterization activities, we have worked with researchers at UT to define the particle size, distribution and aerodynamic properties suitable for delivery to humans using a dry powder inhaler. Past third -party studies report that inhaled Tacrolimus delivered to the lungs by nebulization has proven to produce robust drug levels in lung tissue, while the drug level is reduced in peripheral tissues, where toxicity limits dosing. Our TFF formulation of Tacrolimus has been used to produce a 50% Tacrolimus powder for inhalation that has been tested in rats. The inhaled doses in our animal tests exhibited higher pulmonary bioavailability with a prolonged retention time in the lung. In addition, our TFF formulation generated a lower systemic concentration of Tacrolimus, thereby suggesting the possibility of reduced side effects compared to oral or intravenous delivery.

We have scheduled a pre -IND meeting with the FDA for September 26, 2019 and we expect to submit an IND for our TFF formulation of Tacrolimus in the first quarter of 2020. Since there is extensive data on the marketed Prograf product, we believe that our dry powder formulation will qualify for the FDA’s 505(b)(2) approval pathway. However, since we are pursuing a new indication in the treatment of prophylaxis of organ rejection in patients receiving lung transplants , we believe we will need to complete a Phase I and a Phase IIb/IIIa study prior to filing for marketing approval for TFF Tac -Lac . The proposed Phase IIb/IIIa study would essentially be a Phase II clinical study but would include more rigorous and expansive controlled and uncontrolled clinical trials for purposes of generating greater data on efficacy, dosing and labeling. However, there can be no assurance that the FDA will not ask for additional clinical data . We also believe that our dry powder formulation may qualify as an orphan drug, as there are an estimated 50,000 transplants in the U.S. each year.

Triple Combination For COPD/Asthma

We are developing a dry powder drug combination intended to treat chronic obstructive pulmonary disease, or COPD, and asthma. There is a trend towards a three -drug combination in the treatment of uncontrolled COPD and asthma. Data suggests that therapy with a long -acting antimuscarinic agent, or LAMA, a long -acting β 2 -agonist , or LABA, and an inhaled corticosteroid, or ICS, is effective in patients with severe COPD. GSK has received FDA approval for a triple combination drug, Trelegy Ellipta, for the treatment of pulmonary disease. In addition, a variety of triple combinations are currently under development by large pharmaceutical companies, including AstraZeneca and Chiesi Farmaceutici.

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We are currently pursuing the development of a combination dry powder drug intended for use with a dry powder inhaler for the maintenance treatment of bronchospasm associated with moderate to severe COPD. Unlike most other triple combinations, which are chosen in part from the pharmaceutical company’s list of existing products, our triple combination drug contains what we consider will be the best -in-class drug in each category of LAMA, LABA and ICS.

Each of the drugs in our proposed dry powder triple combination is currently off -patent and each is available for delivery individually by way of breath -actuated inhalers. However, the three drugs in combination are not available for delivery through any breath -actuated inhalers due to the inability to deliver the drugs through the airway in the exact ratio designed for treatment. We believe, however, that our TFF platform allows for all three drugs to end up in each particle delivered to the airway in the exact ratio designed for treatment.

Since competition exists, and typically large clinical trials are needed to approve this type of triple combination drug, our strategy would be to develop the triple combination dry powder drug in partnership with a large pharmaceutical company looking to compete in the COPD and asthma markets. We intend to engage large pharmaceutical companies in discussions concerning a potential joint development of our triple combination dry powder drug. However, as of the date of this prospectus we have no agreements, understandings or arrangements concerning a joint development program and there can be no assurance we will be able to enter into a joint development agreement on terms acceptable to us. We do not intend to pursue the development of our triple combination dry powder drug beyond performance characterization and efficacy data through early animal testing until such time, if ever, as we obtain a development partner.

Other Potential Dry Powder Products

We have identified a number of additional drug candidates that show promise upon initial evaluation. In each case, these are drugs for which we would directly pursue the development of a dry powder formulation for use through a dry powder inhaler. We have not commenced meaningful development activities for any of these product candidates at this time and there can be no assurance that we will pursue any of the product candidates below.

Candidate

 

Intervention

 

Indication

Rapamycin

 

Acute Treatment

 

Lymphangioleiomyomatosis

Alpha -1-antitrypsin

 

Chronic Treatment

 

Vitamin A deficiency

GM -CSF (filgrastim)

 

Treatment

 

Autoimmune pulmonary alveolar proteinosis

Treprostinil

 

Treatment

 

Pulmonary Arterial Hypertension

Pembrolizumab (Keytruda)

 

Acute Treatment

 

Cancer: Non–Small Cell Lung Cancer, Liver, brain, melanoma, metastatic

Cisplatin

 

Acute Treatment

 

Lung or esophageal cancer

Gemcitabine

 

Acute Treatment

 

Lung or esophageal cancer

Isoniazid/Rifampicin

 

Acute Treatment

 

Tuberculosis

Amphotericin B

 

Acute Treatment

 

Antifungal

Palivizumab

 

Prophylaxis

 

Tuberculosis

Ciprofloxacin

 

Acute Treatment

 

Infection

Tobramycin

 

Acute Treatment

 

Infection

Azithromycin

 

Acute Treatment

 

Infection

Calcium channel blockers

 

Acute Treatment

 

Raynaud’s disease

Sumatriptin

 

Acute Treatment

 

Migraine

Stem cells

 

Lung remodeling

 

Pneumococcal pneumonia; cardiomyopathy

We believe that our TFF technology provides a very diverse and effective way to develop solutions for lung specific disorders. Many potentially beneficial drugs for lung diseases and disorders are unable to be dosed in high enough concentration to provide therapeutic benefit to the lung due to the systemic nature (oral or IV dosing) of the drug leading to toxicity of the kidney, lungs and other systemic safety concerns. We believe our TFF platform has the potential to take these difficult to formulate drugs and develop products to be delivered directly to the lung for treatment of lung diseases and disorders. This direct dosing may reduce plasma levels and has the potential to increase efficacy while reducing side effects.

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We are also in the early stages of developing an inhaled dry powder drug that could be used to support or to treat a variety of health issues that may benefit from CBD administration. CBD is reported to be used by some for the treatment of various epilepsy syndromes as well as anxiety, insomnia, and different types of pain. Researchers have explored using the broader class of cannabinoids for inflammation, symptoms of multiple sclerosis, anorexia, schizophrenia, and other conditions. The FDA has approved Epidiolex for the treatment of seizures associated with Lennox -Gastaut syndrome or Dravet syndrome in patients two years of age or older. The Epidiolex product is an oral solution containing 100 mg/mL of CBD.

We believe, and early in -vitro research confirms, that our TFF platform can be used to formulate a dry powder version of CBD. We intend to execute a relative bioavailability study in rodents in the near future to assess the effect of the TFF platform on the bioavailability and pharmacokinetics of CBD delivered by dry powder inhalation. There can be no assurance, however, that our early testing and development will lead to a commercial dry powder formulation of CBD.

The 2018 Farm Bill, which was signed into law on December 20, 2018, liberalized to some degree the regulation of hemp and hemp -derived products, such as CBDs, under the CSA. However, the 2018 Farm Bill did not alter the FDA’s authority to regulate products containing cannabis or cannabis -derived compounds, including CBD, under the Federal Food, Drug, and Cosmetic Act, or the FDCA. Hemp products, including CBDs, that qualify as drugs, food, dietary supplements, veterinary products, and cosmetics will continue to be regulated by the FDA under the applicable regulatory frameworks. As of the date of this prospectus, we believe that Epidiolex is the only CBD -based product that has received market approval from the FDA.

Licenses and Intellectual Property Rights

We hold rights to our TFF technology pursuant to a patent license agreement entered into in July 2015, between University of Texas at Austin, or UT, and our former parent, LTI, which LTI assigned to us in March 2018, as amended by UT and us on November 30, 2018. UT is the owner of 36 U.S. and international patents and patent applications with claims covering the TFF platform. Pursuant to the amended patent license agreement, we hold an exclusive worldwide, royalty bearing license to the rights to the aforementioned patents, including any divisionals, continuations and extensions, in all fields of use.

We are required to pay royalties to UT in the amount of 2% of net sales received by us from the sale of products covered by the licensed patent rights. We will also be required to make certain milestone payments to UT in connection with the certain regulatory submissions and approvals and pay fees in connection with any assignments or sublicenses, including:

•         $50,000 upon each approval of an IND for the first indication of each product candidate;

•         $100,000 upon submission of a final Phase II report (or a foreign equivalent) on the first product candidate;

•         $250,000 upon submission of a final Phase III report (or a foreign equivalent) on the first product candidate;

•         $500,000 upon regulatory approval in the U.S. (or a foreign equivalent) on the first product candidate;

•         $500,000 upon regulatory approval in the U.S. (or a foreign equivalent) on the second product candidate or on the second indication of the first product candidate; and

•         Our issuance to UT of one percent (1%) of our outstanding common stock, calculated on a fully -diluted basis, upon and as of our first IND approval for a product candidate.

Pursuant to the UT patent license agreement, UT has agreed to consult with us concerning the development and implementation of a strategy for the prosecution and maintenance of the licensed patent rights, including any infringement of the licensed patents rights by third -parties . However, UT has retained control and final decision -making authority over such matters. We are responsible for the payment of all fees and expenses involved in the prosecution and maintenance of the licensed patent rights and are obligated to negotiate in good faith with UT over the funding and allocation of any recovery involved in any patent infringement action brought to enforce the licensed patent rights, which are presently scheduled to expire over a period of time commencing in 2023 and ending in 2035. The term of the UT patent license agreement is co -terminus with the licensed patent rights. However, UT has the right to terminate the patent license agreement, or any part of the licensed patent rights or field of use, in the event of our breach of any provision of the patent license agreement that remains uncured after UT’s written notice of breach and an applicable cure period or in the event we initiate any proceeding to challenge the validity or scope of the licensed patent rights. The agreement also contains customary representations, warranties, covenants and indemnities by the parties.

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In addition to the licensed patent rights, we also rely on our trade secrets, know -how and continuing technological innovation to develop and maintain our proprietary position. We will vigorously defend our intellectual property to preserve our rights and gain the benefit of our technological investments.

Government Regulations and Funding

Pharmaceutical companies are subject to extensive regulation by foreign, federal, state and local agencies, such as the U.S. FDA, and various similar agencies in most countries worldwide. The manufacture, distribution, marketing and sale of pharmaceutical products are subject to government regulation in the U.S. and various foreign countries. Additionally, in the U.S., we must follow rules and regulations established by the FDA requiring the presentation of data indicating that our product candidates are safe and efficacious and are manufactured in accordance with cGMP regulations. If we do not comply with applicable requirements, we may be fined, the government may refuse to approve our marketing applications or allow us to manufacture or market our product candidates, and we may be criminally prosecuted. We, our manufacturers and clinical research organizations may also be subject to regulations under other foreign, federal, state and local laws, including, but not limited to, the U.S. Occupational Safety and Health Act, the Resource Conservation and Recovery Act, the Clean Air Act and import, export and customs regulations as well as the laws and regulations of other countries. The U.S. government has increased its enforcement activity regarding illegal marketing practices domestically and internationally. As a result, pharmaceutical companies must ensure their compliance with the Foreign Corrupt Practices Act and federal healthcare fraud and abuse laws, including the False Claims Act.

These regulatory requirements impact our operations and differ from one country to another, so that securing the applicable regulatory approvals of one country does not imply the approval of another country. The approval procedures involve high costs and are manpower intensive, usually extend over many years and require highly skilled and professional resources.

FDA Market Approval Process

The steps usually required to be taken before a new drug may be marketed in the U.S. generally include:

•         completion of pre -clinical laboratory and animal testing;

•         completion of required chemistry, manufacturing and controls testing;

•         the submission to the FDA of an IND, which must be evaluated and found acceptable by the FDA before human clinical trials may commence;

•         performance of adequate and well -controlled human clinical trials to establish the safety, pharmacokinetics and efficacy of the proposed drug for its intended use;

•         submission and approval of an NDA;

•         successful pre -approval inspection of the manufacturer and analytical testing facilities; and

•         agreement with FDA of the label language, including the prescribing information insert.

Clinical studies are conducted under protocols detailing, among other things, the objectives of the study, what types of patients may enter the study, schedules of tests and procedures, drugs, dosages, and length of study, as well as the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical study and any subsequent protocol amendments must be submitted to the FDA as part of the IND process.

Clinical trials are usually conducted in three phases. Phase I clinical trials are normally conducted in small groups of healthy volunteers to assess safety and tolerability of various dosing regimens and pharmacokinetics. After a safe dose has been established, in Phase II clinical trials the drug is administered to small populations of sick patients to look for initial signs of efficacy via dose ranging studies in treating the targeted disease or condition and to continue to assess safety and the effective doses to be studied in larger trials in Phase III. In the case of vaccines, the participants are healthy and the signs of efficacy can be obtained in early Phase I, therefore this Phase is defined as Phase I/II. Phase III clinical trials are usually multi -center , double -blind controlled trials in hundreds or even thousands of subjects at various sites to assess as fully as possible both the safety and effectiveness of the drug.

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Clinical trials must be conducted in accordance with the FDA’s good clinical practice, or GCP, requirements. The FDA may order the temporary or permanent discontinuation of a clinical study at any time or impose other sanctions if it believes that the clinical study is not being conducted in accordance with FDA requirements or that the participants are being exposed to an unacceptable health risk. An institutional review board, or IRB, generally must approve the clinical trial design and patient informed consent at study sites that the IRB oversees and also may halt a study, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions. Additionally, some clinical studies are overseen by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board or committee. This group recommends whether or not a trial may move forward at designated check points based on access to certain data from the study. The clinical study sponsor may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.

As a product candidate moves through the clinical testing phases, manufacturing processes are further defined, refined, controlled and validated. The level of control and validation required by the FDA increases as clinical studies progress. We and the third -party manufacturers on which we rely for the manufacture of our product candidates and their respective components (including the API) are subject to requirements that drugs be manufactured, packaged and labeled in conformity with cGMPs. To comply with cGMP requirements, manufacturers must continue to spend time, money and effort to meet requirements relating to personnel, facilities, equipment, production and process, labeling and packaging, quality control, recordkeeping and other requirements.

Assuming completion of all required testing in accordance with all applicable regulatory requirements, detailed information on the product candidate is submitted to the FDA in the form of an NDA, requesting approval to market the product for one or more indications, together with payment of a user fee, unless waived. An NDA includes all relevant data available from pertinent nonclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information on the chemistry, manufacture, controls and proposed labeling, among other things. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the product candidate for its intended use to the satisfaction of the FDA. The FDA also conducts a pre -approval inspection of the manufacturer and laboratory prior to approval of the NDA.

If an NDA submission is accepted for filing, the FDA begins an in -depth review of the NDA. Under the Prescription Drug User Fee Act, or PDUFA, the FDA’s goal is to complete its initial review and respond to the applicant within ten months of submission, unless the application relates to an unmet medical need, or is for a serious or life -threatening indication, in which case the goal may be within six months of NDA submission. However, PDUFA goal dates are not legal mandates and the FDA response often occurs several months beyond the original PDUFA goal date. Further, the review process and the target response date under PDUFA may be extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the NDA. The NDA review process can, accordingly, be very lengthy. During its review of an NDA, the FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations. Data from clinical studies are not always conclusive and the FDA and/or any advisory committee it appoints may interpret data differently than the applicant.

After the FDA evaluates the NDA and inspects manufacturing facilities where the drug product and/or its API will be produced and tested, it will either approve commercial marketing of the drug product with prescribing information for specific indications or issue a complete response letter indicating that the application is not ready for approval and stating the conditions that must be met in order to secure approval of the NDA. If the complete response letter requires additional data and the applicant subsequently submits that data, the FDA nevertheless may ultimately decide that the NDA does not satisfy its criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies, or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct post -marketing testing. Such post -marketing testing may include Phase IV clinical trials and surveillance to further assess and monitor the product’s safety and efficacy after approval. Regulatory approval of products for serious or life -threatening indications may require that participants in clinical studies be followed for long periods to determine the overall survival benefit of the drug.

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If the FDA approves one of our product candidates, we will be required to comply with a number of post -approval regulatory requirements. We would be required to report, among other things, certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling for any of our product candidates. Also, quality control and manufacturing procedures must continue to conform to cGMPs after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMPs, which imposes extensive procedural, substantive and record keeping requirements. If we seek to make certain changes to an approved product, such as certain manufacturing changes, we may need FDA review and approval before the change can be implemented.

While physicians may use products for indications that have not been approved by the FDA, we may not label or promote the product for an indication that has not been approved. Securing FDA approval for new indications is similar to the process for approval of the original indication and requires, among other things, submitting data from adequate and well -controlled studies that demonstrate the product’s safety and efficacy in the new indication. Even if such studies are conducted, the FDA may not approve any change in a timely fashion, or at all.

The FDA may also require post -marketing testing, or Phase IV testing, as well as risk minimization action plans and surveillance to monitor the effects of an approved product or place conditions or an approval that could otherwise restrict the distribution or use of the product.

Section 505(b)(2) New Drug Applications

We intend to submit applications for both of our lead therapeutic candidates via the 505(b)(2) regulatory pathway. As an alternate path for FDA approval of new indications or new formulations of previously -approved products, a company may file a Section 505(b)(2) NDA, instead of a “stand -alone ” or “full” NDA. Section 505(b)(2) of the FDCA was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch -Waxman Amendments. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Some examples of products that may be allowed to follow a 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration, formulation or indication.

The Hatch -Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions from prior review of such studies. The FDA may require companies to perform additional studies or measurements to support any changes from the approved product. The FDA may then approve the new product for all or some of the labeled indications for which the reference product has been approved, as well as for any new indication supported by the Section 505(b)(2) application. While references to nonclinical and clinical data not generated by the applicant or for which the applicant does not have a right of reference are allowed, all development, process, stability, qualification and validation data related to the manufacturing and quality of the new product must be included in an NDA submitted under Section 505(b)(2).

To the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, or Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The Section 505(b)(2) application also will not be approved until any non -patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference product has expired. If the Orange Book certifications outlined above are not accomplished, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant delay and patent litigation before its products may be commercialized.

Orphan Drugs

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition affecting fewer than 200,000 individuals in the United States, or in other limited cases. Orphan drug designation (ODD) provides for seven years of market exclusivity, independent of patent protection, to the company

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with ODD that brings a particular product to market. In addition, companies developing orphan drugs are eligible for certain incentives, including tax credits for qualified clinical testing. In addition, an NDA for a product that has received orphan drug designation is not subject to a prescription drug user fee unless the application includes an indication other than the rare disease or condition for which the drug was designated.

To gain exclusivity, if a product that has orphan drug designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to the orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same active moiety for the same indication for seven years, except in limited circumstances, such as another drug’s showing of clinical superiority over the drug with orphan exclusivity. Competitors, however, may receive approval of different active moieties for the same indication or obtain approval for the same active moiety for a different indication. In addition, doctors may prescribe products for off -label uses and undermine our exclusivity. Orphan drug exclusivity could block the approval of one of our product candidates for seven years if a competitor obtains approval for the same active moiety for the same indication before we do, unless we are able to demonstrate that our product is clinically superior.

We may plan to pursue orphan drug designation and exclusivity for some of our product candidates in the United States, European Union, and other geographies of interest for specific products. We cannot guarantee that we will obtain orphan drug designation for any products in any jurisdiction. Even if we are able to obtain orphan drug designation for a product, we cannot be sure that such product will be approved, that we will be able to obtain orphan drug exclusivity upon approval, if ever, or that we will be able to maintain any exclusivity that is granted.

Continuing Regulation

After a drug is approved for marketing and enters the marketplace, numerous regulatory requirements continue to apply. These include, but are not limited to:

•         the FDA’s cGMP regulations require manufacturers, including third party manufacturers, to follow stringent requirements for the methods, facilities and controls used in manufacturing, processing and packing of a drug product;

•         labeling regulations and the FDA prohibitions against the promotion of drugs for unapproved uses (known as off -label uses), as well as requirements to provide adequate information on both risks and benefits during promotion of the drug;

•         approval of product modifications or use of a drug for an indication other than approved in an NDA;

•         adverse drug experience regulations, which require us to report information on adverse events during pre -market testing and post -approval safety reporting;

•         NDA quarterly reporting for the first three years, then annual reporting thereafter, of changes in chemistry, manufacturing and control or CMC, labeling, clinical studies and findings, and toxicology studies from the data submitted in the NDA;

•         post -market testing and surveillance requirements, including Phase IV trials, when necessary to protect the public health or to provide additional safety and effectiveness data for the drug; and

•         the FDA’s recall authority, whereby it can ask, or under certain conditions order, drug manufacturers to recall from the market a product that is in violation of governing laws and regulation. After a drug receives approval, any modification in conditions of use, active ingredient(s), route of administration, dosage form, strength or bioavailability, will require a new approval, for which it may be possible to submit a 505(b)(2), accompanied by additional clinical data necessary to demonstrate the safety and effectiveness of the product with the proposed changes. Additional clinical studies may be required for proposed changes.

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Other U.S. Healthcare Laws and Compliance Requirements

For products distributed in the United States, we will also be subject to additional healthcare regulation and enforcement by the federal government and the states in which we conduct our business. Applicable federal and state healthcare laws and regulations include the following:

•         The federal healthcare anti -kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order, or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid;

•         The Ethics in Patient Referrals Act, commonly referred to as the Stark Law, and its corresponding regulations, prohibit physicians from referring patients for designated health services (including outpatient drugs) reimbursed under the Medicare or Medicaid programs to entities with which the physicians or their immediate family members have a financial relationship or an ownership interest, subject to narrow regulatory exceptions, and prohibits those entities from submitting claims to Medicare or Medicaid for payment of items or services provided to a referred beneficiary;

•         The federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government;

•         Health Insurance Portability and Accountability Act of 1996, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information. This statute also prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services; and

•         Analogous state laws and regulations, such as state anti -kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non -governmental third -party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government.

Reimbursement

Sales of our product candidates in the United States may depend, in part, on the extent to which the costs of the product candidates will be covered by third -party payers, such as government health programs, commercial insurance and managed health care organizations. These third -party payers are increasingly challenging the prices charged for medical products and services. Additionally, the containment of health care costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The United States government, state legislatures and foreign governments have shown significant interest in implementing cost -containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost -containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If these third -party payers do not consider our product candidates to be cost -effective compared to other available therapies, they may not cover our product candidates after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our product candidates on a profitable basis.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, (the “MMA”), imposes new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries and includes a major expansion of the prescription drug benefit under Medicare Part D. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand -alone prescription drug benefit plans and prescription drug coverage as a supplement

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to Medicare Advantage plans. Unlike Medicare Parts A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for product candidates for which we receive marketing approval. However, any negotiated prices for our product candidates covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non -governmental payers.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 was signed into law. This law provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes of Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payers, it is not clear how such a result could be avoided and what if any effect the research will have on the sales of our product candidates, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. Decreases in third -party reimbursement for our product candidates or a decision by a third -party payer to not cover our product candidates could reduce physician usage of the product candidates and have a material adverse effect on our sales, results of operations and financial condition.

Employees and Consultants

As of the date of this prospectus, we have seven employees and consultants, including our executive officers, providing management and financial services, and general administrative responsibilities.

Legal Proceedings

From time to time, we may become party to legal proceedings and claims in the ordinary course of business. As of the date of this prospectus, we are not a party to any legal proceedings.

Executive Offices

Our former parent, LTI, currently provides us with office space and certain administrative services and equipment for no charge. Those offices are located at 2600 Via Fortuna, Suite 360 Austin, Texas 78746; telephone number (737) 802 -1975 . We have entered into a lease agreement for 1,500 square feet of office space in Doylestown, Pennsylvania. The lease agreement is for one year and expires October 31, 2019, subject to our option to renew for an additional year. The monthly lease rate is $3,500. We intend to relocate our executive offices to this facility in late 2019.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

General

We were formed in January 2018 as a specialty pharmaceutical company focused on developing and commercializing innovative pharmaceutical products based on our patented Thin Film Freezing platform.

To date, we have capitalized our operations primarily from the March 2018 private placement of approximately $14.2 million ($12.5 million net of offering expenses) of Series A preferred stock, par value $0.001, or the Series A preferred stock, and the May 2019 private placement of approximately $8.2 million ($7.3 million after deducting offering expenses) of Series A preferred stock. The Series A preferred stock accumulates dividends at the rate of 6% per annum. The shares of Series A preferred stock plus all accrued but unpaid dividends on the Series A preferred stock will automatically convert into shares of our common stock concurrent with the completion of this offering, at the conversion price of 50% of the initial public offering price. Assuming that this offering was completed on June 30, 2019 at a price of $5.00 per share, and based on dividends accrued through such date in the amount of $1,238,590, the Series A preferred stock would have converted into 9,425,436 shares of our common stock.

Results of Operations

We were formed on January 24, 2018 and have not commenced revenue -producing operations. To date, our operations have consisted of the development and early -stage testing of our initial product candidates. In connection with our organization on January 24, 2018, we entered into a Contribution and Subscription Agreement with LTI, our former parent, pursuant to which we agreed to acquire from LTI certain of LTI’s non -core intellectual property rights and other assets, or the Acquired Assets. We closed on the acquisition of the Acquired Assets concurrent with the close of the initial Series A preferred stock financing in March 2018. The operations surrounding the Acquired Assets are deemed to be our accounting predecessor and the results of operations in the financial summary below for the periods January 1, 2017 through January 23, 2018 reflect the results of operations of the Acquired Assets, which were immaterial, as our predecessor.

During the fiscal years ended December 31, 2018 and 2017, we incurred $848,809 and $0 of research and development expenses and $3,049,337 and $178,605 of general and administrative expenses, respectively. The increase in research and development expenses during 2018 was due to the ramp -up of research and development activities following the completion of our initial funding in March 2018. The increase in general and administrative expenses in 2018 was due to the expense associated with our formation and increased corporate activities following our March 2018 funding and includes $1,329,074 of stock -based compensation issued to our officers, directors and consultants in 2018. We incurred a net loss of $4,570,536 and $178,605 for the 2018 and 2017 fiscal years, respectively.

For the six months ended June 30, 2019 and 2018, we incurred $2,990,518 and $619,189 of research and development expenses, respectively. The increase in research and development expenses in 2019 was due to the ramp -up of research and development activities. For the six months ended June 30, 2019 and 2018, we incurred $1,421,051 and $1,777,869 of general and administrative expenses, respectively. The decrease in general and administrative expenses in 2019 was due to a higher level of activity in stock -based compensation in 2018 compared to 2019. We incurred a net loss of $4,369,735 and $2,386,661 for the six months ended June 30, 2019 and 2018, respectively. The increase in net loss in 2019 was due to the increase in research and development offset by a decrease in general corporate activities. We expect our research and development expenses as well as our general and administrative expenses to continue to increase in accordance with our business plan.

Financial Condition

As of June 30, 2019, we had total assets of $13.8 million and working capital of $12.0 million. As of June 30, 2019, our liquidity included $13.6 million of cash and cash equivalents. As of the date of this prospectus, we have no debt or plans for material capital expenditures. As of the date of this prospectus, our projected working capital needs consist of funds with which to pursue pre -clinical development, analysis and preparation; clinical manufacturing; Phase I and Phase II studies, as well as for other general corporate purposes, including general and administrative expenses. See “Estimated Use of Proceeds.”

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We believe certain of our expenses are controllable and that we have enough cash on -hand as of the date of this prospectus to manage our business for 12 months from the date of this prospectus. We believe that we require a minimum of $19.3 million of additional capital in order to fund the development of our two initial product candidates, TFF Vori and TFF Tac -Lac , through the completion of their Phase II studies. We have undertaken this initial public offering of our common shares to fund the aforementioned development. However, as of the date of this prospectus, we believe that we will need additional capital to obtain marketing approval for TFF Vori and TFF Tac -Lac , assuming such approval can be obtained at all. We intend to seek additional funds through various financing sources, including the sale of our equity and debt securities, licensing fees for our technology and joint ventures with industry partners. In addition, we will consider alternatives to our current business plan that may enable to us to achieve revenue producing operations and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations, in which case you may lose your entire investment.

Off Balance Sheet Transactions

We do not have any off -balance sheet transactions.

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MANAGEMENT

Set forth below are our directors and executive officers:

Name

 

Age

 

Position

Glenn Mattes

 

62

 

President, Chief Executive Officer and Director

Kirk Coleman

 

47

 

Chief Financial Officer

Aaron Fletcher, Ph.D.

 

39

 

Chairman of the Board

Robert S. Mills

 

67

 

Director

Brian Windsor, Ph.D.

 

53

 

Director

Stephen C. Rocamboli

 

48

 

Director

Harlan Weisman, M.D.

 

67

 

Director

Randy Thurman

 

69

 

Director

Mr. Mattes has served as our President and Chief Executive Officer and a member of our Board since May 1, 2018. From December 2015 to April 2018, Mr. Mattes was Chief Executive Officer of Cornovus, Inc., a late stage -clinical stage company focused on the development of therapies for end stage congestive heart failure. Mr. Mattes has also served as chairman of the board of directors of Cornovus from December 2015 to date. From April 2011 to July 2014, Mr. Mattes was Chief Executive Officer of Arno Therapeutics, Inc., a clinical stage company focused on oncology therapeutics. From March 2003 to April 2011, Mr. Mattes served as President of Tibotec Therapeutics, Inc., a wholly -owned subsidiary of Johnson & Johnson engaged in the development of oncological therapeutics. Since May 2018, Mr. Mattes has also served as an Operating Partner of Revival Healthcare Capital, a private equity firm focused on investment and buy -out opportunities in the healthcare industry. Mr. Mattes has over 30 years of experience in the pharmaceutical industry, including several senior executive positions and manager level positions in the fields of product development and marketing. Mr. Mattes serves on the board of directors of several pharmaceutical companies, including Advantagene, Inc. and Deck Therapeutics, Inc. Mr. Mattes has also served as a senior healthcare advisor to The Gores Group, a private equity investment firm since May 2015.

We believe that Mr. Mattes’ valuable perspective and experience as our President and Chief Executive Officer, considerable experience in the pharmaceuticals industry and extensive leadership skills qualify him to serve on our Board.

Mr. Coleman has served as our Chief Financial Officer since January 2018. Since 2012, Mr. Coleman also served as an executive officer of Steelhead Capital Management, LLC and Bios Partners, LP, a venture capital firm focused on investment in early -stage and growth -stage biotech and medical device companies. From 1998 to 2008, Mr. Coleman was Treasurer for EFO Holdings, LP, a family office. Mr. Coleman has over 20 years of experience in venture capital investments. Mr. Coleman received a BBA in Accounting from Texas Christian University in 1995.

Dr. Fletcher has served as a member of our Board since January 2018 and has served as the Chairman of the Board since December 2018. Since 2012, Dr. Fletcher has served as founder and President of Bios Research, a financial services firm that provides public equity research in the healthcare industry tailored to institutional firms and large family offices. Since 2014, Dr. Fletcher has also served as Managing Partner of Bios Partners, LP, a venture capital firm focused on investment in early -stage and growth -stage biotech and medical device companies. Dr. Fletcher also serves as a director of LTI, Actuate Therapeutics, AbiliTech Medical and CogRx Therapeutics. Dr. Fletcher holds a Ph.D. in Biochemistry from Colorado State University, and serves as a visiting professor at Dallas Baptist University. Dr. Fletcher has worked as an independent consultant for the biotech/healthcare equity industry for over ten years.

We believe that Dr. Fletcher’s significant experience and knowledge of the pharmaceutical industry as a research analyst, venture investor and academic bring valuable knowledge and insights to our Board.

Mr. Mills has served as a member of our Board since January 2018. Mr. Mills also served as our President and Chief Executive Officer from January 2018 to May 1, 2018, and also served as the Executive Chairman of our Board from January 2018 to December 2018. Mr. Mills has served as the founder and President of RSM Consulting, LLC since January 1, 2015 and as the chairman of the board of directors of LTI since May 7, 2015. From

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August 2011 to December 2014, Mr. Mills was President and Chief Executive Officer of SPL Pharmaceuticals, the leading manufacturer of heparin and pancreatin, until its sale to a Chinese pharmaceutical company. Mr. Mills also served as a member of the board of directors of SPL Pharmaceuticals from 2011 to 2014. From May 2010 to February 2011, Mr. Mills served as President and as a member of the board of directors of Qualitest Pharmaceuticals, which was acquired by Endo Pharmaceuticals for $1.2 billion. From 2006 to 2010, Mr. Mills served as President and Chief Operating/Executive Officer and as a member of the board of directors of Columbia Laboratories, Inc., which has since been renamed Juniper Pharmaceuticals, Inc. (NASDAQ: CBRX). Mr. Mills was recognized as a finalist for Entrepreneur of the Year for New Jersey in 2009 by Ernst and Young. Mr. Mills holds a B.S. Degree from Grove City College and numerous graduate business credits from Temple University.

We believe that Mr. Mills’ significant experience as chief executive officer in various pharmaceutical companies and his service on several other boards, including the board of LTI, brings valuable knowledge and insights to our Board.

Dr. Windsor has served as a member of our Board since January 2018. Since January 2018, Dr. Windsor has also provided consulting services to us in the area of science and technology. Dr Windsor is currently the President, Chief Executive Officer and a member of the board of directors of LTI, which positions he has held since July 2013. From November 2009 to March 2013, Dr. Windsor served as President of Enavail, LLC, a specialty pharmaceutical manufacturing company, where he oversaw all aspects of the company’s pharmaceutical drug development. Before joining Enavail, Dr. Windsor directed portfolio company management for Emergent Technologies, Inc., an early stage technology venture creation and management company, where he served as Managing Director or President for ten portfolio companies. He holds a Ph.D. in Molecular Biology from The University of Texas at Austin, is an invited speaker for both scientific and technology transfer events, and is an inventor on multiple patents and patent applications.

We believe that Dr. Windsor’s significant experience as chief executive officer in pharmaceutical companies, including LTI, and significant experience with pharmaceutical drug development bring valuable knowledge and insights to our Board.

Mr. Rocamboli has served as a member of our Board since December 2018. Mr. Rocamboli has served as Chief Business Officer, General Counsel and Corporate Secretary of Advantagene, Inc., d/b/a Candel Therapeutics, a privately held immuno -oncology company based in Needham, Massachusetts, since April 2015. Between 2010 and April 2015, Mr. Rocamboli served as general partner of Integrin Partners, LLC, a consulting firm providing corporate development and strategic transaction advisory and general counsel services to life science companies, investors and entrepreneurs. Between 2010 and 2012, Mr. Rocamboli also served as partner of Beijing International Group, an international affiliate of Integrin Partners. Between 2014 and 2015, Mr. Rocamboli also served as Special Counsel to Wyrick Robbins Yates & Ponton, LLP, focusing on life sciences transactions. Between 2008 and 2018, Mr. Rocamboli was a co -founder and served as President of Pear Tree Pharmaceuticals, a development stage pharmaceutical company focused on the development and commercialization of innovative pharmaceuticals that address the unique unmet needs of aging women and women with breast cancer until its sale to Daré Bioscience, Inc. Prior to joining Pear Tree, Mr. Rocamboli was Senior Managing Director and General Counsel of Paramount BioCapital and its affiliated companies between 2004 and 2007, and was Deputy General Counsel of Paramount from 1999 to 2004. During his tenure at Paramount he was also Partner at Orion Biomedical Fund. Mr. Rocamboli has served as a member of the board of directors of several public and private life sciences companies, including Foresight Biotherapeutics (sold to Shire Pharmaceuticals in 2015) and currently serves as a member of the board of directors of two privately held life sciences companies in New York. Mr. Rocamboli received his B.A. degree from The State University of New York at Albany and his J.D. from Fordham University School of Law.

We believe that Mr. Rocamboli’s significant experience and knowledge of the pharmaceutical industry as a counsel and entrepreneur, and his service on other corporate boards bring valuable knowledge and insights to our Board.

Dr. Weisman has served as a member of our Board since December 2018. Dr. Weismann has been Managing Director of And -One Consulting, LLC, since 2012, advising medical product companies, investment firms, and government and non -government healthcare organizations in formulating and implementing strategies for driving innovation in healthcare products and services. Since 2014, Dr. Weisman has also served as Executive Chairman of the Board of 3DBio Therapeutics, a company using 3D bioprinting technology to develop whole tissue implants that fully integrate into body.  Since February 2016, Dr. Weisman has also served as co -founder and Chief Scientific Officer

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for Mycrobiomics, a company developing counseling and educational material to help consumers to understand the microbiome and improve their health and well -being . Between December 2012 and December 2013, Dr. Weisman was Chairman and Chief Executive Officer of Coronado Biosciences, a biopharmaceutical company developing novel immunotherapies for autoimmune diseases and cancer. Since 2012, Dr. Weisman has been on the Board of Directors of ControlRad, Inc, a medical device company developing technology to reduce radiation exposure during fluoroscopic procedures. Dr. Weisman also serves on the Board of Directors of Caelum Biosciences, Inc. Since 2012, Dr. Weisman has also been a senior advisor to CRG, an investment management firm making structured debt and equity investments in healthcare companies. Since 2016, Dr. Weisman has been a venture advisor to the Israel Biotech Fund, which invests and develops clinical -stage biotechnology companies based in Israel. From 2010 to 2016, Dr. Weisman served on the Board of Governors of the Patient Centered Outcomes Research Institute, established by the U.S. Congress as part of the Patient Protection and Affordable Care Act of 2010. Dr. Weisman was the Chief Science and Technology Officer of the Johnson & Johnson Medical Devices and Diagnostics Group from 2006 to 2012, and served as Chairman of the J&J Worldwide R&D Council. Dr. Weisman was Company Group Chairman, J&J Pharmaceutical Research & Development, from 2004 to 2006.

We believe that Dr. Weismann’s significant education and experience in the field of healthcare bring valuable knowledge and insights to our Board.

Mr. Thurman has served as a member of our Board since April 2019. Mr. Thurman has been a senior advisor and operating partner for private equity funds since 2008, having co -led nearly $2 billion in acquisitions, debt transactions and equity investments in life sciences, industrial, IT and service companies in the United States and Europe. He currently serves as Senior Advisor for BC Partners and is an Adjunct Professor — Finance at Merrimack College Graduate School. Between 2000 and 2007, Mr. Thurman was the founder, Chair and Chief Executive Officer of Viasys Healthcare, Inc., which was a diversified, research -based medical technology company with global revenue over $700 million. Mr. Thurman led Viasys Healthcare, Inc. through a successful initial public offering until its acquisition by Cardinal Health in 2007. Prior to that, he served as Chairman of the Board and Chief Executive Officer of Corning Life Sciences Inc. and President, Chief Executive Officer and Director of Rhone -Poulenc Rorer Pharmaceuticals Inc. (now Aventis). In 2007, Mr. Thurman was named an Entrepreneur of the Year by Ernst & Young. Mr. Thurman served as a fighter pilot in the United States Air Force and Air National Guard from 1971 to 1992. Mr. Thurman received his B.A. degree in Economics from Virginia Polytechnic Institute, earned an M.A. in management from Webster University and is a graduate of the USAF Air Command and Staff Leadership College.

We believe that Mr. Thurman’s significant experience as chief executive officer and director of pharmaceutical companies bring valuable knowledge and insights to our Board.

Board Composition

Our Board may establish the authorized number of directors from time to time by resolution. Our Board currently consists of seven members, six of whom qualify as independent under the NASDAQ Stock Market rules.

Generally, under the listing requirements and rules of the NASDAQ Stock Market, independent directors must comprise a majority of a listed company’s board of directors within one year of the completion of this offering. Our Board has determined that none of our directors other than Glenn Mattes has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each is “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing requirements and rules of the NASDAQ Stock Market. In making this determination, our Board considered the current and prior relationships our Board members have with our company and all other facts and circumstances our Board deemed relevant in determining their independence, including their beneficial ownership of our capital stock. With regard to Robert Mills, our Board determined that Mr. Mills is independent notwithstanding his service as an officer of our company from January 2018 to December 2018 based on NASDAQ guidelines that allow for an independent director’s past service as an executive officer provided such service was an interim arrangement lasting less than one year.

Role of the Board in Risk Oversight

One of the key functions of our Board is informed oversight of our risk management process. Our Board does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through various standing committees of our Board that address risks inherent in their respective areas of oversight. In particular, our Board is responsible for monitoring and assessing strategic risk

49

exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee also monitors compliance with legal and regulatory requirements.

Board Committees

Our Board has established an audit committee, compensation committee and nominating and corporate governance committee, each of which operate pursuant to a committee charter. Our Board may establish other committees to facilitate the management of our business. The composition and functions of each committee are described below.

Audit Committee

Our audit committee consists of Aaron Fletcher, Stephen C. Rocamboli and Randy Thurman. Our Board has determined that each of these individuals meets the independence requirements of the Sarbanes -Oxley Act of 2002, as amended, or the Sarbanes -Oxley Act, Rule 10A -3 under the Exchange Act and the applicable listing standards of NASDAQ. Each member of our audit committee can read and understand fundamental financial statements in accordance with NASDAQ audit committee requirements. In arriving at this determination, the Board has examined each audit committee member’s scope of experience and the nature of their prior and/or current employment.

Our Board has determined that Mr. Thurman qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the NASDAQ Listing Rules.

The functions of this committee include, among other things:

•         select a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;

•         discuss the scope and results of the audit with the independent registered public accounting firm, and review, with management and the independent registered public accounting firm, our interim and year -end operating results;

•         reviewing and approving the engagement of our independent auditors to perform audit services and any permissible non -audit services;

•         develop procedures for employees to submit concerns anonymously about questionable accounting or audit matters;

•         review our policies on risk assessment and risk management;

•         review related -party transactions; and

•         reviewing and evaluating on an annual basis the performance of the audit committee and the audit committee charter.

We believe that the composition and functioning of our audit committee will comply with all applicable requirements of the Sarbanes -Oxley Act, and all applicable SEC and NASDAQ rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Compensation Committee

Our compensation committee consists of Brian Windsor, Stephen C. Rocamboli and Harlan Weisman. These individuals are non -employee directors, as defined in Rule 16b -3 promulgated under the Exchange Act, and are “outside directors,” as defined pursuant to Section 162(m) of the Internal Revenue Code. Our Board has determined that all of these individuals are “independent” as defined under the applicable listing standards of NASDAQ, including the standards specific to members of a compensation committee. The functions of this committee include, among other things:

•         reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full Board regarding) our overall compensation strategy and policies;

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•         making recommendations to the full Board regarding the compensation and other terms of employment of our executive officers;

•         reviewing and approving (or if it deems it appropriate, making recommendations to the full Board regarding) the equity incentive plans, compensation plans and similar programs advisable for us, as well as modifying, amending or terminating existing plans and programs;

•         administering our equity incentive plans;

•         establishing policies with respect to equity compensation arrangements; and

•         reviewing and evaluating on an annual basis the performance of the compensation committee and the compensation committee charter.

We believe that the composition and functioning of our compensation committee complies with all applicable requirements of the Sarbanes -Oxley Act, and all applicable SEC and NASDAQ rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee consists of Aaron Fletcher, Robert Mills and Harlan Weisman. The composition of our nominating and corporate governance committee meets the requirements for independence under the applicable listing standards of NASDAQ and SEC rules and regulations. Our nominating and corporate governance committee will, among other things:

•         identify, evaluate and make recommendations to our board of directors regarding nominees for election to our board of directors and its committees;

•         evaluate the performance of our board of directors and of individual directors;

•         consider and make recommendations to our board of directors regarding the composition of our board of directors and its committees;

•         review developments in corporate governance practices;

•         evaluate the adequacy of our corporate governance practices and reporting; and

•         develop and make recommendations to our board of directors regarding corporate governance guidelines and matters.

The nominating and corporate governance committee operates under a written charter that satisfies the applicable listing requirements and rules of the Nasdaq Stock Market.

Compensation Committee Interlocks and Insider Participation

None of our independent directors is currently or has been at any time one of our officers or employees, other than Robert Mills, who served as our Executive Chairman of the Board from January 2018 to December 2018 and also served as our President and Chief Executive Officer from January 2018 to May 1, 2018. None of our executive officers currently serves, or has served during the last year, as a member of the Board or compensation committee of any entity that has one or more executive officers serving as a member of our Board.

Code of Business Conduct and Ethics

We intend to adopt a Code of Business Conduct and Ethics, or the Code of Conduct, applicable to all of our employees, executive officers and directors. Once adopted, the Code of Conduct will be available on our website at www.tffpharma.com. The audit committee of our Board of directors will be responsible for overseeing the Code of Conduct and must approve any waivers of the Code of Conduct for employees, executive officers and directors. In addition, we intend to post on our website all disclosures that are required by law or the listing standards of the applicable stock exchange concerning any amendments to, or waivers from, any provision of the Code of Conduct.

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Executive Compensation

We have entered into the following agreements and arrangements with our executive officers.

Glenn Mattes

We entered into an agreement with Mr. Mattes dated April 23, 2018. Pursuant to that agreement, Mr. Mattes serves as our President and Chief Executive Officer. The agreement contains customary provisions relating to intellectual property assignment, confidentiality and indemnification. We have agreed to pay Mr. Mattes at the rate of $25,000 per month under the agreement. Mr. Mattes was also eligible to receive a bonus of up to $150,000 for calendar year 2018, based on performance parameters set by our Board. Mr. Mattes received his full $150,000 bonus for 2018.

We have also entered into an executive employment agreement dated December 20, 2018 with Mr. Mattes, which will become effective, and replace and supersede the April 2018 agreement, upon the close of this offering. Pursuant to Mr. Mattes’ executive employment agreement, he will continue to serve as our President and Chief Executive Officer. We have agreed to pay Mr. Mattes at the rate of $33,333 per month under the agreement, commencing upon the close of this offering. Mr. Mattes is also eligible to receive a bonus of up to 50% of his base salary, commencing with calendar year 2019, based on performance parameters set by our Board, and is also eligible for participation in our incentive compensation plans. Mr. Mattes’ executive employment agreement entitles him to reasonable and customary health insurance and other benefits, at our expense, and a severance payment in the amount of 12 months of his base salary in the event of his termination by us without cause or his resignation for good reason, as such terms are defined in the executive employment agreement. Mr. Mattes’ executive employment agreement is an “at will” agreement subject to termination by either party at any time and for any reason. The agreement contains customary provisions relating to intellectual property assignment, confidentiality and indemnification.

In the first half of 2018, we granted Mr. Mattes options to purchase up to 200,000 shares of our common stock at an exercise price of $2.50 per share. The options vested and became exercisable on May 1, 2019. On September 26, 2018, we granted Mr. Mattes options to purchase up to an additional 413,023 shares of our common stock at an exercise price of $2.50 per share. Those options vest and first become exercisable as to 103,255 shares on the first anniversary of the date of grant, with the remaining 309,768 shares vesting in 12 equal quarterly installments; provided that the vesting of the option shares will accelerate and those options held by Mr. Mattes will become fully vested upon a Change in Control, as defined in our 2018 Plan. In addition, we have agreed to grant Mr. Mattes, upon the close of this offering, stock options that will increase his beneficial ownership of our common stock, on a fully diluted basis after giving effect to the close of this offering and the conversion of our Series A preferred stock, to 5% of our then outstanding common stock. The exercise price of those options shall be equal to the price per share in this offering.

Kirk Coleman

From January 2018 to February 2019, Mr. Coleman was compensated for his services as our chief financial officer at the hourly rate of $150 per hour. Effective as of February 15, 2019, we entered into an employment agreement with Mr. Coleman pursuant to which we have agreed to pay Mr. Coleman at the rate of $16,666 per month. Mr. Coleman is eligible to receive a bonus of up to 30% of his base salary, commencing with calendar year 2019, based on performance parameters set by our Board, and is also eligible for participation in our incentive compensation plans. Mr. Coleman’s employment agreement entitles him to reasonable and customary health insurance and other benefits, at our expense. Mr. Coleman’s employment agreement is an “at will” agreement subject to termination by either party at any time and for any reason. The agreement contains customary provisions relating to intellectual property assignment, confidentiality and indemnification. In connection with his employment agreement, we also granted Mr. Coleman options to purchase up to 150,000 shares of our common stock at an exercise price of $2.50 per share. The options vest and first become exercisable as to 37,500 shares on the first anniversary of the date of grant, with the remaining 112,500 options vesting thereafter in 12 equal quarterly installments. In addition, we have agreed to grant Mr. Coleman, upon the close of this offering, stock options that will increase his beneficial ownership of our common stock, on a fully diluted basis after giving effect to the close of this offering and the conversion of our Series A preferred stock, to 1.22% of our then outstanding common stock. The exercise price of those options shall be equal to the price per share in this offering.

52

Non-Employee Director Compensation

We have agreed to compensate each of our non -employee directors as follows:

Aaron Fletcher

An entity affiliated with Dr. Fletcher receives a fee of $8,750 per quarter for his service as a director, along with an additional $1,250 per quarter for his serving as chairman of any committee of the Board. In the event we ask Dr. Fletcher to provide to us consulting services unrelated to his Board service, we have agreed to compensate the affiliated entity at the rate of $500 per hour. We also granted a warrant to purchase up to 10,000 shares of our common stock to the entity affiliated with Dr. Fletcher. The warrant has an exercise price of $2.50 per share. The warrant vested and became exercisable one year after the date of grant. On September 26, 2018, we granted the entity affiliated with Dr. Fletcher a warrant to purchase up to an additional 82,012 shares of our common stock at an exercise price of $2.50 per share. That warrant vests and first becomes exercisable as to 20,503 shares on the first anniversary of the date of grant, with the remaining 61,509 shares vesting in 12 equal quarterly installments; provided that the vesting of the warrant shares will accelerate and the warrant will become fully vested, upon a Change in Control, as defined in our 2018 Plan. We have also agreed to grant to Dr. Fletcher’s affiliated entity, upon the close of this offering, additional warrants that will increase its beneficial ownership of our common stock, on a fully diluted basis after giving effect to the close of this offering and the conversion of our Series A preferred stock, to 0.75% of our then outstanding common stock. The exercise price of those warrants shall be equal to the price per share in this offering.

Robert Mills

We have entered into a consulting agreement with Mr. Mills dated February 10, 2018, as amended and restated on December 20, 2018. Pursuant to that agreement, Mr. Mills served as our Executive Chairman of the Board from January 2018 to December 2018 and, from February 2018 to April 2018, served as our interim President and Chief Executive Officer. Pursuant to the agreement, Mr. Mills was compensated at the rate of $25,000 per month from February 10, 2018 through July 8, 2018, and at the rate of $12,500 per month from July 8, 2018 to December 20, 2018. Commencing December 20, 2018, Mr. Mills serves as a consultant to our company on matters relating to the manufacturing and commercialization of our product candidates and such other matters as we may request from time to time, for which Mr. Mills shall receive consulting fees at the rate of $25,000 per calendar quarter. Mr. Mills is also entitled to receive a fee of $8,750 per quarter for his service as a director. Mr. Mills’ agreement with us is coterminus with his service on our Board; however, the agreement may be terminated by either party, with or without cause, on 180 day’s prior written notice. The agreement contains customary provisions relating to intellectual property assignment, confidentiality and indemnification.

In April 2018, we granted Mr. Mills options to purchase up to 40,000 shares of our common stock at an exercise price of $2.50 per share. The options vested and became exercisable one year after the date of grant. On September 26, 2018, we granted Mr. Mills options to purchase up to an additional 144,023 shares of our common stock at an exercise price of $2.50 per share. Those options vest and first become exercisable as to 36,006 shares on the first anniversary of the date of grant, with the remaining 108,017 shares vesting in 12 equal quarterly installments; provided that the vesting of the option shares will accelerate and those options held by Mr. Mills will become fully vested upon a Change in Control, as defined in our 2018 Plan. In addition, we have agreed to grant Mr. Mills, upon the close of this offering, stock options that will increase his beneficial ownership of our common stock, on a fully diluted basis after giving effect to the close of this offering and the conversion of our Series A preferred stock, to 1.0% of our then outstanding common stock. The exercise price of those options shall be equal to the price per share in this offering.

Brian Windsor

Dr. Windsor receives a fee of $8,750 per quarter for his service as a director, along with an additional $1,250 per quarter for serving as chairman of any committee of the Board. In April 2018, we granted Dr. Windsor options to purchase up to 20,000 shares of our common stock at an exercise price of $2.50 per share. The options vested and became exercisable one year after the date of grant. On September 26, 2018, we granted Dr. Windsor options to purchase up to an additional 72,012 shares of our common stock at an exercise price of $2.50 per share. Those options vest and first become exercisable as to 18,003 shares on the first anniversary of the date of grant, with the remaining 54,009 shares vesting in 12 equal quarterly installments; provided that the vesting of the option shares will accelerate and those options held by Dr. Windsor will become fully vested, upon a Change in Control, as defined in our 2018

53

Plan. In addition, we have agreed to grant Dr. Windsor, upon the close of this offering, options, restricted common stock or restricted stock units that will increase his beneficial ownership of our common stock, on a fully diluted basis after giving effect to the close of this offering and the conversion of our Series A preferred stock, to 0.75% of our then outstanding common stock. The exercise price of those options shall be equal to the price per share in this offering.

In addition to his compensation for services as a member of our Board, we have entered into a Consulting Agreement with Dr. Windsor dated February 12, 2018, as amended. Pursuant to that agreement, Dr. Windsor provides to us consulting services in the area of science and technology and is currently compensated at the rate of $115,000 per year; however, commencing upon the close of this offering Dr. Windsor will be compensated at the rate of $65,000 per year. The agreement has a term of five years; however, we may terminate the agreement for any reason on 180 days prior written notice.

Stephen C. Rocamboli, Dr. Harlan Weisman and R andy Thurman

Dr. Weisman and Mr. Thurman receive a fee of $8,750 per quarter for their service as directors, along with an additional $1,250 per quarter for serving as chairman of any committee of the Board. Mr. Rocamboli does not receive cash compensation for his services as a director. In connection with their appointment to our Board, we granted to each of Mr. Rocamboli, Mr. Thurman and Dr. Weisman options to purchase up to 92,012 shares of our common stock at an exercise price of $2.50 per share. Those options vest and first become exercisable as to 23,003 shares on the first anniversary of the date of grant, with the remaining 69,009 shares vesting in 12 equal quarterly installments; provided, that the vesting of the options will accelerate and become fully vested upon a Change in Control, as defined in our 2018 Plan. We have also agreed to grant to Mr. Rocamboli, Mr. Thurman and Dr. Weisman, upon the close of this offering, additional options that will increase each of their beneficial ownership of our common stock, on a fully diluted basis after giving effect to the close of this offering and the conversion of our Series A preferred stock, to 0.75% of our then outstanding common stock. The exercise price of those options shall be equal to the price per share in this offering.

In addition to Dr. Weisman’s compensation for services as a member of our Board, we have entered into a consulting agreement with an entity affiliated with Dr. Weisman dated September 2018. Pursuant to that agreement, Dr. Weisman provides to us consulting services in the area of regulatory affairs and is currently compensated at the rate of $750 per hour. We do not expect to compensate Dr. Weisman in excess of $120,000 in any calendar year pursuant to this agreement. The agreement may be terminated by us for any reason upon thirty days advance written notice.

In the event any other non -employee director is appointed to our Board, we expect such director to be compensated on terms similar to our other non -employee directors.

Related Party Transactions

We were incorporated under the laws of the state of Delaware on January 24, 2018 by LTI. In March 2018, we completed a Series A preferred stock financing with third -party investors, at which time we acquired certain of LTI’s non -core intellectual property rights and other assets all of which related to our TFF platform, in exchange for 4,000,000 shares of our common stock. LTI is an early -stage company focused on the development of certain technologies in the pulmonary field. LTI currently provides us with office space and certain administrative services and equipment for no charge, from time to time on an as -needed basis, and three of our directors, Aaron Fletcher, Robert Mills and Brian Windsor, are members of the board of directors of LTI. Except as described above, since January 24, 2018, we have not been a party to any transaction in which the amount involved in the transaction exceeded $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our voting securities or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than compensation arrangements, which include equity and other compensation, termination, change in control and other arrangements, which are described under “Executive Compensation.”

Limitation of Liability of Directors and Indemnification of Directors and Officers

The Delaware General Corporation Law provides that corporations may include a provision in their certificate of incorporation relieving directors of monetary liability for breach of their fiduciary duty as directors, provided that such provision shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payment of a dividend or unlawful stock purchase or redemption, or (iv)

54

for any transaction from which the director derived an improper personal benefit. Our second amended and restated certificate of incorporation provides that directors are not liable to us or our stockholders for monetary damages for breach of their fiduciary duty as directors to the fullest extent permitted by Delaware law. In addition to the foregoing, our second amended and restated certificate of incorporation provides that we may indemnify directors and officers to the fullest extent permitted by law.

The above provisions in our second amended and restated certificate of incorporation may have the effect of reducing the likelihood of derivative litigation against directors and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their fiduciary duty, even though such an action, if successful, might otherwise have benefited us and our stockholders. However, we believe that the foregoing provisions are necessary to attract and retain qualified persons as directors.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

55

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial ownership of our common stock as of the date of this prospectus by:

•         each person who is known by us to be the beneficial owner of more than five percent (5%) of our issued and outstanding shares of common stock;

•         each of our directors and executive officers; and

•         all directors and executive officers as a group.

The beneficial ownership of each person was calculated based on 13,425,436 shares of common stock issued and outstanding prior to the offering, including 4,000,000 shares issued and outstanding as of the date of this prospectus, and 9,425,436 shares issuable upon the conversion of our Series A Preferred stock outstanding as of June 30, 2019. The SEC has defined “beneficial ownership” to mean more than ownership in the usual sense. For example, a person has beneficial ownership of a share not only if he owns it, but also if he has the power (solely or shared) to vote, sell or otherwise dispose of the share. Beneficial ownership also includes the number of shares that a person has the right to acquire within 60 days of the date of this prospectus, pursuant to the exercise of options or warrants or the conversion of notes, debentures or other indebtedness. Two or more persons might count as beneficial owners of the same share. Unless otherwise indicated, the address for each reporting person is c/o TFF Pharmaceuticals, Inc., 2600 Via Fortuna, Suite 360, Austin, Texas 78746.

Name of Director, Executive Officer or Director Nominee

 

Number of Shares

 

Percentage Owned Prior to Offering

 

Percentage Owned After Offering

Glenn Mattes (1)

 

303,255

 

2.2

%

 

1.7

%

Kirk Coleman (2)

 

 

 

 

 

Aaron Fletcher ( 3 )

 

73,627

 

*

 

 

*

 

Robert S. Mills, Jr. ( 4 )

 

86,787

 

*

 

 

*

 

Brian Windsor ( 5 )

 

38,003

 

*

 

 

*

 

Stephen C. Rocamboli ( 6 )

 

23,003

 

*

 

 

*

 

Harlan Weisman ( 6 )

 

23,003

 

*

 

 

*

 

Randy Thurman ( 7 )

 

 

 

 

 

Directors, executive officers and director nominees, as a group

 

547,676

 

3.9

%

 

3.0

%

____________

*        Less than 1%.

Name and Address of 5% + Holders

 

Number of Shares

 

Percentage Owned Prior to Offering

 

Percentage Owned After Offering

Lung Therapeutics, Inc.

2600 Via Fortuna,
Suite 360 Austin, TX 78746

 

4,000,000

 

29.8%

 

22.4%

             

Maestro Venture Partners, LLC ( 8 )

10 Orinda View Road
Orinda, CA 94563

 

1,293,699

 

9.6%

 

7.3%

____________

(1)      Includes 303,255 shares of common stock issuable upon exercise of stock options. Excludes 634,926 shares of common stock issuable upon exercise of unvested stock options, including approximately 325,158 shares of common stock issuable upon exercise of options awarded upon the closing of this offering.

(2)      Excludes 220,156 shares of common stock issuable upon exercise of unvested stock options, including approximately 70,156 shares of common stock issuable upon exercise of options awarded upon the closing of this offering.

(3)     Includes (i) 43,124 shares of common stock issuable upon conversion of 40,000 shares of our Series A preferred stock and (ii) 30,503 shares of common stock issuable upon exercise of warrants held by an entity affiliated with Dr. Fletcher. Excludes 82,012 shares of common stock issuable upon exercise of unvested warrants held by Dr. Fletcher’s affiliated entity.

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(4)      Includes (i) 10,781 shares of common stock issuable upon conversion of 10,000 shares of Series A preferred stock and (ii) 76,006 shares issuable upon exercise of stock options. Excludes 108,017 shares of common stock issuable upon exercise of unvested stock options.

(5)      Includes 38,003 shares of common stock issuable upon exercise of stock options. Excludes 96,698 shares of common stock issuable upon exercise of unvested stock options, including approximately 42,689 shares of common stock issuable upon exercise of options awarded upon the closing of this offering.

(6)      Includes 23,003 shares of common stock issuable upon exercise of stock options. Excludes 111,698 shares of common stock issuable upon exercise of unvested stock options, including approximately 42,689 shares of common stock issuable upon exercise of options awarded upon the closing of this offering.

(7)      Excludes 134,701 shares of common stock issuable upon exercise of unvested stock options, including approximately 42,689 shares of common stock issuable upon exercise of options awarded upon the closing of this offering.

(8)      Represents 1,293,699 shares of common stock issuable upon conversion of 1,200,000 shares of Series A preferred stock. Emily Fairbairn is the managing partner of Maestro Venture Partners, LLC.

57

ESTIMATED USE OF PROCEEDS

We estimate that the net proceeds from our issuance and sale of 4,400,000 shares of our common stock in this offering will be approximately $19.3 million (or $22.3 million if the underwriters exercise in full their option to purchase additional shares), at an initial public offering price of $5.00 per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

As of June 30, 2019, we had cash and cash equivalents of $13.6 million. We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, as follows:

•         approximately $10.5 million to fund TFF Vori, including approximately $1.4 million on pre -clinical development, analysis and preparation, $2.7 million on the manufacturing of cGMP batches for clinical trials and $6.4 million for Phase I and Phase II studies;

•         approximately $14.9 million to fund TFF Tac -Lac , including approximately $2.1 million on pre -clinical development, analysis and preparation, $3.0 million on the manufacturing of cGMP batches for clinical trials and $9.8 million for Phase I and Phase IIb/IIIa studies; and

•         the balance for other general corporate purposes, including general and administrative expenses, additional product development and working capital.

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with complete certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the actual amounts that we will spend on the uses set forth above. We believe opportunities may exist from time to time to expand our current business through the acquisition or in -license of complementary product candidates. While we have no current agreements for any specific acquisitions or in -licenses at this time, we may use a portion of the net proceeds for these purposes.

The amounts and timing of our actual expenditures will depend on numerous factors, including the progress of our clinical trials and other development and commercialization efforts for our initial product candidates, as well as the amount of cash used in our operations. Based on our current operational plans and assumptions, we expect our cash and cash equivalents, together with the net proceeds from this offering, will be sufficient to fund the development of our two initial product candidates, TFF Vori and TFF Tac -Lac , through the completion of their proposed Phase II studies described in this prospectus.

However, we cannot estimate with certainty the amount of net proceeds to be used for the purposes described above. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application of the net proceeds. Pending the uses described above, we plan to invest the net proceeds from this offering in short -and intermediate -term , interest -bearing obligations, investment -grade instruments, certificates of deposit or direct or guaranteed obligations of the government.

58

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2019:

•         on an actual basis;

•         on a pro forma basis to give effect to the automatic conversion of all outstanding shares of our Series A preferred stock into an aggregate of 9,425,436 shares of common stock, which will occur upon the closing of this offering; and

•         on a pro forma as adjusted basis to reflect, in addition, our sale of 4,400,000 shares of common stock in this offering at the initial public offering price of $5.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read the information in this table together with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

 

As of June 30, 2019
(in thousands)

   

Actual

 

Pro Forma

 

Pro Forma As Adjusted

Cash and cash equivalents

 

$

13,632

 

 

$

13,632

 

 

$

32,932

 

Series A preferred stock; $0.001 par value, 6,000,000 shares authorized, 5,662,000 shares issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

 

 

19,694

 

 

 

 

 

 

 

Stockholders’ (deficit) equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 45,000,000 shares authorized, 4,000,000 shares issued and outstanding, actual; 13,425,436 shares issued and outstanding, pro forma; 17,825,436 shares issued and outstanding, pro forma as adjusted

 

 

4

 

 

 

13

 

 

 

35

 

Additional paid-in capital

 

 

694

 

 

 

20,379

 

 

 

39,679

 

Accumulated deficit

 

 

(8,212

)

 

 

(8,212

)

 

 

(8,212

)

Total stockholders’ (deficit) equity

 

 

(7,514

)

 

 

12,180

 

 

 

31,470

 

Total capitalization

 

$

12,180

 

 

$

12,180

 

 

$

31,502

 

The number of shares of our common stock to be outstanding after this offering is based on 4,000,000 shares of our common stock outstanding as of the date of this prospectus, plus 9,425,436 shares common stock issuable upon conversion of our Series A preferred stock as of June 30, 2019, and excludes:

•         1,333,594 shares of our common stock issuable upon exercise of outstanding options as of June 30, 2019, with a weighted average exercise price of $2.51 per share, granted pursuant to our 2018 Plan;

•         approximately 1,434,556 shares of our common stock issuable upon exercise of outstanding warrants, with an average weighted exercise price of $1.81 per share as of June 30, 2019, which includes an estimated 942,544 shares of our common stock issuable upon exercise of a warrant issued to the underwriter as placement agent compensation in connection with the offering of our Series A preferred stock;

•         up to 660,000 shares of our common stock issuable pursuant to the underwriter’s over -allotment option;

•         440,000 shares of our common stock issuable upon exercise of a warrant to be issued to the underwriter as part of its compensation in connection with this offering (up to 506,000 shares if the overallotment option is exercised) at an exercise price of 6.00 per share; and

•         296,406 shares of our common stock reserved for future grants under our 2018 Plan as of June 30, 2019; however, upon completion of this offering the number of shares reserved for issuance under the 2018 Plan shall increase to 15% of our then outstanding shares of common stock calculated on a fully diluted basis.

59

DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering.

As of June 30, 2019, our pro forma net tangible book value was approximately $13.4 million, or $0.99 per share of common stock. Our pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of June 30, 2019, after giving effect to the automatic conversion of all outstanding shares of our Series A preferred stock into common stock immediately prior to the closing of this offering.

After giving effect to our sale in this offering of 4,400,000 shares of our common stock, at the initial public offering price of $5.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2019 would have been approximately $32.7 million, or $1.83 per share of our common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.84 per share to our existing stockholders and an immediate dilution of $3.17 per share to investors purchasing shares in this offering.

The following table illustrates this dilution:

Initial public offering price per share

 

 

   

$

5.00

Pro forma net tangible book value per share as of June 30, 2019, before giving effect to this offering

 

$

0.99

 

 

 

Increase in pro forma net tangible book value per share attributable to new investors purchasing shares in this offering

 

 

0.84

 

 

 

Pro forma as adjusted net tangible book value per share, after giving effect to this offering

 

 

   

$

1.83

Dilution per share to new investors purchasing shares in this offering

 

 

   

$

3.17

If the underwriters exercise their option to purchase additional shares of our common stock in full, the pro forma as adjusted net tangible book value after this offering would be $1.93 per share, the increase in pro forma net tangible book value per share would be $0.94 and the dilution per share to new investors would be $3.07 per share, in each case assuming an initial public offering price of $5.00 per share.

The following table summarizes, on a pro forma as adjusted basis as described above, the difference between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid, before deducting underwriting discounts and commissions and estimated offering expenses:

 

Shares Purchased

 

Total Consideration

 

Average Price Per Share

   

Number

 

Percent

 

Amount

 

Percent

 

Existing stockholders

 

13,425,436

 

75

%

 

$

22,325,000

 

50

%

 

$

1.66

New public investors

 

4,400,000

 

25

%

 

 

22,000,000

 

50

%

 

$

5.00

Total

 

17,825,436

 

100.0

%

 

$

44,325,000

 

100.0

%

 

 

 

To the extent that our outstanding options and warrants are exercised, investors will experience further dilution.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriter’s over -allotment option. If the underwriter exercises its over -allotment option in full, our existing stockholders would own 72.6% and our new investors would own 27.4% of the total number of shares of our common stock outstanding upon the completion of this offering.

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The foregoing tables and calculations are based on the number of shares of our common stock outstanding as of June 30, 2019, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into common stock immediately prior to the closing of this offering, and excludes:

•         1,333,594 shares of our common stock issuable upon exercise of outstanding options as of June 30, 2019, with a weighted average exercise price of $2.51 per share, granted pursuant to our 2018 Plan;

•         approximately 1,434,556 shares of our common stock issuable upon exercise of outstanding warrants, with an average weighted exercise price of $1.81 per share, which includes an estimated 942,544 shares of our common stock issuable upon exercise of a warrant issued to the underwriter as placement agent compensation in connection with the offering of our Series A preferred stock;

•         up to 660,000 shares of our common stock issuable pursuant to the underwriter’s over -allotment option;

•         440,000 shares of our common stock issuable upon exercise of a warrant to be issued to the underwriter as part of its compensation in connection with this offering (up to 506,000 shares if the overallotment option is exercised) at an exercise price of 6.00 per share; and

•         296,406 shares of our common stock reserved for future grants under our 2018 Plan as of June 30, 2019; however, upon completion of this offering the number of shares reserved for issuance under the plan shall increase to 15% of our then outstanding shares of common stock calculated on a fully diluted basis.

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DESCRIPTION OF SECURITIES

Common Stock

Our second amended and restated certificate of incorporation authorizes us to issue up to 45,000,000 shares of common stock, $0.001 par value per share. As of June 30, 2019, we had 4,000,000 shares of common stock outstanding, held by one stockholder of record. As of June 30, 2019, after giving effect to the conversion of all of the outstanding shares of our Series A preferred stock into 9,425,436 shares of common stock, there would have been 13,425,436 shares of common stock issued and outstanding, held by 387 stockholders of record.

Holders of shares of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders generally. Stockholders are entitled to receive such dividends as may be declared from time to time by the Board out of funds legally available therefore, and in the event of liquidation, dissolution or winding up of the company to share ratably in all assets remaining after payment of liabilities. The holders of shares of common stock have no preemptive, conversion, subscription rights or cumulative voting rights.

Preferred Stock

As of the date of this prospectus, there are 8,930,000 shares of Series A preferred stock outstanding. All currently outstanding shares of preferred stock will convert automatically into 9,425,436 shares of common stock immediately prior to the closing of this offering.

Dividends

We do not anticipate the payment of cash dividends on our common stock in the foreseeable future.

2018 Stock Incentive Plan

We have adopted the TFF Pharmaceuticals, Inc. 2018 Stock Incentive Plan, or 2018 Plan, providing for the grant of non -qualified stock options and incentive stock options to purchase shares of our common stock and for the grant of restricted and unrestricted share grants and restricted stock units. We currently have reserved 1,630,000 shares of our common stock under the 2018 Plan; however, upon completion of this offering the number of shares reserved for issuance under the plan shall increase to 15% of our then outstanding shares of common stock calculated on a fully diluted basis. The purpose of the 2018 Plan is to provide eligible participants with an opportunity to acquire an ownership interest in our company. All officers, directors, employees and consultants to our company are eligible to participate under the 2018 Plan. The 2018 Plan provides that options may not be granted at an exercise price less than the fair market value of our common shares on the date of grant. As of the date of this prospectus, we have outstanding options granted under the 2018 Plan, exclusive of certain gross -up options to be granted to our chief executive officer, chief financial officer and members of the Board upon completion of this offering, to purchase an aggregate of 1,333,594 shares of our common stock with a weighted average exercise price of $2.51 per share.

Warrants

Upon the completion of this offering, we will have outstanding the following warrants to purchase shares of our common stock:

•         warrants to purchase up to 92,012 shares of our common stock exercisable at $2.50 per share. The warrants were issued in April and September 2018 to an entity affiliated with Aaron Fletcher as consideration for the services of Dr. Fletcher on our Board.

•         warrants to purchase up to 400,000 shares of our common stock exercisable at $0.01 per share. The warrants were issued in January 2018 to Liquid Patent Advisors, LLC as consideration for consulting services; and

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•         warrants issued to National Securities Corporation in March 2018 and May 2019, as placement agent compensation in connection with our March 2018 and May 2019 placements of Series A preferred stock, to purchase shares of our common stock in an amount equal to 10% of the shares of common stock issuable upon conversion of 5,662,000 and 3,268,000 shares, respectively, of our Series A preferred stock issued in such placements, at an exercise price equal to the lesser of (i) 50% of the initial public offering price or (ii) $2.50 (subject to proportional adjustment in the events of combinations, subdivisions or the like). Assuming the conversion of all of our Series A preferred stock as of June 30, 2019, the placement agent warrants would entitle the holder to purchase up to 942,544 shares of our common stock.

The warrants contain provisions for the adjustment of the exercise price and the number of shares issuable upon the exercise of the warrants in the event of certain stock dividends, stock splits, reorganizations, reclassifications and consolidations. The holders of the shares issuable upon exercise of the warrants issued to Liquid Patent Advisors, LLC and National Securities Corporation are entitled to registration rights with respect to such shares as described in greater detail under the heading “— Registration Rights” below.

Registration Rights

Following the completion of this offering, certain holders of an aggregate of 9,425,436 shares of our common stock, or their permitted transferees, are entitled to rights with respect to the registration under the Securities Act of their shares of common stock, including demand registration rights and piggyback registration rights. These rights are provided under the terms of a registration rights agreement between us and the investors. In any registration made pursuant to this agreement, all fees, costs and expenses of the registrations will be borne by us, and all selling expenses, including estimated underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.

In connection with our May 2019 Series A preferred stock financing, we entered into an amended and restated registration rights agreement, pursuant to which we will be required, upon the written request at any time more than 180 days after the completion of this offering by the holders of at least 50% of the shares that are entitled to registration rights under the registration rights agreement, to register, as soon as practicable, all or a portion of these shares for public resale. We are required to effect only one registration pursuant to this provision of the registration rights agreement. These demand registration rights terminate as to each investor when their shares subject to the registration rights agreement may be sold by the investor pursuant to Rule 144 under the Securities Act without regard to both the volume limitations for sales as provided in Rule 144.

In connection with our issuance to Liquid Patent Advisors, LLC and National Securities Corporation of warrants to purchase shares of our common stock, we entered into a registration rights agreement with Liquid Patent Advisors, LLC and National Securities Corporation pursuant to which we will be required, upon the written request at any time more than 180 days after the completion of this offering by the holders of at least 50% of the shares that are entitled to registration rights under that agreement and the registration rights agreement we entered into with the Series A preferred stock investors, as a group, to register, as soon as practicable, all or a portion of these shares for public resale. We are required to effect only one registration pursuant to this provision of the registration rights agreement. These demand registration rights terminate as to each stockholder when their shares subject to the registration rights agreement may be sold by the investor pursuant to Rule 144 under the Securities Act without regard to both the volume limitations for sales as provided in Rule 144.

In addition, the registration rights agreement contains piggyback registration rights with respect our capital stock held by these investors. These piggyback registration rights terminate with respect to each stockholder when their shares subject to the registration rights agreement may be sold by the stockholder pursuant to Rule 144 under the Securities Act without regard to both the volume limitations for sales as provided in Rule 144.

If we register any of our securities for our own account, after the completion of this offering, the holders of these shares are entitled to include their shares in the registration. Both we and the underwriters of any underwritten offering have the right to limit the number of shares registered by these holders for marketing reasons, subject to limitations set forth in the registration rights agreement with these investors.

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Anti-Takeover Effects of Certain Provisions of Delaware Law and Our Charter Documents

The following is a summary of certain provisions of Delaware law, our second amended and restated certificate of incorporation and our amended and restated bylaws in effect upon the closing of this offering. This summary does not purport to be complete and is qualified in its entirety by reference to the corporate law of Delaware and our second amended and restated certificate of incorporation and amended and restated bylaws.

Effect of Delaware Anti -Takeover Statute.     We are subject to Section 203 of the Delaware General Corporation Law, an anti -takeover law . In general, Section 203 prohibits a Delaware corporation from engaging in any business combination (as defined below) with any interested stockholder (as defined below) for a period of three years following the date that the stockholder became an interested stockholder, unless:

•         prior to that date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

•         upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares of voting stock outstanding (but not the voting stock owned by the interested stockholder) those shares owned by persons who are directors and officers and by excluding employee stock plans in which employee participants do not have the right to determine whether shares held subject to the plan will be tendered in a tender or exchange offer; or

•         on or subsequent to that date, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

Section 203 defines “business combination” to include the following:

•         any merger or consolidation involving the corporation and the interested stockholder;

•         any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;

•         subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

•         subject to limited exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or

•         the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation, or who beneficially owns 15% or more of the outstanding voting stock of the corporation at any time within a three -year period immediately prior to the date of determining whether such person is an interested stockholder, and any entity or person affiliated with or controlling or controlled by any of these entities or persons.

Our Charter Documents.     Our charter documents include provisions that may have the effect of discouraging, delaying or preventing a change in control or an unsolicited acquisition proposal that a stockholder might consider favorable, including a proposal that might result in the payment of a premium over the market price for the shares held by our stockholders . Certain of these provisions are summarized in the following paragraphs.

Exclusive Forum .    Unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers or other employees; (iii) any action asserting a claim against us or any of our directors, officers

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or other employees arising pursuant to any provision of Delaware law or our charter documents; or (iv) any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine, but excluding actions to enforce a duty or liability created by the Exchange Act. These exclusive forum provisions do not apply to claims under the Securities Act or the Exchange Act. These exclusive forums provisions, however, do provide that if no state court located in the State of Delaware has jurisdiction, the federal district court for the District of Delaware shall be the exclusive forum. A court may determine that these choice of forum provisions are unenforceable, and to the extent they are enforceable, they may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder.

Effects of authorized but unissued common stock.     One of the effects of the existence of authorized but unissued common stock may be to enable our Board to make more difficult or to discourage an attempt to obtain control of our Company by means of a merger, tender offer, proxy contest or otherwise, and thereby to protect the continuity of management . If, in the due exercise of its fiduciary obligations, the Board were to determine that a takeover proposal was not in our best interest, such shares could be issued by the Board without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover transaction by diluting the voting or other rights of the proposed acquirer or insurgent stockholder group, by putting a substantial voting block in institutional or other hands that might undertake to support the position of the incumbent Board, by effecting an acquisition that might complicate or preclude the takeover, or otherwise.

Cumulative Voting.     Our second amended and restated certificate of incorporation does not provide for cumulative voting in the election of directors, which would allow holders of less than a majority of the stock to elect some directors.

Vacancies.     Our amended and restated bylaws provide that all vacancies may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.

Special Meeting of Stockholders and Stockholder Action by Written Consent.     A special meeting of stockholders may only be called by our president, Board or such officers or other persons as our Board may designate at any time and for any purpose or purposes as shall be stated in the notice of the meeting.

Transfer Agent and Registrar

Upon the closing of this offering, the transfer agent and registrar for our common stock will be Philadelphia Stock Transfer.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for shares of our common stock . Future sales of substantial amounts of shares of common stock, including shares issued upon the exercise of outstanding warrants and options, in the public market after this offering, or the possibility of these sales occurring, could adversely affect the prevailing market price for our common stock or impair our ability to raise equity capital.

Upon the completion of this offering, a total of 17,825,436 shares of common stock will be outstanding, assuming the automatic conversion of all outstanding Series A preferred stock into shares of common stock in connection with the completion of this offering . All 4,400,000 shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriter’s over -allotment option, will be freely tradable in the public market without restriction or further registration under the Securities Act, unless these shares are held by “affiliates,” as that term is defined in Rule 144 under the Securities Act.

The remaining 13,425,436 shares of common stock will be “restricted securities,” as that term is defined in Rule 144 under the Securities Act . These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below.

Subject to the lock -up agreements described below and the provisions of Rules 144 and 701 under the Securities Act, these restricted securities will be available for sale in the public market beginning more than 180 days after the date of this prospectus.

Rule 144

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation, or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144 . If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock -up agreements described below, within any three -month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

•         1% of the number of shares of common stock then outstanding; or

•         the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been one of our affiliates during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144 . Rule 701 also permits our affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144 . However, all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701.

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Lock-Up Agreements

We, our executive officers and directors and the holders of our common stock outstanding on the date of this prospectus have entered into lock -up agreements or otherwise agreed that we and they will not, subject to limited exceptions, (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any of our securities or publicly disclose the intention to do any of the foregoing, or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any of our securities (regardless of whether any of these transactions are to be settled by the delivery of our securities, in cash or otherwise), in each case without the prior written consent of the underwriter for a period of 12 months after the date of this prospectus.

All of the shares common stock issuable upon conversion of our Series A preferred stock upon the closing of this offering are subject to lock -up agreements whereby the holder of those shares has agreed not to sell, transfer or pledge, or offering to do any of the same, directly or indirectly, any of our securities for a period of 180 days following the close of this offering. Notwithstanding the lock -up agreements, we have agreed to register for resale shares of common stock expected to be issued upon conversion of our Series A preferred stock and shares of common stock underlying certain warrants upon request.

In connection with our issuance of warrants to purchase shares of our common stock to Liquid Patent Advisors, LLC and National Securities Corporation, including the underwriter warrant to be issued to National Securities Corporation upon the completion of this offering, Liquid Patent Advisors and National Securities Corporation have agreed not to sell, transfer or pledge, or offer to do any of the same, directly or indirectly, the shares of common stock issuable upon exercise of such warrants for a period of 12 months following the close of this offering.

Registration Statements on Form S-8

We intend to file a registration statement on Form S -8 under the Securities Act to register all of the shares of common stock to be issued or reserved for issuance under our 2018 Plan. Shares covered by this registration statement will be eligible for sale in the public market, upon the expiration or release from the terms of the lock -up agreements and subject to vesting of such shares.

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UNDERWRITING

We are offering the shares of common stock described in this prospectus through the underwriter, National Securities Corporation, which is acting as lead managing underwriter of the offering.

We have agreed to enter into an underwriting agreement with the underwriter prior to the closing of this offering. Subject to the terms and conditions of the underwriting agreement, we will agree to sell to the underwriter, and the underwriter will agree to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, as it may be supplemented, shares of common stock.

The underwriter is committed to purchase all of the common shares offered by us, other than those covered by the option to purchase additional shares described below, if they purchase any shares. The underwriting agreement provides that the underwriter’s obligations to purchase shares of our common stock are subject to conditions contained in the underwriting agreement. A copy of the underwriting agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part.

We have been advised by the underwriter that the underwriter proposes to offer shares of our common stock directly to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers that are members of the Financial Industry Regulatory Authority, or FINRA. Any securities sold by the underwriter to such securities dealers will be sold at the public offering price less a selling concession not in excess of $       per share. After the public offering of the shares, the offering price and other selling terms may be changed by the underwriter.

None of our securities included in this offering may be offered or sold, directly or indirectly, nor may this prospectus and any other offering material or advertisements in connection with the offer and sales of any of our common stock, be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons who receive this prospectus are advised to inform themselves about and to observe any restrictions relating to this offering of our common stock and the distribution of this prospectus. This prospectus is neither an offer to sell nor a solicitation of any offer to buy any of our common stock included in this offering in any jurisdiction where that would not be permitted or legal.

The underwriter has advised us that it does not intend to confirm sales to any accounts over which they exercise discretionary authority.

Underwriting Discount and Expenses

The following table summarizes the underwriting discount and commission to be paid to the underwriter by us.

 

Without
Over-Allotment

 

With
Over-Allotment

Public offering price

 

$

5.00

 

$

5.00

Underwriting discount to be paid to the underwriter

 

$

2,200,000

 

$

2,530,000

Net proceeds, before other expenses

 

$

19,800,000

 

$

22,770,000

In addition to the discount set forth in the above table, we have agreed to issue to the underwriter and its designees a warrant to purchase up to 10% of the shares of common stock sold in this offering and to pay $150,000 for their counsel’s fees as well as $50,000 for certain of their accountable expenses. The terms of the underwriter’s warrant are more fully described in this section under the caption, “Underwriter Warrants.”

Over-Allotment Option

In addition to the discount set forth in the above table, we have granted to the underwriter an option, exercisable not later than 45 days after the date of this prospectus, to purchase up to an additional 660,000   shares of our common stock (up to 15% of the shares firmly committed in this offering) at the public offering price, less the underwriting discount, set forth on the cover page of this prospectus. The underwriter may exercise the option solely to cover over -allotments , if any, made in connection with this offering. If any additional shares of our common stock are purchased pursuant to the over -allotment option, the underwriter will offer these additional shares of our common stock on the same terms as those on which the other shares of common stock are being offered hereby.

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Determination of Offering Price Listing

We have applied to list our common stock on the NASDAQ Capital Market under the symbol “TFFP”. In order to meet the requirements for listing on that exchange, the underwriters have undertaken to sell a minimum number of shares to a minimum number of beneficial owners as required by that exchange.

Before this offering, there has been no public market for our common stock. There is no current market for our common stock. Our underwriter, National Securities Corporation, is not obligated to make a market in our securities, and even if it chooses to make a market, can discontinue at any time without notice. Neither we nor the underwriter can provide any assurance that an active and liquid trading market in our securities will develop or, if developed, that the market will continue.

The public offering price of the shares offered by this prospectus has been determined by negotiation between us and the underwriter. Among the factors considered in determining the public offering price of the shares were:

•         our history and our prospects;

•         the industry in which we operate;

•         our past and present operating results;

•         the previous experience of our executive officers; and

•         the general condition of the securities markets at the time of this offering.

The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of the shares. Upon the commencement of trading, the price of our shares will be subject to change as a result of market conditions and other factors, and we cannot assure you that the shares can be resold at or above the public offering price.

Underwriter Warrants

In connection with this offering, we have agreed to issue to National Securities Corporation and its designees a warrant to purchase shares of our common stock equal to 10% of the shares of common stock sold in this offering. This warrant is exercisable at $6.00 per share (120% of the price of the common stock sold in this offering), expiring five years from the effective date of this offering. The warrant and the shares of common stock underlying the warrant have been deemed compensation by FINRA and are therefore subject to a six -month lock -up pursuant to Rule 5110(g)(1) of FINRA. Additionally, National Securities Corporation has contractually agreed that it (or its permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate this warrant or the securities underlying this warrant, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of this warrant or the underlying securities for a period of twelve months from the effective date of the offering.

In connection with its role as placement agent in our offerings of Series A preferred stock, we issued to National Securities Corporation and its designees warrants to purchase shares of our common stock in an amount equal to 10% of the shares of common stock issuable upon conversion of 8,930,000 shares of our Series A preferred stock. The warrants are exercisable at $2.50 per share (equal to the lesser of (i) 50% of the price of the common stock sold in this offering or (ii) $2.50 (subject to proportional adjustment in the events of combinations, subdivisions or the like)), expiring five years from March 13, 2018, March 21, 2018, May 16, 2019 and May 23, 2019, the dates the warrants were originally issued. In addition to the lock -up provisions summarized below, the warrants and the shares of common stock underlying the warrants have been deemed compensation by FINRA and are therefore subject to a six -month lock -up pursuant to Rule 5110(g)(1) of FINRA. National Securities Corporation (or permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate the warrants or the underlying common shares, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying common shares for a period of six months from the effective date of the offering.

Pursuant to our engagement agreement with Liquid Patent Advisors, LLC, on January 24, 2018, we issued to Liquid Patent Advisors, LLC warrants to purchase up to 400,000 shares of our common stock, exercisable at $0.01 per share, expiring after a term of five years. The warrants were issued in consideration of Liquid Patent Advisors, LLC’s provision of consulting services. The warrants provide its holders with certain registration and piggyback registration

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rights. The warrants also contain provisions for the adjustment of the exercise price and the number of shares issuable upon the exercise of the warrants in the event of certain stock dividends, stock splits, reorganizations, reclassifications, and consolidations. The principals of Liquid Patent Advisors, LLC hold investment banking positions with National Securities Corporation. The principals of Liquid Patent Advisors, LLC conduct their investment banking activities at National Securities Corporation under the fictitious business name “Liquid Venture Partners”. Liquid Venture Partners is not a broker -dealer and will not participate in this offering. While the principals of Liquid Venture Partners will receive from National Securities Corporation a portion of the underwriting compensation, Liquid Venture Partners will not receive any other compensation or reimbursement of expenses in connection with this offering, directly or indirectly, from us or National Securities Corporation.

Lock-Up Agreements

In connection with our issuance of warrants to purchase shares of our common stock to Liquid Patent Advisors, LLC and National Securities Corporation, including the underwriter warrant to be issued to National Securities upon the completion of this offering, Liquid Patent Advisors and National Securities Corporation have agreed not to sell, transfer or pledge, or offering to do any of the same, directly or indirectly, the shares of common stock issuable upon exercise of such warrants for a period of 12 months following the close of this offering. We, all of our directors and officers and our former parent, LTI, have agreed in connection with the present offering, that, without the prior written consent of National Securities Corporation, not to sell, transfer, pledge, lend or offer to do any of the same, directly or indirectly, any of our securities for a period of 12 months following the close of this offering. The holders of all of our other securities convertible into our common stock outstanding immediately prior to this offering have agreed in connection with the present offering, that, without the prior written consent of National Securities Corporation, not to sell, transfer or pledge, or offer to do any of the same, directly or indirectly, any of our securities for a period of 180 days following the close of this offering.

The number of shares of common stock outstanding upon the completion of this offering subject to the 180 -day lock -up totals 9,371,533 shares, representing all shares of common stock issuable upon conversion of our Series A preferred stock other than 53,903 shares issuable to members of our Board, which are subject to a 12 month lock -up . The number of shares underlying options, warrants and restricted stock units subject to the 180 -day lock -up totals 18,500 shares.

Other than in respect of the warrants issued or to be issued to Liquid Patent Advisors, LLC and National Securities Corporation, the underwriter may consent to an early release from the lock -up period if, in its opinion, the market for the common stock would not be adversely impacted by sales and in cases of a financial emergency of an officer, director or other stockholder. We are unaware of any security holder who intends to ask for consent to dispose of any of our equity securities during the relevant lock -up periods.

Indemnification

We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act relating to losses or claims resulting from material misstatements in or omissions from this prospectus, the registration statement of which this prospectus is a part, certain free writing prospectuses that may be used in the offering and in any marketing materials used in connection with this offering and to contribute to payments the underwriters may be required to make in respect of those liabilities.

Short Positions and Penalty Bids

The underwriter may engage in over -allotment , syndicate covering transactions, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Exchange Act.

•         Over -allotment involves sales by the underwriter of shares in excess of the number of shares the underwriter is obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over -allotted by an underwriter is not greater than the number of shares that it may purchase in the over -allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over -allotment option. The underwriter may close out any short position by either exercising its over -allotment option and/or purchasing shares in the open market.

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•         Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriter will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which it may purchase shares through the over -allotment option. If an underwriter sells more shares than could be covered by the over -allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if an underwriter is concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

•         Penalty bids permit an underwriter to reclaim a selling concession from a syndicate member when the shares originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NASDAQ Capital Market, and if commenced, they may be discontinued at any time.

Neither we nor the underwriter make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor the underwriter make any representation that the underwriter will engage in these transactions or that any transaction, once commenced, will not be discontinued without notice.

Electronic Distribution

A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by the underwriter, or by its affiliates. In those cases, prospective investors may view offering terms online and, depending upon the underwriter, prospective investors may be allowed to place orders online. The underwriter may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriter on the same basis as other allocations.

Other than the prospectus in electronic format, the information on the underwriter’s website and any information contained in any other website maintained by the underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriter in its capacity as underwriter and should not be relied upon by investors.

The underwriter’s compensation in connection with this offering is limited to the fees and expenses described above under “Underwriting Discount and Expenses.”

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LEGAL MATTERS

Greenberg Traurig, LLP, Irvine, California, will pass upon the validity of the shares of common stock offered by this prospectus . LKP Global Law, LLP, Los Angeles, California, is legal counsel to National Securities Corporation. Certain employees of LKP Global Law, LLP participated in the private placements of our Series A preferred stock as investors.

EXPERTS

The financial statements as of and for the fiscal years ended December 31, 2018 and 2017 included in this prospectus have been so included in reliance on the report of Marcum, LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S -1 under the Securities Act that registers the shares of our common stock to be sold in this offering . Our SEC filings are and will become available to the public over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street N.E., Washington, D.C. 20549 . You can also obtain copies of the documents upon the payment of a duplicating fee to the SEC . Please call the SEC at 1 -800-SEC-0330 for further information on the operation of the public reference facilities.

This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto . Some items are omitted in accordance with the rules and regulations of the SEC . You should review the information and exhibits included in the registration statement for further information about us and the securities we are offering . Statements in this prospectus concerning any document we filed as an exhibit to the registration statement or that we otherwise filed with the SEC are not intended to be comprehensive and are qualified by reference to these filings . You should review the complete document to evaluate these statements.

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TFF PHARMACEUTICALS, INC.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

 

F-2

Balance Sheets as of December 31, 2018 and December 31, 2017 (Predecessor)

 

F-3

Statements of Operations for the period from January 24, 2018 to December 31, 2018, period from January 1, 2018 to January 23, 2018 (Predecessor) and year ended December 31, 2017 (Predecessor)

 

F-4

Statements of Stockholders’ Deficit for the period from January 1, 2018 to January 23, 2018 (Predecessor) and the period from January 24, 2018 to December 31, 2018 and year ended December 31, 2017 (Predecessor)

 

F-5

Statements of Cash Flows for the period from January 1, 2018 to January 23, 2018 (Predecessor) and the period from January 24, 2018 to December 31, 2018 and year ended December 31, 2017 (Predecessor)

 

F-6

Notes to Financial Statements

 

F-7

     

Condensed Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018

 

F-18

Unaudited Condensed Statements of Operations for the six months ended June 30, 2019, period from January 24, 2018 to June 30, 2018 and the period from January 1, 2018 to January 23, 2018 (Predecessor)

 

F-19

Unaudited Condensed Statements of Stockholders’ Deficit for the six months ended June 30, 2019, the period from January 1, 2018 to January 23, 2018 (Predecessor) and the period from January 24, 2018 to June 30, 2018

 

F-20

Unaudited Condensed Statements of Cash Flows for the six months ended June 30, 2019 and for the period from January 1, 2018 to January 23, 2018 (Predecessor) and the period from January 24, 2018 to June 30, 2018

 

F-21

Notes to the Unaudited Condensed Financial Statements

 

F-22

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

TFF Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of TFF Pharmaceuticals, Inc. (the “Company”) as of December 31, 2018 and December 31, 2017 (Predecessor), the related statements of operations , stockholders’ deficit and cash flows for the period from January 24, 2018 to December 31, 2018, period from January 1, 2018 to January 23, 2018 (Predecessor) and year ended December 31, 2017 (Predecessor), and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and December 31, 2017 (Predecessor), and the results of its operations and its cash flows for the period from January 24, 2018 to December 31, 2018, period from January 1, 2018 to January 23, 2018 (Predecessor) and year ended December 31, 2017 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Marcum llp

Marcum llp

We have served as the Company’s auditor since 2018

New York, NY

February 15, 2019

F-2

TFF PHARMACEUTICALS, INC.

BALANCE SHEETS

 

As of December 31, 2018

 

As of December 31, 2017 (Predecessor)

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,261,671

 

 

$

 

Prepaid assets and other current assets

 

 

12,065

 

 

 

 

   

 

 

 

 

 

 

 

Total Current Assets

 

 

10,273,736

 

 

 

 

   

 

 

 

 

 

 

 

Deferred offering costs

 

 

127,768

 

 

 

 

   

 

 

 

 

 

 

 

Total Assets

 

$

10,401,504

 

 

$

 

   

 

 

 

 

 

 

 

Liabilities and Stockholders’ deficit

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

428,645

 

 

$

1,833

 

Accrued dividends payable

 

 

728,350

 

 

 

 

   

 

 

 

 

 

 

 

Total Liabilities

 

 

1,156,995

 

 

 

1,833

 

   

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 4)

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Series A preferred stock

 

 

 

 

 

 

 

 

Series A preferred stock, $0.001 par value, 6,000,000 shares authorized; 5,662,000 and 0 shares issued and outstanding as of December 31, 2018 and 2017, respectively (Liquidation Preference of $15,742,087)

 

 

12,485,971

 

 

 

 

   

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 45,000,000 shares authorized; 4,000,000 and 0 shares issued and outstanding as of December 31, 2018 and 2017, respectively

 

 

4,000

 

 

 

 

Additional paid-in capital

 

 

596,724

 

 

 

 

Parent’s net deficit

 

 

 

 

 

(1,833

)

Accumulated deficit

 

 

(3,842,186

)

 

 

 

Total Stockholders’ Deficit

 

 

(3,241,462

)

 

 

(1,833

)

   

 

 

 

 

 

 

 

Total Liabilities, Series A preferred stock and Stockholders’ Deficit

 

$

10,401,504

 

 

$

 

The accompanying notes are an integral part of these financial statements.

F-3

TFF PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

 

January 24, 2018 to December 31, 2018

 

January 1, 2018
to January 23,
2018
(Predecessor)

 

Year ended December 31, 2017 (Predecessor)

Operating expenses

 

 

 

 

 

 

   

 

 

 

Research and development

 

$

848,809

 

 

$

*

 

$

 

General and administrative

 

 

3,049,337

 

 

 

*

 

 

178,605

 

Total operating expenses

 

 

3,898,146

 

 

 

*

 

 

178,605

 

   

 

 

 

 

 

*

 

 

 

 

Loss from operations

 

 

(3,898,146

)

 

 

*

 

 

(178,605

)

   

 

 

 

 

 

*

 

 

 

 

Other income

 

 

 

 

 

 

*

 

 

 

 

Interest income

 

 

55,960

 

 

 

*

 

 

 

Total other income

 

 

55,960

 

 

 

*

 

 

 

   

 

 

 

 

 

*

 

 

 

 

Net loss

 

 

(3,842,186

)

 

 

*

 

 

(178,605

)

   

 

 

 

 

 

*

 

 

 

 

Preferred stock dividend

 

 

(728,350

)

 

 

*

 

 

 

   

 

 

 

 

 

*

 

 

 

 

Net loss applicable to common stock

 

$

(4,570,536

)

 

$

*

 

$

(178,605

)

   

 

 

 

 

 

   

 

 

 

Net loss applicable to common stock per share, basic and diluted

 

$

(1.31

)

 

 

   

 

 

 

   

 

 

 

 

 

   

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

3,483,836

 

 

 

   

 

 

 

____________

*        Operations were not material.

The accompanying notes are an integral part of these financial statements.

F-4

TFF PHARMACEUTICALS, INC.

STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

Common Stock

 

Additional Paid in Capital

 

Parent’s
Net Deficit

 

Accumulated Deficit

 

Total Stockholders’ Deficit

Shares

 

Amount

 

Balance January 1, 2017
(Predecessor)

 

 

$

 

$

 

 

$

(10,977

)

 

$

 

 

$

(10,977

)

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

(178,605

)

 

 

 

 

 

(178,605

)

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advanced from Parent

 

 

 

 

 

 

 

 

187,749

 

 

 

 

 

 

187,749

 

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017 (Predecessor)

 

 

 

 

 

 

 

 

(1,833

)

 

 

 

 

 

(1,833

)

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss (Predecessor)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers from former parent (Predecessor)

 

 

 

 

 

 

 

 

1,833

 

 

 

 

 

 

1,833

 

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 23, 2018 (Predecessor)

 

 

$

 

$

 

 

$

 

 

$

 

 

$

 

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 24, 2018

 

 

$

 

$

 

 

$

 

 

$

 

 

$

 

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to former
parent

 

4,000,000

 

 

4,000

 

 

(4,000

)

 

 

 

 

 

 

 

 

 

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock warrants

 

 

 

 

 

1,178,088

 

 

 

 

 

 

 

 

 

1,178,088

 

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

150,986

 

 

 

 

 

 

 

 

 

150,986

 

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on preferred stock

 

 

 

 

 

(728,350

)

 

 

 

 

 

 

 

 

(728,350

)

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,842,186

)

 

 

(3,842,186

)

       

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

4,000,000

 

$

4,000

 

$

596,724

 

 

$

 

 

$

(3,842,186

)

 

$

(3,241,462

)

The accompanying notes are an integral part of these financial statements.

F-5

TFF PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

 

January 24, 2018 to December 31, 2018

 

January 1, 2018 to January 23, 2018 (Predecessor)

 

For the
Year Ended
December 31,
2017
(Predecessor)

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(3,842,186

)

 

$

 

 

$

(178,605

)

Adjustment to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

1,329,074

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid assets

 

 

(12,065

)

 

 

 

 

 

 

Accounts payable

 

 

398,189

 

 

 

(1,833

)

 

 

(9,144

)

   

 

 

 

 

 

 

 

 

 

 

 

Net Cash Used In Operating Activities

 

 

(2,126,988

)

 

 

(1,833

)

 

 

(187,749

)

   

 

 

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Used in Investing Activities

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

Net transfers from parent

 

 

 

 

 

1,833

 

 

 

187,749

 

Payment of offering costs

 

 

(97,312

)

 

 

 

 

 

 

 

 

Proceeds from issuance of preferred stock

 

 

12,485,971

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Net Cash Provided by Financing Activities

 

 

12,388,659

 

 

 

1,833

 

 

 

187,749

 

   

 

 

 

 

 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

 

10,261,671

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents – beginning of period

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents – end of period

 

$

10,261,671

 

 

$

 

 

$

 

   

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to former parent for acquired assets

 

$

4,000

 

 

$

 

 

$

 

Accrued offering costs

 

$

30,456

 

 

$

 

 

$

 

Accrued dividend

 

$

728,350

 

 

$

 

 

$

 

The accompanying notes are an integral part of these financial statements.

F-6

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 1 — Background and Basis of Presentation

TFF Pharmaceuticals, Inc. (the “Company”) was incorporated in the State of Delaware on January 24, 2018 by Lung Therapeutics, Inc. (“LTI”), at which time the Company and LTI entered into a Contribution and Subscription Agreement (“Contribution Agreement”) pursuant to which LTI agreed to transfer to the Company certain of LTI’s non -core intellectual property rights and other assets, including LTI’s rights under a patent license agreement with the University of Texas at Austin (see, Note 5), in exchange for 4,000,000 shares of the Company’s common stock. The transactions under the Contribution Agreement closed in March 2018. LTI’s basis in such assets were minimal. LTI is an early stage biotechnology company focused on the development of certain technologies in the pulmonary field, while the Company intends to initially focus on the development of inhaled dry powder drugs to enhance the treatment of pulmonary diseases and conditions.

The Company is in the development stage, having not yet started planned principal operations, and is devoting substantially all of its efforts toward technology research and development.

The accompanying financial statements of the Company as of and for the year ended December 31, 2017 reflect the historical financial position, results of operations, changes in net investment and cash flows of the operations for the assets acquired by the Company from LTI, the Company’s former parent. These financial statements have been derived from the accounting records of LTI and should be read in conjunction with the accompanying notes thereto. The operations surrounding the acquired assets is deemed to be the Company’s predecessor prior to January 24, 2018, the deemed date of acquisition. These financial statements do not necessarily reflect what the results of operations, financial position, or cash flows would have been had the Company been a separate entity during the periods prior to January 24, 2018 nor are they indicative of future results of the Company.

All of the assets, liabilities and results of operations of the Company as of and for the year ended December 31, 2017 were identified based on the assets acquired by the Company from LTI. Management believes the assumptions underlying the Company’s carve -out financial statements are reasonable. Nevertheless, the financial statements may not include all of the actual expenses that would have been incurred had the Company operated as a standalone company during the periods presented, and may not reflect the Company’s results of operations, financial position and cash flows had the Company operated as a standalone company during the periods presented. Actual costs that would have been incurred if the Company had operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

Note 2 — Liquidity and Management’s Plans

As of December 31, 2018, the Company had cash and cash equivalents of approximately $10,261,000 and a working capital surplus of approximately $9,117,000. The Company has not generated revenues since inception and has incurred recurring operating losses. The Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital to pursue its product development. During March 2018, the Company completed a private placement of 5,662,000 shares of its Series A Convertible Preferred Stock, raising net proceeds of approximately $12,486,000.

The Company expects to further increase its research and development activities, which will increase the amount of cash utilized during 2019. Specifically, the Company expects increased spending on research and development activities and higher payroll expenses as it increases its professional and scientific staff and continues to prepare for anticipated manufacturing activities. Based on the funds the Company has available as of the date of the filing of this registration statement, including proceeds of the private placement completed in May 2019, the Company believes that it has sufficient capital to fund the current business plan over, at least, 12 months from the issuance of these financial statements.

F-7

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 3 — Summary of Significant Accounting Policies

Basis of presentation

The financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect the financial position, results of operations and cash flows for all periods presented.

Financial Statements

The financial statements for the periods from January 1, 2018 through January 23, 2018 (predecessor) and the year ended December 31, 2017 (predecessor) have been prepared using the accounting records of LTI. All material inter -company balances and transactions have been eliminated.

Deferred Offering Costs

The Company complies with the requirements of Accounting Standards Codification (“ASC”) 340, Other Assets and Deferred Costs . Deferred offering costs of $127,768 as of December 31, 2018 consist primarily of legal, accounting and filing fees incurred through the balance sheet date that are related to the Company’s proposed initial public offering of its common stock and that will be charged to capital upon the receipt of the capital raised or charged to expense if the proposed offering is not completed.

Cash and Cash Equivalents

The Company maintains its operating accounts in a single financial institution. The balances are insured by the U.S. Federal Deposit Insurance Corporation (“FDIC”) up to specified limits. The Company’s cash is maintained in checking accounts and money market funds with maturities of less than three months when purchased, which are readily convertible to known amounts of cash, and which in the opinion of management are subject to insignificant risk of loss in value.

Fair Value of Financial Instruments

Authoritative guidance requires disclosure of the fair value of financial instruments. The Company’s financial instruments consist of cash and cash equivalents and accounts payable, the carrying amounts of which approximate their estimated fair values primarily due to the short -term nature of the instruments or based on information obtained from market sources and management estimates. The Company measures the fair value of certain of its financial assets and liabilities on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value which is not equivalent to cost will be classified and disclosed in one of the following three categories:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities.

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

F-8

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 3 — Summary of Significant Accounting Policies (cont.)

Income Taxes

In accordance with authoritative guidance, deferred tax assets and liabilities are recorded for temporary differences between the financial reporting and tax bases of assets and liabilities using the current enacted tax rate expected to be in effect when the differences are expected to reverse. A valuation allowance is recorded on deferred tax assets unless realization is considered more likely than not.

The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more -likely-than-not ” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more -likely-than-not ” threshold are not recorded as a tax benefit or expense in the current year. The Company recognizes interest and penalties, if any, related to uncertain tax positions in interest expense. No interest and penalties related to uncertain tax positions were accrued at either December 31, 2018 or 2017.

The Company follows authoritative guidance which requires the evaluation of existing tax positions. Management has analyzed all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes both federal and states where the Company has operations. Open tax years are those that are open for examination by taxing authorities. There are no open tax years at this time as the Company was incorporated during 2018.

Research and Development Expenses

In accordance with authoritative guidance, the Company charges research and development costs to operations as incurred. Research and development expenses consist of personnel costs for the design, development, testing and enhancement of the Company’s technology, and certain other allocated costs, such as depreciation and other facilities related expenditures.

Basic and Diluted Earnings per Common Share

Basic net loss per common share is calculated by dividing the net loss by the weighted -average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted -average number of common shares and dilutive share equivalents outstanding for the period, determined using the treasury -stock and if -converted methods. Since the Company has had net losses for all periods presented, all potentially dilutive securities are anti -dilutive . Basic weighted average shares outstanding include the shares underlying a warrant to purchase common shares. As the shares underlying this warrant can be issued for little consideration (an aggregate exercise price of $0.01 per share), these shares are deemed to be issued for purposes of basic earnings per share. Accordingly, basic and diluted net loss per share are equal.

For the period January 24, 2018 to December 31, 2018, the Company had the following potential common stock equivalents outstanding which were not included in the calculation of diluted net loss per common share because inclusion thereof would be anti -dilutive :

 

Period from January 23, 2018 to December 31, 2018

Stock Options

 

1,073,082

Series A Convertible Preferred Stock*

 

5,953,340

Warrants

 

658,212

   

7,684,634

____________

*        On an as -converted basis

F-9

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 3 — Summary of Significant Accounting Policies (cont.)

Common Stock Warrants

The Company classifies as equity any warrants that (i) require physical settlement or net -share settlement or (ii) provide the Company with a choice of net -cash settlement or settlement in its own shares (physical settlement or net -share settlement). The Company classifies as assets or liabilities any contracts that (i) require net -cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control), (ii) gives the counterparty a choice of net -cash settlement or settlement in shares (physical settlement or net -share settlement) or (iii) that contain reset provisions that do not qualify for the scope exception. The Company assesses classification of its common stock warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company’s freestanding derivatives consist of warrants to purchase common stock that were issued in connection with services provided to the Company. The Company evaluated these warrants to assess their proper classification and determined that the common stock warrants meet the criteria for equity classification in the balance sheet. Such warrants are measured at fair value, which the Company determines using the Black -Scholes-Merton option -pricing model.

Stock-Based Compensation

The Company computes stock -based compensation in accordance with authoritative guidance. The Company uses the Black -Scholes-Merton option -pricing model to determine the fair value of its stock options. The Black -Scholes-Merton option -pricing model includes various assumptions, including the fair market value of the common stock of the Company, expected life of stock options, the expected volatility and the expected risk -free interest rate, among others. These assumptions reflect the Company’s best estimates, but they involve inherent uncertainties based on market conditions generally outside the control of the Company.

As a result, if other assumptions had been used, stock -based compensation cost, as determined in accordance with authoritative guidance, could have been materially impacted. Furthermore, if the Company uses different assumptions on future grants, stock -based compensation cost could be materially affected in future periods.

The Company accounts for the fair value of equity instruments issued to non -employees using either the fair value of the services received or the fair value of the equity instrument, whichever is considered more reliable . The Company utilizes the Black -Scholes-Merton option -pricing model to measure the fair value of options issued to non -employees .

Parent Net Deficit

The Company’s equity on the Balance Sheet as of December 31, 2017 represents LTI’s net investment in the Company’s business and is presented as “Parent Net Deficit” in lieu of stockholders’ equity. The changes in Parent’s Net Deficit on the Statement of Stockholders’ Deficit include net cash transfers between LTI and the Company. LTI performed cash management and other treasury -related functions on a centralized basis for all of its divisions, which included the Company. Liabilities recorded by LTI, whose related expenses were been pushed down to the Company, are included in Parent Net Deficit.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates include the fair value of stock -based compensation and warrants, valuation allowance against deferred tax assets and related disclosures. Actual results could differ from those estimates.

F-10

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 3 — Summary of Significant Accounting Policies (cont.)

Recent Accounting Standards

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018 -07 , Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share -Based Payment Accounting . The guidance in this ASU expands the scope of ASC Topic 718 to include all share -based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. This amendment will be effective for annual and interim periods beginning after December 31, 2018. The company does not believe this new guidance will have a material effect on its financial position, results of operations or financial statement disclosure.

In February 2016, the FASB issued ASU No. 2016 -02 , Leases (Topic 842) . This ASU will require lessees to recognize a right of use asset and lease liability on the balance sheet for leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The amendment will be effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU No. 2018 - 10 , Codification Improvements to Topic 842, Leases and ASU No. 2018 -11 , Leases (Topic 842): Targeted Improvements. ASU No. 2018 - 10 provides certain amendments that affect narrow aspects of the guidance issued in ASU No. 2016 -02 . ASU No. 2018 -11 allows entities the option to prospectively apply the new lease standard at the adoption date instead of recording the cumulative impact of all comparative reporting periods presented within retained earnings. The Company does not currently believe this will have a significant impact on its financial position, results of operations or financial statement disclosure as the Company has not entered into any significant leases.

Subsequent Events

The Company evaluates events and/or transactions occurring after the balance sheet date and before the issue date of the financial statements to determine if any of those events and/or transactions requires adjustment to or disclosure in the financial statements.

Note 4 — Commitments and Contingencies

Operating leases

In October 2018, the Company entered into a lease agreement for office space in Doylestown, Pennsylvania. The lease commenced on October 15, 2018 and will expire on October 31, 2019. The lease has a one year option for renewal, and the base rent is $42,000 per year.

Approximate future minimum lease payments required under the operating leases are as follows:

Years ending December 31,

 

Amount

2019

 

$

35,000

Legal

The Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which the Company is or could become involved in litigation may have a material adverse effect on its business and financial condition. To the Company’s knowledge, neither the Company nor any of its properties are subject to any pending legal proceedings.

F-11

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 5 — License and Agreements

In July 2015, the University of Texas at Austin (“UT”) granted to the Company’s former parent, LTI, an exclusive worldwide, royalty bearing license to the patent rights for the TFF platform in all fields of use, other than vaccines for which LTI received a non -exclusive worldwide, royalty bearing license to the patent rights for the TFF platform. In March 2018, LTI completed an assignment to the Company all of its interest to the TFF platform, including the patent license agreement with UT, at which time the Company paid UT an assignment fee of $100,000 in accordance with the patent license agreement. In November 2018, the Company and UT entered into an amendment to the patent license agreement pursuant to which, among other things, the Company’s exclusive patent rights to the TFF platform were expanded to all fields of use. The patent license agreement requires the Company to pay royalties and milestone payments and conform to a variety of covenants and agreements, and in the event of the Company’s breach of agreement, UT may elect to terminate the agreement. For the year ended December 31, 2018, the Company did not achieve any of the milestones and, as such, was not required to make any milestone payments. As of the date of these financials statements, the Company is in compliance with the patent license agreement.

In June 2018, the Company entered into a one -year agreement with Patheon Development Services, Inc. to provide initial contract manufacturing services for the Company’s drug product candidates. The fees payable for contract manufacturing services under this agreement total $270,000, with no minimum fee requirement. During the year ended December 31, 2018, the Company recorded costs associated with this agreement of $192,000, as research and development costs.

In May 2018, the Company entered into a master services agreement and associated individual study contracts with ITR Canada, Inc. to provide initial contract pre -clinical research and development services for the Company’s drug product candidates. The fees payable for pre -clinical research and development services under these study contracts totaled $1,790,000, with no minimum fee requirement. During the year ended December 31, 2018, the Company recorded costs associated with this agreement of $273,000, as research and development costs. On January 17, 2019 the Company cancelled all of the individual study contracts with ITR Canada, Inc.

In January 2019, the Company entered into a contract with Canada Inc. (dba VJO Non -Clinical Development) to complete additional pre -clinical research and development services sub -contracted with ITR Canada, Inc., to take advantage of eligible Canadian Tax Credits during 2019.

Note 6 — Related Party Transactions

On March 22, 2018, the Company raised financing through a private placement of Series A preferred stock (as further discussed in Note 7). Certain of the Company’s officers and directors participated in the private placement in the aggregate amount of $125,000, representing 0.88% of the Series A preferred stock sold by the Company.

Note 7 — Stockholders’ Deficit

Series A Convertible Preferred Stock

The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.001 par value, all of which has been designated as Series A Convertible Preferred Stock (“Series A preferred stock”) and has a stated value of $2.50 per share. As of December 31, 2018, 5,662,000 shares are issued and outstanding. The Series A preferred stock ranks senior to common stock with respect to dividends rights and liquidation preferences and has full voting rights. The Series A preferred stock accrues a dividend at a rate of 6% per annum, and such amount aggregated $728,350 for the period ending December 31, 2018.

Pursuant to the Company’s amended and restated certificate of incorporation, holders of the Series A preferred stock have the following methods of conversion: (i) automatic conversion into common stock upon the consummation of an Initial Public Offering (“IPO”) at a conversion price of 50% of the IPO price, (ii) automatic conversion into

F-12

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 7 — Stockholders’ Deficit (cont.)

common stock upon the consummation of a subsequent private placement of securities at a conversion price of 50% of the purchase price of the securities being sold by the Company approved by the holders of the Series A preferred stock, and (iii) at any time after the issuance date and until ten calendar days prior to the consummation of an IPO, each holder shall be entitled to convert into common stock at a conversion price of $2.50 per share.

In addition to these methods of conversion, the Company will be required to repurchase all of the outstanding shares of the Series A preferred stock on July 1, 2020 at a redemption price of the product of two multiplied by the aggregate stated value of all of the Series A preferred stock then held by each holder, plus all accrued but unpaid dividends through the date of payment.

2018 Private Placement

On March 13, 2018, the Company entered into a securities purchase agreement with various accredited investors to raise gross proceeds of $14.2 million in a private placement (the “2018 Private Placement”). On March 22, 2018, the Company completed the 2018 Private Placement, issuing 5,662,000 shares of its Series A preferred stock. The shares of the Series A preferred stock were sold for $2.50 per share. The Company received net proceeds of approximately $12.5 million from the 2018 Private Placement, after paying placement agent fees and offering expenses.

The Series A preferred stock was accounted for under Section 480 -10-S99 — Distinguishing Liabilities from Equity (FASB Accounting Standards Codification 480) as amended by ASU 2009 -04 for Redeemable Equity Instruments (“ASU 2009 -04 ”). Under ASU 2009 -04 , a redeemable equity security is to be classified as temporary equity if it is conditionally redeemable upon the occurrence of an event that is not solely within the control of the issuer. While the Series A preferred stock are mandatorily redeemable 21 months from the final closing date, it also contains a substantive conversion option. Therefore, the Company classified the Series A preferred stock as temporary equity in the balance sheet as of December 31, 2018.

In connection with, and upon closing of, the 2018 Private Placement, the Company issued 4,000,000 shares of common stock to LTI in consideration of LTI’s assignment of the acquired assets consisting of certain patent license rights and other valuable consideration. LTI’s basis in such assets was minimal.

Note 8 — Warrants

On January 26, 2018 the Company issued a five -year warrant to purchase 400,000 shares of common stock at $0.01 per share to Liquid Patent Advisors, LLC (“LPA”). The warrant represented consideration for business and strategic development performed during 2018. The fair value of the warrant on the grant date was estimated using the Black -Scholes-Merton option pricing model with a common stock value of $1.67 per share, a contractual life of 2.5 years, a dividend yield of 0%, a volatility of 102.4% and an assumed risk -free interest rate of 2.19%. The fair value of the warrant was determined to be $664,224 and is included in general and administrative expenses in the statement of operations.

On March 13, 2018 and March 22, 2018, the Company issued to National Securities Corporation warrants to purchase shares of the Company’s common stock in an amount equal to 10% of the shares of common stock issuable upon conversion of 5,662,000 shares of the Company’s Series A Preferred Stock. The warrants represented placement agent compensation in connection with the 2018 Private Placement. The fair value of the warrants on the grant date was estimated using the Black -Scholes-Merton option pricing model with a common stock value of $1.67 per share, a contractual life of 2.5 years, a dividend yield of 0%, a volatility of 102.4% and an assumed risk -free interest rate of 2.36%. The fair value of the warrants was determined to be $480,485 and is included in general and administrative expenses in the statement of operations.

F-13

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 8 — Warrants (cont.)

On April 6, 2018, the Company issued a five -year warrant to purchase 10,000 shares of common stock at $2.50 per share to BP Directors, LP (“BP”). The warrant represented consideration for board service from Dr. Aaron Fletcher. The fair value of the warrant on the grant date was estimated using the Black -Scholes-Merton option pricing model with a common stock value of $1.67 per share, a contractual life of 5.5 years, a dividend yield of 0%, a volatility of 89% and an assumed risk -free interest rate of 2.58%. The warrant vests and is being amortized over a one -year period. The fair value of the warrant was determined to be $11,075. The Company amortized $8,306 during the period, which is included in general and administrative expenses in the statement of operations.

On September 26, 2018, the Company issued a ten -year warrant to purchase 82,012 shares of common stock at $2.50 per share to BP. The warrant represented consideration for board service from Dr. Aaron Fletcher. The fair value of the warrant on the grant date was estimated using the Black -Scholes-Merton option pricing model with a common stock value of $1.67 per share, a contractual life of 6.3 years, a dividend yield of 0%, a volatility of 93.5% and an assumed risk -free interest rate of 2.96%. The warrant vests and is being amortized over a one -year period. The fair value of the warrant was determined to be $100,293. The Company amortized $25,073 during the period, which is included in general and administrative expenses in the statement of operations.

In determining the fair value for warrants, the expected life of the Company’s warrants was determined using the contractual life. The methodology in determining all other inputs to calculate the fair value utilizing the Black -Scholes-Merton option pricing model is the same as the stock option methodology described in Note 9 for stock options.

A summary of warrant activity for the year ended December 31, 2018 is as follows:

 

Number of Shares

 

Range of Exercise Prices

 

Weighted-Average Exercise Prices

 

Weighted-Average Remaining Life

Outstanding at January 1, 2018

 

 

$

 

$

 

Issued

 

1,058,212

 

$

0.01 – $2.50

 

$

1.56

 

4.6

Outstanding at December 31, 2018

 

1,058,212

 

$

0.01 – $2.50

 

$

1.56

 

4.6

The warrants outstanding at December 31, 2018 had an aggregate intrinsic value of approximately $117,684.

Note 9 — Stock Based Compensation

In January 2018, the Company’s board of directors approved its 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan provides for the grant of non -qualified stock options and incentive stock options to purchase shares of the Company’s common stock, the grant of restricted and unrestricted share awards and grant of restricted stock units. The 2018 Plan provides for the issuance of 1,630,000 shares of common stock. All of the Company’s employees and any subsidiary employees (including officers and directors who are also employees), as well as all of the Company’s nonemployee directors and other consultants, advisors and other persons who provide services to the Company will be eligible to receive incentive awards under the 2018 Plan. During the year ended December 31, 2018, the Company granted options under its 2018 Stock Incentive Plan to purchase 1,073,082 shares of its common stock to its employees and board of directors. The fair value of these options was approximately $1,294,795.

F-14

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 9 — Stock Based Compensation (cont.)

The following table summarizes the stock -based compensation expense recorded in the Company’s results of operations during the year ended December 31, 2018 and December 31, 2017 (Predecessor) for stock options and restricted stock:

 

Year Ended December 31,

   

2018

 

2017

Research and development

 

$

 

$

General and administrative

 

 

150,986

 

 

   

$

150,986

 

$

As of December 31, 2018, there was approximately $1,143,809 of total unrecognized compensation expense related to non -vested share -based compensation arrangements that are expected to vest. This cost is expected to be recognized over a weighted -average period of 3.4 years.

The Company records compensation expense for employee awards with graded vesting using the straight -line method. The Company records compensation expense for nonemployee awards with graded vesting using the accelerated expense attribution method. The Company recognizes compensation expense over the requisite service period applicable to each individual award, which generally equals the vesting term. The Company estimates the fair value of each option award using the Black -Scholes-Merton option pricing model. Forfeitures are recognized when realized.

The Company estimated the fair value of employee and non -employee stock options using the Black -Scholes option pricing model. The fair value of employee stock options is being amortized on a straight -line basis over the requisite service periods of the respective awards. The fair value of employee stock options issued was estimated using the following weighted -average assumptions:

 

Year Ended December 31, 2018

Weighted average exercise price

 

$

2.50

 

Weighted average grant date fair value

 

$

1.21

 

Assumptions

 

 

 

 

Expected volatility

 

 

92.24

%

Weighted average expected term (in years)

 

 

6.26

 

Risk-free interest rate

 

 

2.93

%

Expected dividend yield

 

 

0.00

%

The risk -free interest rate was obtained from U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the historical volatility for industry peers and used an average of those volatilities. The expected life of the Company’s options was determined using the simplified method as a result of limited historical data regarding the Company’s activity. The dividend yield considers that the Company has not historically paid dividends, and does not expect to pay dividends in the foreseeable future.

The fair value of the common stock was determined by the board of directors based on a variety of factors, including valuations prepared by third parties, the Company’s financial position, the status of development efforts within the Company, the current climate in the marketplace and the prospects of a liquidity event, among others.

F-15

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 9 — Stock Based Compensation (cont.)

The following table summarizes stock option activity during the year ended December 31, 2018:

 

Number of Shares

 

Weighted-Average Exercise Prices

 

Weighted-Average Remaining Contractual Term (In Years)

 

Intrinsic Value

Outstanding at January 1, 2018

 

 

$

 

 

$

Granted

 

1,073,082

 

$

2.50

 

9.64

 

 

Outstanding at December 31, 2018

 

1,073,082

 

$

2.50

 

9.64

 

$

Exercisable at December 31, 2018

 

129,151

 

$

2.50

 

9.64

 

$

Note 10 — Income Taxes

The Company had no income tax expense due to operating losses incurred for the years ended December 31, 2018. The Company accounts for income taxes in accordance with ASC 740, which requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above -mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance.

The Company’s deferred tax assets are as follows:

 

December 31, 2018

Deferred tax assets:

 

 

 

 

Net operating loss carryforwards

 

$

459,522

 

Research and development tax credit

 

 

59,270

 

Intangibles

 

 

68,003

 

Stock compensation

 

 

275,617

 

Total deferred tax assets

 

 

862,412

 

Valuation allowance

 

 

(862,412

)

Net deferred tax assets

 

$

 

The effective tax rate of the Company’s provision (benefit) for income taxes differs from the federal statutory rate as follows:

 

December 31, 2018

Statutory rate

 

21.00

%

State rate

 

0.00

%

Permanent book/tax differences

 

(0.10

)%

Research and development credit

 

1.54

%

Changes in valuation allowance

 

(22.44

)%

Total

 

 

F-16

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 24, 2018 TO DECEMBER 31, 2018,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND YEAR ENDED DECEMBER 31, 2017 (PREDECESSOR)

Note 10 — Income Taxes (cont.)

As of December 31, 2018, the Company had gross federal income tax net operating loss (“NOL”) carryforwards of $2,188,203, and federal research tax credits of $59,270. The Internal Revenue Code (“Code”) Sections 382 and 383 limits NOL and tax credit carry forwards when an ownership change of more than 50% of the value of the stock in a loss corporation occurs. Accordingly, the ability to utilize remaining NOL and tax credit carryforwards may be significantly restricted.

Utilization of U.S. net operating losses and tax credit carryforwards may be limited by “ownership change” rules, as defined in Sections 382 and 383 of the Code. Similar rules may apply under state tax laws. The Company has not conducted a study to -date to assess whether a limitation would apply under Sections 382 and 383 of the Code as and when it starts utilizing its net operating losses and tax credits. The Company will continue to monitor activities in the future. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.

Under the Code, the NOL can be carried forward indefinitely and can be used to offset up to 80% of taxable income for losses arising in tax years beginning after December 31, 2017. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during periods in which those temporary differences become deductible.

Due to the uncertainty surrounding the realization of the benefits of its deferred assets, including NOL carryforwards, the Company has provided a 100% valuation allowance on its deferred tax assets at December 31, 2018.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740, Income Taxes . When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of December 31, 2018, the Company had no uncertain tax positions, and no interest or penalties have been charged to the Company for the years ended December 31, 2018. If incurred, the Company will classify any interest and penalties as a component of interest expense and operating expense, respectively.

F-17

TFF PHARMACEUTICALS, INC.

CONDENSED BALANCE SHEETS

 

As of
June 30, 2019 (Unaudited)

 

As of December 31, 2018

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,632,114

 

 

$

10,261,671

 

Prepaid assets and other current assets

 

 

27,090

 

 

 

12,065

 

   

 

 

 

 

 

 

 

Total Current Assets

 

 

13,659,204

 

 

 

10,273,736

 

   

 

 

 

 

 

 

 

Deferred offering costs

 

 

144,926

 

 

 

127,768

 

   

 

 

 

 

 

 

 

Total Assets

 

$

13,804,130

 

 

$

10,401,504

 

   

 

 

 

 

 

 

 

Liabilities and Stockholders’ deficit

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

384,991

 

 

$

428,645

 

Accrued dividends payable

 

 

1,238,590

 

 

 

728,350

 

   

 

 

 

 

 

 

 

Total Liabilities

 

 

1,623,581

 

 

 

1,156,995

 

   

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 4)

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Series A Preferred Stock

 

 

 

 

 

 

 

 

Series A Preferred Stock, $0.001 par value, 10,000,000 shares authorized; 8,930,000 shares issued and outstanding as of June 30, 2019 and 5,662,000 shares issued and outstanding as of December 31, 2018, respectively (Liquidation Preference of $23,563,591)

 

 

19,694,364

 

 

 

12,485,971

 

   

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 45,000,000 shares authorized;
4,000,000 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively

 

 

4,000

 

 

 

4,000

 

Additional paid-in capital

 

 

694,106

 

 

 

596,724

 

Accumulated deficit

 

 

(8,211,921

)

 

 

(3,842,186

)

Total Stockholders’ Deficit

 

 

(7,513,815

)

 

 

(3,241,462

)

   

 

 

 

 

 

 

 

Total Liabilities, Series A Preferred Stock and Stockholders’ Deficit

 

$

13,804,130

 

 

$

10,401,504

 

The accompanying notes are an integral part of these financial statements.

F-18

TFF PHARMACEUTICALS, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

 

Six Months Ended
June 30, 2019

 

January 24, 2018 to
June 30, 2018

 

January 1,
2018 to
January 23, 2018 (Predecessor)

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

2,990,518

 

 

$

619,189

 

 

$

*

General and administrative

 

 

1,421,051

 

 

 

1,777,869

 

 

 

*

Total operating expenses

 

 

4,411,569

 

 

 

2,397,058

 

 

 

*

   

 

 

 

 

 

 

 

 

 

*

Loss from operations

 

 

(4,411,569

)

 

 

(2,397,058

)

 

 

*

   

 

 

 

 

 

 

 

 

 

*

Other income

 

 

 

 

 

 

 

 

 

 

*

Interest income

 

 

41,834

 

 

 

12,397

 

 

 

*

Total other income

 

 

41,834

 

 

 

12,397

 

 

 

*

   

 

 

 

 

 

 

 

 

 

*

Net loss

 

 

(4,369,735

)

 

 

(2,384,661

)

 

 

*

   

 

 

 

 

 

 

 

 

 

*

Preferred stock dividend

 

 

(510,240

)

 

 

(286,017

)

 

 

*

   

 

 

 

 

 

 

 

 

 

*

Net loss applicable to common stock

 

$

(4,879,975

)

 

$

(2,670,678

)

 

$

*

   

 

 

 

 

 

 

 

 

 

 

Net loss applicable to common stock per share, basic and diluted

 

$

(1.11

)

 

$

(0.90

)

 

 

 
   

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

4,400,000

 

 

 

2,951,899

 

 

 

 

The accompanying notes are an integral part of these financial statements.

F-19

TFF PHARMACEUTICALS, INC.

UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

Common Stock

 

Additional Paid in Capital

 

Parent’s Net Deficit

 

Accumulated Deficit

 

Total Stockholders’ Deficit

   

Shares

 

Amount

 

Balance, January 1, 2019

 

4,000,000

 

$

4,000

 

$

596,724

 

 

$

 

$

(3,842,186

)

 

$

(3,241,462

)

Stock-based compensation

 

 

 

 

 

121,226

 

 

 

 

 

 

 

 

121,226

 

Dividends on preferred stock

 

 

 

 

 

(221,279

)

 

 

 

 

 

 

 

(221,279

)

Net loss

 

 

 

 

 

 

 

 

 

 

(2,182,815

)

 

 

(2,182,815

)

Balance, March 31, 2019

 

4,000,000

 

$

4,000

 

$

496,671

 

 

$

 

$

(6,025,001

)

 

$

(5,524,330

)

Stock-based compensation

 

 

 

 

 

486,396

 

 

 

 

 

 

 

 

486,396

 

Dividends on preferred stock

 

 

 

 

 

(288,962

)

 

 

 

 

 

 

 

(288,962

)

Net loss

 

 

 

 

 

 

 

 

 

 

(2,186,920

)

 

 

(2,186,920

)

Balance, June 30, 2019

 

4,000,000

 

$

4,000

 

$

694,106

 

 

$

 

$

(8,211,921

)

 

$

(7,513,815

)

 

Common Stock

 

Additional Paid in Capital

 

Parent’s Net Deficit

 

Accumulated Deficit

 

Total Stockholders’ Deficit

   

Shares

 

Amount

 

Balance, January 1, 2018 (predecessor)

 

 

$

 

$

 

 

$

(1,833

)

 

$

 

 

$

(1,833

)

Transfers from parent (predecessor)

 

 

 

 

 

 

 

 

1,833

 

 

 

 

 

 

1,833

 

Balance, January 24, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to
former parent

 

4,000,000

 

 

4,000

 

 

(4,000

)

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(267,501

)

 

 

(267,501

)

Balance, March 31, 2018

 

4,000,000

 

$

4,000

 

$

(4,000

)

 

$

 

 

$

(267,501

)

 

$

(267,501

)

Stock-based compensation

 

 

 

 

 

1,173,840

 

 

 

 

 

 

 

 

 

 

1,173,840

 

Dividends on preferred stock

 

 

 

 

 

(286,017

)

 

 

 

 

 

 

 

 

(286,017

)

Net Loss

 

 

 

 

 

 

 

 

 

 

 

(2,117,160

)

 

 

(2,117,160

)

Balance, June 30, 2018

 

4,000,000

 

$

4,000

 

$

883,823

 

 

$

 

 

$

(2,384,661

)

 

$

(1, 496,838

)

The accompanying notes are an integral part of these financial statements.

F-20

TFF PHARMACEUTICALS, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

 

For the Six
Months Ended June 30,
2019

 

January 24, 2018 to
June 30, 2018

 

January 1,
2018 to
January 23,
2018 (Predecessor)

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

   

 

Net loss

 

$

(4,369,735

)

 

$

(2,384,661

)

   

 

Adjustment to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

   

 

Stock based compensation

 

 

607,622

 

 

 

1,173,840

 

   

 

   

 

 

 

 

 

 

 

   

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

   

 

Prepaid assets

 

 

(15,025

)

 

 

(15,583

)

   

 

Accounts payable

 

 

(60,812

)

 

 

664,233

 

 

(1,833

)

   

 

 

 

 

 

 

 

   

 

Net Cash Used In Operating Activities

 

 

(3,837,950

)

 

 

(562,171

)

 

(1,833

)

   

 

 

 

 

 

 

 

   

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

   

 

Net Cash Used in Investing Activities

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

   

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

   

 

Net Transfers from parent

 

 

 

 

 

 

 

(1,833

)

Proceeds from issuance of preferred stock

 

 

7,208,393

 

 

 

12,485,971

 

 

 

   

 

 

 

 

 

 

 

   

 

Net Cash Provided by Financing Activities

 

 

7,208,393

 

 

 

12,485,971

 

 

(1,833

)

   

 

 

 

 

 

 

 

   

 

Net (Decrease) Increase in Cash and Cash Equivalents

 

 

3,370,443

 

 

 

11,923,800

 

   

 

   

 

 

 

 

 

 

 

   

 

Cash and Cash Equivalents – beginning of period

 

 

10,261,671

 

 

 

 

   

 

   

 

 

 

 

 

 

 

   

 

Cash and Cash Equivalents – end of period

 

$

13,632,114

 

 

$

11,923,800

 

   

 

   

 

 

 

 

 

 

 

   

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

   

 

Common stock issued to former parent for acquired assets

 

$

 

 

$

4,000

 

   

 

Accrued offering costs

 

$

17,158

 

 

$

 

   

 

Accrued dividend

 

$

510,240

 

 

$

286,017

 

   

 

The accompanying notes are an integral part of these financial statements.

F-21

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 2019 TO JUNE 30, 2019,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND SIX MONTHS ENDED JUNE 30, 2018

Note 1 — Background and Basis of Presentation

TFF Pharmaceuticals, Inc. (the “Company”) was incorporated in the State of Delaware on January 24, 2018 by Lung Therapeutics, Inc. (“LTI”), at which time the Company and LTI entered into a Contribution and Subscription Agreement (“Contribution Agreement”) pursuant to which LTI agreed to transfer to the Company certain of LTI’s non -core intellectual property rights and other assets, including LTI’s rights under a patent license agreement with the University of Texas at Austin (see, Note 5), in exchange for 4,000,000 shares of the Company’s common stock. The transactions under the Contribution Agreement closed in March 2018. LTI’s basis in such assets were minimal. LTI is an early stage biotechnology company focused on the development of certain technologies in the pulmonary field, while the Company intends to initially focus on the development of inhaled dry powder drugs to enhance the treatment of pulmonary diseases and conditions.

The Company is in the development stage, having not yet started planned principal operations, and is devoting substantially all of its efforts toward technology research and development.

The accompanying financial statements of the Company as of and for the period ended January 23, 2018 reflect the historical financial position, results of operations, changes in net investment and cash flows of the operations for the assets acquired by the Company from LTI, the Company’s former parent. These financial statements have been derived from the accounting records of LTI and should be read in conjunction with the accompanying notes thereto. The operations surrounding the acquired assets is deemed to be the Company’s predecessor prior to January 24, 2018, the deemed date of acquisition. These financial statements do not necessarily reflect what the results of operations, financial position, or cash flows would have been had the Company been a separate entity during the periods prior to January 24, 2018 nor are they indicative of future results of the Company.

All of the assets, liabilities and results of operations of the Company as of and for the period ended January 23, 2018 were identified based on the assets acquired by the Company from LTI. Management believes the assumptions underlying the Company’s carve -out financial statements are reasonable. Nevertheless, the financial statements may not include all of the actual expenses that would have been incurred had the Company operated as a standalone company during the periods presented, and may not reflect the Company’s results of operations, financial position and cash flows had the Company operated as a standalone company during the periods presented. Actual costs that would have been incurred if the Company had operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

Note 2 — Liquidity and Management’s Plans

As of June 30, 2019, the Company had cash and cash equivalents of approximately $13,632,000 and a working capital surplus of approximately $12,181,000. The Company has not generated revenues since inception and has incurred recurring operating losses. The Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital to pursue its product development.

The Company expects to further increase its research and development activities, which will increase the amount of cash utilized subsequent to June 30, 2019. Specifically, the Company expects increased spending on research and development activities and higher payroll expenses as it increases its professional and scientific staff and continues to prepare for anticipated manufacturing activities. Based on the funds the Company has available as of the date of the filing of this registration statement, the Company believes that it has sufficient capital to fund the current business plans over, at least, 12 months from the issuance of these financial statements.

F-22

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 2019 TO JUNE 30, 2019,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND SIX MONTHS ENDED JUNE 30, 2018

Note 3 — Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10 -Q and Article 10 of Regulation S -X of the United States Securities and Exchange Commission. Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2019 and the results of operations, changes in stockholders’ equity and cash flows for the periods presented. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and related disclosures of the Company as of December 31, 2018 and 2017 and for the years then ended, which are included elsewhere in this document.

The financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect the financial position, results of operations and cash flows for all periods presented.

Financial Statements

The financial statements for the period from January 1, 2018 through January 23, 2018 (predecessor) have been prepared using the accounting records of LTI. All material inter -company balances and transactions have been eliminated.

Deferred Offering Costs

The Company complies with the requirements of Accounting Standards Codification (“ASC”) 340, Other Assets and Deferred Costs . Deferred offering costs of $144,926 and $127,768 as of June 30, 2019 and December 31, 2018, respectively, consist primarily of legal, accounting and filing fees incurred through the balance sheet date that are related to the Company’s proposed initial public offering of its common stock and that will be charged to capital upon the receipt of the capital raised or charged to expense if the proposed offering is not completed.

Cash and Cash Equivalents

The Company maintains its operating accounts in a single financial institution. The balances are insured by the U.S. Federal Deposit Insurance Corporation (“FDIC”) up to specified limits. The Company’s cash is maintained in checking accounts and money market funds with maturities of less than three months when purchased, which are readily convertible to known amounts of cash, and which in the opinion of management are subject to insignificant risk of loss in value.

Fair Value of Financial Instruments

Authoritative guidance requires disclosure of the fair value of financial instruments. The Company’s financial instruments consist of cash and cash equivalents and accounts payable, the carrying amounts of which approximate their estimated fair values primarily due to the short -term nature of the instruments or based on information obtained from market sources and management estimates. The Company measures the fair value of certain of its financial assets

F-23

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 2019 TO JUNE 30, 2019,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND SIX MONTHS ENDED JUNE 30, 2018

Note 3 — Summary of Significant Accounting Policies (cont.)

and liabilities on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value which is not equivalent to cost will be classified and disclosed in one of the following three categories:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities.

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Basic and Diluted Earnings per Common Share

Basic net loss per common share is calculated by dividing the net loss by the weighted -average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted -average number of common shares and dilutive share equivalents outstanding for the period, determined using the treasury -stock and if -converted methods. Since the Company has had net losses for all periods presented, all potentially dilutive securities are anti -dilutive . Basic weighted average shares outstanding include the shares underlying a warrant to purchase common shares. As the shares underlying this warrant can be issued for little consideration (an aggregate exercise price of $0.01 per share), these shares are deemed to be issued for purposes of basic earnings per share. Accordingly, basic and diluted net loss per share are equal.

For the six months ended June 30, 2019 and the period January 24, 2018 to June 30, 2018, the Company had the following potential common stock equivalents outstanding which were not included in the calculation of diluted net loss per common share because inclusion thereof would be anti -dilutive :

 

Period from
January 1, 2019
to June 30, 2019

 

Period from
January 24,
2018 to
December 31,
2018

Stock Options

 

1,333,594

 

1,073,082

Series A Convertible Preferred Stock*

 

9,425,436

 

5,953,340

Warrants

 

1,034,556

 

658,212

   

11,793,586

 

7,684,634

____________

*          On an as -converted basis

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates include the fair value of stock -based compensation and warrants, valuation allowance against deferred tax assets and related disclosures. Actual results could differ from those estimates.

F-24

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 2019 TO JUNE 30, 2019,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND SIX MONTHS ENDED JUNE 30, 2018

Note 3 — Summary of Significant Accounting Policies (cont.)

Recent Accounting Standards

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018 -07 , Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share -Based Payment Accounting . The guidance in this ASU expands the scope of ASC Topic 718 to include all share -based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. This amendment will be effective for annual and interim periods beginning after June 30, 2019. The Company does not believe this new guidance will have a material effect on its financial position, results of operations or financial statement disclosure.

In February 2016, the FASB issued ASU No. 2016 -02 , Leases (Topic 842) . This ASU will require lessees to recognize a right of use asset and lease liability on the balance sheet for leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The amendment will be effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU No. 2018 -10 , Codification Improvements to Topic 842, Leases and ASU No. 2018 -11 , Leases (Topic 842): Targeted Improvements. /ASU No. 2018 -10 provides certain amendments that affect narrow aspects of the guidance issued in ASU No. 2016 -02 . ASU No. 2018 -11 allows entities the option to prospectively apply the new lease standard at the adoption date instead of recording the cumulative impact of all comparative reporting periods presented within retained earnings. The adoption of this standard did not have a significant impact on the Company’s financial position, results of operations or financial statement disclosure as the Company has not entered into any significant leases.

Subsequent Events

The Company evaluates events and/or transactions occurring after the balance sheet date and before the issue date of the financial statements to determine if any of those events and/or transactions requires adjustment to or disclosure in the financial statements.

Note 4 — Commitments and Contingencies

Operating leases

In October 2018, the Company entered into a lease agreement for office space in Doylestown, Pennsylvania. The lease commenced on October 15, 2018 and will expire on October 31, 2019. The lease has a one year option for renewal, and the base rent is $42,000 per year.

Approximate future minimum lease payments required under the operating leases are as follows:

Years ending December 31,

 

Amount

2019 – Remaining

 

$

21,000

Legal

The Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which the Company is or could become involved in litigation may have a material adverse effect on its business and financial condition. To the Company’s knowledge, neither the Company nor any of its properties are subject to any pending legal proceedings.

F-25

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 2019 TO JUNE 30, 2019,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND SIX MONTHS ENDED JUNE 30, 2018

Note 5 — License and Agreements

In July 2015, the University of Texas at Austin (“UT”) granted to TFF’s former parent, LTI, an exclusive worldwide, royalty bearing license to the patent rights for the TFF platform in all fields of use, other than vaccines for which LTI received a non -exclusive worldwide, royalty bearing license to the patent rights for the TFF platform. In March 2018, LTI assigned to TFF all of its interest to the TFF platform, including the patent license agreement with UT, at which time the Company paid UT an assignment fee of $100,000 in accordance with the patent license agreement. The patent license agreement requires TFF to pay royalties and milestone payments and conform to a variety of covenants and agreements, and in the event of the Company’s breach of agreement, UT may elect to terminate the agreement. For the six months ended June 30, 2019, the Company did not achieve any of the milestones and, as such, was not required to make any milestone payments. As of the date of these financials statements, the Company is in compliance with the patent license agreement.

In June 2018, the Company entered into a one -year agreement with Patheon Development Services, Inc. to provide initial contract manufacturing services for the Company’s drug product candidates. The fees payable for contract manufacturing services under this agreement total $270,000, with no minimum fee requirement. During the six months ended June 30, 2019, the Company recorded costs associated with this agreement of $97,000, as research and development costs. There is no additional work ongoing at this time.

In May 2018, the Company entered into a master services agreement and associated individual study contracts with ITR Canada, Inc. to provide initial contract pre -clinical research and development services for the Company’s drug product candidates. The fees payable for pre -clinical research and development services under these study contracts totalled $1,790,000, with no minimum fee requirement. During the six months ended June 30, 2019, the Company recorded costs associated with this agreement of $1,753,000, as research and development costs. On January 17, 2019 the Company cancelled all of the individual study contracts with ITR Canada, Inc.

In January 2019, the Company entered into a contract with Canada Inc. (dba VJO Non -Clinical Development) to complete additional pre -clinical research and development services sub -contracted with ITR Canada, Inc., to take advantage of eligible Canadian Tax Credits during 2019.

In April 2019, the Company entered into a master services agreement with Irisys, LLC to provide contract manufacturing services for one of the Company’s drug product candidates, Voriconazole. The fees payable for contract manufacturing services under this agreement total $420,000, with additional pass - through costs. During the six months ended June 30, 2019, the Company recorded costs associated with this agreement of $52,000, as research and development costs.

In June 2019, the Company entered into a master services agreement with CoreRx to provide contract manufacturing services for one of the Company’s drug product candidates, Tacrolimus. The fees payable for contract manufacturing services under this agreement total $812,232, with additional pass - through costs. During the six months ended June 30, 2019, the Company recorded costs associated with this agreement of $122,000, as research and development costs.

Note 6 — Stockholders’ Deficit

Series A Convertible Preferred Stock

The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.001 par value, all of which has been designated as Series A Convertible Preferred Stock (“Series A Preferred Stock”) and has a stated value of $2.50 per share. As of June 30, 2019, 8,930,00 shares are issued and outstanding. The Series A Preferred Stock ranks senior to common stock with respect to dividends rights and liquidation preferences and has full voting rights. The Series A Preferred Stock accrues a dividend at a rate of 6% per annum, and such amount aggregated $1,238,590 and $728,350 as

F-26

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 2019 TO JUNE 30, 2019,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND SIX MONTHS ENDED JUNE 30, 2018

Note 6 — Stockholders’ Deficit (cont.)

of June 30, 2019 and December 31, 2018, respectively. The Company recorded $510,240 of preferred dividends for the six months ended June 30, 2019 and $286,017 for the period from January 24, 2018 through June 30, 2018.

Pursuant to the Company’s amended and restated certificate of incorporation, holders of the Series A Preferred Stock have the following methods of conversion: (i) automatic conversion into common stock upon the consummation of an Initial Public Offering (“IPO”) at a conversion price of 50% of the IPO price, (ii) automatic conversion into common stock upon the consummation of a subsequent private placement of securities at a conversion price of 50% of the purchase price of the securities being sold by the Company approved by the holders of the Series A Preferred Stock, and (iii) at any time after the issuance date and until ten calendar days prior to the consummation of an IPO, each holder shall be entitled to convert into common stock at a conversion price of $2.50 per share.

In addition to these methods of conversion, the Company will be required to repurchase all of the outstanding shares of the Series A Preferred Stock on July 1, 2020 at a redemption price of the product of two multiplied by the aggregate stated value of all of the Series A Preferred Stock then held by each holder, plus all accrued but unpaid dividends through the date of payment.

Note 7 — Warrants

On January 26, 2018 the Company issued a five -year warrant to purchase 400,000 shares of common stock at $0.01 per share to Liquid Patent Advisors, LLC (“LPA”). The warrant represented consideration for business and strategic development performed during 2018. The fair value of the warrant on the grant date was estimated using the Black -Scholes-Merton option pricing model with a common stock value of $1.67 per share, a contractual life of 2.5 years, a dividend yield of 0%, a volatility of 102.4% and an assumed risk -free interest rate of 2.19%. The fair value of the warrant was determined to be $664,224 and is included in general and administrative expenses in the statement of operations.

On March 13, 2018 and March 22, 2018, the Company issued to National Securities Corporation warrants to purchase shares of the Company’s common stock in an amount equal to 10% of the shares of common stock issuable upon conversion of 5,662,000 shares of the Company’s Series A Preferred Stock. The warrants represented placement agent compensation in connection with the 2018 Private Placement. The fair value of the warrants on the grant date was estimated using the Black -Scholes-Merton option pricing model with a common stock value of $1.67 per share, a contractual life of 2.5 years, a dividend yield of 0%, a volatility of 102.4% and an assumed risk -free interest rate of 2.36%. The fair value of the warrants was determined to be $480,485 and is included in general and administrative expenses in the statement of operations.

On April 6, 2018, the Company issued a five -year warrant to purchase 10,000 shares of common stock at $2.50 per share to BP Directors, LP (“BP”). The warrant represented consideration for board service from Dr. Aaron Fletcher. The fair value of the warrant on the grant date was estimated using the Black -Scholes-Merton option pricing model with a common stock value of $1.67 per share, a contractual life of 5.5 years, a dividend yield of 0%, a volatility of 89% and an assumed risk -free interest rate of 2.58%. The warrant vests and is being amortized over a one -year period. The fair value of the warrant was determined to be $11,075. The Company amortized $13,844 during the period, which is included in general and administrative expenses in the statement of operations.

On September 26, 2018, the Company issued a ten -year warrant to purchase 82,012 shares of common stock at $2.50 per share to BP. The warrant represented consideration for board service from Dr. Aaron Fletcher. The fair value of the warrant on the grant date was estimated using the Black -Scholes-Merton option pricing model with a common stock value of $1.67 per share, a contractual life of 6.3 years, a dividend yield of 0%, a volatility of 93.5% and an assumed risk -free interest rate of 2.96%. The warrant vests and is being amortized over a one -year period. The

F-27

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 2019 TO JUNE 30, 2019,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND SIX MONTHS ENDED JUNE 30, 2018

Note 7 — Warrants (cont.)

fair value of the warrant was determined to be $100,293. The Company amortized $50,147 during the period, which is included in general and administrative expenses in the statement of operations.

On May 16, 2019 and May 23, 2019, the Company issued to National Securities Corporation warrants to purchase shares of the Company’s common stock in an amount equal to 10% of the shares of common stock issuable upon conversion of 3,268,000 shares of the Company’s Series A Preferred Stock. The warrants represented placement agent compensation in connection with its May 2019 private placement of Series A Preferred Stock. The fair value of the warrants on the grant date was estimated using the Black -Scholes-Merton option pricing model with a common stock value of $1.67 per share, a contractual life of 5 years, a dividend yield of 0%, a volatility of 89.6% and an assumed risk -free interest rate of 2.11%. The fair value of the warrants was determined to be approximately $400,000 and is included in general and administrative expenses in the statement of operations. The warrants are exercisable at per share price equal to the lesser of (i) 50% of the price of the common stock sold in the Company’s IPO or (ii) $2.50 (subject to proportional adjustment in the events of combinations, subdivisions or the like) and expire five years from the date of grant.

In determining the fair value for warrants, the expected life of the Company’s warrants was determined using the contractual life. The methodology in determining all other inputs to calculate the fair value utilizing the Black -Scholes-Merton option pricing model is the same as the stock option methodology described in Note 9 for stock options.

A summary of warrant activity for the six months ended June 30, 2019 is as follows:

 

Number of Shares

 

Range of Exercise Prices

 

Weighted-Average Exercise Prices

 

Weighted-Average Remaining Life

Outstanding at December 31, 2018

 

1,058,212

 

$

0.01 – $2.50

 

$

1.56

 

4.6

Issued

 

326,800

 

 

2.50

 

 

2.50

 

4.9

Outstanding at June 30, 2019

 

1,385,012

 

$

0.01 – $2.50

 

$

1.78

 

5.5

The warrants outstanding at June 30, 2019 had an aggregate intrinsic value of approximately $664,000.

Note 8 — Stock Based Compensation

In January 2018, the Company’s board of directors approved its 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan provides for the grant of non -qualified stock options and incentive stock options to purchase shares of the Company’s common stock, the grant of restricted and unrestricted share awards and grant of restricted stock units. The 2018 Plan provides for the issuance of 1,630,000 shares of common stock. All of the Company’s employees and any subsidiary employees (including officers and directors who are also employees), as well as all of the Company’s nonemployee directors and other consultants, advisors and other persons who provide services to the Company will be eligible to receive incentive awards under the 2018 Plan.

The following table summarizes the stock -based compensation expense recorded in the Company’s results of operations during the six months ended June 30, 2019 and June 30, 2018 for stock options and restricted stock:

 

Six Months
Ended
June 30, 2019

 

Period From
January 24,
2018 to
June 30, 2018

Research and development

 

$

 

$

General and administrative

 

 

607,622

 

 

   

$

607,622

 

$

F-28

TFF PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 2019 TO JUNE 30, 2019,
JANUARY 1, 2018 TO JANUARY 23, 2018 (PREDECESSOR)
AND SIX MONTHS ENDED JUNE 30, 2018

Note 8 — Stock Based Compensation (cont.)

As of June 30, 2019, there was approximately $1,241,896 of total unrecognized compensation expense related to non -vested share -based compensation arrangements that are expected to vest. This cost is expected to be recognized over a weighted -average period of 3.1 years.

The Company records compensation expense for employee awards with graded vesting using the straight -line method. The Company records compensation expense for nonemployee awards with graded vesting using the accelerated expense attribution method. The Company recognizes compensation expense over the requisite service period applicable to each individual award, which generally equals the vesting term. The Company estimates the fair value of each option award using the Black -Scholes-Merton option pricing model. Forfeitures are recognized when realized.

The Company estimated the fair value of employee and non -employee stock options using the Black -Scholes option pricing model. The fair value of employee stock options is being amortized on a straight -line basis over the requisite service periods of the respective awards. The fair value of employee stock options issued was estimated using the following weighted -average assumptions:

 

Six months Ended
June 30, 2019

Weighted average exercise price

 

$

2.50

 

Weighted average grant date fair value

 

$

1.67

 

Assumptions

 

 

 

 

Expected volatility

 

 

91.55

%

Weighted average expected term (in years)

 

 

6.26

 

Risk-free interest rate

 

 

2.81

%

Expected dividend yield

 

 

0.00

%

The risk -free interest rate was obtained from U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the historical volatility for industry peers and used an average of those volatilities. The expected life of the Company’s options was determined using the simplified method as a result of limited historical data regarding the Company’s activity. The dividend yield considers that the Company has not historically paid dividends, and does not expect to pay dividends in the foreseeable future.

The fair value of the common stock was determined by the board of directors based on a variety of factors, including valuations prepared by third parties, the Company’s financial position, the status of development efforts within the Company, the current climate in the marketplace and the prospects of a liquidity event, among others.

The following table summarizes stock option activity during the year ended June 30, 2019:

 

Number of Shares

 

Weighted-Average Exercise Prices

 

Weighted-Average
Remaining
Contractual
Term (In Years)

 

Intrinsic Value

Outstanding at December 31, 2018

 

1,073,082

 

$

2.50

 

9.64

 

 

Granted

 

260,512

 

 

2.50

 

 

 

Outstanding at June 30, 2019

 

1,333,594

 

$

2.50

 

9.25

 

$

Exercisable at June 30, 2019

 

301,652

 

$

2.50

 

9.25

 

$

F-29

  

4,400,000 Shares of Common Stock

TFF Pharmaceuticals, Inc.

__________________

PROSPECTUS

__________________

National Securities Corporation

, 2019

Through and including             , 2019 (the 25 th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

  

 

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses to be incurred in connection with the sale and distribution of our common stock being registered hereby, all of which will be borne by us (except any underwriting discounts and commissions and expenses incurred for brokerage, accounting, tax or legal services or any other expenses incurred in disposing of the shares). All amounts shown are estimates except the SEC registration fee.

SEC Filing Fee

 

$

3,434.33

FINRA Fee

 

 

4,750.42

Underwriter’s Legal Fees and Expenses

 

 

200,000.00

Nasdaq Fee

 

 

75,000.00

Printing Expenses

 

 

25,000.00

Accounting Fees and Expenses

 

 

100,000.00

Legal Fees and Expenses

 

 

300,000.00

Transfer Agent and Registrar Expenses

 

 

35,000.00

Miscellaneous

 

 

25,000.00

Total

 

$

768,184.75

____________

*        To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The following summary is qualified in its entirety by reference to the complete text of any statutes referred to below and the second amended and restated certificate of incorporation of TFF Pharmaceuticals, Inc., a Delaware corporation.

Section 145 of the General Corporation Law of the State of Delaware (the “DGCL”) permits a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful.

In the case of an action by or in the right of the corporation, Section 145 of the DGCL permits a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses that the Court of Chancery or such other court shall deem proper.

Section 145 of the DGCL also permits a Delaware corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145 of the DGCL.

II-1

Article Sixth of our Second Amended and Restated Certificate of Incorporation states that to the fullest extent permitted by the DGCL our directors shall not be personally liable to us or to our stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is amended after the date hereof to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

Article Seventh of our Second Amended and Restated Certificate of Incorporation provides that we shall, to the maximum extent and in the manner permitted by the DGCL, indemnify each of our directors, officers and all other persons we have the power to indemnify under Section 145 of the DGCL against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was a director, officer, employee or agent of the Company.

Prior to the closing of this offering we plan to enter into an underwriting agreement, which will provide that the underwriters are obligated, under some circumstances, to indemnify our directors, officers and controlling persons against specified liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Issuances of capital stock

The following list sets forth information regarding all unregistered securities sold by us since January 24, 2018 (inception) through the date of the prospectus that forms a part of this registration statement.

In January 2018, we issued a warrant to purchase an aggregate of 400,000 shares of our common stock to Liquid Patent Advisors, LLC at an exercise price of $0.01 per share.

In March 2018, we issued 4,000,000 shares of our common stock to Lung Therapeutics, Inc. in consideration of its contribution of certain licensed patent rights to us.

In March 2018, we issued an aggregate of 5,662,000 shares of our Series A preferred stock to 228 accredited investors at a purchase price of $2.50 per share for aggregate consideration of approximately $14.2 million.

In March 2018, we issued warrants to National Securities Corporation, as placement agent compensation in connection with our March 2018 placement of Series A preferred stock, to purchase shares of our common stock equal to 10% of our common stock issuable upon conversion of our Series A preferred stock sold in the placement by National Securities Corporation, at an exercise price equal to the lesser of (i) 50% of the initial public offering price or (ii) $2.50 (subject to proportional adjustment in the events of combinations, subdivisions or the like).

In April 2018, we issued options to purchase an aggregate of 60,000 shares of our common stock to two members of our Board of Directors and a warrant to purchase 10,000 shares of our common stock to an entity affiliated with a third member of our Board of Directors. The options and warrant vest on the one -year anniversary of the date of grant, provided that one -half of the options and warrants will vest immediately upon the close of our initial public offering if sooner. The exercise price of the options and warrant is $2.50 per share.

In September 2018, we issued options to purchase an aggregate of 629,058 shares of our common stock to three members of our Board of Directors and a warrant to purchase 82,012 shares of our common stock to an entity affiliated with a fourth member of our Board of Directors. The options and warrant vest as to one quarter of the underlying shares on the first anniversary of the date of grant, with the remaining shares vesting in 12 equal quarterly installments thereafter. The exercise price of the options and warrant is $2.50 per share.

In December 2018, we issued options to purchase an aggregate of 184,024 shares of our common stock to two members of our Board of Directors, and in April 2019, we issued options to purchase 92,012 shares of our common stock to one member of our Board of Directors. The options vest as to one quarter of the underlying shares on the first anniversary of the date of grant, with the remaining shares vesting in 12 equal quarterly installments thereafter. The exercise price of the options is $2.50 per share.

II-2

In May 2019, we issued an aggregate of 3,268,000 shares of our Series A preferred stock to 229 accredited investors at a purchase price of $2.50 per share for aggregate consideration of approximately $8.2 million.

In May 2019, we issued warrants to National Securities Corporation, as placement agent compensation in connection with our May 2019 placement of Series A Preferred Stock, to purchase shares of our common stock equal to 10% of our common stock issuable upon conversion of our Series A preferred stock sold in the placement by National Securities Corporation, at an exercise price equal to the lesser of (i) 50% of the initial public offering price or (ii) $2.50 (subject to proportional adjustment in the event of combinations, subdivisions or the like).

We believe the offers, sales and issuances of the above securities by us were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act as transactions not involving a public offering. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates, notes and warrants issued in these transactions. All recipients had adequate access, through their relationships with us, to information about our Company. The sales of these securities were made without any general solicitation or advertising.

ITEM 16. EXHIBITS

Exhibit No.

 

Description of Document

1.1*

 

Form of Underwriting Agreement

3.1

 

Second Amended and Restated Certificate of Incorporation of the Registrant

3.2

 

Bylaws of the Registrant

3.3

 

Amended and Restated Bylaws of the Registrant effective immediately following the closing of this offering

4.1*

 

Specimen Certificate representing shares of common stock of Registrant

4.2

 

Warrant dated January 24, 2018 issued to Liquid Patent Advisors, LLC

4.3

 

Warrant dated March 13, 2018 issued to National Securities Corporation

4.4

 

Warrant dated March 22, 2018 issued to National Securities Corporation

4.5

 

Warrant dated May 16, 2019 issued to National Securities Corporation

4.6

 

Warrant dated May 23, 2019 issued to National Securities Corporation

5.1*

 

Opinion of Greenberg Traurig, LLP regarding the validity of the common stock being registered

10.1

 

Engagement Agreement dated January 26, 2018 between Liquid Patent Advisors, LLC and the Registrant

10.2

 

Securities Purchase Agreement dated March 13, 2018 by and among the Registrant and the Buyers named therein

10.3

 

Amended and Restated Registration Rights Agreement dated May 16, 2019 by and among the Registrant and certain of its stockholders

10.4

 

Contribution and Subscription Agreement dated January 24, 2018 between the Registrant and Lung Therapeutics, Inc.

10.5

 

Patent License Agreement dated July 8, 2015 between Lung Therapeutics, Inc. and The University of Texas at Austin

10.6+

 

TFF Pharmaceuticals, Inc. 2018 Stock Incentive Plan

10.7+

 

Amended and Restated Consulting Agreement dated December 20, 2018 between Robert Mills and the Registrant

10.8+

 

Consulting Agreement dated February 12, 2018 between Dr. Brian Windsor and the Registrant

10.9+

 

Consulting Agreement dated April 23, 2018 between Glenn Mattes and the Registrant

II-3

Exhibit No.

 

Description of Document

10.10

 

Lease Agreement dated October 19, 2018

10.11+

 

Executive Employment Agreement dated December 20, 2018 between Glenn Mattes and the Registrant

10.12

 

Securities Purchase Agreement dated May 16, 2019 by and among the Registrant and the Buyers named therein

10.13

 

Amendment No.1 to Patent License Agreement dated November 30, 2018 between the Registrant and The University of Texas at Austin

10.14+

 

Employment Agreement, dated February 15, 2019, by and between the Registrant and Kirk Coleman

21.1

 

List of Subsidiaries

23.1

 

Consent of Marcum LLP, Independent Registered Public Accounting Firm

23.2*

 

Consent of Greenberg Traurig, LLP (included in Exhibit 5.1)

24.1

 

Power of Attorney

____________

*        To be filed by amendment

+        Indicates management compensatory plan, contract or arrangement

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant undertakes that:

(1)    For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus as filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2)    For the purpose of determining any liability under the Securities Act, each post -effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin, Texas on this 20 th day of August, 2019.

 

TFF PHARMACEUTICALS, INC.

   

/s/ Glenn Mattes

   

Glenn Mattes
Chief Executive Officer and Director
(Principal Executive Officer)

Each person whose signature appears below constitutes and appoints Glenn Mattes, his true and lawful attorney -in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post -effective amendments) to this registration statement, any subsequent registration statements pursuant to Rule 462 of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney -in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney -in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in counterparts.

Pursuant to the requirements of the Securities Act of 1933, this registration statement on Form S -1 has been signed by the following persons in the capacities and on the dates indicated.

Signature

 

Title

 

Date

/s/ Glenn Mattes 

 

President,

 

August 20, 2019

Glenn Mattes

 

Chief Executive Officer
and Director
(Principal Executive Officer)

   

/s/ Kirk Coleman

 

Chief Financial Officer,

 

August 20, 2019

Kirk Coleman

 

Treasurer and Secretary
(Principal Financial and
Accounting Officer)

   

/s/ Aaron Fletcher, Ph.D.

 

Chairman of the Board

 

August 20, 2019

Aaron Fletcher, Ph.D.

       

/s/ Brian Windsor, Ph.D.

 

Director

 

August 20, 2019

Brian Windsor, Ph.D.

       

/s/ Robert S. Mills, Jr.

 

Director

 

August 20, 2019

Robert S. Mills, Jr.

       

/s/ Stephen C. Rocamboli

 

Director

 

August 20, 2019

Stephen C. Rocamboli

       

/s/ Harlan Weisman, M.D.

 

Director

 

August 20, 2019

Harlan Weisman, M.D.

       

/s/ Randy Thurman

 

Director

 

August 20, 2019

Randy Thurman

       

II-5

Exhibit 3.1

 

SECOND AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

TFF PHARMACEUTICALS, INC.

A Delaware Corporation

 

(Pursuant to Sections 242 and 245 of the

General Corporation Law of the State of Delaware)

 

TFF Pharmaceuticals, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “ DGCL ”),

 

DOES HEREBY CERTIFY:

 

1. That the name of this corporation is TFF Pharmaceuticals, Inc., and that this corporation was originally incorporated pursuant to the DGCL on January 24, 2018.

 

2. This Amended and Restated Certificate of Incorporation of the Corporation was duly adopted in accordance with Section 242, 245 and 228 of the DGCL, and restates, integrates and further amends the provisions of the corporation's certificate of incorporation as follows:

 

FIRST: The name of this corporation is TFF Pharmaceuticals, Inc. (the “ Corporation ”).

 

SECOND: The address, including street, number, city and county, of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, Wilmington, DE 19801, County of New Castle; and the name of the registered agent of the Corporation in the State of Delaware at such address is The Corporation Trust Company.

 

THIRD: The nature of the business and of the purposes to be conducted and promoted by the Corporation is to conduct any lawful business, to promote any lawful purpose, and to engage in any lawful act or activity for which corporations may be organized under the DGCL.

 

FOURTH: The total number of shares of stock which this Corporation shall have authority to issue is Fifty Five Million (55,000,000) shares, divided into two classes of: (a) Forty Five Million (45,000,000) shares of common stock, par value $0.001 per share (the “ Common Stock ”), and (b) Ten Million (10,000,000) shares of preferred stock, par value $0.001 per share (the “ Preferred Stock ”), all of which Preferred Stock has been designated as “ Series A Convertible Preferred Stock ” (the “ Series A Preferred Stock ”).

 

A. COMMON STOCK

 

1. Voting . Except as may otherwise be provided in this Second Amended and Restated Certificate of Incorporation of the Corporation (as the same may be amended or amended and restated, this “ Certificate of Incorporation ”) or by applicable law, each holder of Common Stock, as such, shall be entitled to one (1) vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote.

 

2. Dividends . Subject to the applicable laws of the State of Delaware, the applicable provisions of this Certificate of Incorporation, and the rights, if any, of the holders of any outstanding series of Preferred Stock as provided for or fixed pursuant to the provisions of Article FOURTH hereof, dividends may be declared and paid on the Common Stock at such times and in such amounts as the Board of Directors of the Corporation (the “ Board ”) in its discretion shall determine.

 

 

 

 

3. Liquidation Rights . Subject to applicable law and the rights, if any, of the holders of any series of Preferred Stock then outstanding, in the event of a Liquidation Event (as hereinafter defined), the holders of the Common Stock shall be entitled to receive the assets of the corporation available for distribution to its stockholders ratably in proportion to the number of shares of Common Stock held by them.

 

B. PREFERRED STOCK

 

The powers (including voting powers), if any, and the preferences and relative, participating, optional, special or other rights, if any, and the qualifications, limitations or restrictions, if any, of the Series A Preferred Stock are as follows:

 

1. Unless otherwise indicated, references to “ sections ” or “ subsections ” in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.

 

2. Definitions . In addition to the terms defined elsewhere in this Certificate of Incorporation, the following terms have the meanings indicated:

 

“Announced IPO Date” shall have the meaning given in Section 8(e).

 

Business Day ” means any day other than Saturday, Sunday and any day on which banks are required or authorized by law to be closed in the State of Texas.

 

Closing Date ” has the meaning given to it in Section 1(c) of the Securities Purchase Agreement.

 

Commission ” means the Securities and Exchange Commission.

 

Conversion Amount ” means the sum of the Stated Value plus all accrued and unpaid Dividends thereon, plus any other unpaid amounts due to the Holders under this Certificate of Incorporation.

 

“Conversion Price ” shall have the meaning given in Section 8.

 

Dividend Rate ” means a percentage of the Stated Value per share, as adjusted for any stock split, stock dividend, stock combination or other similar transactions with respect to the Series A Preferred Stock, of six percent (6%) per annum, provided, that if an Event of Default shall have occurred and be continuing, the Dividend Rate shall automatically be increased to twelve percent (12%) per annum during the period of such Event of Default, until such Event of Default is later cured.

 

Event of Default ” shall have the meaning given in Section 17.

 

Holder ” means any holder of Series A Preferred Stock.

 

“IPO ” means a firm commitment underwritten initial public offering of the Corporation’s Common Stock pursuant to a registration statement filed on Form S-1 (or any successor from thereto) that is declared effective by the SEC and consummated prior to the Mandatory Redemption Date.

 

2

 

 

“IPO Notice” shall have the meaning given in Section 8(e).

 

“IPO Price to Public” means the price to public specified in the IPO registration statement.

 

Junior Securities ” means the (i) Common Stock and all other equity or equity equivalent securities of the Corporation, and (ii) all equity or equity equivalent securities issued by the Corporation after the Original Issue Date that do not rank senior to or pari passu with the Series A Preferred Stock.

 

Offering ” has the meaning given to it in Recital E. of the Securities Purchase Agreement.

 

Original Issue Date ” means the date of the first issuance of any shares of the Series A Preferred Stock regardless of the number of transfers of any particular shares of Series A Preferred Stock and regardless of the number of certificates that may be issued to evidence such Series A Preferred Stock.

 

Person ” means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture or other non-corporate business enterprise, limited liability company, joint stock company, trust, organization, business, labor union or government (or an agency or subdivision thereof) or any court or other federal, state, local or other governmental authority or other entity of any kind.

 

Required Holders ” means the Holders that hold at least a majority of the Series A Preferred Stock then outstanding.

 

Securities Purchase Agreement ” means that certain securities purchase agreement, dated as of May __, 2019, by and among the Corporation and certain purchasers of the Series A Preferred Stock named therein.

Stated Value ” means $2.50 per share of Series A Preferred Stock.

 

Subsequent Placement ” has the meaning given to it in Section 4(j) of the Securities Purchase Agreement.

 

Transaction Document(s)” has the meaning set forth in Section 3(b) of the Securities Purchase Agreement.

 

Underlying Shares ” means the shares of Common Stock issuable upon conversion of the Series A Preferred Stock.

 

3. Voting Rights .

 

Except as otherwise required by law or this Certificate of Incorporation, the Series A Preferred Stock shall vote together, and not separately as a class, with the Common Stock and all other shares of stock of the Corporation having general voting power. The holder of each share of Series A Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Series A Preferred Stock could be converted at the record date for determination of the stockholders entitled to vote on such matters, or, if no record date is established, at the date such vote is taken or the effective date of any written consent. Fractional votes of the holders of Series A Preferred Stock shall not, however, be permitted and fractional voting rights shall be (after aggregating all shares into which shares of Series A Preferred Stock held by each Holder could be converted) rounded to the nearest whole number (with one-half being rounded upward). Holders of Series A Preferred Stock shall be entitled to notice of any stockholders meetings in accordance with the Bylaws of the Corporation, as if such Holders owned shares of Common Stock.

 

3

 

 

In addition to any other vote or consent required by this Certificate of Incorporation or by law, the affirmative vote of the Required Holders shall be necessary to (1) authorize, increase the authorized number of shares of or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any additional shares of Series A Preferred Stock or any shares of capital stock of the Corporation having any right, preference or priority ranking senior to or pari passu with Series A Preferred Stock, (2) authorize, adopt or approve any amendment to this Certificate of Incorporation or the Bylaws that would increase or decrease the par value of the shares of the Series A Preferred Stock, alter or change the powers, preferences or rights of the shares of Series A Preferred Stock or alter or change the powers, preferences or rights of any other capital stock of the Corporation if after such alteration or change such capital stock would be senior to or pari passu with Series A Preferred Stock, (3) amend, alter or repeal the Certificate of Incorporation or the Bylaws so as to affect the shares of Series A Preferred Stock adversely, including in connection with a merger, recapitalization, reorganization or otherwise, (4) authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or otherwise receive any shares of any class or classes of capital stock of the Corporation having any right, preference or priority ranking senior to or pari passu with Series A Preferred Stock, (5) organize a subsidiary of the Corporation or (6) pay or set apart for payment any dividend on any Junior Securities or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any Junior Securities or any warrants, rights, calls or options exercisable for or convertible into any Junior Securities whether in cash, obligations or shares of Corporation or other property, and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any Junior Securities or any such warrants, rights, calls or options. Any act or transaction entered into without the consents or votes set forth in this Section 3(b) shall be null and void ab initio, and of no force or effect.

 

4. Dividends .

 

(a) Holders shall be entitled to receive, on a pari passu basis, out of funds legally available therefor, prior and in preference to any declaration or payment of any dividend on the Junior Securities, cumulative dividends on the Series A Preferred Stock at the Dividend Rate per share. Dividends on the Series A Preferred Stock shall accrue daily commencing as of the Original Issue Date at the Dividend Rate then in effect, and shall be deemed to accrue from the Original Issue Date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Dividends on the Series A Preferred Stock shall (i) be calculated on the basis of a 365-day year, and (ii) be payable when, as and if declared by the Board of Directors.

 

(b) The Corporation shall pay required dividends in cash, except as otherwise provided in this Certificate of Incorporation.

 

(c) Except as authorized in accordance with Section 3, so long as any Series A Preferred Stock is outstanding, the Corporation shall not pay or set apart for payment any dividend on any Junior Securities or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any Junior Securities or any warrants, rights, calls or options exercisable for or convertible into any Junior Securities whether in cash, obligations or shares of Corporation or other property, and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any Junior Securities or any such warrants, rights, calls or options .

 

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5. Registration of Series A Preferred Stock . The Corporation or its transfer agent (the “ Transfer Agent ”) shall register shares of the Series A Preferred Stock, upon records to be maintained by the Corporation or its Transfer Agent, as the case may be, for that purpose (the “ Series A Preferred Stock Register ”), in the name of the record Holders thereof from time to time. To the fullest extent permitted by law, the Corporation may deem and treat the registered Holder of shares of Series A Preferred Stock as the absolute owner thereof for the purpose of any conversion hereof or any distribution to such Holder, and for all other purposes, absent actual written notice to the contrary from the registered Holder.

 

6. Registration of Transfers . The Corporation or its Transfer Agent shall register the transfer of any shares of Series A Preferred Stock in the Series A Preferred Stock Register, upon surrender of certificates evidencing such shares to the Corporation at its address specified in Section 15 of this Certificate of Incorporation. Upon any such registration or transfer, a new certificate evidencing the shares of Series A Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the shares not so transferred, if any, shall be issued to the transferring Holder; provided that if the Corporation does not so record an assignment, transfer or sale (as the case may be) within two (2) Business Days of its receipt of such a request, then the Series A Preferred Stock Register shall be automatically updated to reflect such assignment, transfer or sale (as the case may be).

 

7. Liquidation . In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (a “ Liquidation Event ”), the Holders shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Junior Securities by reason of their ownership thereof, an amount per share in cash equal to the greater of (x) the Stated Value for each share of Series A Preferred Stock then held by them (as adjusted for any stock split, stock dividend, stock combination or other similar transactions with respect to the Series A Preferred Stock), plus all accrued and unpaid dividends on such Series A Preferred Stock as of the date of such event, or (y) the amount payable per share of Common Stock that such Holder of Series A Preferred Stock would have received if such Holder had converted to Common Stock immediately prior to the Liquidation Event all of the shares of Series A Preferred Stock then held by such Holder together with all accrued but unpaid dividends on such Series A Preferred Stock as of the date of such event (the “ Series A Stock Liquidation Preference ”). If, upon the occurrence of a Liquidation Event, the funds thus distributed among the Holders shall be insufficient to permit the payment to such Holders of the full Series A Stock Liquidation Preference, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the Holders in proportion to the aggregate Series A Stock Liquidation Preference that would otherwise be payable to each of such Holders. Such payment shall constitute payment in full to the holders of the Series A Preferred Stock upon the Liquidation Event. After such payment shall have been made in full, or funds necessary for such payment shall have been set aside by the Corporation in trust for the account of the Holders, so as to be immediately available for such payment, such Holders shall be entitled to no further participation in the distribution of the assets of the Corporation. The sale of all or substantially all of the assets of the Corporation, or merger, tender offer or other business combination to which the Corporation is a party in which the voting stockholders of the Corporation prior to such merger, tender offer or other business combination do not own a majority of the voting securities of the resulting entity or by which any person or group acquires beneficial ownership of 50% or more of the voting securities of the Corporation or resulting entity shall, for the purposes of this Certificate of Incorporation, be deemed to be a Liquidation Event.

 

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8. Conversion . The Series A Preferred Stock held by a Holder may be converted into validly issued, fully paid and non-assessable shares of Common Stock on the terms and conditions set forth in this Section 8.

 

(a) Mandatory Conversion.

 

(i) IPO . Upon consummation of the IPO, each share of Series A Preferred Stock shall automatically convert, through no further action on the part of the Corporation or the Holder, into that number of shares of Common Stock equal to the quotient of (i) the Conversion Amount divided by (ii) the Conversion Price. For the purpose of this Section 8(a)(i), the “ Conversion Price ” shall be equal to the lesser of (A) fifty percent (50%) of the IPO Price to Public (rounded to two decimal places) or (B) $2.50, as adjusted for stock splits, stock dividends, stock combinations, recapitalizations, or the like of the Common Stock.

 

(ii) Financing. In the event of a Subsequent Placement approved by the Required Holders pursuant to Section 4(j) of the Securities Purchase Agreement, the Required Holders may elect, by way of such approval, to cause each share of Series A Preferred Stock to automatically convert upon the commencement of such Subsequent Placement, through no further action on the part of the Corporation or the Holder, into that number of shares of Common Stock equal to the quotient of (A) the Conversion Amount divided by (B) the Conversion Price. For the purposes of this Section 8(a)(ii), the “ Conversion Price ” shall be equal to the lesser of (A) fifty percent (50%) of the purchase price of the securities being sold by the Corporation in such Subsequent Placement (rounded to two decimal places) or (B) $2.50, as adjusted for stock splits, stock dividends, stock combinations, recapitalizations, or the like of the Common Stock.

 

(b) Optional Conversion . At any time after the Original Issue Date and until ten (10) calendar days prior to the consummation of the IPO (as set forth in the IPO Notice), each Holder shall be entitled to convert its Series A Preferred Stock into that number of shares of Common Stock equal to the quotient of (A) the Conversion Amount divided by (B) the Conversion Price. For the purposes of this Section 8(b), the “ Conversion Price ” shall be equal to $2.50, as adjusted for stock splits, stock dividends, stock combinations, recapitalizations, or the like that occur after the Original Issue Date in accordance with Section 13.

 

(c) Mechanics of Conversion .

 

(i) Mechanics of Mandatory Conversion . Upon the occurrence of an event specified in Section 8(a)(i) or 8(a)(ii) above, the outstanding shares of Series A Preferred Stock shall be converted into Common Stock automatically without the need for any further action by the Holders and whether or not the certificates representing such shares are surrendered to the Corporation or its Transfer Agent; provided, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series A Preferred Stock are either delivered to the Corporation or its transfer agent as provided below, or the Holder notifies the Corporation or its Transfer Agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series A Preferred Stock, the Holders shall surrender the certificates representing such shares at the office of the Corporation or the Transfer Agent. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates a certificate or certificates for the number of shares of Common Stock into which the shares of Series A Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred.

 

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(ii) Mechanics of Optional Conversion . To convert Series A Preferred stock pursuant to Section 8(b) above into shares of Common Stock on any date (a “ Conversion Date ”), the Holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or the Transfer Agent, or notify the Corporation or its Transfer Agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall deliver at such office a copy of a properly and fully-completed and executed notice of conversion in the form attached hereto as Exhibit A (the “ Conversion Notice ”). Thereupon, the Corporation shall promptly issue and deliver to such Holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Series A Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date.

 

(iii) Retirement of Preferred Stock . Shares of Preferred Stock converted in accordance with this Section 8 shall be retired and cancelled and may not be reissued as shares of such series. The Corporation may take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly. Upon and after the conversion of all issued and outstanding shares of Preferred Stock in accordance with this Section 8, the Corporation shall not be authorized to issue Preferred Stock, and thereafter the only authorized shares of stock which this Corporation shall have authority to issue shall be Common Stock.

 

(d) No Fractional Shares; Transfer Taxes . The Corporation shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Corporation shall round such fraction of a share of Common Stock up to the nearest whole share. The Corporation shall pay any and all transfer, stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon any conversion.

 

(e) Announcement of Initial Public Offering . After such time as the Corporation determines that it will consummate an IPO, it shall send a notice to the Holders (the “ IPO Notice ”) of the proposed consummation date of the IPO (the expected date of such consummation is the “ Announced IPO Date ”), but such IPO Notice shall be dispatched in any event no later than ten (10) calendar days prior to such Announced IPO Date. To the extent that the Announced IPO Date is subsequently advanced or delayed, the Corporation shall send an amended IPO Notice of the revised proposed consummation date of the IPO to the Holders; provided, however, the Corporation may not advance the Announced IPO Date to a date less than five (5) Business Days after the date of the latest amending IPO Notice. If any Announced IPO Date is delayed, the amending IPO Notice will be deemed the establishment of a new Announced IPO Date and any Conversion Notice given based on a previously Announced IPO Date will be deemed cancelled unless the Holder providing such Conversion Notice affirms in writing the Conversion Notice as given.

 

9. Redemption Rights .

 

(a) No Optional Redemption . The Corporation shall have no right to redeem the Series A Preferred Stock except as set forth in this Section 9.

 

(b) Mandatory Cash Redemption . On July 1, 2020, subject to extension upon the prior written approval of the Required Holders (the “ Mandatory Redemption Date ”), the Corporation shall repurchase all of the outstanding shares of Series A Preferred Stock at a redemption price for each Holder equal to the sum of: (i) the product of (A) two, multiplied by (B) the aggregate Stated Value of all of the Series A Preferred Stock shares then held by such Holder (as adjusted for any stock split, stock dividend, stock combination or other similar transactions with respect to the Series A Preferred Stock), plus (ii) all accrued but unpaid dividends on such shares of Series A Preferred Stock to the date of payment (the “ Redemption Price ”), in cash (“ Mandatory Cash Redemption ”).

 

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(c) Redemption In-Kind . Upon an Event of Default, and while the Event of Default is continuing, the Required Holders may elect in writing to cause the Corporation (“ Mandatory Redemption Notice ”) to repurchase the Series A Preferred Stock through the Corporation’s distribution of the assets of the Corporation having a value equal to the Redemption Price to the Holders or, upon the election of the Required Holders, a trust or other entity established by the Required Holders for purposes of receiving the assets of the Corporation (“ Mandatory In-Kind Redemption ”). Within ten days of the Corporation’s receipt of the Mandatory Redemption Notice, the Corporation shall hire an independent nationally recognized valuation firm (“ Valuation Firm ”) not unacceptable to the Required Holders for purposes of determining the fair market value of the Corporation’s assets (“ Valuation ”). The Valuation Firm shall conduct the Valuation using such criteria and methodologies as are proposed by the Valuation Firm and not unacceptable to the Corporation or the Required Holders. The Valuation shall assign fair market values to each significant group of assets (each an “ Asset Class ”) of the Corporation. The Valuation Firm shall deliver the Valuation no later than thirty (30) days of its engagement. In the event that the Valuation is less than the aggregate Redemption Price for all Holders, the Corporation shall distribute to the Holders all of the assets of the Corporation within ten (10) days of the Valuation Firm’s delivery of the Valuation. If the Valuation is greater than the aggregate Redemption Price for all Holders, the Corporation shall distribute to the Holders a proportional amount of each Asset Class equal to the Valuation amount assigned to each Asset Class by the Valuation Firm multiplied by a fraction the denominator of which is the Valuation and the numerator is the aggregate Redemption Price for all Holders. Each Holder shall be entitled to receive its proportional share of distributed assets in each Asset Class equal to the Valuation amount assigned to the distributed assets in each Asset Class multiplied by a fraction the denominator of which is the aggregate Redemption Price for all Holders and the numerator is the Redemption Price for such Holder. From the time of the Corporation’s receipt of the Mandatory Redemption Notice until the Corporation’s distribution of the assets in accordance with this Section 9(c), the Corporation shall take no action to sell, transfer or diminish the assets of the Corporation except (i) in the ordinary course of business or (ii) as approved in writing by the required Holders.

 

(d) Mechanics of Redemption . Upon receipt of payment of the Redemption Price by the Holders of Series A Preferred Stock in the event of a Mandatory Cash Redemption or the Holders’ receipt of their proportional share of the assets of the Corporation in the event of a Mandatory In-Kind Redemption, each Holder will deliver the certificate(s) evidencing the Series A Preferred Stock to be redeemed by the Corporation, unless such Holder is awaiting receipt of a new certificate evidencing such shares from the Corporation pursuant to another provision hereof.

 

(e) Insufficient Legally Available Assets . If the assets of the Corporation legally available for redemption are insufficient to effect the distributions contemplated by Section 9(c), those assets that are legally available shall be used to redeem the maximum possible number of shares of Series A Preferred Stock pro rata among the Holders to be redeemed pursuant to Section 9(c) based upon the Redemption Price held by each such Holder. At any time thereafter when additional assets of the Corporation are legally available for the redemption of Series A Preferred Shares pursuant to Section 9(c), such assets shall immediately be used to redeem the balance of the Series A Preferred Shares that the Corporation has become obligated to redeem pursuant to Section 9(c), but which it has not redeemed.

 

10. Reservation of Common Stock . The Corporation shall at all times reserve and keep available for issuance upon the conversion of shares of Series A Preferred Stock, such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Series A Preferred Stock, and shall take all action to increase the authorized number of shares of Common Stock if at any time there shall be insufficient authorized but unissued shares of Common Stock to permit such reservation or to permit the conversion of all outstanding shares of Series A Preferred Stock.

 

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11. Charges, Taxes and Expenses . The issuance of certificates for shares of Series A Preferred Stock and for Underlying Shares issued upon conversion of (or otherwise in respect of) the Series A Preferred Stock shall be made without charge to the Holders for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Corporation; provided , however , that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the registration of any certificates for Common Stock or Series A Preferred Stock in a name other than that of the Holder of such certificates. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring the Series A Preferred Stock or receiving Underlying Shares in respect of the Series A Preferred Stock.

 

12. Replacement Certificates . If any certificate evidencing Series A Preferred Stock or Underlying Shares is mutilated, lost, stolen or destroyed, the Corporation shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution for such certificate, a new certificate, but only upon receipt of evidence reasonably satisfactory to the Corporation of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Corporation may prescribe.

 

13. Certain Adjustments . The Conversion Price is subject to adjustment from time to time as set forth in this Section 13.

 

(a) Stock Dividends and Splits . If the Corporation, at any time while any shares of Series A Preferred Stock are outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately following the close of business on the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately following the close of business on the effective date of such subdivision or combination.

 

(b) Fundamental Transactions . If, at any time while any shares of Series A Preferred Stock are outstanding, (i) the Corporation effects any merger of the Corporation into or consolidation of the Corporation with another Person, (ii) the Corporation effects any sale of all or substantially all of its assets in one or a series of related transactions, or (iii) the Corporation effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock covered by Section 13(a) above) (in any such case, a “ Fundamental Transaction ”), then upon any subsequent conversion of Series A Preferred Stock, each Holder shall have the right to receive, for each Underlying Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the record holder of such Underlying Shares immediately prior to such record date (the “ Alternate Consideration ”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a manner reasonably acceptable to the holders of a majority of the outstanding shares of Series A Preferred Stock reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then each Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of Series A Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall issue to the Holders a new series of preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 13 and insuring that the Series A Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

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(c) Calculations . All calculations under this Section 13 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

(d) Notice of Adjustments . Upon the occurrence of each adjustment pursuant to this Section 13, the Corporation at its expense will promptly compute such adjustment in accordance with the terms hereof and prepare a certificate describing in reasonable detail such adjustment and the transactions giving rise thereto, including all facts upon which such adjustment is based. Upon written request, the Corporation will promptly deliver a copy of each such certificate to each Holder.

 

(e) Notice of Corporate Events . If the Corporation (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Junior Stock, including, without limitation, any granting of rights or warrants to subscribe for or purchase any capital stock of the Corporation or any subsidiary, or (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Liquidation Event or Fundamental Transaction then the Corporation shall deliver to each Holder a notice that shall specify (A) the record date for the purposes of such dividend, distribution of cash, securities or property or vote of the stockholders of the Corporation, or if a record is not to be taken, the date as of which the holders of shares of Common Stock of record to be entitled to such dividend, distribution of cash, securities or other property or vote of the stockholders is to be determined, (B) the date on which such Liquidation Event or Fundamental Transaction is expected to become effective, and (C) the material terms and conditions of such transaction, at least ten Business Days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Corporation will take all steps reasonably necessary in order to insure that each Holder is given the practical opportunity to convert its Series A Preferred Stock prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.

 

14. Fractional Shares . The Corporation shall not be required to issue or cause to be issued fractional Underlying Shares upon conversion of Series A Preferred Stock. If any fraction of an Underlying Share would, except for the provisions of this Section, be issuable upon conversion of Series A Preferred Stock, the number of Underlying Shares to be issued will be rounded up to the nearest whole share.

 

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15. Notices . Any and all notices or other communications or deliveries hereunder (including without limitation any Conversion Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 3:30 p.m. (Texas time) on a Business Day, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Business Day or later than 3:30 p.m. (Texas time) on any Business Day, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Corporation, to 2801 Via Fortuna, Suite 425, Austin, Texas 78746, attention Chief Executive Officer, or (ii) if to a Holder, to the address or facsimile number appearing on the Corporation’s stockholder records or such other address or facsimile number as such Holder may provide to the Corporation in accordance with this Section 15.

 

16. Dispute Resolution . In the case of a dispute as to the determination of the fair value of consideration other than cash or securities, or the arithmetic calculation of the Conversion Rate or the Redemption Price, the Corporation shall, as soon as practicable upon discovery, and following a good faith effort to resolve the dispute with the Holder, submit (a) the disputed determination of the fair value of consideration other than cash or securities to an independent, reputable investment bank selected by the Corporation or (b) the disputed arithmetic calculation of the Conversion Rate or the Redemption Price to the Corporation’s independent, outside accountant. The Corporation, at the Corporation’s expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Corporation and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

17. Event of Default .

 

(a) Each of the following events shall constitute an “Event of Default”:

 

(i) any material default by the Corporation with respect to any provision, condition or requirement of this Certificate of Incorporation, if such default remains uncured for a period of thirty (30) days after actual knowledge of the Corporation of such default;

 

(ii) any breach of Sections 4(i), 4(j), 4(k), 4(l), 4(p), 4(q), 4(r), 4(s) or 4(u) of the Securities Purchase Agreement;

 

(iii) liquidation proceedings shall be instituted by or against the Corporation and, if instituted against the Corporation by a third party, shall not be dismissed within sixty (60) days of their initiation;

 

(iv) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Corporation and, if instituted against the Corporation by a third party, shall not be dismissed within sixty (60) days of their initiation;

 

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(v) the commencement by the Corporation of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Corporation in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Corporation or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by the Corporation in furtherance of any such action; or

 

(vi) the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Corporation of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law; or (ii) a decree, order, judgment or other similar document adjudging the Corporation as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of the Corporation under any applicable federal, state or foreign law; or (iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for a period of sixty (60) consecutive days.

 

(vii) bankruptcy, insolvency, reorganization or other proceedings for the relief of debtors shall be instituted against the Corporation and shall not be dismissed within sixty (60) days of their initiation;

 

(viii) a final judgment or judgments for the payment of money aggregating in excess of $500,000 are rendered against the Corporation and which judgments are not, within sixty (60) days after the entry thereof, satisfied, bonded, discharged or stayed pending appeal, or are not satisfied, bonded or discharged within sixty (60) days after the expiration of such stay;

 

(ix) the Corporation fails to pay, when due, or within any applicable grace period, any payment with respect to any indebtedness in excess of $500,000 due to any third party (other than, with respect to unsecured indebtedness only, payments contested by the Corporation in good faith by proper proceedings and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP) or is otherwise in breach or violation of any agreement for monies owed or owing by the Corporation in an amount in excess of $500,000, which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder;

 

(x) any representation or warranty made by the Corporation in any Transaction Document is not accurate in any material respect when made or deemed made; or

 

(xi) the validity or enforceability of any provision of any Transaction Document shall be contested by the Corporation, or a proceeding shall be commenced by the Corporation seeking to establish the invalidity or unenforceability thereof.

 

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(b) Notice of an Event of Default . The Corporation shall, within two (2) Business Days of becoming aware of the occurrence of an Event of Default, deliver written notice thereof via facsimile and overnight courier (with next day delivery specified) (an “ Event of Default Notice ”) to the Holders.

 

18. Miscellaneous .

 

(a) The headings herein are for convenience only, do not constitute a part of this Certificate of Incorporation and shall not be deemed to limit or affect any of the provisions hereof.

 

(b) No provision of this Certificate of Incorporation may be amended, except in a written instrument signed by the Corporation and the Required Holders.

 

(c) The Series A Preferred Stock is (i) senior to all other equity interests in the Corporation outstanding as of the Original Issue Date in right of payment, whether with respect to dividends or upon liquidation or dissolution, or otherwise and (ii) will be senior to all other equity or equity equivalent securities issued by the Corporation after the Original Issue Date.

 

(d) Any of the rights of the Holders of Series A Preferred Stock set forth herein may be waived by the affirmative vote of the Required Holders. No waiver of any default with respect to any provision, condition or requirement of this Certificate of Incorporation 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 .

 

FIFTH: The power to make, alter, or repeal the Bylaws, and to adopt any new Bylaw, shall be vested in the Board, subject to the power of the stockholders of the Corporation to alter or repeal any bylaw whether adopted by them or otherwise.

 

SIXTH: To the fullest extent that the DGCL, as it exists on the date hereof or as it may hereafter be amended, permits the limitation or elimination of the liability of directors, no director of this Corporation shall be personally liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Notwithstanding the foregoing, a director shall be liable to the extent provided by applicable law: (a) for any breach of the directors’ duty of loyalty to the Corporation or its stockholders; (b) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the DGCL; or (4) for any transaction from which the director derived any improper personal benefit. Neither the amendment nor repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article, shall adversely affect any right or protection of a director of the Corporation existing at the time of such amendment or repeal.

 

SEVENTH: The Corporation shall, to the fullest extent permitted by DGCL Section 145, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section. The Corporation shall advance expenses to the fullest extent permitted by said section. Such right to indemnification and advancement of expenses shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The indemnification and advancement of expenses provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

 

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EIGHTH: Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the DGCL or the Certificate of Incorporation or these Bylaws (in each case, as they may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware). Notwithstanding the foregoing, this Article EIGHTH shall not restrict the selection of the forum for any action brought under the Securities Exchange Act of 1934, as amended, or the rules or regulations promulgated thereunder.

 

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IN WITNESS WHEREOF, this Second Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this Corporation on this 13th day of May, 2019.

 

  TFF PHARMACEUTICALS, INC.
   
  By: /s/ Glenn Mattes
    Name:  Glenn Mattes
    Title:  Chief Executive Officer and President

 

 

 

 

EXHIBIT A

FORM OF CONVERSION NOTICE

 

(To be executed by the registered Holder
in order to convert shares of Series A Preferred Stock)

 

The undersigned hereby elects to convert the number of shares of Series A Convertible Preferred Stock indicated below into shares of common stock, $0.001 par value (the “ Common Stock ”), of TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Corporation ”), according to the conditions hereof, as of the date written below.

 

   
  Date to Effect Conversion
   
   
  Number of shares of Series A Preferred Stock owned prior to Conversion
   
   
  Number of shares of Series A Preferred Stock to be Converted
   
   
  Stated Value of shares of Series A Preferred Stock to be Converted
   
   
  Number of shares of Common Stock to be Issued
   
   
  Applicable Conversion Price
   
   
  Number of shares of Series A Preferred Stock subsequent to Conversion
   
   
  Name of Holder
  By:                                     
  Name:  
  Title:  

 

 

 

 

 

 

 

 

 

Exhibit 3.2

 

BYLAWS

 

OF

 

TFF PHARMACEUTICALS, INC.,

 

A DELAWARE CORPORATION

 

 

 

 

TABLE OF CONTENTS

 

  Page
   
Article I IDENTIFICATION; OFFICES 1
   
SECTION 1.1. Name 1
   
SECTION 1.2. Principal Office; Other Offices 1
   
Article II STOCKHOLDERS 1
   
SECTION 2.1. Annual Meeting 1
   
SECTION 2.2. Special Meeting 1
   
SECTION 2.3. Place of Stockholder Meetings 1
   
SECTION 2.4. Notice of Meetings 1
   
SECTION 2.5. Quorum and Adjourned Meetings 2
   
SECTION 2.6. Fixing of Record Date. 2
   
SECTION 2.7. Voting List 2
   
SECTION 2.8. Voting 3
   
SECTION 2.9. Proxies 3
   
SECTION 2.10. Ratification of Acts of Directors and Officers 3
   
SECTION 2.11. Joint Owners of Stock 3
   
SECTION 2.12. Informal Action of Stockholders 3
   
SECTION 2.13. Organization 4
   
Article III DIRECTORS 4
   
SECTION 3.1. Number and Tenure of Directors 4
   
SECTION 3.2. Election of Directors 4
   
SECTION 3.3. Regular Meetings 4
   
SECTION 3.4. Special Meetings 5
   
SECTION 3.5. Notice of Special Meetings of the Board of Directors 5

 

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SECTION 3.6. Quorum 5
   
SECTION 3.7. Voting 5
   
SECTION 3.8. Vacancies 5
   
SECTION 3.9. Removal of Directors 5
   
SECTION 3.10. Informal Action of Directors 5
   
SECTION 3.11. Participation by Conference Telephone 6
   
Article IV WAIVER OF NOTICE 6
   
SECTION 4.1. Written Waiver of Notice 6
   
SECTION 4.2. Attendance as Waiver of Notice 6
   
Article V COMMITTEES 6
   
SECTION 5.1. General Provisions 6
   
Article VI OFFICERS 6
   
SECTION 6.1. General Provisions 6
   
SECTION 6.2. Election and Term of Office 7
   
SECTION 6.3. Removal of Officers 7
   
SECTION 6.4. The Chief Executive Officer 7
   
SECTION 6.5. The President 7
   
SECTION 6.6. The Chairman of the Board 7
   
SECTION 6.7. Vice Chairman of the Board 7
   
SECTION 6.8. The Vice President 8
   
SECTION 6.9. The Secretary 8
   
SECTION 6.10. The Assistant Secretary 8
   
SECTION 6.11. The Treasurer 8
   
SECTION 6.12. The Assistant Treasurer 8
   
SECTION 6.13. Duties of Officers May be Delegated 8
   
SECTION 6.14. Compensation 9

 

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Article VII CERTIFICATES FOR SHARES 9
   
SECTION 7.1. Certificates of Shares 9
   
SECTION 7.2. Signatures of Former Officer, Transfer Agent or Registrar 9
   
SECTION 7.3. Transfer of Shares 9
   
SECTION 7.4. Lost, Destroyed or Stolen Certificates 9
   
Article VIII DIVIDENDS 9
   
SECTION 8.1. Dividends 9
   
Article IX CONTRACTS, LOANS, CHECKS AND DEPOSITS 10
   
SECTION 9.1. Contracts 10
   
SECTION 9.2. Loans 10
   
SECTION 9.3. Checks, Drafts, Etc 10
   
SECTION 9.4. Deposits 10
   
Article X INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 10
   
SECTION 10.1. Indemnification of Directors 10
   
SECTION 10.2. Indemnification of Others 10
   
SECTION 10.3. Indemnity Not Exclusive 10
   
SECTION 10.4. Insurance Indemnification 11
   
Article XI AMENDMENTS 11
   
SECTION 11.1. Amendments 11
   
Article XII 11
   
venue selection 11
   
SECTION 12.1. Exclusive Forum for Certain Litigation 11

 

iii

 

 

BYLAWS

 

OF

 

TFF PHARMACEUTICALS, INC.,
a Delaware Corporation

 

Article I

IDENTIFICATION; OFFICES

 

SECTION 1.1. Name . The name of the corporation is TFF PHARMACEUTICALS, INC. , a Delaware corporation (the “ Corporation ”).

 

SECTION 1.2. Principal Office; Other Offices . The Board of Directors may fix the location of the principal executive office of the Corporation at any place within or outside the State of Delaware. The Corporation may have such other offices, either within or outside of the State of Delaware, as the business of the Corporation may require from time to time.

 

Article II

STOCKHOLDERS

 

SECTION 2.1. Annual Meeting . An annual meeting of the stockholders shall be held each year on a date and at a time designated by the Board of Directors. At each annual meeting, the stockholders shall elect directors to hold office for the term provided in Section 3.1 of these Bylaws.

 

SECTION 2.2. Special Meeting . A special meeting of the stockholders may be called by the President of the Corporation, the Board of Directors, or by such other officers or persons as the Board of Directors may designate.

 

SECTION 2.3. Place of Stockholder Meetings . The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting. If no such place is designated by the Board of Directors, the place of meeting will be the principal business office of the Corporation. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (“ DGCL ”).

 

SECTION 2.4. Notice of Meetings . Unless waived as herein provided, whenever stockholders are required or permitted to take any action at a meeting, notice of the meeting shall be given in writing or electronic transmission stating the place, if any, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting. Such written notice shall be given not less than ten (10) days nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at the meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at the stockholder's address as it appears on the records of the Corporation.

 

When a meeting is adjourned to another time or place in accordance with Section 2.5 of these Bylaws, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting in which the adjournment is taken. At the adjourned meeting the Corporation may conduct any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

 

 

 

SECTION 2.5. Quorum and Adjourned Meetings . Unless otherwise provided by law or the Corporation's Certificate of Incorporation, a majority of the shares entitled to vote, present in person, by remote communication, if applicable, or represented by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the shares entitled to vote at a meeting of stockholders is present in person, by remote communication, if applicable, or represented by proxy at such meeting, the meeting may be adjourned, from time to time, by the chairman of the meeting or by vote of a majority of the shares so represented without further notice. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. The stockholders present at a meeting may continue to transact business until adjournment, notwithstanding the withdrawal of such number of stockholders as may leave less than a quorum.

 

SECTION 2.6. Fixing of Record Date .

 

(a)       For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

 

(b)       For the purpose of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect to any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix the record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining the stockholders for any such purpose shall be the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 

SECTION 2.7. Voting List . The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either (i) at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, (ii) if not so specified, at the place where the meeting is to be held or (iii) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. The list shall also be produced and kept at the place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

 

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SECTION 2.8. Voting . Unless otherwise provided by the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by each stockholder. Except as otherwise provided by statute or by applicable stock exchange rules, or by the Certificate of Incorporation of the Corporation or these Bylaws, all matters other than the election of directors shall be determined by the affirmative vote of a majority of the votes cast with respect to that matter (for purposes of this Bylaw, votes cast shall exclude “abstentions” and any “broker non-votes” with respect to that question to be voted on).  Directors shall be elected by plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by a proxy at the meeting entitled to vote on the election of directors. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law or these Bylaws, only persons in whose names shares stand on the stock records of the Corporation on the record date, as provided in Section 2.6 of these Bylaws, shall be entitled to vote at any meeting of stockholders.

 

SECTION 2.9. Proxies . Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may remain irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally.

 

SECTION 2.10. Ratification of Acts of Directors and Officers . Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, any transaction or contract or act of the Corporation or of the directors or the officers of the Corporation may be ratified by the affirmative vote of the holders of the number of shares which would have been necessary to approve such transaction, contract or act at a meeting of stockholders.

 

SECTION 2.11. Joint Owners of Stock . If shares or other securities having voting power stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary of the Corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (i) if only one votes, his or her act binds all; (ii) if more than one votes, the act of the majority so voting binds all; (iii) if more than one votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (iii) shall be a majority or even-split in interest.

 

SECTION 2.12. Informal Action of Stockholders . Effective upon the registration of any class of the Corporation’s equity securities under Section 12 of the Securities Exchange Act of 1934, as amended, no action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, and no action shall be taken by the stockholders by written consent or by electronic transmission. At all times prior thereto, unless otherwise provided in the Certificate of Incorporation, any action required by the DGCL to be taken at any annual or special meeting of stockholders, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the DGCL.

 

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SECTION 2.13. Organization .

 

(a)       Such person as the Board of Directors may designate or, in the absence of such a designation, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person, by remote communication, if applicable, or by proxy, shall call to order any meeting of the stockholders and act as chairman of such meeting. In the absence of the Secretary of the Corporation, the chairman of the meeting shall appoint a person to serve as Secretary at the meeting.

 

(b)       The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

 

Article III

DIRECTORS

 

SECTION 3.1. Number and Tenure of Directors . The initial number of directors that shall constitute the entire Board shall be not less than one (1) and no more than nine (9) with the exact number to be determined from time to time by the resolution of the Board. This Section 3.1 may be changed by a duly adopted amendment to the Certificate of Incorporation or by a Bylaw amending this Section 3.1.

 

SECTION 3.2. Election of Directors . Directors shall be elected at the annual meeting of stockholders or appointed pursuant to Section 3.8. In all elections for directors, every stockholder shall have the right to vote the number of shares owned by such stockholder for each director to be elected. Unless otherwise required by law or the Certificate of Incorporation the election of directors shall be decided by a plurality of the votes cast at a meeting of the stockholders by the holders of stock entitled to vote in the election.

 

SECTION 3.3. Regular Meetings . Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware that has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for regular meetings of the Board of Directors.

 

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SECTION 3.4. Special Meetings . Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President or at least one-third of the number of directors constituting the entire Board of Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Delaware, as the place for holding any special meeting of the Board of Directors called by them.

 

SECTION 3.5. Notice of Special Meetings of the Board of Directors . Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least 24 hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, charges prepaid, at least three days before the date of the meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

 

SECTION 3.6. Quorum . A majority of the total number of directors fixed by these Bylaws, or in the absence of a Bylaw which fixes the number of directors, the number stated in the Certificate of Incorporation or named by the Board pursuant to Section 3.1, shall constitute a quorum for the transaction of business. If less than a majority of the directors are present at a meeting of the Board of Directors, a majority of the directors present may adjourn the meeting from time to time without further notice.

 

SECTION 3.7. Voting . The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the DGCL or the Certificate of Incorporation requires a vote of a greater number.

 

SECTION 3.8. Vacancies . Vacancies in the Board of Directors may be filled by a majority vote of the Board of Directors or by an election either at an annual meeting or at a special meeting of the stockholders called for that purpose. Any directors elected by the stockholders to fill a vacancy shall hold office for the balance of the term for which he or she was elected. A director appointed by the Board of Directors to fill a vacancy shall serve until the next meeting of stockholders at which directors are elected.

 

SECTION 3.9. Removal of Directors . A director, or the entire Board of Directors, may be removed, with or without cause, by the holders of 66 2/3% of the shares then entitled to vote at an election of directors.

 

SECTION 3.10. Informal Action of Directors . Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission (including electronic mail), and the writing or writings or electronic transmission or transmissions (including electronic mail) are filed with the records of proceedings of the Board or committee.

 

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SECTION 3.11. Participation by Conference Telephone . Members of the Board of Directors, or any committee designated by such board, may participate in a meeting of the Board of Directors, or committee thereof, by means of conference telephone or similar communications equipment as long as all persons participating in the meeting can speak with and hear each other, and participation by a director pursuant to this Section 3.11 shall constitute presence in person at such meeting.

 

Article IV

WAIVER OF NOTICE

 

SECTION 4.1. Written Waiver of Notice . A written waiver of any required notice, signed by the person entitled to notice, whether before or after the date stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of stockholders, directors or members of a committee of directors need be specified in any written waiver of notice.

 

SECTION 4.2. Attendance as Waiver of Notice . Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, and objects at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

 

Article V

COMMITTEES

 

SECTION 5.1. General Provisions . The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member at any meeting of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation; and, unless the resolution so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger, pursuant to Section 253 of the DGCL.

 

Article VI

OFFICERS

 

SECTION 6.1. General Provisions . The Board of Directors shall elect a President and a Secretary of the Corporation. The Board of Directors may also elect a Chairman of the Board, one or more Vice Chairmen of the Board, one or more Vice Presidents, a Treasurer, one or more Assistant Secretaries and Assistant Treasurers and such additional officers as the Board of Directors may deem necessary or appropriate from time to time. Any two or more offices may be held by the same person. The officers elected by the Board of Directors shall have such duties as are hereafter described and such additional duties as the Board of Directors may from time to time prescribe.

 

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SECTION 6.2. Election and Term of Office . The officers of the Corporation shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held after each annual meeting of the stockholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as may be convenient. New offices of the Corporation may be created and filled and vacancies in offices may be filled at any time, at a meeting or by the written consent of the Board of Directors. Unless removed pursuant to Section 6.3 of these Bylaws, each officer shall hold office until his successor has been duly elected and qualified, or until his earlier death or resignation. Election or appointment of an officer or agent shall not of itself create contract rights.

 

SECTION 6.3. Removal of Officers . Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person(s) so removed.

 

SECTION 6.4. The Chief Executive Officer . The Board of Directors shall designate whether the Chairman of the Board, if one shall have been chosen, or the President shall be the Chief Executive Officer of the Corporation. If a Chairman of the Board has not been chosen, or if one has been chosen but not designated Chief Executive Officer, then the President shall be the Chief Executive Officer of the Corporation. The Chief Executive Officer shall be the principal executive officer of the Corporation and shall in general supervise and control all of the business and affairs of the Corporation, unless otherwise provided by the Board of Directors. The Chief Executive Officer shall see that orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer may sign bonds, mortgages, certificates for shares and all other contracts and documents whether or not under the seal of the Corporation, except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation. The Chief Executive Officer shall have general powers of supervision and shall be the final arbiter of all differences between officers of the Corporation and his decision as to any matter affecting the Corporation shall be final and binding as between the officers of the Corporation subject only to the Board of Directors.

 

SECTION 6.5. The President . In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, if the Chairman of the Board has not been designated Chief Executive Officer, the President shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. At all other times the President shall have the active management of the business of the Corporation under the general supervision of the Chief Executive Officer. The President shall have concurrent power with the Chief Executive Officer to sign bonds, mortgages, certificates for shares and other contracts and documents, whether or not under the seal of the Corporation except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors, or by these Bylaws to some other officer or agent of the Corporation. In general, the President shall perform all duties incident to the office of president and such other duties as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

 

SECTION 6.6. The Chairman of the Board . The Chairman of the Board, if one is chosen, shall be chosen from among the members of the Board of Directors. If the Chairman of the Board has not been designated Chief Executive Officer, the Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors and perform such other duties as may be assigned to the Chairman of the Board by the Board of Directors.

 

SECTION 6.7. Vice Chairman of the Board . In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, if the Chairman of the Board has been designated Chief Executive Officer, the Vice Chairman, or if there be more than one, the Vice Chairmen, in the order determined by the Board of Directors, shall perform the duties of the Chief Executive Officer, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. At all other times, the Vice Chairman or Vice Chairmen shall perform such duties and have such powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

 

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SECTION 6.8. The Vice President . In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Executive Vice President and the other Vice President or Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

 

SECTION 6.9. The Secretary . The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer, under whose supervision he shall be. The Secretary shall have custody of the corporate seal of the Corporation and the Secretary, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature.

 

SECTION 6.10. The Assistant Secretary . The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

 

SECTION 6.11. The Treasurer . The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation.

 

SECTION 6.12. The Assistant Treasurer . The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

 

SECTION 6.13. Duties of Officers May be Delegated . In the absence of any officer of the Corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may delegate the powers or duties, or any portion of such powers or duties, of any officers or officer to any other officer or to any director.

 

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SECTION 6.14. Compensation . The Board of Directors shall have the authority to establish reasonable compensation of all officers for services rendered to the Corporation.

 

Article VII

CERTIFICATES FOR SHARES

 

SECTION 7.1. Certificates of Shares . The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertified shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertified shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, Chief Executive Officer, or the President or Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be a facsimile.

 

SECTION 7.2. Signatures of Former Officer, Transfer Agent or Registrar . In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person or entity were such officer, transfer agent or registrar at the date of issue.

 

SECTION 7.3. Transfer of Shares . Transfers of shares of the Corporation shall be made only on the books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of certificate for such shares. Prior to due presentment of a certificate for shares for registration of transfer, the Corporation may treat a registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all of the rights and powers of an owner of shares.

 

SECTION 7.4. Lost, Destroyed or Stolen Certificates . Whenever a certificate representing shares of the Corporation has been lost, destroyed or stolen, the holder thereof may file in the office of the Corporation an affidavit setting forth, to the best of his knowledge and belief, the time, place, and circumstance of such loss, destruction or theft together with a statement of indemnity sufficient in the opinion of the Board of Directors to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate. Thereupon the Board may cause to be issued to such person or such person's legal representative a new certificate or a duplicate of the certificate alleged to have been lost, destroyed or stolen. In the exercise of its discretion, the Board of Directors may waive the indemnification requirements provided herein.

 

Article VIII

DIVIDENDS

 

SECTION 8.1. Dividends . The Board of Directors of the Corporation may declare and pay dividends upon the shares of the Corporation's capital stock in any form determined by the Board of Directors, in the manner and upon the terms and conditions provided by law.

 

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Article IX

CONTRACTS, LOANS, CHECKS AND DEPOSITS

 

SECTION 9.1. Contracts . The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

 

SECTION 9.2. Loans . No loans shall be contracted on behalf of the Corporation, and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

 

SECTION 9.3. Checks, Drafts, Etc . All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

 

SECTION 9.4. Deposits . The funds of the Corporation may be deposited or invested in such bank account, in such investments or with such other depositories as determined by the Board of Directors.

 

Article X

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS

 

SECTION 10.1. Indemnification of Directors . The Corporation shall, to the maximum extent and in the manner permitted by Section 145 of the DGCL, indemnify each of its directors against expenses judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 145 of the DGCL), arising by reason of the fact that such person is or was a director of the Corporation. For purposes of this Article X, a “director” of the Corporation includes any person (i) who is or was a director of the Corporation, (ii) who is or was serving at the request of the Corporation as a director of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

 

SECTION 10.2. Indemnification of Others . The Corporation shall have the power, to the extent and in the manner permitted by the DGCL, to indemnify each of its employees, officers, and agents (other than directors) against expenses (as defined in Section 145 of the DGCL), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 145 of the DGCL), arising by reason of the fact that such person is or was an employee, officer or agent of the Corporation. For purposes of this Article X, an “employee” or “officer” or “agent” of the Corporation (other than a director) includes any person (i) who is or was an employee, officer, or agent of the Corporation, (ii) who is or was serving at the request of the Corporation as an employee, officer, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee, officer, or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

 

SECTION 10.3. Indemnity Not Exclusive . The indemnification provided by this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of stockholders or directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. The rights to indemnify hereunder shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of the person.

 

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SECTION 10.4. Insurance Indemnification . The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation against any liability asserted against or incurred by such person in such capacity or arising out of that person’s status as such, whether or not the Corporation would have the power to indemnify that person against such liability under the provisions of this Article X.

 

Article XI

AMENDMENTS

 

SECTION 11.1. Amendments . These Bylaws may be adopted, amended or repealed by either the Board of Directors or the Corporation’s stockholders.

 

Article XII

 

venue selection

 

SECTION 12.1. Exclusive Forum for Certain Litigation . Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the DGCL or the Certificate of Incorporation or these Bylaws (in each case, as they may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware).

 

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SECRETARY'S CERTIFICATE OF ADOPTION OF BYLAWS

 

OF

 

TFF PHARMACEUTICALS, INC. ,

a Delaware corporation

 

I, the undersigned, do hereby certify:

 

1.       That I am the duly elected and acting Secretary of TFF Pharmaceuticals, Inc. , a Delaware corporation.

 

2.       That the foregoing Bylaws constitute the Bylaws of said corporation as adopted by Unanimous Written Consent of the Board of Directors dated as of January 24, 2018.

 

IN WITNESS WHEREOF, I have hereunto subscribed my name as of January 24, 2018.

 

  By:    /s/ Brian Windsor
    Brian Windsor, Secretary

 

12

Exhibit 3.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMENDED AND RESTATED

 

BYLAWS

 

OF

 

TFF PHARMACEUTICALS, INC.,

 

A DELAWARE CORPORATION

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

  Page
Article I IDENTIFICATION; OFFICES   1
     
SECTION 1.1. Name   1
     
SECTION 1.2. Principal Office; Other Offices   1
     
Article II STOCKHOLDERS   1
     
SECTION 2.1. Annual Meeting   1
     
SECTION 2.2. Special Meeting   1
     
SECTION 2.3. Place of Stockholder Meetings   1
     
SECTION 2.4. Notice of Meetings   1
     
SECTION 2.5. Quorum and Adjourned Meetings   2
     
SECTION 2.6. Fixing of Record Date.   2
     
SECTION 2.7. Voting List   2
     
SECTION 2.8. Voting   3
     
SECTION 2.9. Proxies   3
     
SECTION 2.10. Ratification of Acts of Directors and Officers   3
     
SECTION 2.11. Joint Owners of Stock   3
     
SECTION 2.12. Informal Action of Stockholders   3
     
SECTION 2.13. Organization   4
     
SECTION 2.14. Notice of Stockholder Nominations and Business   4
     
Article III DIRECTORS   10
     
SECTION 3.1. Number and Tenure of Directors   10
     
SECTION 3.2. Election of Directors   10
     
SECTION 3.3. Regular Meetings   10
     
SECTION 3.4. Special Meetings   10

 

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SECTION 3.5. Notice of Special Meetings of the Board of Directors   10
     
SECTION 3.6. Quorum   11
     
SECTION 3.7. Voting   11
     
SECTION 3.8. Vacancies   11
     
SECTION 3.9. Removal of Directors   11
     
SECTION 3.10. Informal Action of Directors   11
     
SECTION 3.11. Participation by Conference Telephone   11
     
Article IV WAIVER OF NOTICE   11
     
SECTION 4.1. Written Waiver of Notice   11
     
SECTION 4.2. Attendance as Waiver of Notice   11
     
Article V COMMITTEES   12
     
SECTION 5.1. General Provisions   12
     
Article VI OFFICERS   12
     
SECTION 6.1. General Provisions   12
     
SECTION 6.2. Election and Term of Office   12
     
SECTION 6.3. Removal of Officers   12
     
SECTION 6.4. The Chief Executive Officer   13
     
SECTION 6.5. The President   13
     
SECTION 6.6. The Chairman of the Board   13
     
SECTION 6.7. Vice Chairman of the Board   13
     
SECTION 6.8. The Vice President   13
     
SECTION 6.9. The Secretary   13
     
SECTION 6.10. The Assistant Secretary   14
     
SECTION 6.11. The Treasurer   14
     
SECTION 6.12. The Assistant Treasurer   14

 

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SECTION 6.13. Duties of Officers May be Delegated   14
     
SECTION 6.14. Compensation   14
     
Article VII CERTIFICATES FOR SHARES   14
     
SECTION 7.1. Certificates of Shares   14
     
SECTION 7.2. Signatures of Former Officer, Transfer Agent or Registrar   15
     
SECTION 7.3. Transfer of Shares   15
     
SECTION 7.4. Lost, Destroyed or Stolen Certificates   15
     
Article VIII DIVIDENDS   15
     
SECTION 8.1. Dividends   15
     
Article IX CONTRACTS, LOANS, CHECKS AND DEPOSITS   15
     
SECTION 9.1. Contracts   15
     
SECTION 9.2. Loans   15
     
SECTION 9.3. Checks, Drafts, Etc   15
     
SECTION 9.4. Deposits   15
     
Article X INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES  AND OTHER AGENTS   16
     
SECTION 10.1. Indemnification of Directors   16
     
SECTION 10.2. Indemnification of Others   16
     
SECTION 10.3. Indemnity Not Exclusive   16
     
SECTION 10.4. Insurance Indemnification   16
     
Article XI AMENDMENTS   16
     
SECTION 11.1. Amendments   16
     
Article XII venue selection   16
     
SECTION 12.1. Exclusive Forum for Certain Litigation   16

 

iii

 

 

AMENDED AND RESTATED

 

BYLAWS

 

OF

 

TFF PHARMACEUTICALS, INC.,
a Delaware Corporation

 

Article I

 

IDENTIFICATION; OFFICES

 

SECTION 1.1. Name . The name of the corporation is TFF PHARMACEUTICALS, INC. , a Delaware corporation (the “ Corporation ”).

 

SECTION 1.2. Principal Office; Other Offices . The Board of Directors may fix the location of the principal executive office of the Corporation at any place within or outside the State of Delaware. The Corporation may have such other offices, either within or outside of the State of Delaware, as the business of the Corporation may require from time to time.

 

Article II

 

STOCKHOLDERS

 

SECTION 2.1. Annual Meeting . An annual meeting of the stockholders shall be held each year on a date and at a time designated by the Board of Directors. At each annual meeting, the stockholders shall elect directors to hold office for the term provided in Section 3.1 of these Bylaws.

 

SECTION 2.2. Special Meeting . A special meeting of the stockholders may be called by the President of the Corporation, the Board of Directors, or by such other officers or persons as the Board of Directors may designate, but special meetings may not be called by any other person or persons.

 

SECTION 2.3. Place of Stockholder Meetings . The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting. If no such place is designated by the Board of Directors, the place of meeting will be the principal business office of the Corporation. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (“ DGCL ”).

 

SECTION 2.4. Notice of Meetings . Unless waived as herein provided, whenever stockholders are required or permitted to take any action at a meeting, notice of the meeting shall be given in writing or electronic transmission stating the place, if any, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting. Such written notice shall be given not less than ten (10) days nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at the meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at the stockholder's address as it appears on the records of the Corporation.

 

When a meeting is adjourned to another time or place in accordance with Section 2.5 of these Bylaws, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting in which the adjournment is taken. At the adjourned meeting the Corporation may conduct any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

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SECTION 2.5. Quorum and Adjourned Meetings . Unless otherwise provided by law or the Corporation's Certificate of Incorporation, a majority of the shares entitled to vote, present in person, by remote communication, if applicable, or represented by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the shares entitled to vote at a meeting of stockholders is present in person, by remote communication, if applicable, or represented by proxy at such meeting, the meeting may be adjourned, from time to time, by the chairman of the meeting or by vote of a majority of the shares so represented without further notice. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. The stockholders present at a meeting may continue to transact business until adjournment, notwithstanding the withdrawal of such number of stockholders as may leave less than a quorum.

 

SECTION 2.6. Fixing of Record Date.

 

(a) For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

 

(b) For the purpose of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect to any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix the record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining the stockholders for any such purpose shall be the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 

SECTION 2.7. Voting List . The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either (i) at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, (ii) if not so specified, at the place where the meeting is to be held or (iii) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. The list shall also be produced and kept at the place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

 

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SECTION 2.8. Voting . Unless otherwise provided by the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by each stockholder. Except as otherwise provided by statute or by applicable stock exchange rules, or by the Certificate of Incorporation of the Corporation or these Bylaws, all matters other than the election of directors shall be determined by the affirmative vote of a majority of the votes cast with respect to that matter (for purposes of this Bylaw, votes cast shall exclude “abstentions” and any “broker non-votes” with respect to that question to be voted on).  Directors shall be elected by plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by a proxy at the meeting entitled to vote on the election of directors. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law or these Bylaws, only persons in whose names shares stand on the stock records of the Corporation on the record date, as provided in Section 2.6 of these Bylaws, shall be entitled to vote at any meeting of stockholders.

 

SECTION 2.9. Proxies . Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may remain irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally.

 

SECTION 2.10. Ratification of Acts of Directors and Officers . Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, any transaction or contract or act of the Corporation or of the directors or the officers of the Corporation may be ratified by the affirmative vote of the holders of the number of shares which would have been necessary to approve such transaction, contract or act at a meeting of stockholders.

 

SECTION 2.11. Joint Owners of Stock . If shares or other securities having voting power stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary of the Corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (i) if only one votes, his or her act binds all; (ii) if more than one votes, the act of the majority so voting binds all; (iii) if more than one votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (iii) shall be a majority or even-split in interest.

 

SECTION 2.12. Informal Action of Stockholders . Effective upon the registration of any class of the Corporation’s equity securities under Section 12 of the Securities Exchange Act of 1934, as amended, no action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, and no action shall be taken by the stockholders by written consent or by electronic transmission. At all times prior thereto, unless otherwise provided in the Certificate of Incorporation, any action required by the DGCL to be taken at any annual or special meeting of stockholders, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the DGCL.

 

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SECTION 2.13. Organization.

 

(a) Such person as the Board of Directors may designate or, in the absence of such a designation, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person, by remote communication, if applicable, or by proxy, shall call to order any meeting of the stockholders and act as chairman of such meeting. In the absence of the Secretary of the Corporation, the chairman of the meeting shall appoint a person to serve as Secretary at the meeting.

 

(b) The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

 

SECTION 2.14. Notice of Stockholder Nominations and Business .

 

(a) Annual Meetings of Stockholders . Nominations of one (1) or more individuals for election to the Board of Directors (each, a “ Nomination ”) and the proposal of business other than Nominations (“ Business ”) to be considered by the stockholders of the Corporation may be made at an annual meeting of stockholders only (i) pursuant to the Corporation’s notice of meeting or any supplement thereto; provided, however, that reference in the Corporation’s notice of meeting to the election of directors or to the election of members of the Board of Directors shall not include or be deemed to include Nominations; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the Corporation who is a stockholder of record of the Corporation at the time the notice provided for in this Section 2.14 is delivered to the President or the principal executive officer of the Corporation, who is entitled to vote at the meeting, and who complies with the procedures and other requirements set forth in this Section 2.14.

 

(b) Special Meetings of Stockholders . Only such Business shall be brought before and conducted at a special meeting of stockholders as shall have been brought before the special meeting pursuant to the Corporation’s notice of meeting; provided, however, that reference in the Corporation’s notice of meeting to the election of directors or to the election of members of the Board of Directors shall not include or be deemed to include Nominations. Nominations may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (i) by or at the direction of the Board of Directors or (ii) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section 2.14 is delivered to the President or the principal executive officer of the Corporation, who is entitled to vote at the meeting and upon such election, and who complies with the procedures and other requirements set forth in this Section 2.14.

 

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(c) Stockholder Nominations .

 

(i) Only individual(s) subject to a Nomination made in compliance with the procedures and other requirements set forth in this Section 2.14 shall be eligible for election at an annual or special meeting of stockholders, and any individual(s) subject to a Nomination not made in compliance with this Section 2.14 shall not be considered nor acted upon at such meeting of stockholders.

 

(ii) For Nominations to be properly brought before an annual or special meeting of stockholders by a stockholder pursuant to Section 2.14(a)(iii) or Section 2.14(b)(ii), respectively, the stockholder must have given timely notice thereof in writing to the President or the principal executive officer of the Corporation at the Corporation’s principal place of business pursuant to this Section 2.14. To be timely, the stockholder’s notice must be delivered to the President or the principal executive officer of the Corporation as provided in Section 2.14(c)(iii) or Section 2.14(c)(iv), as applicable, in the case of an annual meeting of stockholders, and Section 2.14(c)(v), in the case of a special meeting of stockholders, respectively.

 

(iii) In the case of an annual meeting of stockholders, to be timely, any Nomination made pursuant to Section 2.14(a)(iii) shall be delivered to the President or the principal executive officer of the Corporation at the Corporation’s principal place of business not later than the close of business on the ninetieth (90 th ) day and not earlier than the close of business on the one hundred twentieth (120 th ) day prior to the first anniversary of the date on which the annual meeting of stockholders in the preceding year was convened; provided, however, that if the date of the annual meeting to be held in the current year (and in respect of which a Nomination is being made pursuant to Section 2.14(a)(iii)) is more than thirty (30) days before or after the first anniversary of the date on which the annual meeting of stockholders in the preceding year was convened, notice of Nomination by the stockholder, to be timely, must be so delivered not earlier than the close of business on the one hundred twentieth (120 th ) day prior to the annual meeting of stockholders to be held in the current year and not later than the close of business on the later of (x) the ninetieth (90 th ) day prior to the date of the annual meeting of stockholders to be held in the current year or (y) the tenth (10 th ) day next following the day on which public announcement of the date of the annual meeting of stockholders to be held in the current year is first made by the Corporation. In no event shall the public announcement of an adjournment or postponement of an annual meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

 

(iv) Notwithstanding Section 2.14(c)(iii), if the number of directors to be elected to the Board of Directors at an annual meeting of stockholders is increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) days prior to the first anniversary of the date on which the annual meeting of stockholders in the preceding year was convened, the stockholder’s notice of Nomination required by this Section 2.14 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the President or the principal executive officer of the Corporation at the Corporation’s principal place of business not later than the close of business on the tenth (10 th ) day next following the day on which such public announcement of additional directorships is first made by the Corporation.

 

(v) In the case of a special meeting of stockholders, to be timely, any Nomination made pursuant to Section 2.14(b)(ii) shall be delivered to the President or the principal executive officer of the Corporation at the Corporation’s principal place of business not earlier than the close of business on the one hundred twentieth (120 th ) day prior to the date of such special meeting of stockholders and not later than the close of business on the later of (x) the ninetieth (90 th ) day prior to the date of such special meeting of stockholders or (y) the tenth (10 th ) day next following the day on which public announcement of the date of such special meeting of stockholders and of the nominees proposed by the Board of Directors to be elected at such special meeting of stockholders is first made by the Corporation. In no event shall the public announcement of an adjournment or postponement of a special meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

 

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(vi) A stockholder’s notice of Nomination(s) pursuant to Section 2.14(a)(iii) or Section 2.14(b)(ii) shall set forth: (A) as to any Nomination to be made by such stockholder, (1) all information relating to the individual subject to such Nomination that is required to be disclosed in opposition proxy statements for the election of directors filed by dissident or insurgent stockholders with the U.S. Securities and Exchange Commission (“ SEC ”) and mailed to stockholders, at such dissident’s or insurgent’s own expense, in a contested election, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), irrespective of whether the Exchange Act in fact applies to either the Nomination or the Corporation, and (2) such individual’s written consent to being named in a proxy statement as a nominee and to serving as a director of the Corporation if elected; and (B) as to the stockholder giving the notice and the beneficial owner of the Corporation’s capital stock, if any, on whose behalf the Nomination is made, (1) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (2) the class, series, and number of shares of capital stock of the Corporation that are beneficially owned, within the meaning of Rule 13d-1 (or any successor thereto) under the Exchange Act, and/or owned of record, by such stockholder and such beneficial owner, (3) a representation that the stockholder is a holder of record of capital stock of the Corporation entitled to vote at such meeting and that such stockholder (or a qualified representative of the stockholder) intends to appear in person or by proxy at the meeting to propose such Nomination, (4) a representation whether the stockholder or the beneficial owner, if any, intends or is a member of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to elect the individual subject to the Nomination, and/or (y) otherwise to solicit proxies from stockholders of the Corporation in support of the election as directors of the individual(s) in respect of whom such Nomination is being made, (5) any significant equity interest of such stockholder and/or such beneficial owner in a principal competitor of the Corporation, and (6) any direct or indirect pecuniary interest of such stockholder and/or such beneficial owner in any contract with the Corporation or any affiliate of the Corporation or any material contract with any principal competitor of the Corporation.

 

(vii) To be eligible to be a nominee for initial election as a director of the Corporation at any annual or special meeting of stockholders, an individual must deliver (in accordance with the time periods prescribed for delivery of notice in compliance with this Section 2.14) to the President or the principal executive officer of the Corporation, at the Corporation’s principal place of business, a written questionnaire with respect to the background, experience and qualifications of such individual and the background of any other person on whose behalf the Nomination is being made (which questionnaire shall be furnished by the Secretary for completion by such nominee and such other person) and a written representation and agreement (in the form furnished by the Secretary) that such individual:

 

(A) is not and will not become a party to, and is not and will not be bound by, (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person as to how such individual, if elected as a director of the Corporation, will act or vote on any issue or question (a “ Voting Commitment ”) that has not been disclosed to the Corporation, or (2) any Voting Commitment or other contractual arrangement or fiduciary capacity that could limit or interfere with such individual’s ability to comply, if elected as a director of the Corporation, with such individual’s fiduciary duties under applicable law;

 

(B) is not and will not become a party to any agreement, arrangement or understanding with any person other than the Corporation with respect to any direct or indirect compensation, reimbursement, indemnification or advancements in connection with any service, action or omission in his or her capacity as a director of the Corporation that has not been disclosed to the Corporation;

 

(C) is not and will not become a party to any Derivative Securities Agreement (as defined below) that has not been disclosed to the Corporation; and

 

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(D) in his or her individual capacity and for and on behalf of any person on whose behalf the Nomination is being made, will be in compliance, if elected as a director of the Corporation, and will comply with, applicable law and all applicable publicly disclosed corporate governance, business conduct, ethics, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation (and that, to evidence such individual’s undertaking and commitment to so comply, such individual will enter into all such agreements and instruments that the Corporation requires of each of its directors).

 

(viii) In addition, the Corporation may require any individual subject to Nomination to furnish (A) such information as is required to be set forth in the stockholder’s notice of Nomination of such individual pursuant to this Section 2.14(c) as of a date subsequent to the date on which the notice of Nomination with respect to such individual was delivered and (B) such other information as may reasonably be required by the Corporation to determine the qualifications and suitability of such individual to serve as a director of the Corporation, the eligibility of such individual to serve as an “independent director” or “audit committee financial expert” of the Corporation under applicable law, securities exchange rule or regulation, or any publicly-disclosed corporate governance guideline or committee charter of the Corporation and (C) such other information as could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee. If such individual fails to furnish such requested information, such Nomination shall not be considered made in compliance with this Section 2.14 and shall be disregarded and shall not be considered at the meeting of stockholders before which such Nomination is proposed to be brought.

 

(d) Stockholder Business .

 

(i) For any Business to be properly brought before an annual meeting of stockholders by a stockholder pursuant to Section 2.14(a)(iii), any such proposed Business must constitute a proper matter for stockholder action in accordance with the Certificate of Incorporation, these Bylaws and applicable law. Only Business brought before such annual meeting of stockholders in compliance with the procedures and other requirements set forth in this Section 2.14 shall be considered and acted upon at such annual meeting of stockholders; provided, however, that nothing in this Section 2.14 shall be deemed to affect the rights or obligations, if any, of stockholders of the Corporation to request inclusion of Business proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act (to the extent that the Corporation or such Business proposals are subject to Rule 14a-8).

 

(ii) To be timely, any such written notice of a proposal of Business pursuant to Section 2.14(a)(iii) shall be delivered to the President or the principal executive officer of the Corporation at the Corporation’s principal place of business not later than the close of business on the ninetieth (90 th ) day and not earlier than the close of business on the one hundred twentieth (120 th ) day prior to the first anniversary of the date on which the annual meeting of stockholders in the preceding year was convened; provided, however, that if the date of the annual meeting to be held in the current year (and before which a proposal of Business is being brought pursuant to Section 2.14(a)(iii)) is more than thirty (30) days before or after the first anniversary of the date on which the annual meeting of stockholders in the preceding year was convened, notice of a proposal of Business by the stockholder, to be timely, must be so delivered not earlier than the close of business on the one hundred twentieth (120 th ) day prior to the date of the annual meeting of stockholders to be held in the current year and not later than the close of business on the later of (x) the ninetieth (90 th ) day prior to the date of the annual meeting of stockholders to be held in the current year or (y) the tenth (10 th ) day next following the day on which public announcement of the date of the annual meeting of stockholders to be held in the current year is first made by the Corporation. In no event shall the public announcement of an adjournment or postponement of an annual meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

 

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(iii) A stockholder’s notice of a proposal of Business pursuant to Section 2.14(a)(iii) shall set forth: (A) as to the Business proposed by such stockholder, a brief description of the Business desired to be brought before the meeting, the text of the proposal or Business (including the text of any resolutions proposed for consideration and in the event that such Business includes a proposal to amend the Bylaws of the Corporation, the language of the proposed amendment), the reasons for conducting such Business at the meeting and any material interest in such Business of such stockholder and the beneficial owner of the Corporation’s capital stock, if any, on whose behalf the proposal is made; and (B) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf such Business is made (1) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (2) the class, series, and number of shares of capital stock of the Corporation which are owned beneficially and/or of record by such stockholder and such beneficial owner, (3) a representation that the stockholder is a holder of record of capital stock of the Corporation entitled to vote at such meeting and that such stockholder (or a qualified representative of such stockholder) intends to appear in person or by proxy at the meeting to propose such Business, (4) a representation whether the stockholder or the beneficial owner, if any, intends or is a member of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposed Business, and/or (y) otherwise to solicit proxies from stockholders of the Corporation in support of such Business, (5) any significant equity interest of such stockholder and/or such beneficial owner in a principal competitor of the Corporation, and (6) any direct or indirect pecuniary interest of such stockholder and/or such beneficial owner in any contract with the Corporation or any affiliate of the Corporation or in any material contract with any principal competitor of the Corporation.

 

(e) General .

 

(i) Except as otherwise provided by law, the person presiding over any meeting of stockholders shall have the power and duty (A) to determine whether a Nomination or Business proposed to be brought before such meeting was made or proposed in accordance with the procedures set forth in this Section 2.14, and (B) if any proposed Nomination or Business was not made or proposed in compliance with this Section 2.14, to declare that such Nomination or Business shall be disregarded or that such proposed Nomination or Business shall not be considered, conducted or transacted. Notwithstanding the foregoing provisions of this Section 2.14, if the stockholder (or a qualified representative of such stockholder) does not appear at the annual or special meeting of stockholders to present a Nomination or Business, such Nomination or Business shall be disregarded and such Nomination or Business shall not be considered, conducted or transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

 

(ii) A stockholder providing notice of any Nomination pursuant to Section 2.14(a)(iii) or Section 2.14(b)(ii) or a proposal of Business pursuant to Section 2.14(a)(iii) proposed to be brought before an annual or special meeting of stockholders shall further update and supplement such notice, if necessary, from time to time, so that the information furnished or required to be furnished in such notice pursuant to this Section 2.14 shall be true and correct in all material respects, and such update and supplement shall be received by the Secretary not later than five (5) business days following the occurrence of any event, development or occurrence that would cause the previously furnished information to be not true and correct in all material respects.

 

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(iii) If any information furnished by any stockholder pursuant to this Section 2.14 in connection with a Nomination pursuant to Section 2.14(a)(iii) or Section 2.14(b)(ii) or a proposal of Business pursuant to Section 2.14(a)(iii) is inaccurate or incomplete in any material respect, such information may be deemed not to have been furnished, and the Nomination or Business, as applicable, in respect of which such information is required to be furnished pursuant to this Section 2.14 may be deemed not to have been made or proposed in compliance with the procedures and other requirements of this Section 2.14. Any such stockholder shall notify the Corporation of any inaccuracy or incompleteness in any such information promptly (and in any event within two (2) business days) of becoming aware of such inaccuracy or incompleteness. Within five (5) business days after the record date related to the annual or special meeting of stockholders before which such Nomination or Business, as applicable, is proposed to brought or, upon written request by the Corporation, within five (5) business days of delivery of such request (or such other period as may be specified in such request), any such stockholder shall deliver to the President or the principal officer of the Corporation, at the Corporation’s principal place of business, (A) written verification, satisfactory, in the discretion of the Board of Directors or any authorized officer of the Corporation, to demonstrate the accuracy or certify the completeness of any information furnished or required to be furnished by the stockholder pursuant to this Section 2.14 in connection with such Nomination or Business, as applicable, and (B) a written update of any information submitted by the stockholder pursuant to this Section 2.14 in connection with such Nomination or Business, as the case may be, as of the record date related to such annual or special meeting of stockholders or a date not later than the date of delivery of such request by the Corporation. If a stockholder fails to furnish such written verification or written update within such period, the information as to which such written verification or a written update was requested may be deemed not to have been furnished, and the Nomination or Business, as applicable, in respect of which such information is required to be furnished pursuant to this Section 2.14 may be deemed not to have been made or proposed in compliance with the procedures and other requirements of this Section 2.14.

 

(iv) Notwithstanding the provisions of these Bylaws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.14; provided, however, that any references in these Bylaws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the separate and additional requirements set forth in these Bylaws with respect to Nominations or proposals of Business to be considered.

 

(f) Certain Definitions .

 

(i) For purposes of this Section 2.14, “ public announcement ” shall mean the first public disclosure by the Corporation in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service, or disclosed by the Corporation in a document publicly filed by the Corporation with the SEC.

 

(ii) For purposes of this Section 2.14, “ Derivative Securities Arrangement ” means any direct or indirect:

 

(A) transaction or series of transactions, instrument, contract, agreement, arrangement, understanding or relationship with respect to any right, option, warrant, convertible or exchangeable security, swap agreement, stock appreciation right or right similar to any of the foregoing, whether or not presently exercisable, with an exercise, conversion or exchange privilege, or settlement payment or mechanism, related to any security of the Corporation, or similar instrument, including, without limitation, transactions, instruments, contracts, agreements, arrangements, understandings or relationships of the type contemplated Rule 16a-1(b) or Rule 16(c)(6) under the Exchange Act, which gives such person (or any of such person’s affiliates or associates) the economic equivalent of ownership of an amount of such securities due to the fact that the value of the derivative is explicitly determined in whole or in part by reference to the price or value of any security of the Corporation;

 

(B) transaction or series of transactions, agreement, arrangement, understanding, proxy or relationship that included or includes an opportunity for such person (or such person’s affiliates or associates), directly or indirectly, to profit or share in any profit derived from any increase or decrease in the value of any security of the Corporation, to receive or share in the receipt of dividends payable on any security of the Corporation separate or separable from the underlying shares, to mitigate any loss or manage any risk associated with any increase or decrease in the value of any security of the Corporation or to increase or decrease the number of securities of the Corporation which such person (or such person’s affiliates or associates) was, is or will be entitled to vote, in each case under (A) and this (B) of this Section 2.14(e)(ii), including, without limitation, any put or call arrangement, short position, borrowed shares or swap or similar arrangement; and

 

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(C) transaction or series of transactions, plan, agreement, arrangement, understanding or relationship with respect to the borrowing or lending of securities of the Corporation or any interest therein,

 

in each case under clauses (A), (B) and (C) above, without regard to whether (1) such derivative conveys any voting rights in any securities of the Corporation to such person (or any of such person’s affiliates or associates), (2) the derivative is required to be, or is capable of being, settled through delivery of any securities of the Corporation, or (3) such person (or any of such person’s affiliates or associates) may have entered into other transactions that hedge the economic effect of such derivative.

 

(iii) For purposes of this Section 2.14, (A) an “affiliate” of or person “affiliated” with, a specified person, is a person that directly, or indirectly through one (1) or more intermediaries, controls or is controlled by, or is under common control, with the person specified, and (B) an “associate,” when used to indicate a relationship with any person, means (1) a Corporation or organization of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of equity securities, (2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar capacity, and (3) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the Corporation or any of its subsidiaries.

 

Article III

 

DIRECTORS

 

SECTION 3.1. Number and Tenure of Directors . The initial number of directors that shall constitute the entire Board shall be not less than one (1) and no more than nine (9) with the exact number to be determined from time to time by the resolution of the Board. This Section 3.1 may be changed by a duly adopted amendment to the Certificate of Incorporation or by a Bylaw amending this Section 3.1.

 

SECTION 3.2. Election of Directors . Directors shall be elected at the annual meeting or any special meeting of stockholders or appointed pursuant to Section 3.8. In all elections for directors, every stockholder shall have the right to vote the number of shares owned by such stockholder for each director to be elected. Unless otherwise required by law or the Certificate of Incorporation the election of directors shall be decided by a plurality of the votes cast at a meeting of the stockholders by the holders of stock entitled to vote in the election.

 

SECTION 3.3. Regular Meetings . Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware that has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for regular meetings of the Board of Directors.

 

SECTION 3.4. Special Meetings . Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President or at least one-third of the number of directors constituting the entire Board of Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Delaware, as the place for holding any special meeting of the Board of Directors called by them.

 

SECTION 3.5. Notice of Special Meetings of the Board of Directors . Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least 24 hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, charges prepaid, at least three days before the date of the meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

 

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SECTION 3.6. Quorum . A majority of the total number of directors fixed by these Bylaws, or in the absence of a Bylaw which fixes the number of directors, the number stated in the Certificate of Incorporation or named by the Board pursuant to Section 3.1, shall constitute a quorum for the transaction of business. If less than a majority of the directors are present at a meeting of the Board of Directors, a majority of the directors present may adjourn the meeting from time to time without further notice.

 

SECTION 3.7. Voting . The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the DGCL or the Certificate of Incorporation requires a vote of a greater number.

 

SECTION 3.8. Vacancies . Vacancies in the Board of Directors may be filled by a majority vote of the Board of Directors then in office, although such majority may be less than a quorum, or by an election either at an annual meeting or at a special meeting of the stockholders called for that purpose. Any directors elected by the stockholders to fill a vacancy shall hold office for the balance of the term for which he or she was elected. A director appointed by the Board of Directors to fill a vacancy shall serve until the next meeting of stockholders at which directors are elected.

 

SECTION 3.9. Removal of Directors . A director, or the entire Board of Directors, may be removed, with or without cause, by the holders of 66 2/3% of the shares then entitled to vote at an election of directors.

 

SECTION 3.10. Informal Action of Directors . Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission (including electronic mail), and the writing or writings or electronic transmission or transmissions (including electronic mail) are filed with the records of proceedings of the Board or committee.

 

SECTION 3.11. Participation by Conference Telephone . Members of the Board of Directors, or any committee designated by such board, may participate in a meeting of the Board of Directors, or committee thereof, by means of conference telephone or similar communications equipment as long as all persons participating in the meeting can speak with and hear each other, and participation by a director pursuant to this Section 3.11 shall constitute presence in person at such meeting.

 

Article IV

 

WAIVER OF NOTICE

 

SECTION 4.1. Written Waiver of Notice . A written waiver of any required notice, signed by the person entitled to notice, whether before or after the date stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of stockholders, directors or members of a committee of directors need be specified in any written waiver of notice.

 

SECTION 4.2. Attendance as Waiver of Notice . Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, and objects at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

 

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Article V

 

COMMITTEES

 

SECTION 5.1. General Provisions . The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member at any meeting of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation; and, unless the resolution so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger, pursuant to Section 253 of the DGCL.

 

Article VI

 

OFFICERS

 

SECTION 6.1. General Provisions . The Board of Directors shall elect a President and a Secretary of the Corporation. The Board of Directors may also elect a Chairman of the Board, one or more Vice Chairmen of the Board, one or more Vice Presidents, a Treasurer, one or more Assistant Secretaries and Assistant Treasurers and such additional officers as the Board of Directors may deem necessary or appropriate from time to time. Any two or more offices may be held by the same person. The officers elected by the Board of Directors shall have such duties as are hereafter described and such additional duties as the Board of Directors may from time to time prescribe.

 

SECTION 6.2. Election and Term of Office . The officers of the Corporation shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held after each annual meeting of the stockholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as may be convenient. New offices of the Corporation may be created and filled and vacancies in offices may be filled at any time, at a meeting or by the written consent of the Board of Directors. Unless removed pursuant to Section 6.3 of these Bylaws, each officer shall hold office until his successor has been duly elected and qualified, or until his earlier death or resignation. Election or appointment of an officer or agent shall not of itself create contract rights.

 

SECTION 6.3. Removal of Officers . Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person(s) so removed.

 

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SECTION 6.4. The Chief Executive Officer . The Board of Directors shall designate whether the Chairman of the Board, if one shall have been chosen, or the President shall be the Chief Executive Officer of the Corporation. If a Chairman of the Board has not been chosen, or if one has been chosen but not designated Chief Executive Officer, then the President shall be the Chief Executive Officer of the Corporation. The Chief Executive Officer shall be the principal executive officer of the Corporation and shall in general supervise and control all of the business and affairs of the Corporation, unless otherwise provided by the Board of Directors. The Chief Executive Officer shall see that orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer may sign bonds, mortgages, certificates for shares and all other contracts and documents whether or not under the seal of the Corporation, except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation. The Chief Executive Officer shall have general powers of supervision and shall be the final arbiter of all differences between officers of the Corporation and his decision as to any matter affecting the Corporation shall be final and binding as between the officers of the Corporation subject only to the Board of Directors.

 

SECTION 6.5. The President . In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, if the Chairman of the Board has not been designated Chief Executive Officer, the President shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. At all other times the President shall have the active management of the business of the Corporation under the general supervision of the Chief Executive Officer. The President shall have concurrent power with the Chief Executive Officer to sign bonds, mortgages, certificates for shares and other contracts and documents, whether or not under the seal of the Corporation except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors, or by these Bylaws to some other officer or agent of the Corporation. In general, the President shall perform all duties incident to the office of president and such other duties as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

 

SECTION 6.6. The Chairman of the Board . The Chairman of the Board, if one is chosen, shall be chosen from among the members of the Board of Directors. If the Chairman of the Board has not been designated Chief Executive Officer, the Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors and perform such other duties as may be assigned to the Chairman of the Board by the Board of Directors.

 

SECTION 6.7. Vice Chairman of the Board . In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, if the Chairman of the Board has been designated Chief Executive Officer, the Vice Chairman, or if there be more than one, the Vice Chairmen, in the order determined by the Board of Directors, shall perform the duties of the Chief Executive Officer, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. At all other times, the Vice Chairman or Vice Chairmen shall perform such duties and have such powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

 

SECTION 6.8. The Vice President . In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Executive Vice President and the other Vice President or Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

 

SECTION 6.9. The Secretary . The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer, under whose supervision he shall be. The Secretary shall have custody of the corporate seal of the Corporation and the Secretary, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature.

 

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SECTION 6.10. The Assistant Secretary . The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

 

SECTION 6.11. The Treasurer . The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation.

 

SECTION 6.12. The Assistant Treasurer . The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe.

 

SECTION 6.13. Duties of Officers May be Delegated . In the absence of any officer of the Corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may delegate the powers or duties, or any portion of such powers or duties, of any officers or officer to any other officer or to any director.

 

SECTION 6.14. Compensation . The Board of Directors shall have the authority to establish reasonable compensation of all officers for services rendered to the Corporation.

 

Article VII

 

CERTIFICATES FOR SHARES

 

SECTION 7.1. Certificates of Shares . The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertified shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertified shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, Chief Executive Officer, or the President or Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be a facsimile.

 

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SECTION 7.2. Signatures of Former Officer, Transfer Agent or Registrar . In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person or entity were such officer, transfer agent or registrar at the date of issue.

 

SECTION 7.3. Transfer of Shares . Transfers of shares of the Corporation shall be made only on the books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of certificate for such shares. Prior to due presentment of a certificate for shares for registration of transfer, the Corporation may treat a registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all of the rights and powers of an owner of shares.

 

SECTION 7.4. Lost, Destroyed or Stolen Certificates . Whenever a certificate representing shares of the Corporation has been lost, destroyed or stolen, the holder thereof may file in the office of the Corporation an affidavit setting forth, to the best of his knowledge and belief, the time, place, and circumstance of such loss, destruction or theft together with a statement of indemnity sufficient in the opinion of the Board of Directors to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate. Thereupon the Board may cause to be issued to such person or such person's legal representative a new certificate or a duplicate of the certificate alleged to have been lost, destroyed or stolen. In the exercise of its discretion, the Board of Directors may waive the indemnification requirements provided herein.

 

Article VIII

 

DIVIDENDS

 

SECTION 8.1. Dividends . The Board of Directors of the Corporation may declare and pay dividends upon the shares of the Corporation's capital stock in any form determined by the Board of Directors, in the manner and upon the terms and conditions provided by law.

 

Article IX

 

CONTRACTS, LOANS, CHECKS AND DEPOSITS

 

SECTION 9.1. Contracts . The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

 

SECTION 9.2. Loans . No loans shall be contracted on behalf of the Corporation, and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

 

SECTION 9.3. Checks, Drafts, Etc . All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

 

SECTION 9.4. Deposits . The funds of the Corporation may be deposited or invested in such bank account, in such investments or with such other depositories as determined by the Board of Directors.

 

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Article X

 

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES

AND OTHER AGENTS

 

SECTION 10.1. Indemnification of Directors . The Corporation shall, to the maximum extent and in the manner permitted by Section 145 of the DGCL, indemnify each of its directors against expenses judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 145 of the DGCL), arising by reason of the fact that such person is or was a director of the Corporation. For purposes of this Article X, a “director” of the Corporation includes any person (i) who is or was a director of the Corporation, (ii) who is or was serving at the request of the Corporation as a director of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

 

SECTION 10.2. Indemnification of Others . The Corporation shall have the power, to the extent and in the manner permitted by the DGCL, to indemnify each of its employees, officers, and agents (other than directors) against expenses (as defined in Section 145 of the DGCL), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 145 of the DGCL), arising by reason of the fact that such person is or was an employee, officer or agent of the Corporation. For purposes of this Article X, an “employee” or “officer” or “agent” of the Corporation (other than a director) includes any person (i) who is or was an employee, officer, or agent of the Corporation, (ii) who is or was serving at the request of the Corporation as an employee, officer, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee, officer, or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

 

SECTION 10.3. Indemnity Not Exclusive . The indemnification provided by this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of stockholders or directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. The rights to indemnify hereunder shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of the person.

 

SECTION 10.4. Insurance Indemnification . The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation against any liability asserted against or incurred by such person in such capacity or arising out of that person’s status as such, whether or not the Corporation would have the power to indemnify that person against such liability under the provisions of this Article X.

 

Article XI

 

AMENDMENTS

 

SECTION 11.1. Amendments . These Bylaws may be adopted, amended or repealed by either the Board of Directors or the Corporation’s stockholders.

 

Article XII

 

venue selection

 

SECTION 12.1. Exclusive Forum for Certain Litigation . Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the DGCL or the Certificate of Incorporation or these Bylaws (in each case, as they may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware). Notwithstanding the foregoing, this Article XII shall not restrict the selection of the forum for any action brought under the Securities Exchange Act of 1934, as amended, or the rules or regulations promulgated thereunder.

 

 

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Exhibit 4.2

 

WARRANT

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”) AND APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (II) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No. 1   Original Issue Date: January 26, 2018

 

TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), hereby certifies that, for value received, Liquid Patent Advisors, LLC or its permitted registered assigns (the “ Holder ”), is entitled to purchase from the Company up to a total of 400,000 shares of common stock, $0.001 par value (the “ Common Stock ”), of the Company (each such share, a “ Warrant Share ” and all such shares, the “ Warrant Shares ”) at an exercise price per share equal to $0.01 (as adjusted from time to time as provided in Section 9 herein, the “ Exercise Price ”), at any time and from time to time from on or after the date hereof (the “ Trigger Date ”) and through and including 5:00 P.M., prevailing Pacific time, on January 26, 2023 (the “ Expiration Date ”), and subject to the following terms and conditions:

 

This Warrant (this “ Warrant ”) is issued pursuant to that certain Engagement Agreement for Strategic Consulting Services dated January 26, 2018 between the Company and the Holder (the “ Consulting Agreement ”).

 

1.             Definitions . In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Consulting Agreement.

 

2.             Registration of Warrants . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder (which shall include the initial Holder or, as the case may be, any registered assignee to which this Warrant is permissibly assigned hereunder) from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

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3.             Registration of Transfers . The Company shall register the transfer of all or any portion of this Warrant in the Warrant Register, upon (i) surrender of this Warrant, with the Form of Assignment attached as Schedule 2 hereto duly completed and signed, to the Company’s transfer agent or to the Company at its address specified herein (ii) delivery, at the request of the Company, of an opinion of counsel reasonably satisfactory to the Company to the effect that the transfer of such portion of this Warrant may be made pursuant to an available exemption from the registration requirements of the Securities Act of 1933 (“ Securities Act ”) and all applicable state securities or blue sky laws and (iii) delivery by the transferee of a written statement to the Company certifying that the transferee is an “accredited investor” as defined in Rule 501(a) under the Securities Act and making the representations and certifications as the Company may reasonably request to procure an exemption from Section 5 of the Securities Act. Upon any such registration or transfer, a new warrant to purchase Common Stock in substantially the form of this Warrant (any such new warrant, a “ New Warrant ”) evidencing the portion of this Warrant so transferred shall be issued to the transferee, and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a Holder of a Warrant.

 

4.             Exercise and Duration of Warrants .

 

(a)          All or any part of this Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the Trigger Date and through and including 5:00 P.M. prevailing Pacific time on the Expiration Date. At 5:00 P.M., prevailing Pacific time, on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value and this Warrant shall be terminated and no longer outstanding.

 

(b)          The Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in the form attached as Schedule 1 hereto (the “ Exercise Notice ”), appropriately completed and duly signed, (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice and if a “cashless exercise” may occur at such time pursuant to Section 10 below), and the date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an “ Exercise Date .” The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.

 

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5.             Delivery of Warrant Shares . Upon exercise of this Warrant, the Company shall promptly issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate a certificate for the Warrant Shares issuable upon such exercise, with an appropriate restrictive legends. The Holder, or any Person permissibly so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the Exercise Date.

 

6.             Charges, Taxes and Expenses . Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however , that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an Affiliate thereof. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

7.             Replacement of Warrant . If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction (in such case) and, in each case, a customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.

 

8.             Reservation of Warrant Shares . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9 ). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Shares may be listed.

 

9.             Certain Adjustments . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9 .

 

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(a)           Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock into a larger number of shares, or (iii) combines its outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately before such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

 

(b)           Fundamental Transactions . If, at any time while this Warrant is outstanding (i) the Company effects any merger or consolidation of the Company with or into another Person, in which the Company is not the survivor, (ii) the Company effects any sale of all or substantially all of its assets or a majority of its Common Stock is acquired by a third party, in each case, in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which all or substantially all of the holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock covered by Section 9(a) above) (in any such case, a “ Fundamental Transaction ”), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant without regard to any limitations on exercise contained herein (the “ Alternate Consideration ”). The Company shall not effect any such Fundamental Transaction unless prior to or simultaneously with the consummation thereof, any successor to the Company, surviving entity or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, such Alternate Consideration as, in accordance with the foregoing provisions, the Holder may be entitled to purchase and/or receive (as the case may be), and the other obligations under this Warrant. The provisions of this paragraph (b) shall similarly apply to subsequent transactions analogous to a Fundamental Transaction.

 

(c)           Number of Warrant Shares . Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.

 

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(d)           Calculations . All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the sale or issuance of any such shares shall be considered an issue or sale of Common Stock.

 

(e)           Notice of Adjustments . Upon the occurrence of each adjustment pursuant to this Section 9 , the Company at its expense will, at the written request of the Holder, promptly compute such adjustment, in good faith, in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s transfer agent.

 

(f)            Notice of Corporate Events . If, while this Warrant is outstanding, the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including, without limitation, any granting of rights or warrants to subscribe for or purchase any capital stock of the Company, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then, except if such notice and the contents thereof shall be deemed to constitute material non-public information, the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction at least ten (10) Trading Days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however , that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.

 

10.           Payment of Exercise Price . The Holder shall pay the Exercise Price in immediately available funds; provided, however , the Holder may, in its sole discretion, satisfy its obligation to pay the Exercise Price through a “cashless exercise”, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

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X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the total number of Warrant Shares with respect to which this Warrant is being exercised.

 

A = the average of the Closing Sale Prices of the shares of Common Stock (as reported by Bloomberg Financial Markets) for the five Trading Days ending on the date immediately preceding the Exercise Date.

 

B = the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

For purposes of this Warrant, “ Closing Sale Price ” means, for any security as of any date, the last trade price for such security on the principal securities exchange or trading market for such security, as reported by Bloomberg Financial Markets, or, if such exchange or trading market begins to operate on an extended hours basis and does not designate the last trade price, then the last trade price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg Financial Markets, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg Financial Markets, or, if no last trade price is reported for such security by Bloomberg Financial Markets, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the " pink sheets " by Pink Sheets LLC. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then the Company shall, within two business days submit via facsimile (a) the disputed determination of the Warrant Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company's independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten business days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Consulting Agreement (provided that the Commission continues to take the position that such treatment is proper at the time of such exercise).

 

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11.           Limitation on Exercises . The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, the Holder (together with such Holder’s affiliates) would beneficially own in excess of 4.99% (“ Maximum Percentage ”) of the shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Holder and its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. To the extent that the limitation contained in this Section 11 applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliate) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliate) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of the determination. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) business day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, any Holder may decrease the Maximum Percentage to any other percentage specified in such notice; provided that such decrease will apply only to the Holder sending such notice and not to any other holder of Warrants. In addition, by written notice to the Company, any Holder may remove the limitations on exercises provided in this Section 11 entirely; provided that (i) any such removal will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such removal will apply only to the Holder sending such notice and not to any other holder of Warrants. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 11 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

 

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12.           No Fractional Shares . No fractional Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would otherwise be issuable, the number of Warrant Shares to be issued shall be rounded up to the next whole number.

 

13.           Notices . Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email at the email address specified in the Consulting Agreement prior to 5:00 p.m. (prevailing Pacific time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email at the email address specified in the Consulting Agreement t on a day that is not a Trading Day or later than 5:00 p.m. (prevailing Pacific time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service specifying next business day delivery, or (iv) upon actual receipt by the party to whom such notice is required to be given, if by hand delivery. The address and facsimile number of a party for such notices or communications shall be as set forth in the Consulting Agreement unless changed by such party by two Trading Days’ prior notice to the other party in accordance with this Section 13 .

 

14.           Warrant Agent . The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.

 

15.           Registration Rights . The Company agrees that the Holder and its assigns will have registration rights covering the resale of the Warrant Shares, including “ piggyback ” registration rights on the registrations of the Company or demand registrations (voting with the other registrable securities to effect any such demand), no less favorable than those granted to any other person by the Company prior or subsequent to the date of this Warrant. At such time, and from time to time, as the Company enters into an agreement subsequent to the date of this Warrant pursuant to which the Company grants any third party rights with respect to the Company’s registration of Company securities under the Securities Act held by such party, the Company shall offer to enter into a formal written registration rights agreement with the Holder and its assigns on substantially the same terms and such other terms as are customary and usual for agreements of such nature. In addition to, and without restricting or limiting the scope of this subparagraph (a), the Company further agrees that:

 

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(a)           Right to Piggyback . Whenever the Company proposes to register any of its securities under the Securities Act, the Company will give prompt written notice to the Holder of its intention to effect such registration and will include in such registration all Warrant Shares with respect to which the Company has received a written request from the Holder for inclusion therein within 15 days after the receipt of the Company's notice. The Company will pay, or cause to be paid, the registration expenses of the Holder in all piggyback registrations.

 

(b)           Underwritten Offering . If a piggyback registration is an underwritten primary or secondary registration on behalf of the Company and/or other holders of the Common Stock, and the managing underwriters advise the Company in writing that in their opinion the number of shares requested to be included in such registration (including the Warrant Shares and any other shares of Common Stock held by holders with registration rights) exceeds the number which can be sold in such offering without materially and adversely affecting the marketability of the offering, the Company will promptly furnish the Holder with a copy of the underwriter's opinion and may, by written notice to the Holder, include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Common Stock requested to be included in such registration pro rata among all holders with registration rights on the basis of the number of shares owned by each such holder, and (iii) third, exclude all the Common Stock requested to be included in such registration statement of all holders with registration rights.

 

(c)           Underwriting Agreement . In any registration in which the Warrant Shares is to be included, the Holder shall be a party to the underwriting agreement entered into by the Company in connection therewith, and the representations and warranties by, and the other agreements on the part of, the Company and for the benefit of the underwriters shall also be made to and for the benefit of the Holder.

 

(d)           Documents, etc . The Company shall provide to the Holder any and all documents, statements, opinions and forms as the Holder reasonably deems necessary for the Holder to participate in any piggyback registrations and to facilitate the disposition of the Warrant Shares covered by such registration pursuant to the terms and conditions of this Agreement and the applicable securities laws.

 

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(e)           Indemnification . In the event of any piggyback registration of any Warrant Shares under the Securities Act, and in connection with any registration statement or any other disclosure document pursuant to which securities of the Company are sold, the Company will, and hereby does, jointly and severally, indemnify and hold harmless the Holder, its directors, officers, fiduciaries, and agents (each, a " Covered Person ") against any losses, claims, damages or liabilities, joint or several, to which such Covered Person may be or become subject under the Securities Act, any other securities or other laws of any jurisdiction, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (1) any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any registration statement under the Securities Act, any preliminary prospectus or final prospectus included therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or any other such disclosure document, or (2) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, and will reimburse such Covered Person for any legal or any other expenses incurred by in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, the Company shall not be liable to any Covered Person in any such case to the extent that any such loss, claim, damage, liability, action or proceeding is determined, by a final, non-appealable judgment by a court or arbitral tribunal of competent jurisdiction, to have arisen out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, amendment or supplement, any document incorporated by reference or other such disclosure document in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Covered Person specifically stating this it is for use in the preparation thereof.

 

(f)          All fees and expenses incurred by the Company in connection with the performance of its obligation to register the Warrant Shares pursuant to Section 15 shall be borne by the Company; provided that any fees and expenses of the holder or holders thereof or of its or their counsel, and transfer taxes applicable to the sale of such Warrant Shares, shall be borne by such holder or holders.

 

16.           Miscellaneous .

 

(a)          The Holder, solely in such Person's capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person's capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, amalgamation, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 16(a) , the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company, contemporaneously with the giving thereof to the shareholders.

 

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(b)          Subject to the restrictions on transfer set forth on the first page hereof, and compliance with applicable securities laws, this Warrant may be assigned by the Holder. This Warrant may not be assigned by the Company except to a successor in the event of a Fundamental Transaction. This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder, or their successors and assigns.

 

(c)          GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF LOS ANGELES, CALIFORNIA, 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 SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR 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. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY. 

 

(d)          The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

 

(e)          In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby, and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

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(f)           Except as otherwise set forth herein, prior to exercise of this Warrant, the Holder hereof shall not, by reason of by being a Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.

 

  TFF PHARMACEUTICALS, INC.,
  a Delaware corporation
   
  By: /s/ Robert S. Mills
    Robert S. Mills,
    Chief Executive Officer

 

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SCHEDULE 1

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to purchase shares

of Common Stock under the foregoing Warrant)

 

Ladies and Gentlemen:

 

(1)         The undersigned is the Holder of Warrant No. __________ (the “ Warrant ”) issued by ___________________, a Delaware corporation (the “ Company ”). Capitalized terms used herein and not otherwise defined herein have the respective meanings set forth in the Warrant.

 

(2)         The undersigned hereby exercises its right to purchase __________ Warrant Shares pursuant to the Warrant.

 

(3)         The Holder intends that payment of the Exercise Price shall be made as (check one):

 

¨        Cash Exercise

 

¨        “Cashless Exercise” under Section 10

 

(4)         If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $_______ in immediately available funds to the Company in accordance with the terms of the Warrant.

 

(5)         Pursuant to this Exercise Notice, the Company shall deliver to the Holder _____________ Warrant Shares in accordance with the terms of the Warrant.

 

Dated:_______________, _____

Name of Holder: ___________________________

By:__________________________________
Name: _______________________________
Title: _______________________________

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

 

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SCHEDULE 2

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto                             (the “ Transferee ” the right represented by the within Warrant to purchase                  shares of Common Stock of ___________________ (the “ Company ”) to which the within Warrant relates and appoints                              attorney to transfer said right on the books of the Company with full power of substitution in the premises. In connection therewith, the undersigned represents, warrants, covenants and agrees to and with the Company that:

 

(a)          the offer and sale of the Warrant contemplated hereby is being made in compliance with Section 4(a)(1) of the United States Securities Act of 1933, as amended (the “ Securities Act ”) or another valid exemption from the registration requirements of Section 5 of the Securities Act and in compliance with all applicable securities laws of the states of the United States;

 

(b)          the undersigned has not offered to sell the Warrant by any form of general solicitation or general advertising, including, but not limited to, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, and any seminar or meeting whose attendees have been invited by any general solicitation or general advertising;

 

(c)          the undersigned has read the Transferee’s investment letter included herewith, and to its actual knowledge, the statements made therein are true and correct; and

 

(d)          the undersigned understands that the Company may condition the transfer of the Warrant contemplated hereby upon the delivery to the Company by the undersigned or the Transferee, as the case may be, of a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable securities laws of the states of the United States.

 

Dated:              ,         
    (Signature must conform in all respects to name of holder as specified on the face of the Warrant)
     
     
    Address of Transferee
     
     
     
     

 

In the presence of:                                                                                         

 

15

 Exhibit 4.3

 

WARRANT

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”) AND APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (II) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

TFF PHARMACEUTICALS, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

     
Warrant No. 2   Original Issue Date: March 13, 2018

 

TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), hereby certifies that, for value received, National Securities Corporation, or its permitted registered assigns (the “ Holder ”), is entitled to purchase from the Company shares of common stock, $0.001 par value (the “ Common Stock ”), of the Company (each such share, a “ Warrant Share ” and all such shares, the “ Warrant Shares ”) as determined in accordance with the terms herein, at any time and from time to time from on or after the date hereof (the “ Trigger Date ”) and through and including 5:00 P.M., prevailing Pacific time, on March 13, 2023 (the “ Expiration Date ”), and subject to the following terms and conditions:

 

This Warrant (this “ Warrant ”) is one of a series of similar warrants issued pursuant to that certain Engagement Agreement dated January 26, 2018 between the Company and the Holder (the “ Engagement Agreement ”). All such warrants are referred to herein, collectively, as the “ Warrants .”

 

1.           Definitions . In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Engagement Agreement.

 

2.         Exercise Price . For purposes of this Warrant, the “ Exercise Price ” shall be equal to 100% of the Conversion Price of the Series A Preferred Stock, as determined pursuant to Section 8 of the Certificate of Incorporation. Notwithstanding the foregoing, until such time as the Series A Preferred Stock is converted pursuant to Section 8 of the Certificate of Incorporation, the Exercise Price shall be equal to $2.50 (as adjusted from time to time as provided in Section 11 herein).

 

3.         Number of Warrant Shares . The aggregate number of Warrant Shares shall be equal to 10% of the aggregate number of shares of Common Stock issued by the Company upon conversion of 4,133,000 shares (as adjusted for combinations, subdivisions and the like) of the Series A Preferred Stock pursuant to Section 8 of the Certificate of Incorporation. Notwithstanding the foregoing, until such time as the Series A Preferred Stock is converted pursuant to Section 8 of the Certificate of Incorporation, the number of Warrant Shares shall be equal to 413,300 shares of Common Stock (as adjusted from time to time as provided in Section 11 herein).

 

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4.            Registration of Warrants . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder (which shall include the initial Holder or, as the case may be, any registered assignee to which this Warrant is permissibly assigned hereunder) from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

5.            Transfers; Lock-Up Period .

 

(a)          The Company shall register the transfer of all or any portion of this Warrant in the Warrant Register, upon (i) surrender of this Warrant, with the Form of Assignment attached as Schedule 2 hereto duly completed and signed, to the Company’s transfer agent or to the Company at its address specified herein (ii) delivery, at the request of the Company, of an opinion of counsel reasonably satisfactory to the Company to the effect that the transfer of such portion of this Warrant may be made pursuant to an available exemption from the registration requirements of the Securities Act of 1933 (“ Securities Act ”) and all applicable state securities or blue sky laws and (iii) delivery by the transferee of a written statement to the Company certifying that the transferee is an “accredited investor” as defined in Rule 501(a) under the Securities Act and making the representations and certifications as the Company may reasonably request to procure an exemption from Section 5 of the Securities Act. Upon any such registration or transfer, a new warrant to purchase Common Stock in substantially the form of this Warrant (any such new warrant, a “ New Warrant ”) evidencing the portion of this Warrant so transferred shall be issued to the transferee, and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a Holder of a Warrant.

 

(b)          The Holder agrees that in the event of an initial public offering of the Company’s securities, pursuant to the Lock-Up Period (as defined below) contained in Rule 5110(g)(1) of the Financial Industry Regulatory Authority, Inc. (“ FINRA ”), it will not (a) sell, transfer, assign, pledge, hypothecate or otherwise transfer the Warrant (including any Warrant Shares issued or issuable hereunder) other than to a bona fide officer, partner or other associated person of the Holder or any selected dealer (or any officer, partner or other associated person thereof) in connection with the initial public offering, in each case in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause the Warrant or any Warrant Shares issued or issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the Warrant or any Warrant Shares issued or issuable hereunder, except as provided for in FINRA Rule 5110(g)(2). As used herein, the term “ Lock-Up Period ” means the period beginning on the date that a registration statement of the Company under the Securities Act is declared effective by the Securities and Exchange Commission (the “ Effective Date ”) and ending on the one hundred eighty day anniversary of the Effective Date.

 

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6.            Exercise and Duration of Warrants .

 

(a)          All or any part of this Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the Trigger Date and through and including 5:00 P.M. prevailing Pacific time on the Expiration Date. At 5:00 P.M., prevailing Pacific time, on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value and this Warrant shall be terminated and no longer outstanding.

 

(b)          The Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in the form attached as Schedule 1 hereto (the “ Exercise Notice ”), appropriately completed and duly signed, (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice and if a “cashless exercise” may occur at such time pursuant to Section 12 below), and the date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an “ Exercise Date .” The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.

 

7.            Delivery of Warrant Shares . Upon exercise of this Warrant, the Company shall promptly issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate a certificate for the Warrant Shares issuable upon such exercise, with an appropriate restrictive legend. The Holder, or any Person permissibly so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the Exercise Date.

 

8.            Charges, Taxes and Expenses . Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however , that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an Affiliate thereof. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

9.            Replacement of Warrant . If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction (in such case) and, in each case, a customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.

 

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10.            Reservation of Warrant Shares . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 11 ). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Shares may be listed.

 

11.            Certain Adjustments . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 11 .

 

(a)           Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock into a larger number of shares, or (iii) combines its outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately before such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

 

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(b)           Fundamental Transactions . If, at any time while this Warrant is outstanding (i) the Company effects any merger or consolidation of the Company with or into another Person, in which the Company is not the survivor, (ii) the Company effects any sale of all or substantially all of its assets or a majority of its Common Stock is acquired by a third party, in each case, in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which all or substantially all of the holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock covered by Section 11(a) above) (in any such case, a “ Fundamental Transaction ”), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant without regard to any limitations on exercise contained herein (the “ Alternate Consideration ”). The Company shall not effect any such Fundamental Transaction unless prior to or simultaneously with the consummation thereof, any successor to the Company, surviving entity or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, such Alternate Consideration as, in accordance with the foregoing provisions, the Holder may be entitled to purchase and/or receive (as the case may be), and the other obligations under this Warrant. The provisions of this paragraph (c) shall similarly apply to subsequent transactions analogous to a Fundamental Transaction.

 

(c)           Number of Warrant Shares . Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.

 

(d)           Calculations . All calculations under this Section 11 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the sale or issuance of any such shares shall be considered an issue or sale of Common Stock.

 

(e)           Notice of Adjustments . Upon the occurrence of each adjustment pursuant to this Section 11 , the Company at its expense will, at the written request of the Holder, promptly compute such adjustment, in good faith, in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s transfer agent.

 

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(f)           Notice of Corporate Events . If, while this Warrant is outstanding, the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including, without limitation, any granting of rights or warrants to subscribe for or purchase any capital stock of the Company, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then, except if such notice and the contents thereof shall be deemed to constitute material non-public information, the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction at least ten (10) Trading Days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however , that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.

 

12.          Payment of Exercise Price . The Holder shall pay the Exercise Price in immediately available funds; provided, however , the Holder may, in its sole discretion, commencing on the date that is 18 months from the date of this Warrant, satisfy its obligation to pay the Exercise Price through a “cashless exercise”, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the total number of Warrant Shares with respect to which this Warrant is being exercised.

 

A = the average of the Closing Sale Prices of the shares of Common Stock (as reported by Bloomberg Financial Markets) for the five Trading Days ending on the date immediately preceding the Exercise Date.

 

B = the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

For purposes of this Warrant, “ Closing Sale Price ” means, for any security as of any date, the last trade price for such security on the principal securities exchange or trading market for such security, as reported by Bloomberg Financial Markets, or, if such exchange or trading market begins to operate on an extended hours basis and does not designate the last trade price, then the last trade price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg Financial Markets, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg Financial Markets, or, if no last trade price is reported for such security by Bloomberg Financial Markets, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the " pink sheets " by Pink Sheets LLC. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then the Company shall, within two business days submit via facsimile (a) the disputed determination of the Warrant Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company's independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten business days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

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For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Consulting Agreement (provided that the Commission continues to take the position that such treatment is proper at the time of such exercise).

 

13.          Limitation on Exercises . The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, the Holder (together with such Holder’s affiliates) would beneficially own in excess of 4.99% (“ Maximum Percentage ”) of the shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Holder and its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. To the extent that the limitation contained in this Section 13 applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliate) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliate) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of the determination. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) business day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, any Holder may decrease the Maximum Percentage to any other percentage specified in such notice; provided that such decrease will apply only to the Holder sending such notice and not to any other holder of Warrants. In addition, by written notice to the Company, any Holder may remove the limitations on exercises provided in this Section 13 entirely; provided that (i) any such removal will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such removal will apply only to the Holder sending such notice and not to any other holder of Warrants. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 13 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

 

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14.          No Fractional Shares . No fractional Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would otherwise be issuable, the number of Warrant Shares to be issued shall be rounded up to the next whole number.

 

15.          Notices . Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email at the email address specified in the Engagement Agreement prior to 5:00 p.m. (prevailing Pacific time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email at the email address specified in the Engagement Agreement t on a day that is not a Trading Day or later than 5:00 p.m. (prevailing Pacific time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service specifying next business day delivery, or (iv) upon actual receipt by the party to whom such notice is required to be given, if by hand delivery. The address and facsimile number of a party for such notices or communications shall be as set forth in the Engagement Agreement unless changed by such party by two Trading Days’ prior notice to the other party in accordance with this Section 15 .

 

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16.          Warrant Agent . The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders’ services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.

 

17.          Registration Rights . The Company agrees that the Holder and its assigns will have registration rights covering the resale of the Warrant Shares, including “piggyback” registration rights on the registrations of the Company or demand registrations (voting with the other registrable securities to effect any such demand), no less favorable than those granted to any other person by the Company prior or subsequent to the date of this Warrant. At such time, and from time to time, as the Company enters into an agreement subsequent to the date of this Warrant pursuant to which the Company grants any third party rights with respect to the Company’s registration of Company securities under the Securities Act held by such party, the Company shall offer to enter into a formal written registration rights agreement with the Holder and its assigns on substantially the same terms and such other terms as are customary and usual for agreements of such nature.

 

18.          Miscellaneous .

 

(a)          The Holder, solely in such Person's capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person's capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, amalgamation, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 18(a) , the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company, contemporaneously with the giving thereof to the shareholders.

 

(b)          Subject to the restrictions on transfer set forth on the first page hereof, and compliance with applicable securities laws, this Warrant may be assigned by the Holder. This Warrant may not be assigned by the Company except to a successor in the event of a Fundamental Transaction. This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder, or their successors and assigns.

 

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(c)          GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, 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 SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR 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. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY. 

 

(d)          The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

 

(e)          In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby, and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

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(f)          Except as otherwise set forth herein, prior to exercise of this Warrant, the Holder hereof shall not, by reason of by being a Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.

 

  “Company”
     
  By:  /s/ Robert S. Mills
    Robert S. Mills, President

 

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SCHEDULE 1

 

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to purchase shares

of Common Stock under the foregoing Warrant)

 

Ladies and Gentlemen:

 

(1)         The undersigned is the Holder of Warrant No. __________ (the “ Warrant ”) issued by TFF Pharmaceuticals, Inc. (the “ Company ”). Capitalized terms used herein and not otherwise defined herein have the respective meanings set forth in the Warrant.

 

(2)         The undersigned hereby exercises its right to purchase __________ Warrant Shares pursuant to the Warrant.

 

(3)         The Holder intends that payment of the Exercise Price shall be made as (check one):

 

¨           Cash Exercise

 

¨           “Cashless Exercise” under Section 10

 

(4)          If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $_______ in immediately available funds to the Company in accordance with the terms of the Warrant.

 

(5)          Pursuant to this Exercise Notice, the Company shall deliver to the Holder _____________ Warrant Shares in accordance with the terms of the Warrant.

 

Dated:_______________, _____

 

[Company]

 

   
By:  

 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

 

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SCHEDULE 2

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto                              (the “ Transferee ” the right represented by the within Warrant to purchase                  shares of Common Stock of TFF Pharmaceuticals, Inc. (the “ Company ”) to which the within Warrant relates and appoints                              attorney to transfer said right on the books of the Company with full power of substitution in the premises. In connection therewith, the undersigned represents, warrants, covenants and agrees to and with the Company that:

 

(a) the offer and sale of the Warrant contemplated hereby is being made in compliance with Section 4(a)(1) of the United States Securities Act of 1933, as amended (the “ Securities Act ”) or another valid exemption from the registration requirements of Section 5 of the Securities Act and in compliance with all applicable securities laws of the states of the United States;

 

(b) the undersigned has not offered to sell the Warrant by any form of general solicitation or general advertising, including, but not limited to, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, and any seminar or meeting whose attendees have been invited by any general solicitation or general advertising;

 

(c) the undersigned has read the Transferee’s investment letter included herewith, and to its actual knowledge, the statements made therein are true and correct; and

 

(d) the undersigned understands that the Company may condition the transfer of the Warrant contemplated hereby upon the delivery to the Company by the undersigned or the Transferee, as the case may be, of a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable securities laws of the states of the United States.

 

Dated:_______________, _____

 

[Company]

   
     
     

By:

 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

 

 

 

 

Address of Transferee

     
     
     
     

 

In the presence of:

 

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Exhibit 4.4

 

WARRANT

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”) AND APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (II) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

TFF PHARMACEUTICALS, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

     
Warrant No. 3   Original Issue Date: March 22, 2018

 

TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), hereby certifies that, for value received, National Securities Corporation, or its permitted registered assigns (the “ Holder ”), is entitled to purchase from the Company shares of common stock, $0.001 par value (the “ Common Stock ”), of the Company (each such share, a “ Warrant Share ” and all such shares, the “ Warrant Shares ”) as determined in accordance with the terms herein, at any time and from time to time from on or after the date hereof (the “ Trigger Date ”) and through and including 5:00 P.M., prevailing Pacific time, on March 22, 2023 (the “ Expiration Date ”), and subject to the following terms and conditions:

 

This Warrant (this “ Warrant ”) is one of a series of similar warrants issued pursuant to that certain Engagement Agreement dated January 26, 2018 between the Company and the Holder (the “ Engagement Agreement ”). All such warrants are referred to herein, collectively, as the “ Warrants .”

 

1.           Definitions . In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Engagement Agreement.

 

2.           Exercise Price . For purposes of this Warrant, the “ Exercise Price ” shall be equal to 100% of the Conversion Price of the Series A Preferred Stock, as determined pursuant to Section 8 of the Certificate of Incorporation. Notwithstanding the foregoing, until such time as the Series A Preferred Stock is converted pursuant to Section 8 of the Certificate of Incorporation, the Exercise Price shall be equal to $2.50 (as adjusted from time to time as provided in Section 11 herein).

 

3.           Number of Warrant Shares . The aggregate number of Warrant Shares shall be equal to 10% of the aggregate number of shares of Common Stock issued by the Company upon conversion of 1,529,000 shares (as adjusted for combinations, subdivisions and the like) of the Series A Preferred Stock pursuant to Section 8 of the Certificate of Incorporation. Notwithstanding the foregoing, until such time as the Series A Preferred Stock is converted pursuant to Section 8 of the Certificate of Incorporation, the number of Warrant Shares shall be equal to 152,900 shares of Common Stock (as adjusted from time to time as provided in Section 11 herein).

 

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4.            Registration of Warrants . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder (which shall include the initial Holder or, as the case may be, any registered assignee to which this Warrant is permissibly assigned hereunder) from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

5.            Transfers; Lock-Up Period .

 

(a)          The Company shall register the transfer of all or any portion of this Warrant in the Warrant Register, upon (i) surrender of this Warrant, with the Form of Assignment attached as Schedule 2 hereto duly completed and signed, to the Company’s transfer agent or to the Company at its address specified herein (ii) delivery, at the request of the Company, of an opinion of counsel reasonably satisfactory to the Company to the effect that the transfer of such portion of this Warrant may be made pursuant to an available exemption from the registration requirements of the Securities Act of 1933 (“ Securities Act ”) and all applicable state securities or blue sky laws and (iii) delivery by the transferee of a written statement to the Company certifying that the transferee is an “accredited investor” as defined in Rule 501(a) under the Securities Act and making the representations and certifications as the Company may reasonably request to procure an exemption from Section 5 of the Securities Act. Upon any such registration or transfer, a new warrant to purchase Common Stock in substantially the form of this Warrant (any such new warrant, a “ New Warrant ”) evidencing the portion of this Warrant so transferred shall be issued to the transferee, and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a Holder of a Warrant.

 

(b)          The Holder agrees that in the event of an initial public offering of the Company’s securities, pursuant to the Lock-Up Period (as defined below) contained in Rule 5110(g)(1) of the Financial Industry Regulatory Authority, Inc. (“ FINRA ”), it will not (a) sell, transfer, assign, pledge, hypothecate or otherwise transfer the Warrant (including any Warrant Shares issued or issuable hereunder) other than to a bona fide officer, partner or other associated person of the Holder or any selected dealer (or any officer, partner or other associated person thereof) in connection with the initial public offering, in each case in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause the Warrant or any Warrant Shares issued or issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the Warrant or any Warrant Shares issued or issuable hereunder, except as provided for in FINRA Rule 5110(g)(2). As used herein, the term “ Lock-Up Period ” means the period beginning on the date that a registration statement of the Company under the Securities Act is declared effective by the Securities and Exchange Commission (the “ Effective Date ”) and ending on the one hundred eighty day anniversary of the Effective Date.

 

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6.            Exercise and Duration of Warrants .

 

(a)          All or any part of this Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the Trigger Date and through and including 5:00 P.M. prevailing Pacific time on the Expiration Date. At 5:00 P.M., prevailing Pacific time, on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value and this Warrant shall be terminated and no longer outstanding.

 

(b)          The Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in the form attached as Schedule 1 hereto (the “ Exercise Notice ”), appropriately completed and duly signed, (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice and if a “cashless exercise” may occur at such time pursuant to Section 12 below), and the date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an “ Exercise Date .” The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.

 

7.            Delivery of Warrant Shares . Upon exercise of this Warrant, the Company shall promptly issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate a certificate for the Warrant Shares issuable upon such exercise, with an appropriate restrictive legend. The Holder, or any Person permissibly so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the Exercise Date.

 

8.            Charges, Taxes and Expenses . Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however , that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an Affiliate thereof. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

9.            Replacement of Warrant . If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction (in such case) and, in each case, a customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.

 

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10.            Reservation of Warrant Shares . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9 ). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Shares may be listed.

 

11.            Certain Adjustments . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 11 .

 

(a)           Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock into a larger number of shares, or (iii) combines its outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately before such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

 

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(b)           Fundamental Transactions . If, at any time while this Warrant is outstanding (i) the Company effects any merger or consolidation of the Company with or into another Person, in which the Company is not the survivor, (ii) the Company effects any sale of all or substantially all of its assets or a majority of its Common Stock is acquired by a third party, in each case, in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which all or substantially all of the holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock covered by Section 9(a) above) (in any such case, a “ Fundamental Transaction ”), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant without regard to any limitations on exercise contained herein (the “ Alternate Consideration ”). The Company shall not effect any such Fundamental Transaction unless prior to or simultaneously with the consummation thereof, any successor to the Company, surviving entity or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, such Alternate Consideration as, in accordance with the foregoing provisions, the Holder may be entitled to purchase and/or receive (as the case may be), and the other obligations under this Warrant. The provisions of this paragraph (c) shall similarly apply to subsequent transactions analogous to a Fundamental Transaction.

 

(c)           Number of Warrant Shares . Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.

 

(d)           Calculations . All calculations under this Section 11 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the sale or issuance of any such shares shall be considered an issue or sale of Common Stock.

 

(e)           Notice of Adjustments . Upon the occurrence of each adjustment pursuant to this Section 11 , the Company at its expense will, at the written request of the Holder, promptly compute such adjustment, in good faith, in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s transfer agent.

 

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(f)           Notice of Corporate Events . If, while this Warrant is outstanding, the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including, without limitation, any granting of rights or warrants to subscribe for or purchase any capital stock of the Company, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then, except if such notice and the contents thereof shall be deemed to constitute material non-public information, the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction at least ten (10) Trading Days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however , that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.

 

12.          Payment of Exercise Price . The Holder shall pay the Exercise Price in immediately available funds; provided, however , the Holder may, in its sole discretion, commencing on the date that is 18 months from the date of this Warrant, satisfy its obligation to pay the Exercise Price through a “cashless exercise”, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the total number of Warrant Shares with respect to which this Warrant is being exercised.

 

A = the average of the Closing Sale Prices of the shares of Common Stock (as reported by Bloomberg Financial Markets) for the five Trading Days ending on the date immediately preceding the Exercise Date.

 

B = the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

For purposes of this Warrant, “ Closing Sale Price ” means, for any security as of any date, the last trade price for such security on the principal securities exchange or trading market for such security, as reported by Bloomberg Financial Markets, or, if such exchange or trading market begins to operate on an extended hours basis and does not designate the last trade price, then the last trade price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg Financial Markets, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg Financial Markets, or, if no last trade price is reported for such security by Bloomberg Financial Markets, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the " pink sheets " by Pink Sheets LLC. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then the Company shall, within two business days submit via facsimile (a) the disputed determination of the Warrant Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company's independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten business days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

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For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Consulting Agreement (provided that the Commission continues to take the position that such treatment is proper at the time of such exercise).

 

13.          Limitation on Exercises . The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, the Holder (together with such Holder’s affiliates) would beneficially own in excess of 4.99% (“ Maximum Percentage ”) of the shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Holder and its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. To the extent that the limitation contained in this Section 13 applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliate) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliate) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of the determination. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) business day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, any Holder may decrease the Maximum Percentage to any other percentage specified in such notice; provided that such decrease will apply only to the Holder sending such notice and not to any other holder of Warrants. In addition, by written notice to the Company, any Holder may remove the limitations on exercises provided in this Section 13 entirely; provided that (i) any such removal will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such removal will apply only to the Holder sending such notice and not to any other holder of Warrants. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 13 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

 

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14.          No Fractional Shares . No fractional Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would otherwise be issuable, the number of Warrant Shares to be issued shall be rounded up to the next whole number.

 

15.          Notices . Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email at the email address specified in the Engagement Agreement prior to 5:00 p.m. (prevailing Pacific time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email at the email address specified in the Engagement Agreement t on a day that is not a Trading Day or later than 5:00 p.m. (prevailing Pacific time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service specifying next business day delivery, or (iv) upon actual receipt by the party to whom such notice is required to be given, if by hand delivery. The address and facsimile number of a party for such notices or communications shall be as set forth in the Engagement Agreement unless changed by such party by two Trading Days’ prior notice to the other party in accordance with this Section 15 .

 

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16.          Warrant Agent . The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders’ services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.

 

17.          Registration Rights . The Company agrees that the Holder and its assigns will have registration rights covering the resale of the Warrant Shares, including “piggyback” registration rights on the registrations of the Company or demand registrations (voting with the other registrable securities to effect any such demand), no less favorable than those granted to any other person by the Company prior or subsequent to the date of this Warrant. At such time, and from time to time, as the Company enters into an agreement subsequent to the date of this Warrant pursuant to which the Company grants any third party rights with respect to the Company’s registration of Company securities under the Securities Act held by such party, the Company shall offer to enter into a formal written registration rights agreement with the Holder and its assigns on substantially the same terms and such other terms as are customary and usual for agreements of such nature.

 

18.          Miscellaneous .

 

(a)          The Holder, solely in such Person's capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person's capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, amalgamation, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 18(a) , the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company, contemporaneously with the giving thereof to the shareholders.

 

(b)          Subject to the restrictions on transfer set forth on the first page hereof, and compliance with applicable securities laws, this Warrant may be assigned by the Holder. This Warrant may not be assigned by the Company except to a successor in the event of a Fundamental Transaction. This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder, or their successors and assigns.

 

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(c)          GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, 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 SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR 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. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY. 

 

(d)          The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

 

(e)          In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby, and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

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(f)          Except as otherwise set forth herein, prior to exercise of this Warrant, the Holder hereof shall not, by reason of by being a Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.

 

  “Company”
     
  By:  /s/ Robert S. Mills
    Robert S. Mills, President

 

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SCHEDULE 1

 

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to purchase shares

of Common Stock under the foregoing Warrant)

 

Ladies and Gentlemen:

 

(1)          The undersigned is the Holder of Warrant No. __________ (the “ Warrant ”) issued by TFF Pharmaceuticals, Inc. (the “ Company ”). Capitalized terms used herein and not otherwise defined herein have the respective meanings set forth in the Warrant.

 

(2)          The undersigned hereby exercises its right to purchase __________ Warrant Shares pursuant to the Warrant.

 

(3)          The Holder intends that payment of the Exercise Price shall be made as (check one):

 

¨           Cash Exercise

 

¨           “Cashless Exercise” under Section 10

 

(4)          If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $_______ in immediately available funds to the Company in accordance with the terms of the Warrant.

 

(5)          Pursuant to this Exercise Notice, the Company shall deliver to the Holder _____________ Warrant Shares in accordance with the terms of the Warrant.

 

Dated:_______________, _____

 

[Company]

 

   
By:  

 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

 

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SCHEDULE 2

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto                              (the “ Transferee ” the right represented by the within Warrant to purchase                  shares of Common Stock of TFF Pharmaceuticals, Inc. (the “ Company ”) to which the within Warrant relates and appoints                              attorney to transfer said right on the books of the Company with full power of substitution in the premises. In connection therewith, the undersigned represents, warrants, covenants and agrees to and with the Company that:

 

(a) the offer and sale of the Warrant contemplated hereby is being made in compliance with Section 4(a)(1) of the United States Securities Act of 1933, as amended (the “ Securities Act ”) or another valid exemption from the registration requirements of Section 5 of the Securities Act and in compliance with all applicable securities laws of the states of the United States;

 

(b) the undersigned has not offered to sell the Warrant by any form of general solicitation or general advertising, including, but not limited to, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, and any seminar or meeting whose attendees have been invited by any general solicitation or general advertising;

 

(c) the undersigned has read the Transferee’s investment letter included herewith, and to its actual knowledge, the statements made therein are true and correct; and

 

(d) the undersigned understands that the Company may condition the transfer of the Warrant contemplated hereby upon the delivery to the Company by the undersigned or the Transferee, as the case may be, of a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable securities laws of the states of the United States.

 

Dated:_______________, _____

 

[Company]

   
     
     

By:

 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

 

 

 

 

Address of Transferee

     
     
     
     

 

In the presence of:

 

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Exhibit 4.5

 

WARRANT

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”) AND APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (II) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

TFF PHARMACEUTICALS, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No. 17   Original Issue Date: May 16, 2019

 

TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), hereby certifies that, for value received, National Securities Corporation, or its permitted registered assigns (the “ Holder ”), is entitled to purchase from the Company shares of common stock, $0.001 par value (the “ Common Stock ”), of the Company (each such share, a “ Warrant Share ” and all such shares, the “ Warrant Shares ”) as determined in accordance with the terms herein, at any time and from time to time from on or after the date hereof (the “ Trigger Date ”) and through and including 5:00 P.M., prevailing Pacific time, on May 16, 2024 (the “ Expiration Date ”), and subject to the following terms and conditions:

 

This Warrant (this “ Warrant ”) is one of a series of similar warrants issued pursuant to that certain Engagement Agreement dated January 26, 2018 between the Company and the Holder (the “ Engagement Agreement ”). All such warrants are referred to herein, collectively, as the “ Warrants .”

 

1. Definitions . In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Engagement Agreement.

 

2. Exercise Price . For purposes of this Warrant, the “ Exercise Price ” shall be equal to 100% of the Conversion Price of the Series A Preferred Stock, as determined pursuant to Section 8 of the Certificate of Incorporation. Notwithstanding the foregoing, until such time as the Series A Preferred Stock is converted pursuant to Section 8 of the Certificate of Incorporation, the Exercise Price shall be equal to $2.50 (as adjusted from time to time as provided in Section 11 herein).

 

3. Number of Warrant Shares . The aggregate number of Warrant Shares shall be equal to 10% of the aggregate number of shares of Common Stock issued by the Company upon conversion of 4,133,000 shares (as adjusted for combinations, subdivisions and the like) of the Series A Preferred Stock pursuant to Section 8 of the Certificate of Incorporation. Notwithstanding the foregoing, until such time as the Series A Preferred Stock is converted pursuant to Section 8 of the Certificate of Incorporation, the number of Warrant Shares shall be equal to 413,300 shares of Common Stock (as adjusted from time to time as provided in Section 11 herein).

 

4. Registration of Warrants . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder (which shall include the initial Holder or, as the case may be, any registered assignee to which this Warrant is permissibly assigned hereunder) from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

 

 

 

5 . Transfers; Lock-Up Period .

 

(a) The Company shall register the transfer of all or any portion of this Warrant in the Warrant Register, upon (i) surrender of this Warrant, with the Form of Assignment attached as Schedule 2 hereto duly completed and signed, to the Company’s transfer agent or to the Company at its address specified herein (ii) delivery, at the request of the Company, of an opinion of counsel reasonably satisfactory to the Company to the effect that the transfer of such portion of this Warrant may be made pursuant to an available exemption from the registration requirements of the Securities Act of 1933 (“ Securities Act ”) and all applicable state securities or blue sky laws and (iii) delivery by the transferee of a written statement to the Company certifying that the transferee is an “accredited investor” as defined in Rule 501(a) under the Securities Act and making the representations and certifications as the Company may reasonably request to procure an exemption from Section 5 of the Securities Act. Upon any such registration or transfer, a new warrant to purchase Common Stock in substantially the form of this Warrant (any such new warrant, a “ New Warrant ”) evidencing the portion of this Warrant so transferred shall be issued to the transferee, and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a Holder of a Warrant.

 

(b) The Holder agrees that in the event of an initial public offering of the Company’s securities, pursuant to the Lock-Up Period (as defined below) contained in Rule 5110(g)(1) of the Financial Industry Regulatory Authority, Inc. (“ FINRA ”), it will not (a) sell, transfer, assign, pledge, hypothecate or otherwise transfer the Warrant (including any Warrant Shares issued or issuable hereunder) other than to a bona fide officer, partner or other associated person of the Holder or any selected dealer (or any officer, partner or other associated person thereof) in connection with the initial public offering, in each case in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause the Warrant or any Warrant Shares issued or issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the Warrant or any Warrant Shares issued or issuable hereunder, except as provided for in FINRA Rule 5110(g)(2). As used herein, the term “ Lock-Up Period ” means the period beginning on the date that a registration statement of the Company under the Securities Act is declared effective by the Securities and Exchange Commission (the “ Effective Date ”) and ending on the one hundred eighty day anniversary of the Effective Date.

 

6. Exercise and Duration of Warrants .

 

(a) All or any part of this Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the Trigger Date and through and including 5:00 P.M. prevailing Pacific time on the Expiration Date. At 5:00 P.M., prevailing Pacific time, on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value and this Warrant shall be terminated and no longer outstanding.

 

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(b) The Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in the form attached as Schedule 1 hereto (the “ Exercise Notice ”), appropriately completed and duly signed, (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice and if a “cashless exercise” may occur at such time pursuant to Section 12 below), and the date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an “ Exercise Date .” The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.

 

7. Delivery of Warrant Shares . Upon exercise of this Warrant, the Company shall promptly issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate a certificate for the Warrant Shares issuable upon such exercise, with an appropriate restrictive legend. The Holder, or any Person permissibly so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the Exercise Date.

 

8 . Charges, Taxes and Expenses . Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however , that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an Affiliate thereof. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

9 . Replacement of Warrant . If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction (in such case) and, in each case, a customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.

 

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10 . Reservation of Warrant Shares . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9 ). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Shares may be listed.

 

11 . Certain Adjustments . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 11 .

 

(a) Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock into a larger number of shares, or (iii) combines its outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately before such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

 

(b) Fundamental Transactions . If, at any time while this Warrant is outstanding (i) the Company effects any merger or consolidation of the Company with or into another Person, in which the Company is not the survivor, (ii) the Company effects any sale of all or substantially all of its assets or a majority of its Common Stock is acquired by a third party, in each case, in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which all or substantially all of the holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock covered by Section 11(a) above) (in any such case, a “ Fundamental Transaction ”), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant without regard to any limitations on exercise contained herein (the “ Alternate Consideration ”). The Company shall not effect any such Fundamental Transaction unless prior to or simultaneously with the consummation thereof, any successor to the Company, surviving entity or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, such Alternate Consideration as, in accordance with the foregoing provisions, the Holder may be entitled to purchase and/or receive (as the case may be), and the other obligations under this Warrant. The provisions of this paragraph (c) shall similarly apply to subsequent transactions analogous to a Fundamental Transaction.

 

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(c) Number of Warrant Shares . Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.

 

(d) Calculations . All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the sale or issuance of any such shares shall be considered an issue or sale of Common Stock.

 

(e) Notice of Adjustments . Upon the occurrence of each adjustment pursuant to this Section 11 , the Company at its expense will, at the written request of the Holder, promptly compute such adjustment, in good faith, in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s transfer agent.

 

(f) Notice of Corporate Events . If, while this Warrant is outstanding, the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including, without limitation, any granting of rights or warrants to subscribe for or purchase any capital stock of the Company, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then, except if such notice and the contents thereof shall be deemed to constitute material non-public information, the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction at least ten (10) Trading Days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however , that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.

 

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12. Payment of Exercise Price . The Holder shall pay the Exercise Price in immediately available funds; provided, however , the Holder may, in its sole discretion, commencing on the date that is 18 months from the date of this Warrant, satisfy its obligation to pay the Exercise Price through a “cashless exercise”, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the total number of Warrant Shares with respect to which this Warrant is being exercised.

 

A = the average of the Closing Sale Prices of the shares of Common Stock (as reported by Bloomberg Financial Markets) for the five Trading Days ending on the date immediately preceding the Exercise Date.

 

B = the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

For purposes of this Warrant, “ Closing Sale Price ” means, for any security as of any date, the last trade price for such security on the principal securities exchange or trading market for such security, as reported by Bloomberg Financial Markets, or, if such exchange or trading market begins to operate on an extended hours basis and does not designate the last trade price, then the last trade price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg Financial Markets, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg Financial Markets, or, if no last trade price is reported for such security by Bloomberg Financial Markets, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the " pink sheets " by Pink Sheets LLC. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then the Company shall, within two business days submit via facsimile (a) the disputed determination of the Warrant Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company's independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten business days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

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For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Consulting Agreement (provided that the Commission continues to take the position that such treatment is proper at the time of such exercise).

 

13. Limitation on Exercises . The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, the Holder (together with such Holder’s affiliates) would beneficially own in excess of 4.99% (“ Maximum Percentage ”) of the shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Holder and its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. To the extent that the limitation contained in this Section 13 applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliate) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliate) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of the determination. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) business day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, any Holder may decrease the Maximum Percentage to any other percentage specified in such notice; provided that such decrease will apply only to the Holder sending such notice and not to any other holder of Warrants. In addition, by written notice to the Company, any Holder may remove the limitations on exercises provided in this Section 13 entirely; provided that (i) any such removal will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such removal will apply only to the Holder sending such notice and not to any other holder of Warrants. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 13 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

 

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14. No Fractional Shares . No fractional Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would otherwise be issuable, the number of Warrant Shares to be issued shall be rounded up to the next whole number.

 

15. Notices . Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email at the email address specified in the Engagement Agreement prior to 5:00 p.m. (prevailing Pacific time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email at the email address specified in the Engagement Agreement t on a day that is not a Trading Day or later than 5:00 p.m. (prevailing Pacific time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service specifying next business day delivery, or (iv) upon actual receipt by the party to whom such notice is required to be given, if by hand delivery. The address and facsimile number of a party for such notices or communications shall be as set forth in the Engagement Agreement unless changed by such party by two Trading Days’ prior notice to the other party in accordance with this Section 15 .

 

16. Warrant Agent . The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders’ services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.

 

17. Registration Rights . The Company agrees that the Holder and its assigns will have registration rights covering the resale of the Warrant Shares, including “piggyback” registration rights on the registrations of the Company or demand registrations (voting with the other registrable securities to effect any such demand), no less favorable than those granted to any other person by the Company prior or subsequent to the date of this Warrant. At such time, and from time to time, as the Company enters into an agreement subsequent to the date of this Warrant pursuant to which the Company grants any third party rights with respect to the Company’s registration of Company securities under the Securities Act held by such party, the Company shall offer to enter into a formal written registration rights agreement with the Holder and its assigns on substantially the same terms and such other terms as are customary and usual for agreements of such nature.

 

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18. Miscellaneous .

 

(a) The Holder, solely in such Person's capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person's capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, amalgamation, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 18(a) , the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company, contemporaneously with the giving thereof to the shareholders.

 

(b) Subject to the restrictions on transfer set forth on the first page hereof, and compliance with applicable securities laws, this Warrant may be assigned by the Holder. This Warrant may not be assigned by the Company except to a successor in the event of a Fundamental Transaction. This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder, or their successors and assigns.

 

(c) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, 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 SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR 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. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY. 

 

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(d) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

 

(e) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby, and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

(f) Except as otherwise set forth herein, prior to exercise of this Warrant, the Holder hereof shall not, by reason of by being a Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.

 

  “Company”
   
  /s/ Glenn Mattes
  By: Glenn Mattes, President

 

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SCHEDULE 1

 

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to purchase shares

of Common Stock under the foregoing Warrant)

 

Ladies and Gentlemen:

 

(1) The undersigned is the Holder of Warrant No. __________ (the “ Warrant ”) issued by TFF Pharmaceuticals, Inc. (the “ Company ”). Capitalized terms used herein and not otherwise defined herein have the respective meanings set forth in the Warrant.

 

(2) The undersigned hereby exercises its right to purchase __________ Warrant Shares pursuant to the Warrant.

 

(3) The Holder intends that payment of the Exercise Price shall be made as (check one):

 

Cash Exercise

 

“Cashless Exercise” under Section 10

 

(4) If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $_______ in immediately available funds to the Company in accordance with the terms of the Warrant.

 

(5) Pursuant to this Exercise Notice, the Company shall deliver to the Holder _____________ Warrant Shares in accordance with the terms of the Warrant.

 

Dated:_______________, _____

 

[Company]  
   
   
By:  

 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

 

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SCHEDULE 2

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto                                       (the “ Transferee ” the right represented by the within Warrant to purchase                                       shares of Common Stock of TFF Pharmaceuticals, Inc. (the “ Company ”) to which the within Warrant relates and appoints                                       attorney to transfer said right on the books of the Company with full power of substitution in the premises. In connection therewith, the undersigned represents, warrants, covenants and agrees to and with the Company that:

 

(a) the offer and sale of the Warrant contemplated hereby is being made in compliance with Section 4(a)(1) of the United States Securities Act of 1933, as amended (the “ Securities Act ”) or another valid exemption from the registration requirements of Section 5 of the Securities Act and in compliance with all applicable securities laws of the states of the United States;

 

(b) the undersigned has not offered to sell the Warrant by any form of general solicitation or general advertising, including, but not limited to, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, and any seminar or meeting whose attendees have been invited by any general solicitation or general advertising;

 

(c) the undersigned has read the Transferee’s investment letter included herewith, and to its actual knowledge, the statements made therein are true and correct; and

 

(d) the undersigned understands that the Company may condition the transfer of the Warrant contemplated hereby upon the delivery to the Company by the undersigned or the Transferee, as the case may be, of a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable securities laws of the states of the United States.

 

Dated:_______________, _____    
     
[Company]    
   
     
By:    
     
(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)  
    Address of Transferee 
     
     
     

 

In the presence of:

 

 

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Exhibit 4.6

 

WARRANT

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”) AND APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (II) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

TFF PHARMACEUTICALS, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No. 18   Original Issue Date: May 23, 2019

 

TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), hereby certifies that, for value received, National Securities Corporation, or its permitted registered assigns (the “ Holder ”), is entitled to purchase from the Company shares of common stock, $0.001 par value (the “ Common Stock ”), of the Company (each such share, a “ Warrant Share ” and all such shares, the “ Warrant Shares ”) as determined in accordance with the terms herein, at any time and from time to time from on or after the date hereof (the “ Trigger Date ”) and through and including 5:00 P.M., prevailing Pacific time, on May 23, 2024 (the “ Expiration Date ”), and subject to the following terms and conditions:

 

This Warrant (this “ Warrant ”) is one of a series of similar warrants issued pursuant to that certain Engagement Agreement dated January 26, 2018 between the Company and the Holder (the “ Engagement Agreement ”). All such warrants are referred to herein, collectively, as the “ Warrants .”

 

1. Definitions . In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Engagement Agreement.

 

2. Exercise Price . For purposes of this Warrant, the “ Exercise Price ” shall be equal to 100% of the Conversion Price of the Series A Preferred Stock, as determined pursuant to Section 8 of the Certificate of Incorporation. Notwithstanding the foregoing, until such time as the Series A Preferred Stock is converted pursuant to Section 8 of the Certificate of Incorporation, the Exercise Price shall be equal to $2.50 (as adjusted from time to time as provided in Section 11 herein).

 

3. Number of Warrant Shares . The aggregate number of Warrant Shares shall be equal to 10% of the aggregate number of shares of Common Stock issued by the Company upon conversion of 606,000 shares (as adjusted for combinations, subdivisions and the like) of the Series A Preferred Stock pursuant to Section 8 of the Certificate of Incorporation. Notwithstanding the foregoing, until such time as the Series A Preferred Stock is converted pursuant to Section 8 of the Certificate of Incorporation, the number of Warrant Shares shall be equal to 60,600 shares of Common Stock (as adjusted from time to time as provided in Section 11 herein).

 

4. Registration of Warrants . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder (which shall include the initial Holder or, as the case may be, any registered assignee to which this Warrant is permissibly assigned hereunder) from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

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5. Transfers; Lock-Up Period .

 

(a) The Company shall register the transfer of all or any portion of this Warrant in the Warrant Register, upon (i) surrender of this Warrant, with the Form of Assignment attached as Schedule 2 hereto duly completed and signed, to the Company’s transfer agent or to the Company at its address specified herein (ii) delivery, at the request of the Company, of an opinion of counsel reasonably satisfactory to the Company to the effect that the transfer of such portion of this Warrant may be made pursuant to an available exemption from the registration requirements of the Securities Act of 1933 (“ Securities Act ”) and all applicable state securities or blue sky laws and (iii) delivery by the transferee of a written statement to the Company certifying that the transferee is an “accredited investor” as defined in Rule 501(a) under the Securities Act and making the representations and certifications as the Company may reasonably request to procure an exemption from Section 5 of the Securities Act. Upon any such registration or transfer, a new warrant to purchase Common Stock in substantially the form of this Warrant (any such new warrant, a “ New Warrant ”) evidencing the portion of this Warrant so transferred shall be issued to the transferee, and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a Holder of a Warrant.

 

(b) The Holder agrees that in the event of an initial public offering of the Company’s securities, pursuant to the Lock-Up Period (as defined below) contained in Rule 5110(g)(1) of the Financial Industry Regulatory Authority, Inc. (“ FINRA ”), it will not (a) sell, transfer, assign, pledge, hypothecate or otherwise transfer the Warrant (including any Warrant Shares issued or issuable hereunder) other than to a bona fide officer, partner or other associated person of the Holder or any selected dealer (or any officer, partner or other associated person thereof) in connection with the initial public offering, in each case in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause the Warrant or any Warrant Shares issued or issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the Warrant or any Warrant Shares issued or issuable hereunder, except as provided for in FINRA Rule 5110(g)(2). As used herein, the term “ Lock-Up Period ” means the period beginning on the date that a registration statement of the Company under the Securities Act is declared effective by the Securities and Exchange Commission (the “ Effective Date ”) and ending on the one hundred eighty day anniversary of the Effective Date.

 

6. Exercise and Duration of Warrants .

 

(a) All or any part of this Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the Trigger Date and through and including 5:00 P.M. prevailing Pacific time on the Expiration Date. At 5:00 P.M., prevailing Pacific time, on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value and this Warrant shall be terminated and no longer outstanding.

 

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(b) The Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in the form attached as Schedule 1 hereto (the “ Exercise Notice ”), appropriately completed and duly signed, (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice and if a “cashless exercise” may occur at such time pursuant to Section 12 below), and the date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an “ Exercise Date .” The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.

 

7. Delivery of Warrant Shares . Upon exercise of this Warrant, the Company shall promptly issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate a certificate for the Warrant Shares issuable upon such exercise, with an appropriate restrictive legend. The Holder, or any Person permissibly so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the Exercise Date.

 

8. Charges, Taxes and Expenses . Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however , that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an Affiliate thereof. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

9. Replacement of Warrant . If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction (in such case) and, in each case, a customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.

 

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10. Reservation of Warrant Shares . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 11 ). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Shares may be listed.

 

11. Certain Adjustments . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 11 .

 

(a) Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock into a larger number of shares, or (iii) combines its outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately before such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

 

(b) Fundamental Transactions . If, at any time while this Warrant is outstanding (i) the Company effects any merger or consolidation of the Company with or into another Person, in which the Company is not the survivor, (ii) the Company effects any sale of all or substantially all of its assets or a majority of its Common Stock is acquired by a third party, in each case, in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which all or substantially all of the holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock covered by Section 11(a) above) (in any such case, a “ Fundamental Transaction ”), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant without regard to any limitations on exercise contained herein (the “ Alternate Consideration ”). The Company shall not effect any such Fundamental Transaction unless prior to or simultaneously with the consummation thereof, any successor to the Company, surviving entity or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Holder, such Alternate Consideration as, in accordance with the foregoing provisions, the Holder may be entitled to purchase and/or receive (as the case may be), and the other obligations under this Warrant. The provisions of this paragraph (c) shall similarly apply to subsequent transactions analogous to a Fundamental Transaction.

 

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(c) Number of Warrant Shares . Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.

 

(d) Calculations . All calculations under this Section 11 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the sale or issuance of any such shares shall be considered an issue or sale of Common Stock.

 

(e) Notice of Adjustments . Upon the occurrence of each adjustment pursuant to this Section 11 , the Company at its expense will, at the written request of the Holder, promptly compute such adjustment, in good faith, in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s transfer agent.

 

(f) Notice of Corporate Events . If, while this Warrant is outstanding, the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including, without limitation, any granting of rights or warrants to subscribe for or purchase any capital stock of the Company, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then, except if such notice and the contents thereof shall be deemed to constitute material non-public information, the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction at least ten (10) Trading Days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however , that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.

 

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12. Payment of Exercise Price . The Holder shall pay the Exercise Price in immediately available funds; provided, however , the Holder may, in its sole discretion, commencing on the date that is 18 months from the date of this Warrant, satisfy its obligation to pay the Exercise Price through a “cashless exercise”, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the total number of Warrant Shares with respect to which this Warrant is being exercised.

 

A = the average of the Closing Sale Prices of the shares of Common Stock (as reported by Bloomberg Financial Markets) for the five Trading Days ending on the date immediately preceding the Exercise Date.

 

B = the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

For purposes of this Warrant, “ Closing Sale Price ” means, for any security as of any date, the last trade price for such security on the principal securities exchange or trading market for such security, as reported by Bloomberg Financial Markets, or, if such exchange or trading market begins to operate on an extended hours basis and does not designate the last trade price, then the last trade price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg Financial Markets, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg Financial Markets, or, if no last trade price is reported for such security by Bloomberg Financial Markets, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “ pink sheets ” by Pink Sheets LLC. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then the Company shall, within two business days submit via facsimile (a) the disputed determination of the Warrant Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten business days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

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For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Consulting Agreement (provided that the Commission continues to take the position that such treatment is proper at the time of such exercise).

 

13. Limitation on Exercises . The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, the Holder (together with such Holder’s affiliates) would beneficially own in excess of 4.99% (“ Maximum Percentage ”) of the shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Holder and its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. To the extent that the limitation contained in this Section 13 applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliate) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliate) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of the determination. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) business day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, any Holder may decrease the Maximum Percentage to any other percentage specified in such notice; provided that such decrease will apply only to the Holder sending such notice and not to any other holder of Warrants. In addition, by written notice to the Company, any Holder may remove the limitations on exercises provided in this Section 13 entirely; provided that (i) any such removal will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such removal will apply only to the Holder sending such notice and not to any other holder of Warrants. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 13 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

 

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14. No Fractional Shares . No fractional Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would otherwise be issuable, the number of Warrant Shares to be issued shall be rounded up to the next whole number.

 

15. Notices . Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email at the email address specified in the Engagement Agreement prior to 5:00 p.m. (prevailing Pacific time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email at the email address specified in the Engagement Agreement t on a day that is not a Trading Day or later than 5:00 p.m. (prevailing Pacific time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service specifying next business day delivery, or (iv) upon actual receipt by the party to whom such notice is required to be given, if by hand delivery. The address and facsimile number of a party for such notices or communications shall be as set forth in the Engagement Agreement unless changed by such party by two Trading Days’ prior notice to the other party in accordance with this Section 15 .

 

16. Warrant Agent . The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders’ services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.

 

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17. Registration Rights . The Company agrees that the Holder and its assigns will have registration rights covering the resale of the Warrant Shares, including “piggyback” registration rights on the registrations of the Company or demand registrations (voting with the other registrable securities to effect any such demand), no less favorable than those granted to any other person by the Company prior or subsequent to the date of this Warrant. At such time, and from time to time, as the Company enters into an agreement subsequent to the date of this Warrant pursuant to which the Company grants any third party rights with respect to the Company’s registration of Company securities under the Securities Act held by such party, the Company shall offer to enter into a formal written registration rights agreement with the Holder and its assigns on substantially the same terms and such other terms as are customary and usual for agreements of such nature.

 

18. Miscellaneous .

 

(a) The Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, amalgamation, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 18(a) , the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company, contemporaneously with the giving thereof to the shareholders.

 

(b) Subject to the restrictions on transfer set forth on the first page hereof, and compliance with applicable securities laws, this Warrant may be assigned by the Holder. This Warrant may not be assigned by the Company except to a successor in the event of a Fundamental Transaction. This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder, or their successors and assigns.

 

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(c) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, 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 SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR 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. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY. 

 

(d) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

 

(e) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby, and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

(f) Except as otherwise set forth herein, prior to exercise of this Warrant, the Holder hereof shall not, by reason of by being a Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.

 

  “Company”
   
  /s/ Glenn Mattes
  By: Glenn Mattes, President

   

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SCHEDULE 1

 

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to purchase shares

of Common Stock under the foregoing Warrant)

 

Ladies and Gentlemen:

 

(1) The undersigned is the Holder of Warrant No. __________ (the “ Warrant ”) issued by TFF Pharmaceuticals, Inc. (the “ Company ”). Capitalized terms used herein and not otherwise defined herein have the respective meanings set forth in the Warrant.

 

(2) The undersigned hereby exercises its right to purchase __________ Warrant Shares pursuant to the Warrant.

 

(3) The Holder intends that payment of the Exercise Price shall be made as (check one):

 

Cash Exercise

 

“Cashless Exercise” under Section 10

 

(4) If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $_______ in immediately available funds to the Company in accordance with the terms of the Warrant.

 

(5) Pursuant to this Exercise Notice, the Company shall deliver to the Holder _____________ Warrant Shares in accordance with the terms of the Warrant.

  

Dated:_______________, _____

 

[Company]

 

_____________________________________
By:

 

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

 

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SCHEDULE 2

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto                              (the “ Transferee ” the right represented by the within Warrant to purchase                  shares of Common Stock of TFF Pharmaceuticals, Inc. (the “ Company ”) to which the within Warrant relates and appoints                              attorney to transfer said right on the books of the Company with full power of substitution in the premises. In connection therewith, the undersigned represents, warrants, covenants and agrees to and with the Company that:

 

(a) the offer and sale of the Warrant contemplated hereby is being made in compliance with Section 4(a)(1) of the United States Securities Act of 1933, as amended (the “ Securities Act ”) or another valid exemption from the registration requirements of Section 5 of the Securities Act and in compliance with all applicable securities laws of the states of the United States;

 

(b) the undersigned has not offered to sell the Warrant by any form of general solicitation or general advertising, including, but not limited to, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, and any seminar or meeting whose attendees have been invited by any general solicitation or general advertising;

 

(c) the undersigned has read the Transferee’s investment letter included herewith, and to its actual knowledge, the statements made therein are true and correct; and

 

(d) the undersigned understands that the Company may condition the transfer of the Warrant contemplated hereby upon the delivery to the Company by the undersigned or the Transferee, as the case may be, of a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable securities laws of the states of the United States.

 

Dated:_______________, _____    
     
[Company]    
     
_____________________________________    
By:    
     
(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)    
    Address of Transferee
     
     
     

 

In the presence of:

 

 

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Exhibit 10.1

 

January 26, 2018

 

TFF Pharmaceuticals, Inc.

2801 Via Fortuna

Suite 425

Austin, Texas 78746

Attention: Robert S. Mills

Chief Executive Officer

 

Re: Engagement Agreement for Strategic Consulting Services

 

Dear Mark:

 

This letter agreement (the “ Agreemen t ”) confirms the terms and conditions pursuant to which Liquid Patent Advisors, LLC (“ Consultant ”) will provide certain strategic and intellectual property advisory services to TFF Pharmaceuticals, Inc. (together with its subsidiaries and successors, the “ Company ”) (the “ Engagement ”).

 

1. Services . Consultant shall assist the Company with all aspects of its business, strategic and intellectual property development, including:

 

(a) Business Strategy Activities .

 

(1) Identify optimal legal entity structure, shareholding of parent and structure for all subsidiaries;

 

(2) Assess current management and identifying and recruiting additional key members of the management team and Board of Directors;

 

(3) Assess the Company’s market landscape;

 

(4) Assess the Company’s current business strategy and assisting in the formulation of an optimal business strategy, including a development and commercialization strategy;

 

(5) Assess the competitive features/functions of the Company’s current and proposed products and services;

 

(6) Assess the Company’s current financial and accounting processes and recommend revisions to such processes;

 

(7) Assess and make recommendations for performance measurement metrics for various functions/organizations and total enterprise;

 

2121 Rosecrans Avenue, Suite 4305 ● El Segundo, CA 90245 ● www.liquidventure.com

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(8) Assess and make recommendations for the Company’s’ sales compensation structure;

 

(9) Assess and make recommendations for the Company’s customer service methodologies, processes, performance measurement metrics;

 

(10) Evaluate and recommend potential strategic partners;

 

(11) Assist in development of detailed measurable actionable business and financial plan for the next 18 months; and

 

(12) General corporate advice, as needed and requested.

 

(b) IP Related Activities .

 

(1) Review and analysis of inventions held by the Company to determine their usefulness, potential for monetization and potential patentability, including advice concerning the increase in the likelihood or strength of any of the foregoing;

 

(2) Interviewing the Company to understand the subject inventions and researching prior art for purposes of determining the patentability of such inventions;

 

(3) Advise and assist in developing a strategy for the preparation and filing of one or more patents, both United States and foreign, for purposes of adequately protecting the substantive claims underlying the inventions, including for each such invention a complete invention package with technical disclosure documentation (each, a “ Disclosure ”) for use in the Company’s patent applications;

 

(4) Review and comment on patent applications filed with respect to such inventions;

 

(5) Review and comment on office actions concerning patent applications and issued patents;

 

(6) Advise and assist in developing a strategy for the Company’s strategic acquisitions of inventions and patent rights to enhance the Company’s portfolio of patent rights, including conducting the due diligence and acquisition efforts on behalf of the Company;

 

(7) Advise and assist with regard to licensing, litigation and sales of patent rights held by the Company; and

 

(8) Provide engineering and/or scientific advisory services to the Company.

 

2121 Rosecrans Avenue, Suite 4305 ● El Segundo, CA 90245 ● www.liquidventure.com

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The IP related services to be provided by Consultant to the Company set forth in Section 1(b) shall be subject to one or more written work assignments (each, a “ Work Assignment ”), all of which are to be submitted to Consultant within 90 days of the date of this Agreement. The Company shall use a Work Assignment to request the IP Services in Section 1(b)(1) through (8) . Each Work Assignment, when signed and delivered by the Company and accepted by Consultant, shall become part of this Agreement and incorporated herein by this reference. In the event of any conflict between this Agreement and a Work Assignment, this Agreement shall govern and control.

 

(c) Additional Services/Exclusions . It is expressly understood and agreed that Consultant has not provided nor is undertaking to provide any advice to the Company relating to legal, regulatory, securities, finance, accounting, or tax matters. The services provided to the Company hereunder are designed to assist, but not replace, the Company’s own intellectual property counsel. Should the Company request Consultant to perform any services or act in any capacity not specifically addressed in this Agreement, such services or activities shall constitute separate engagements, the terms and conditions of which will be embodied in separate written agreement(s).

 

2. Compensation . As consideration for the services provided under this Agreement, the Company will pay Consultant certain fees as follows:

 

(a) Cash Fees . If the Company elects to file additional patent applications with the help of the Consultant, the Company shall pay Consultant a cash fee for each patent application Consultant files on behalf of the Company. The standard rate is $7,500 per application, inclusive of the legal fees associated with such filings; however, that rate may vary based on the patent portfolio strategy the Company and Consultant jointly agree to pursue.

 

(b) Warrant . Upon execution of this Agreement, the Company shall grant to Consultant a warrant, which may be issued in one or more instruments, in the form of Exhibit A attached hereto (the “ Warrants ”), to purchase a number of shares of Company common stock (the “ Common Stock ”), which is in an amount equal to ten percent (10%) of the total issued and outstanding Common Stock of the Company, calculated on a fully diluted basis, after giving effect to the formation of the Company and the issuance of all equity securities and equity-linked securities contemplated or issued at the time of formation. Such Warrants will be for a term of five (5) years at an exercise price of $0.01 per share and shall contain cashless exercise and anti-dilution provisions and representations and warranties normal and customary for warrants issued to investors, and will not be callable or terminable prior to the expiration date. The exercise price of the warrant may be adjusted upward at the sole discretion of the Consultant. The Common Stock underlying the Warrants will have registration rights, including “ piggyback ” registration rights on the registrations of the Company or demand registrations (voting with the other registrable securities to effect any such demand) no less favorable than those granted to any other person prior to or subsequent to the date of this Agreement. The Company shall bear all costs and expenses of registration, including the filing and clearing of one or more registration statements. The Warrants may be assigned to any persons or entities designated by Consultant.

 

2121 Rosecrans Avenue, Suite 4305 ● El Segundo, CA 90245 ● www.liquidventure.com

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(c) Expenses . The Company shall fund Consultant’s travel and other reasonable expenses related to the Engagement, including travel expenses, meals and incidentals, in connection with visits by the Consultant team to the Company’s site, provided that expenses exceeding $2,000 in aggregate shall be subject to the Company’s prior written approval which shall not be unreasonably withheld.

 

(d) Payments . All payments to be made to Consultant hereunder will be made in cash by wire transfer of immediately available U.S. funds. Except as expressly set forth herein, no fee payable to Consultant hereunder shall be credited against any other fee due to Consultant or any of its affiliates. The obligation to pay any fee or expense set forth herein shall be absolute and unconditional and shall not be subject to reduction by way of setoff, recoupment or counterclaim.

 

(e) Compensation Earned . All the compensation provided under this Agreement will be deemed fully earned as of the date of the Agreement, and not subject to return in whole or in part or subject to reduction or further limitation. The Company waives any and all rights of set off against the compensation provided for herein, including any securities underlying any Warrants.

 

(f) Lock-Up Period . In the event of an initial public offering by the Company, all Warrants and shares of Common Stock received pursuant to exercise of such Warrants received by Consultant and its assigns hereunder may not be sold for a period of 12 months following the initial listing on an exchange.

 

3. Representations and Warranties of the Company . The Company warrants and agrees that it is the true and rightful owner of all intellectual property rights in each of the assets and inventions submitted to Consultant for analysis; that any and all technical invention information provided to Consultant may, to the actual knowledge of the officers of the Company, be transmitted across country borders subject to compliance with applicable export control and similar laws; and that no U.S. agency has suspended, revoked, or denied the Company’s export privileges.

 

4. Term and Termination . Consultant’s Engagement will commence upon the execution of this Agreement and shall continue in effect for a period of one hundred eighty (180) days (the “ Initial Term ”). After the expiration of the Initial Term, if there are any Work Assignments in progress, the Agreement shall automatically renew and continue in effect until it is terminated by either party with thirty (30) days’ written notice to the other pursuant to Section 10 . Upon termination of this Agreement for any reason, the rights and obligations of the parties hereunder shall terminate, except for the obligations set forth in Sections 2-3 and 5-18 , which shall survive termination.

 

2121 Rosecrans Avenue, Suite 4305 ● El Segundo, CA 90245 ● www.liquidventure.com

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5. Confidentiality . Consultant acknowledges that in connection with the Engagement, the Company will provide Consultant with information which the Company considers to be confidential, including its trade secrets (“ Confidential Information ”). Consultant agrees to employ all reasonable efforts to keep the Confidential Information secret and confidential, using no less than the degree of care employed by Consultant to preserve and safeguard its own confidential information, and shall not disclose or reveal the Confidential Information to anyone except its employees, consultants, affiliates and contractors who have an obligation of confidentiality with Consultant. Consultant will not use the Confidential Information except in connection with its performance of services hereunder, unless disclosure is required by law, court order, or any government, regulatory or self-regulatory agency or body in the opinion of Consultant’s counsel, in which event Consultant will provide the Company with reasonable advance notice of such disclosure. “ Confidential Information ” does not include information which (a) was in the public domain or readily available to the trade or the public prior to the date of the disclosure; (b) becomes generally available to the public in any manner or form through no fault of Consultant or its representatives; (c) was in Consultant’s possession or readily available to Consultant from another source not under obligation of secrecy to the Company prior to the disclosure; (d) is rightfully received by Consultant from another source on a non-confidential basis; (e) is developed by or for Consultant without reference to the Company’s Confidential Information; (f) is disclosed by the Company to an unaffiliated third party free of any obligation of confidence; or (g) is released for disclosure with the Company’s written consent. Notwithstanding any termination of this Agreement, Consultant’s confidentiality obligations (1) in respect of any material that qualifies as a “ Trade Secret ” under the Uniform Trade Secrets Act (“ UTSA ”) shall survive in perpetuity under the UTSA until such information ceases to be a Trade Secret, and (2) in respect of any non-Trade Secret, for a period of three (3) years from the date of disclosure.

 

6. Indemnification . The Company hereby agrees to indemnify and hold harmless Consultant and its affiliates and each of their directors, officers, managers, agents, employees, members and counsel (collectively, the “ Consultant Indemnified Parties ”) to the fullest extent permitted by law from and against any and all losses, claims, damages, expenses, or liabilities (or actions in respect thereof) (“ Losses ”), joint or several, to which they or any of them may become subject under any statute or at common law, and to reimburse such Consultant Indemnified Parties for any reasonable legal or other expense (including but not limited to the cost of any investigation, preparation, response to third party subpoenas) incurred by them in connection with any litigation or administrative or regulatory action (“ Proceeding ”), whether pending or threatened, and whether or not resulting in any liability, insofar as such losses, claims, liabilities, or litigation arise out of or are based upon the Engagement, including, but not limited to, the Company’s use or misuse (including use contrary to federal or state law) of the Disclosure(s), the Company’s breach of the representations and warranties contained in Section 3 hereof, or any violation of U.S. or other import or export controls; provided, however, they shall not apply to (i) amounts paid in settlement of any such litigation if such settlement is effected without the consent of the Company, which consent will not be unreasonably withheld, conditioned or delayed or (ii) Losses determined, by a final, non-appealable judgment by a court or arbitral tribunal of competent jurisdiction, to have arisen solely from the willful misconduct or gross negligence of Consultant Indemnified Parties.

 

The provisions of this Section 6 shall survive any termination or expiration of this Agreement.

 

2121 Rosecrans Avenue, Suite 4305 ● El Segundo, CA 90245 ● www.liquidventure.com

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7. Work Product and Announcements . Consultant’s advice rendered to the Company as part of this Engagement, in whatever form, including written, electronic transmission, and oral, shall be considered work for hire and the property and intellectual property of the Company. Any document or other written information prepared by Consultant in connection with this Engagement shall not be duplicated by the Consultant except as explicitly provided for hereunder or required by law or upon the written consent of the Company. The Consultant shall have no ownership or rights to any intellectual property, advice or work product that concerns the business or the related activities of the Company.

 

The Company acknowledges that Consultant, at its option and expense, may place announcements and advertisements or otherwise publicize the Engagement (which may include the reproduction of the Company’s logo and a hyperlink to the Company’s website) on Consultant’s website and in such financial and other newspapers and journals as it may choose.

 

8. Limitation of Liability . Consultant shall employ due care and attention in providing the services hereunder. However, the Company acknowledges that Consultant does not warrant or represent the accuracy or completeness of any public information or any information provided solely by the Company used in any analysis and that inaccurate or incomplete data may affect the validity and reliability of Consultant’s work product, including any draft patent Disclosures. Similarly, Consultant makes no representation or warranty with respect to the non-infringement of any of the assets or inventions described in the Disclosure(s). Consultant makes no warranty, representation, promise, or undertaking with respect to any legal or financial consequences of, or any other consequences or benefits obtained from the use of any work product hereunder, including the Disclosure(s), including any representation that any patent(s) will be granted. The Company assumes all risks related to documentation or technical information and data which may be subject to U.S. export controls or export or import restrictions in other countries. CONSULTANT SPECIFICALLY DISCLAIMS ANY OTHER WARRANTY, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. CONSULTANT SHALL NOT BE LIABLE ON ACCOUNT OF ANY ERRORS, OMISSIONS, DELAYS, OR LOSSES UNLESS CAUSED BY ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. To the fullest extent permitted by law, NEITHER Consultant NOR any of its controlling persons, affiliates, directors, officers, employees or consultants will be liable for any loss, damage or injury (including without limitation lost profits, indirect, special, or consequential damages) alleged to be caused by use of the Disclosure(s) OR OTHER SERVICES PROVIDED HEREUNDER. CONSULTANT’S LIABILITY ARISING UNDER THIS AGREEMENT SHALL BE LIMITED TO THE AMOUNTS PAID BY THE COMPANY TO CONSULTANT WITH REGARD TO THE PROVISION OF THE SPECIFIC SERVICES THAT GAVE RISE TO THE CLAIM OF LIABILITY, BUT IN NO EVENT WILL SUCH LIABILITY EXCEED THE TOTAL AMOUNT ACTUALLY PAID TO CONSULTANT PURSUANT TO SECTION 2 .

 

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9. Other Transactions; Disclaimers . The Company acknowledges that Consultant and its affiliates are engaged in other activities from which conflicting interests or duties, or the appearance thereof, may arise. Information held elsewhere within Consultant but not accessible will not under any circumstances affect Consultant’s responsibilities to the Company hereunder. The Company further acknowledges that Consultant and its affiliates have and may continue to relationships with parties other than the Company pursuant to which Consultant may acquire information of interest to the Company. Consultant shall have no obligation to disclose to the Company or to use for the Company’s benefit any such non-public information or other information acquired in the course of engaging in any other transaction (on Consultant’s own account or otherwise) or otherwise carrying on the business of Consultant.

 

The Company further acknowledges and agrees that Consultant will act solely as an independent contractor hereunder, and that Consultant’s responsibility to the Company is solely contractual in nature and that Consultant does not owe the Company or any other person or entity, including but not limited to its shareholders, any fiduciary or similar duty as a result of the Engagement or otherwise.

 

10. Notice . All notices, demands, and other communications to given pursuant to this Agreement shall be in writing and shall be personally delivered, sent by overnight delivery using a nationally recognized courier service, sent by facsimile transmission, or emailed. Notice shall be deemed received: (a) if personally delivered, upon the date of delivery to the address of the receiving party; (b) if sent by overnight courier, the date actually received by the recipient; (c) if sent email, when sent. The parties will each promptly notify the other of any changes to the following contact information.

 

Notices to Consultant shall be sent to: Notices to the Company shall be sent to:
   

Liquid Patent Advisors, LLC

2121 Rosecrans Avenue, Suite 4305

El Segundo, CA 90245

Attention: Ankur V. Desai

e-mail: adesai@liquidventure.com

TFF Pharmaceuticals, Inc.

2801 Via Fortuna, Suite 425

Austin, TX 78746

Attention: Robert S. Mills, CEO

e-mail: rsmillsjr@aol.com

 

11. Complete Agreement; Amendments; Assignment . This Agreement sets forth the entire understanding of the parties relating to the subject matter hereof and supersedes and cancels any prior communications, understandings and agreements, whether oral or written, between Consultant and the Company. This Agreement may not be amended or modified except in writing. The rights of Consultant hereunder shall be freely assignable to any affiliate of Consultant, and this Agreement shall apply to, inure to the benefit of and be binding upon and enforceable against the parties and their respective successors and assigns.

 

12. Third Party Beneficiaries . This Agreement is intended solely for the benefit of the parties hereto and, with the exception of the rights and benefits conferred upon the Consultant Indemnified Parties by Section 6 of this Agreement, shall not be deemed or interpreted to confer any rights upon any third parties.

 

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13. Governing Law; Jurisdiction; Venue . All aspects of the relationship created by this Agreement shall be governed by and construed in accordance with the laws of the State of California, applicable to contracts made and to be performed in California, without regard to its conflicts of laws provisions. All actions and proceedings which are not submitted to arbitration pursuant to Section 14 hereof shall be heard and determined exclusively in the state and federal courts located in the County of Los Angeles, State of California, and the Company and Consultant hereby submit to the jurisdiction of such courts and irrevocably waive any defense or objection to such forum, on forum non conveniens grounds or otherwise.

 

14. Arbitration . Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration before one arbitrator in Los Angeles (with the exception of claims to enforce the indemnity provision contained herein, administered by JAMS pursuant to its Streamlined Arbitration Rules and Procedures. Judgment on the Award may be entered in any court having jurisdiction. This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.

 

The arbitrator may, in the award, allocate all or part of the costs of the arbitration, including the fees of the arbitrator and the reasonable attorneys’ fees of the prevailing party.

 

The parties hereby agree that this Section 14 shall survive the termination and/or expiration of this Agreement.

 

The Company’s and Consultant’s consent to Arbitration are confirmed by initialing below:

 

/s/ RM   /s/ AD
Company   Consultant

 

15. Severability . Should any one or more covenants, restrictions and provisions contained in this Agreement be held for any reason to be void, invalid or unenforceable, in whole or in part, such unenforceability will not affect the validity of any other term of this Agreement, and the invalid provision will be binding to the fullest extent permitted by law and will be deemed amended and construed so as to meet this intent. To the extent any provision cannot be so amended or construed as a matter of law, the validity of the remaining provisions shall be deemed unaffected and the illegal or invalid provision will be deemed stricken from this Agreement.

 

16. Section Headings . The section headings herein are for convenience of reference only, and shall not limit or otherwise affect the meaning hereof.

 

17. Accounting . Any calculation, computation or accounting that may be required under this Agreement shall be made in accordance and conformity with the Generally Accepted Accounting Principles and other standards as determined by the Financial Accounting Standards board and regulatory agencies with appropriate jurisdiction and where relevant, consistently applied.

 

18. Counterparts . This Agreement may be executed via facsimile transmission and may be executed in separate counterparts, each of which shall be deemed to be an original and all of which together shall constitute a single instrument.

 

2121 Rosecrans Avenue, Suite 4305 ● El Segundo, CA 90245 ● www.liquidventure.com

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If the above accords with your understanding and agreement, kindly indicate your consent hereto by signing below. We look forward to a long and successful relationship with you.

 

  Very truly yours,
   
  Liquid Patent Advisors, LLC
   
  By: /s/ Ankur Desai
    Ankur Desai, Manager

 

ACCEPTED AND AGREED TO

AS OF THE DATE FIRST ABOVE WRITTEN:

 

TFF Pharmaceuticals, Inc.

 

By: /s/ Robert S. Mills  
  Robert S. Mills  
  Chief Executive Officer  

 

 

2121 Rosecrans Avenue, Suite 4305 ● El Segundo, CA 90245 ●www.liquidventure.com

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Exhibit 10.2

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “ Agreement ”), dated as of March 13, 2018 (the “ Effective Date ”), is by and among TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), and the investors listed on the Schedule of Buyers, attached hereto as Exhibit A (individually, a “ Buyer ” and collectively, the “ Buyers ”).

 

RECITALS

 

A. The Company and each Buyer is 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 “ 1933 Act ”), and Rule 506 of Regulation D (“ Regulation D ”), as promulgated by the United States Securities and Exchange Commission (the “ SEC ”) under the 1933 Act.

 

B. The Company has authorized the issuance of Series A Convertible Preferred Stock, par value $0.001 (the “ Shares ”) in accordance with the form of the Amended and Restated Certificate of Incorporation attached hereto as Exhibit B (the “ Certificate ”), which Shares shall be convertible into shares of the Company’s common stock, par value $0.001 (the “ Common Stock ”) (as converted, collectively, the “ Conversion Shares ”), in accordance with the terms of the Certificate.

 

C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, the aggregate number of Shares set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers.

 

D. At each Closing (as defined below), the parties hereto shall execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit C (the “ Registration Rights Agreement ”), pursuant to which the Company has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

E. In connection with this offer and sale of the Shares (the “ Offering ”), the Company, together with National Securities Corporation (the “ Placement Agent ”), have entered into an escrow agreement, in the form attached hereto as Exhibit D (the “ Escrow Agreement ”), with Delaware Trust Company (the (“ Escrow Agent ”), to hold the Purchase Price (as hereinafter defined), to be released at each Closing to the Company, upon the written consent of the Company and the Placement Agent.

 

F. The Shares and the Conversion Shares are collectively referred to herein as the “ Securities .”

 

 

 

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Buyer hereby agree as follows:

 

1. AUTHORIZATION, SALE AND ISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK.

 

(a) Authorization . The Company will, prior to the Initial Closing Date (as defined below), authorize (a) the sale and issuance of the Shares, having the rights, privileges, preferences and restrictions set forth in the Certificate; and (b) the reservation of Conversion Shares for issuance upon conversion of the Shares.

 

(b) Series A Convertible Preferred Stock . Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, shall purchase from the Company on each Closing Date, the number of Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers.

 

(c) Closing . The closing of the purchase of the Shares by the Buyers shall occur at one or more closings (each of which is referred to as a “ Closing ” and the date of each is referred to as a “ Closing Date ”). Each Closing shall take place at the offices of Greenberg Traurig, LLP, 3161 Michelson Drive, Suite 1000, Irvine, CA 92612. The date and time of the initial Closing (the “ Initial Closing Date ”) shall be 11:00 a.m., New York time, on the first Business Day on which the conditions to the initial Closing (“ Initial Closing ”) set forth in Sections 6 and 7 below are satisfied or waived (or such later date as is mutually agreed to by the Company and each Buyer). As used herein “ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to remain closed.

 

(d) Purchase Price . The aggregate of all Shares purchased and sold shall be no less than Eight Million Dollars ($8,000,000) at a cash purchase price of $2.50 per share (the “ Per Share Purchase Price ”). The aggregate purchase price for the Shares to be purchased by each Buyer (the “ Purchase Price ”) shall be the amount set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers.

 

(e) Payment of Purchase Price; Delivery of Shares . On each Closing Date, (i) each Buyer shall pay its respective Purchase Price to the Company through the Escrow Agent for their respective Shares to be issued and sold to such Buyer at such Closing, and (ii) the Company shall deliver to each Buyer either (A) a certificate registered in such Buyer’s name (representing the number of Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers) or (B) an irrevocable instruction letter to the Company’s transfer agent to issue a certificate registered in such Buyer’s name (representing the number of Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers) and deliver such certificate to the Buyer as soon thereafter as possible.

 

2. BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer represents and warrants to the Company with respect to only itself that:

 

(a) Organization; Authority . Such Buyer (i) if an entity, is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents (as defined below) to which it is a party and otherwise to carry out its obligations hereunder and thereunder, or (ii) if an individual, has the legal capacity to enter into and to consummate the transactions contemplated by the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder.

 

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(b) No Public Sale or Distribution . Such Buyer (i) is acquiring its Shares, and (ii) upon conversion of its Shares will acquire the Conversion Shares issuable upon conversion thereof, in each case, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof in violation of applicable securities laws, except pursuant to sales registered or exempted under the 1933 Act; provided, however, by making the representations herein, such Buyer does not agree, or make any representation or warranty, to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. Such Buyer does not presently have any agreement or understanding, directly or indirectly, with any Person (as defined below) to distribute any of the Securities in violation of applicable securities laws.

 

(c) Accredited Investor Status . Such Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.

 

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

 

(e) Information . Such Buyer and its advisors, if any, have been furnished with the Company’s private placement memorandum, dated March 7, 2018, (the “ Private Placement Memorandum ”), and all other materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Such Buyer understands that its investment in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities, and it is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by this Agreement. Such Buyer believes that it has received all the information such Buyer considers necessary or appropriate for deciding whether to purchase the Securities. Such Buyer understands that such discussions, as well as any information provided by the Company, including the Private Placement Memorandum, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The foregoing provisions of this Section 2(e), however, do not limit or modify the representations and warranties of the Company in Section 3 of this Agreement or the right of the Buyers to rely thereon.

 

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

 

(g) Transfer or Resale . Such Buyer understands that except as provided in the Registration Rights Agreement or Section 4(g) hereof: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company (if requested by the Company) an opinion of counsel to such Buyer, in a form reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance and documentation as may be requested by the Company or its legal counsel that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor rule thereto) (collectively, “ Rule 144 ”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144, and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC promulgated thereunder; and (iii) neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

 

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(h) Validity; Enforcement . This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and constitutes the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

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

 

(j) Buyer’s Principal Residence/Office . The address of Buyer’s principal residence, if Buyer is a natural Person, or principal office, if Buyer is a non-natural Person, such as a corporation, limited liability company or other entity, is set forth in column (2) of the Schedule of Buyers.

 

(k) No Engagements . Such Buyer has not engaged any brokers, finders or agents, and the Company has not, nor will, incur, directly or indirectly, as a result of any action taken by such Buyer, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the transactions consummated under this Agreement. Neither such Buyer, nor any of Buyer’s officers, directors, employees, agents, stockholders or partners has either directly or indirectly, including through a broker or finder: (i) engaged in or received any general solicitation or (ii) published or received any advertisement in connection with the offer or sale of the Securities.

 

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each Buyer as of the date of this Agreement and as of the Initial Closing Date and on each subsequent Closing Date (except for representations and warranties that speak as of a particular date, which shall be true and correct in all material respects as of such dates) that:

 

(a) Organization and Qualification . The Company is an entity duly organized and validly existing and in good standing under the laws of the jurisdiction in which it is formed, and has the requisite power and authorization to own its properties and to carry on its business as now being conducted and as presently proposed to be conducted. The Company is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not be reasonably expected to have a Material Adverse Effect. “ Material Adverse Effect ” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof) or condition (financial or otherwise) of the Company, either individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents, or (iii) the authority or ability of the Company to perform any of its obligations under any of the Transaction Documents. The Company has no Subsidiaries. “ Subsidiaries ” means any Person in which the Company, directly or indirectly, (I) owns any of the outstanding capital stock or holds any equity or similar interest of such Person or (II) controls or operates all or any part of the business, operations or administration of such Person, and each of the foregoing, is individually referred to herein as a “ Subsidiary .” Additionally, to the extent that any Subsidiary is hereafter created, and the context of the provision of this Agreement would ordinarily include a Subsidiary, then the term “Company” will be deemed to include such Subsidiary.

 

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(b) Authorization; Enforcement; Validity . The Company has the requisite power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the other Transaction Documents by the Company, and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Shares and the reservation for issuance and issuance of the Conversion Shares issuable upon conversion of the Shares) have been duly authorized by the Company’s board of directors or other governing body, as applicable, and (other than the filing with the SEC of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies) no further filing, consent or authorization is required by the Company, its respective boards of directors or the stockholders or other governing body. The Shares, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof under the terms thereof. This Agreement has been, and the other Transaction Documents will be prior to the Initial Closing, duly executed and delivered by the Company, and each constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law. “ Transaction Documents ” means, collectively, this Agreement, the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in the Registration Rights Agreement) and each of the other agreements and instruments entered into or delivered by any of the parties hereto in connection with the consummation of the transactions contemplated hereby and thereby, as may be amended from time to time.

 

(c) Issuance of Conversion Shares . The Conversion Shares, when issued in accordance with the terms of the Certificate, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof under the terms thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. The Company shall have reserved from its duly authorized capital stock not less than one hundred ten percent (110%) of the maximum number of Conversion Shares issuable upon conversion of the Shares in accordance with the terms of the Certificate. Subject to the accuracy of the representations and warranties of the Buyers in this Agreement, the offer and issuance by the Company of the Securities is exempt from registration under the 1933 Act.

 

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(d) No Conflicts . The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Shares, the Conversion Shares upon conversion of the Shares, the reservation for issuance of the Conversion Shares) will not (i) result in a violation of the Certificate of Incorporation (as defined below) (including, without limitation, the Certificate or any other certificate of designation contained therein) or other organizational documents of the Company, any capital stock of the Company or Bylaws (as defined below) of the Company, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company is a party or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including, without limitation, foreign, federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected except, in the case of clause (ii) or (iii) above, to the extent such violations that could not reasonably be expected to have a Material Adverse Effect.

 

(e) Consents . The Company is not required to obtain any consent from, authorization or order of, or make any filing or registration with (other than the filing with the SEC of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies), any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its respective obligations under, or contemplated by, the Transaction Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain at or prior to the Initial Closing have been obtained or made on or prior to the Initial Closing Date, and the Company is not aware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings contemplated by the Transaction Documents.

 

(f) Acknowledgment Regarding Buyer’s Purchase of Securities . The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is (i) an “affiliate” (as defined in Rule 144) of the Company or (ii) to its knowledge, a “beneficial owner” of more than ten percent (10%) of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities and Exchange Act of 1934 Act, as amended (“ 1934 Act ”)). The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities. The Company further represents to each Buyer that the Company’s decision to enter into the Transaction Documents to which it is a party has been based solely on the independent evaluation by the Company and its respective representatives.

 

(g) No General Solicitation; Placement Agent’s Fees . Except as set forth in Schedule 3(g) attached to the Disclosure Letter, neither the Company nor any Person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any Placement Agent’s fees, financial advisory fees, or brokers’ commissions (other than for Persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby. Other than the Placement Agent, the Company has not engaged any placement agent or other broker or dealer in connection with the offer or sale of the Securities.

 

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(h) No Integrated Offering . None of the Company or, to the Company’s knowledge, any of its affiliates, nor any Person acting on its behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the issuance of any of the Securities under the 1933 Act, whether through integration with prior offerings or otherwise, or cause this offering of the Securities to require approval of stockholders of the Company (other than any required approval of holders of a majority of the outstanding common stock of the Company received before the Initial Closing) under any applicable stockholder approval provisions. None of the Company, nor its affiliates nor any Person acting on their behalf will take any action or steps that would require registration of the issuance of any of the Securities under the 1933 Act or cause the offering of any of the Securities to be integrated with other offerings of securities of the Company.

 

(i) Dilutive Effect . The Company understands and acknowledges that the number of Conversion Shares may increase in certain circumstances. The Company further acknowledges that its obligation to issue the Conversion Shares upon conversion of the Shares in accordance with this Agreement and the Certificate is absolute and unconditional, regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

 

(j) Application of Takeover Protections; Rights Agreement . The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, interested stockholder, business combination, poison pill (including, without limitation, any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation, Bylaws or other organizational documents or the laws of the jurisdiction of its incorporation or otherwise which is or could become applicable to any Buyer as a result of the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of shares of Common Stock or a change in control of the Company.

 

(k) Placement Documents . The Private Placement Memorandum provided to the Buyers in connection with the sale of the Shares, at the time of the date thereon, as it may be amended from time to time, did not 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. No other information provided by or on behalf of the Company to any of the Buyers taken together with such Private Placement Memorandum contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein not misleading, in the light of the circumstance under which they are or were made.

 

(l) Absence of Certain Changes . Since the date of the Company’s Private Placement Memorandum, there has been no material adverse change and no material adverse development in the business, assets, liabilities, properties, operations (including results thereof), condition (financial or otherwise) or prospects of the Company. Since the date of the Company’s Private Placement Memorandum, the Company has not (i) declared or paid any dividends (whether by cash, property or securities), (ii) sold any assets, individually or in the aggregate, outside of the ordinary course of business or (iii) made any capital expenditures, individually or in the aggregate, outside of the ordinary course of business. The Company has not taken any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does the Company have any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company is not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at each Closing, will not be Insolvent (as defined below). “ Insolvent ” means (i) the present fair saleable value of the Company’s assets is less than the amount required to pay the Company’s total Indebtedness (as defined below), (ii) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (iii) the Company intends to incur or believe that it will incur debts that would be beyond its ability to pay as such debts mature.

 

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(m) No Undisclosed Events, Liabilities, Developments or Circumstances . The Company has no knowledge of any event, liability, development or circumstance that has occurred or exists, or that is reasonably expected to occur or exist with respect to the Company or any of its business, properties, liabilities, operations (including results thereof) or condition (financial or otherwise), that (i) could have a material adverse effect on any Buyer’s investment hereunder or (ii) could have a Material Adverse Effect.

 

(n) Conduct of Business; Regulatory Permits . The Company is not in violation of any term of or in default under its Certificate of Incorporation or Bylaws. The Company is not in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company, and the Company will not conduct its business in violation of any of the foregoing, except in all cases for possible violations which could not, individually or in the aggregate, have a Material Adverse Effect. The Company possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

 

(o) Foreign Corrupt Practices . The Company and, to its knowledge, none of its directors, officers, agents, employees or other Persons acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

(p) Sarbanes-Oxley Act . The Company is in compliance with all applicable requirements of the Sarbanes-Oxley Act of 2002 and all applicable rules and regulations promulgated by the SEC thereunder.

 

(q) Transactions With Affiliates . Except as set forth on Schedule 3(q) attached to the Disclosure Letter and in the Private Placement Memorandum, none of the officers, directors, employees, consultants or affiliates of the Company is presently a party to any transaction with the Company (other than for ordinary course services as employees, officers, consultants or directors and immaterial transactions), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director, employee or affiliate or, to the knowledge of the Company, any corporation, partnership, trust or other Person in which any such officer, director, employee or affiliate has a substantial interest or is an employee, officer, director, trustee or partner.

 

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(r) Equity Capitalization . As of the date hereof, the authorized capital stock of the Company consists solely of 45,000,000 shares of Common Stock, none of which are issued and outstanding and no shares are reserved for issuance pursuant to Convertible Securities (as defined below) (other than the Shares), and 6,000,000 shares of Series A Preferred Stock, none of which are issued or outstanding as of the date of this Agreement. No approval of the shareholders is required for the issuance of the Shares or the Conversion Shares or any of the Convertible Securities. No shares of Common Stock are held in treasury. Upon the Initial Closing, 4,000,000 shares of the Company’s common stock (the “ Parent Shares ”) will be issued to Lung Therapeutics, Inc., a Texas corporation (“ Parent ”), and such shares will be owned by Persons who are “affiliates” (as defined in Rule 405 of the 1933 Act and calculated based on the assumption that only officers, directors and holders of at least 10% of the Company’s issued and outstanding Common Stock are “affiliates” without conceding that any such Persons are “affiliates” for purposes of federal securities laws) of the Company. Upon the Initial Closing, the Parent Shares shall be duly authorized and upon issuance at the Initial Closing, such shares shall be validly issued, fully paid and non-assessable. To the Company’s knowledge, no Person, other than Parent following the Initial Closing, beneficially owns 10% or more of the Company’s issued and outstanding shares of Common Stock (calculated based on the assumption that all Convertible Securities, whether or not presently exercisable or convertible, have been fully exercised or converted (as the case may be) taking account of any limitations on exercise or conversion (including “blockers”) contained therein without conceding in the private placement documentation that such identified Person is a 10% stockholder for purposes of federal securities laws). (i) None of the Company’s capital stock is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional capital stock of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company (except pursuant to the Plan, an agreement to issue common stock to the Placement Agent described in Section 3(g) and an agreement to issue common stock in connection with certain patent and intellectual property services); (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or by which the Company is or may become bound; (iv) there are no financing statements securing obligations in any amounts filed in connection with the Company; (v) there are no agreements or arrangements under which the Company is obligated to register the sale of any of their securities under the 1933 Act (except pursuant to the Registration Rights Agreement and a warrant issued to the Placement Agent); (vi) there are no outstanding securities or instruments of the Company which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; and (viii) the Company has not issued any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. The Company has furnished to the Buyers true, correct and complete copies of the Certificate and the Company’s bylaws, as amended and as in effect on the date hereof (the “ Bylaws ”), and the terms of all securities convertible into, or exercisable or exchangeable for, shares of Common Stock and the material rights of the holders thereof in respect thereto. “ Convertible Securities ” means preferred stock, options, warrants or other securities directly or indirectly convertible into, exchangeable for or exercisable for Common Stock of the Company.

 

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(s) Indebtedness and Other Contracts . The Company, except as disclosed on Schedule 3(s) attached to the Disclosure Letter or in the Private Placement Memorandum, (i) has no outstanding Indebtedness (as defined below), (ii) is not a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is not in violation of any term of, or in default under, any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is not a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect. “ Indebtedness ” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above. “ Contingent Obligation ” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto. “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

(t) Absence of Litigation . Except as set forth on Schedule 3(t) attached to the Disclosure Letter, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company, the Common Stock or any of the Company’s officers or directors which is outside of the ordinary course of business or individually or in the aggregate material to the Company. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC or other United States governmental agency involving the Company or any current or former director or officer of the Company.

 

(u) Employee Relations . The Company is not a party to any collective bargaining agreement or employs any member of a union. The Company believes that its relations with their respective employees are good. No executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of the Company has notified the Company that such officer intends to leave the Company or otherwise terminate such officer’s employment with the Company. To the Company’s knowledge, no executive officer or other key employee of the Company is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer or other key employee (as the case may be) does not subject the Company to any liability with respect to any of the foregoing matters. The Company is in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

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(v) Title . The Company has good and marketable title to all personal property owned by it which is material to the business of the Company, in each case, free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company.

 

(w) Intellectual Property Rights . To the Company’s knowledge, the Company owns or possesses adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, original works, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (“ Intellectual Property Rights ”) necessary to conduct is business as now conducted and as presently proposed to be conducted. None of the Company’s Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within three years from the date of this Agreement. The Company has no knowledge of any infringement by the Company of Intellectual Property Rights of others. There is no claim, action or proceeding being made or brought, or to the knowledge of the Company, being threatened, against the Company regarding their Intellectual Property Rights. The Company is not aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its Intellectual Property Rights.

 

(x) Environmental Laws . The Company (i) is in compliance with all Environmental Laws (as defined below), (ii) has received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct its business, and (iii) is in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. “ Environmental Laws ” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “ Hazardous Materials ”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

 

(y) Tax Status . The Company (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

(z) Off Balance Sheet Arrangements . There is no transaction, arrangement, or other relationship involving the Company in respect of an off-balance sheet entity that would be required to be disclosed by the Company in a 1934 Act filing or that otherwise could be reasonably likely to have a Material Adverse Effect.

 

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(aa) Investment Company Status . The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” or, to the knowledge of the Company, an affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

 

(bb) U.S. Real Property Holding Corporation . The Company is not, and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon any Buyer’s request.

 

(cc) Transfer Taxes . On each Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the issuance, sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.

 

(dd) Bank Holding Company Act . The Company is not subject to the Bank Holding Company Act of 1956, as amended (the “ BHCA ”) and to regulation by the Board of Governors of the Federal Reserve System (the “ Federal Reserve ”). Neither the Company nor, to its knowledge, any of its affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any equity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor, to its knowledge, any of its affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(ee) Shell Company Status . The Company is not, and has never been, an issuer identified in, or subject to, Rule 144(i).

 

(ff) Public Utility Holding Act . The Company is not a “holding company,” or an “affiliate” of a “holding company,” as such terms are defined in the Public Utility Holding Act of 2005.

 

(gg) Federal Power Act . The Company is not subject to regulation as a “public utility” under the Federal Power Act, as amended.

 

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

 

(ii) Real Property . The Company holds good title to all real property, leases in real property, or other interests in real property stated as owned or held by the Company (the “ Real Property ”). The Real Property is free and clear of all mortgages, defects, claims, liens, pledges, charges, taxes, rights of first refusal, encumbrances, security interests and other encumbrances (collectively “ Encumbrances ”) and is not subject to any rights of way, building use restrictions, exceptions, variances, reservations, or limitations of any nature except for (i) liens for current taxes not yet due, and (ii) zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto. Any Real Property held under lease by the Company is held under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company.

 

(jj) Fixtures and Equipment . The Company has good title to, or a valid leasehold interest in, the tangible personal property, equipment, improvements, fixtures, and other personal property and appurtenances that are used by the Company in connection with the conduct of its business (the “ Fixtures and Equipment ”). The Fixtures and Equipment are structurally sound, are in good operating condition and repair, are adequate for the uses to which they are being put, are not in need of maintenance or repairs except for ordinary, routine maintenance and repairs and are sufficient for the conduct of the Company’s business in the manner as conducted prior to each Closing. The Company owns all of its Fixtures and Equipment free and clear of all Encumbrances except for (i) liens for current taxes not yet due, and (ii) zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto.

 

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(kk) Illegal or Unauthorized Payments; Political Contributions . The Company nor, to the best of the Company’s knowledge (after reasonable inquiry of its officers and directors), any of the officers, directors, employees, agents or other representatives of the Company or any other business entity or enterprise with which the Company is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (i) as a kickback or bribe to any Person or (ii) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company.

 

(ll) Money Laundering . The Company is in compliance with, and has not previously violated, the USA Patriot Act of 2001 and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, without limitation, the laws, regulations and Executive Orders and sanctions programs administered by the U.S. Office of Foreign Assets Control, including, without limitation, (i) Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

 

(mm) Qualified Small Business Stock . As of and immediately following the Closing: (i) the Company will be an eligible corporation as defined in Section 1202(e)(4) of the Code, (ii) the Company will not have made purchases of its own stock described in Code Section 1202(c)(3)(B) during the one (1) year period preceding the Closing, except for purchases that are disregarded for such purposes under Treasury Regulation Section 1.1202-2, and (iii) the Company’s aggregate gross assets, as defined by Code Section 1202(d)(2), at no time between its incorporation and through the Closing have exceeded $50 million, taking into account the assets of any corporations required to be aggregated with the Company in accordance with Code Section 1202(d)(3); provided, however , that in no event shall the Company be liable to the Buyers or any other party for any damages arising from any subsequently proven or identified error in the Company’s determination with respect to the applicability or interpretation of Code Section 1202, unless such determination shall have been given by the Company in a manner either grossly negligent or fraudulent.

 

(nn) Disclosure . The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting the transactions consummated hereunder. All disclosure provided to the Buyers regarding the Company, its business and the transactions contemplated hereby, including the Private Placement Memorandum, the Disclosure Letter and the schedules to this Agreement, furnished by or on behalf of the Company does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.

 

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4. COVENANTS.

 

(a) Best Efforts . Each Buyer shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Section 6 of this Agreement. The Company shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Section 7 of this Agreement.

 

(b) Form D and Blue Sky . The Company shall file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Placement Agent promptly after such filing. The Company shall, on or before the Initial Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to, qualify the Securities for sale to the Placement Agent at each 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), and shall provide evidence of any such action so taken to the Buyers on or prior to each Closing Date. Without limiting any other obligation of the Company under this Agreement, the Company shall timely make all filings and reports relating to the offer and sale of the Securities required in connection with the consummation of the transactions consummated hereunder under all applicable securities laws (including, without limitation, all applicable federal securities laws and all applicable “Blue Sky” laws), and the Company shall comply with all applicable federal, foreign, state and local laws, statutes, rules, regulations and the like relating to the offering and sale of the Securities to the Buyers.

 

(c) Reporting Status . After the date the Company becomes subject to the periodic reporting requirements under Sections 13 or 15(d) of the 1934 Act, as amended from time to time, together with the regulations promulgated thereunder (a “ Reporting Company ”), and until the date on which the Buyers shall have sold all of the Registrable Securities (such period, to end in any event, whether or not such securities have been sold, not later than five years after such date, the “ Reporting Period ”), the Company shall use commercially reasonable efforts to timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would no longer require or otherwise permit such termination unless such termination is approved by the holders of a majority stockholders of the voting power of the Company, or unless no Buyer has demand registration rights under the Registration Rights Agreement or unless no Buyer is a holder of record of Conversion Shares (collectively, the “ Termination Conditions ”).

 

(d) Use of Proceeds . The Company shall use the proceeds from the sale of the Shares for general corporate purposes, as set forth in the Private Placement Memorandum; provided, however, that the Company shall not use any of the proceeds to make or repay loans to any officer or director of the Company.

 

(e) Listing . In connection with the Company becoming a Reporting Company, the Company shall in connection with any proper demand for registration of Registrable Securities under the Registration Rights Agreement (if the same has not previously occurred) promptly secure the listing or designation for quotation (as the case may be) of all of the Registrable Securities upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed or designated for quotation (as the case may be) (subject to official notice of issuance) and shall thereafter maintain such listing or designation for quotation (as the case may be) of all Registrable Securities from time to time issuable under the terms of the Transaction Documents on such national securities exchange or automated quotation system unless one of the Termination Conditions has occurred. During any period that the Common Stock is listed or designated, the Company shall use commercially reasonable efforts to maintain the Common Stock’s listing or designation for quotation (as the case may be) on The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (each, an “ Eligible Market ”). During the Reporting Period, the Company shall use commercially reasonable efforts not to take any action which could be reasonably expected to prevent a listing or result in the delisting or suspension of the Common Stock from an Eligible Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(e).

 

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(f) Fees . The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby and resulting from the retention by the Company of any placement agent, financial advisor or broker (including, without limitation, any fees payable to the Placement Agent, who is the Company’s sole placement agent in connection with the transactions contemplated by this Agreement). Except when such Buyer has breached Section 2(k) hereof, the Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment. Except as otherwise set forth in the Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.

 

(g) Pledge of Securities . Notwithstanding anything to the contrary contained in this Agreement, the Company acknowledges and agrees that the Securities may be pledged by a Buyer in connection with a bona fide margin agreement or other bona fide loan or financing arrangement that is secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer making a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document. The Company hereby agrees to execute and deliver such documentation as a holder of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Buyer.

 

(h) Reservation of Shares . The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than one hundred ten percent (110%) of the maximum number of Conversion Shares issuable upon conversion of the Shares.

 

(i) Conduct of Business . So long as any of the Securities are held by the Buyers and their successors in interest and assigns, the business of the Company shall not be conducted in violation of any law, ordinance or regulation of any governmental entity, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect.

 

(j) Subsequent Placements . So long as the Shares are outstanding, the Company shall, without the prior written consent (the “ Required Buyers Consent ”) of the Required Buyers (as defined below), be prohibited from effecting or entering into an agreement to effect any offering or placement of equity or equity linked securities of the Company, including without limitation any shares of Series A Preferred Stock that remain authorized and unissued following the termination of the offering pursuant to this Agreement (“ Subsequent Placement ”). The Required Buyers Consent may include the Required Buyers requiring the Company to provide additional rights to the Holders in connection with any Subsequent Placement including, without limitation, right of participation, increase in the amount of the Stated Value (as defined in the Certificate) and additional redemption rights. Notwithstanding anything to the contrary herein, the term “ Subsequent Placement ” shall not include (i) a firm commitment underwritten initial public offering through a registered broker-dealer (an “ IPO ”), (ii) with the prior written consent of Liquid Venture Partners, LLC, an affiliate of the Placement Agent (“ LVP ”), a placement (or series of placements), based on a pre-issuance valuation of the Company of at least the product of: (A) the total number of issued and outstanding Common Stock and Common Stock Equivalents (on a converted basis) immediately prior to the Subsequent Placement issuance, multiplied by (B) the product of: (x) the Per Share Purchase Price, multiplied by (y) two, and in which in the aggregate gross proceeds to the Company do not exceed $2 million, or (iii) the issuance of equity or equity linked securities, other than Series A Preferred Stock, based on a pre-issuance valuation of the Company of at least the product of: (A) the total number of issued and outstanding Common Stock and Common Stock Equivalents (on a converted basis) immediately prior to the Subsequent Placement issuance, multiplied by (B) the product of: (x) the Per Share Purchase Price, multiplied by (y) two, to one or more of the Company’s strategic partners and/or licensors in consideration of non-cash assets or license rights from the strategic partner or licensor, which issuances in the aggregate shall not exceed securities worth $5 million. All shares of Common Stock issued or issuable pursuant to the securities of the Company issued under this Section 4(j) shall be subject to the 12 month lock-up set forth in Section 4(t). “ Common Stock Equivalents ” means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

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(k) Change of Control . Prior to an IPO, the Company may not effect a Change of Control without the prior written consent of the Required Buyers. “ Change of Control ” means (x) the acquisition of the Company by another entity by means of any transaction (including, without limitation, any stock acquisition, reorganization, merger or consolidation) that contemplates an enterprise value of the Company of less than the product of: (A) the total number of issued and outstanding Common Stock and Common Stock Equivalents (on a converted basis) immediately prior to the effective date of the Change of Control, multiplied by (B) the product of: (i) the Per Share Purchase Price, multiplied by (ii) two, or (y) a sale of all or substantially all of the assets of the Company (including, for purposes of this section, the sale or exclusive license of intellectual property rights which, in the aggregate, constitutes substantially all of the corporation’s material intellectual property assets for an aggregate purchase price of less than the product of: (A) the total number of issued and outstanding Common Stock and Common Stock Equivalents (on a converted basis) immediately prior to the effective date of the Change of Control, multiplied by (B) the product of: (i) the Per Share Purchase Price, multiplied by (ii) two.). In the event of a Change of Control, each Buyer shall have the right but not the obligation, by providing a written request to the Company prior to the effective date of the Change of Control event, to require the Company to purchase some or all of such Buyer’s Shares outstanding at a purchase price per Share equal to the product of: (A) two, multiplied by (B) the Per Share Purchase Price (the “ Put Option Right ”). The Company shall not enter into any Change of Control transaction pursuant to which it would be unable to purchase back all of the issued and outstanding Shares then held by the Buyers (including their assignees) at the time of proposed Change of Control event pursuant to a full exercise by all of the Buyers (including their assignees) of their Put Option Right.

 

(l) Variable Rate Transaction . Notwithstanding anything in this Agreement to the contrary, until the later of none of the Shares not having been converted to Conversion Shares or three years after the Company becomes a Reporting Company, the Company shall be prohibited from effecting or entering into any Subsequent Placement involving a Variable Rate Transaction. “ Variable Rate Transaction ” means a transaction in which the Company (i) issues or sells any Convertible Securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time after the initial issuance of such Convertible Securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provision or (ii) enters into any agreement (including, without limitation, an “equity line of credit” or an “at the market offering”) whereby the Company may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights). Each Buyer shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages. Notwithstanding the foregoing, the offer or sale of the Series A Preferred Stock shall not be deemed to be a Variable Rate Transaction.

 

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(m) Passive Foreign Investment Company . For the period ending on the third year anniversary after the Company becomes a Reporting Company, the Company shall conduct its business in such a manner as will ensure that the Company will not be deemed to constitute a passive foreign investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

(n) Restriction on Redemption and Cash Dividends . So long as any Shares are outstanding and have not been converted to Conversion Shares, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, any securities of the Company without the prior express written consent of the Required Buyers.

 

(o) Corporate Existence . So long as any Shares are outstanding and have not been converted to Conversion Shares, the Company shall maintain its corporate existence and shall not sell, assign or transfer all or substantially all of the Company’s assets.

 

(p) Board of Directors; Size . So long as any Shares are outstanding and have not been converted to Conversion Shares, the Company will, within one hundred twenty (120) days of the Effective Date, have a board of directors and committees thereof that conform to the requirements of Nasdaq Listing Rule 5605 applicable to smaller reporting companies. So long as the Shares are outstanding, LVP shall have the right to advise and require its written consent on all board of director nominees, provided however, such consent shall not be unreasonably withheld. Subject to any legal rights under Delaware law of the stockholders, the board of directors of the Company and committees thereof shall conform to Nasdaq Listing Rule 5605 and the foregoing sentence for so long as any Shares are outstanding and have not been converted to Conversion Shares, except as approved by LVP, which approval may be withheld in its discretion and subject to reasonable conditions, including the requirement of additional independent directors.

 

(q) Intellectual Property Strategy . Within three months following the Effective Date, the Company will adopt an intellectual property strategy reasonably acceptable to LVP, and provide a written summary of the strategy to the Placement Agent.

 

(r) Incentive Equity . The Company has adopted an incentive stock or equity award plan (the “ Plan ”) that is attached hereto as Exhibit E and which provides for awards of up to 1,630,000 shares of Common Stock. As of the Effective Date, 1,630,000 shares of Common Stock remain eligible for issuance under the Plan for future issuance (the “ Reserved Shares ”). The Company hereby agrees that prior to the closing of the IPO, the Company shall only issue “Options” (as defined in the Plan) under the Plan and that the exercise price per share for any Options issued prior to the final Closing shall not be less than the Per Share Purchase Price. Following the completion of the Offering, up to and including the date of an IPO, the Reserved Shares shall not represent in excess of fifteen percent (15%) of the number of fully diluted shares of Common Stock. The Plan will not be amended to increase the number of shares subject thereto until the Company becomes a Reporting Company or with the approval of the Required Buyers. By each Buyer’s execution and delivery of this Agreement, each Buyer hereby consents to the adoption by the Company of the Plan attached hereto as Exhibit E as of the date each Buyer acquires the Shares purchased by each such Buyer.

 

(s) Independent Accountants . Within three months after the date of initial issuance of the Shares, the Company will engage independent certified public accountants, which firm is actively registered with the PCAOB, to perform an audit of the financial statements that would be necessary and sufficient to meet the filing requirements of a registration statement for the registration of securities of the Company either for issuance by the Company or resale of the Conversion Shares, which audit will be completed no later than nine (9) months after the date of the initial issuance of the Shares.

 

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(t) Lock Up . In connection with the IPO, the Company will use its best efforts to obtain lock-up agreements from all officers, directors and employees of the Company and Parent, any direct or beneficial owner of five percent (5%) or more of the Common Stock (excluding any Conversion Shares for purposes of calculating the five percent (5%)), and National Securities Corporation (“ NSC ”) and any beneficial holders of shares of Common Stock who are affiliates of NSC in respect of shares of Common Stock issued upon exercise of any warrants issued in connection with the offering by the Company of the Shares (the “ Financing Shares ”) (for clarity, the lock up for NSC and its affiliates will not apply to any other shares of Common Stock, including any shares of Common Stock acquired in the public markets); the foregoing lock up to extend for a period of 12 months after the effective date of the registration statement for the IPO.

 

(u) Investor Market Stand-Off . In connection with the IPO, if any, each Buyer hereby agrees that, for one hundred eighty (180) days from the effective date of such registration (the “ Restricted Period ”), it will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, whether now owned or hereafter acquired or with respect to which such Buyer has or hereafter acquires the power of disposition; or (ii) enter into any swap or other agreement, arrangement or transaction that transfers to another, in whole or in part, directly or indirectly, any of the economic consequence of ownership of any Common Stock or any securities convertible into or exercisable or exchangeable for any Common Stock, whether any transaction described in clause (i) or (ii) is to be settled by delivery of Common Stock, other securities, in cash or otherwise, without the prior written consent of the managing or lead underwriter of such offering. In order to enforce the restrictions agreed to by Buyer in this Section 4(u), the Company may impose stop-transfer instructions with respect to any security acquired under or subject to this Agreement until the end of the Restricted Period. The Company’s underwriters shall be third-party beneficiaries of the restrictions set forth in this Section 4(u).

 

(v) IPO Commitment . The Company shall, no later than the date that is seven (7) months following the final Closing Date of the Offering, subject to extension upon the prior written approval of the Required Holders (such date, hereinafter, the “ Form S-1 Filing Due Date ”), file with or submit confidentially to the SEC a registration statement on Form S-1 (or any successor from thereto) to register and sell Common Stock in an IPO and complete the IPO no later than the date that is the 14 month anniversary of the Form S-1 Filing Due Date, subject to extension upon the prior written approval of the Required Holders.

 

5. REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.

 

(a) Register . The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to each holder of Securities), a register for the Shares and, if issued, the Conversion Shares in which the Company shall record the name and address of the Person in whose name the Shares and/or Conversion Shares have been issued (including the name and address of each transferee), the aggregate number of Shares or Conversion Shares held by such Person, and any tax related information required to be maintained. The Company shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives.

 

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(b) Transfer Agent Instructions . If a Buyer effects a sale, assignment or transfer of the Conversion Shares, the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more certificates or credit shares to the applicable balance accounts at the Depository Trust Company (“ DTC ”) in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale, assignment or transfer involves Conversion Shares sold, assigned or transferred pursuant to an effective registration statement or in compliance with Rule 144, the transfer agent shall issue such shares to such Buyer, assignee or transferee (as the case may be) without any restrictive legend in accordance with Section 5(d) below. The Company acknowledges that a breach by it of its obligations under this Section 5(b) will cause irreparable harm to each Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that each Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. The Company shall cause its counsel to issue the legal opinion referred to in the Irrevocable Transfer Agent Instructions to the Company’s transfer agent on each Effective Date (as defined and provided in the Registration Rights Agreement), provided that the applicable Buyer(s) or its or their representatives and/or brokers have provided the documentation to counsel reasonably necessary or required for the basis of such legal opinion. Any fees (with respect to the transfer agent, counsel to the Company or otherwise) associated with the issuance of such opinion or the removal of any legends on any of the Securities shall be borne by the Company.

 

(c) Legends . Each Buyer understands that the Securities have been issued (or will be issued in the case of the Conversion Shares) pursuant to an exemption from registration or qualification under the 1933 Act and applicable state securities laws, and except as set forth below, the Securities shall bear any legend as required by the “Blue Sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN]/[THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

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(d) Removal of Legends . Certificates evidencing Securities shall not be required to contain the legend set forth in Section 5(c) above or any other legend (i) while a registration statement (including a Registration Statement) covering the resale of such Securities is effective under the 1933 Act, (ii) following any sale of such Securities pursuant to Rule 144 (assuming the transferor is not an affiliate of the Company), (iii) if such Securities are eligible to be sold, assigned or transferred under Rule 144 (provided that a Buyer provides the Company with reasonable assurances that such Securities are eligible and will remain for sale, assignment or transfer under Rule 144 which shall not include an opinion of counsel), (iv) in connection with a sale, assignment or other transfer (other than under Rule 144), provided that such Buyer provides the Company with an opinion of counsel to such Buyer, in a generally acceptable form, to the effect that such sale, assignment or transfer of the Securities may be made and thereafter made without registration under the applicable requirements of the 1933 Act, or (v) if such legend is not required under applicable requirements of the 1933 Act (including, without limitation, controlling judicial interpretations and pronouncements issued by the SEC, provided that Buyer provides the Company with a reasonable description of the authority Buyer is relying upon). If the Company is a Reporting Company and a legend is not required pursuant to the foregoing, the Company, at its expense, shall no later than two (2) Business Days following the delivery by a Buyer to the Company or the transfer agent (with notice to the Company) of a legended certificate representing such Securities (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer, if applicable), together with any other deliveries from such Buyer as may be required above in this Section 5(d), as directed by such Buyer, either: (A) provided that the Company’s transfer agent is participating in the DTC Fast Automated Securities Transfer Program and such Securities are Conversion Shares, credit the aggregate number of shares of Common Stock to which such Buyer shall be entitled to such Buyer’s or its designee’s balance account with the DTC through its Deposit/Withdrawal at Custodian system or (B) if the Company’s transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch for delivery (via reputable overnight courier) to such Buyer, a certificate representing such Securities that is free from all restrictive and other legends, registered in the name of such Buyer or its designee (the date by which such credit is so required to be made to the balance account of such Buyer’s or such Buyer’s nominee with DTC or such certificate is required to be delivered to such Buyer pursuant to the foregoing is referred to herein as the “ Required Delivery Date ”).

 

(e) Failure to Timely Deliver; Buy-In . If the Company is a Reporting Company and the Company improperly fails to (i) issue and dispatch for delivery (or cause to be so dispatched) to a Buyer by the Required Delivery Date a certificate representing the Securities so delivered to the Company by such Buyer that is free from all restrictive and other legends or (ii) credit the balance account of such Buyer’s or such Buyer’s nominee with DTC for such number of Conversion Shares so delivered to the Company, and if on or after the business day immediately following the Required Delivery Date such Buyer (or any other Person in respect, or on behalf, of such Buyer) purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Buyer of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, that such Buyer so anticipated receiving from the Company without any restrictive legend, then, in addition to all other remedies available to such Buyer, the Company shall, within five (5) Business Days after such Buyer’s request and in such Buyer’s sole discretion, either (x) pay cash to such Buyer in an amount equal to such Buyer’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including brokerage commissions and other out-of-pocket expenses, if any) (the “ Buy-In Price ”), at which point the Company’s obligation to so deliver such certificate or credit such Buyer’s balance account shall terminate and such shares shall be cancelled, or (y) promptly honor its obligation to so deliver to such Buyer a certificate or certificates or credit such Buyer’s DTC account representing such number of shares of Common Stock that would have been so delivered if the Company timely complied with its obligations hereunder and pay cash to such Buyer in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Conversion Shares that the Company was required to deliver to such Buyer by the Required Delivery Date multiplied by (B) the lowest closing sale price of the Common Stock on any Business Day during the period commencing on the date of the delivery by such Buyer to the Company of the applicable Conversion Shares and ending on the date of such delivery and payment under this clause (y).

 

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6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

(a) The obligation of the Company hereunder to issue and sell the Shares to each Buyer at a Closing is subject to the satisfaction, at or before the applicable Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof:

 

(i) Such Buyer shall have executed each of the other Transaction Documents to which it is a party and a Rule 506 “Bad Actor” Questionnaire, and delivered the same to the Company.

 

(ii) Such Buyer and each other Buyer shall have delivered to the Escrow Agent on behalf of the Company the Purchase Price for the Shares being purchased by such Buyer at such Closing by check in collected funds through the Escrow Agent or wire transfer of immediately available funds pursuant to the wire instructions provided by the Company.

 

(iii) The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of such Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to such Closing Date.

 

(iv) A minimum of 3,200,000 Shares, for the minimum gross proceeds of $8,000,000, are purchased by the Buyers at the Initial Closing.

 

(v) Such Buyer shall have received from the Company a copy of the written consent executed by The University of Texas at Austin (“ UTA ”) pursuant to which UTA shall have consented to the assignment of that certain Patent License Agreement No. PM1504101, dated as of July 8, 2015, by and between Parent and UTA (the “ PLA ”), to the Company.

 

7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

(a) The obligation of each Buyer hereunder to purchase its Shares at a Closing is subject to the satisfaction, at or before the applicable Closing Date, of each of the following conditions, provided that these conditions are for each Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:

 

(i) The Company shall have duly executed and delivered to such Buyer each of the Transaction Documents to which it is a party and the Company shall have duly executed and delivered to such Buyer either (A) a certificate registered in such Buyer’s name (representing the number of Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers) or (B) an irrevocable instruction letter to the Company’s transfer agent to issue a certificate registered in such Buyer’s name (representing the number of Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers) and deliver such certificate to the Buyer as soon thereafter as possible.

 

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(ii) The Buyers shall have received an opinion of Greenberg Traurig, LLP, the Company’s counsel, dated the date of the Initial Closing, stating that the Company is duly incorporated, the Transaction Documents have been duly authorized, that the Shares are be duly authorized, fully paid and non-assessable and that the Conversion Shares, if and when issued will be duly authorized, fully paid and non-assessable, which opinion may be subject to such assumptions and conditions are normally set forth in opinions of legal counsel in respect of such matters.

 

(iii) The Company shall have delivered to such Buyer a certificate evidencing the formation and good standing of the Company in its jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction of formation as of a date within ten (10) days of such Closing Date.

 

(iv) The Company shall have delivered to such Buyer a certificate or other reasonably acceptable evidence evidencing the Company’s qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of each jurisdiction in which the Company conducts business and is required to so qualify, as of a date within ten (10) days of such Closing Date.

 

(v) The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of State of the Company’s jurisdiction of incorporation within ten (10) days of such Closing Date.

 

(vi) The Company shall have delivered to such Buyer a certificate, in the form acceptable to such Buyer, executed by the Secretary of the Company dated as of the Initial Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s board of directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation of the Company and (iii) the Bylaws of the Company as in effect at the Closing.

 

(vii) Each and every representation and warranty of the Company shall be true and correct as of the applicable Closing Date in all material respects (except for representations and warranties that include an express materiality qualification, which shall be true and correct in all respects and, except further, representations and warranties that speak as of a specific date, which shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company at or prior to the Closing Date (except for covenants, agreements and conditions that include an express materiality qualification, which shall performed, satisfied or complied in all respects. Such Buyer shall have received a certificate, executed by the President of the Company, dated as of the applicable Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form reasonably acceptable to such Buyer.

 

(viii) The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities.

 

(ix) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

 

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(x) Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably would have or result in a Material Adverse Effect.

 

(xi) The Company shall not have amended, modified, waived compliance with or terminated, revoked or rescinded in any manner or respect (and the Company shall not have taken any action, or permitted any action to be taken (whether through the Company’s inaction or otherwise), that has a similar effect to any of the foregoing) any provision of any of material agreements and all of such agreements shall be in full force and effect.

 

(xii) The Company shall have delivered to such Buyer a letter dated as of the Initial Closing Date, in a form reasonably acceptable to such Buyer, executed by the Company (the “ Disclosure Letter ”).

 

(xiii) The Company shall have delivered to such Buyer such other documents, instruments or certificates relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.

 

(xiv) A minimum of 3,200,000 Shares, for the minimum gross proceeds of $8,000,000, are purchased by the Buyers at the Initial Closing.

 

(xv) The Company shall have delivered a copy of the fully executed UTA Assignment Consent to such Buyer.

 

8. TERMINATION.

 

(a) This Agreement may be terminated prior to the Initial Closing:

 

(i) by written agreement of the Buyers and the Company; or

 

(ii) by either the Company or a Buyer (as to itself but no other Buyer) upon written notice to the other, if the Initial Closing shall not have taken place by 4:30 p.m. Eastern time on June 30, 2018, subject to extension to December 31, 2018 pursuant to the mutual agreement of the Company and the Placement Agent; provided, that the right to terminate this Agreement under this Section 8(a)(ii) shall not be available to any party 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.

 

(b) No termination of this Agreement shall affect any obligation of the Company under this Agreement to reimburse such Buyer for the expenses described in Section 4(f) above. Nothing contained in this Section 8 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.

 

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9. MISCELLANEOUS.

 

(a) Governing Law; Jurisdiction; Jury Trial . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such 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. Nothing contained herein shall be deemed or operate to preclude any Buyer from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to such Buyer or to enforce a judgment or other court ruling in favor of such Buyer. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b) Counterparts . This Agreement may be executed in two or more identical counterparts, all of which 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. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page 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 signature page were an original thereof.

 

(c) Headings; Gender . The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are found.

 

(d) Severability . If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). Notwithstanding anything to the contrary contained in this Agreement or any other Transaction Document (and without implication that the following is required or applicable), it is the intention of the parties that in no event shall amounts and value paid by the Company, or payable to or received by any of the Buyers, under the Transaction Documents (including without limitation, any amounts that would be characterized as “interest” under applicable law) exceed amounts permitted under any applicable law. Accordingly, if any obligation to pay, payment made to any Buyer, or collection by any Buyer pursuant the Transaction Documents is finally judicially determined to be contrary to any such applicable law, such obligation to pay, payment or collection shall be deemed to have been made by mutual mistake of such Buyer, and the Company and such amount shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by the applicable law. Such adjustment shall be effected, to the extent necessary, by reducing or refunding, at the option of such Buyer, the amount of interest or any other amounts which would constitute unlawful amounts required to be paid or actually paid to such Buyer under the Transaction Documents. For greater certainty, to the extent that any interest, charges, fees, expenses or other amounts required to be paid to or received by such Buyer under any of the Transaction Documents or related thereto are held to be within the meaning of “interest” or another applicable term to otherwise be violative of applicable law, such amounts shall be pro-rated over the period of time to which they relate.

 

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(e) Entire Agreement; Amendments . This Agreement, the other Transaction Documents and the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein supersede all other prior oral or written agreements between the Buyers, the Company, their affiliates and Persons acting on their behalf solely with respect to the matters contained herein and therein, and this Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein contain the entire understanding of the parties solely with respect to the matters covered herein and therein; provided, however, nothing contained in this Agreement or any other Transaction Document shall (or shall be deemed to) (i) have any effect on any agreements any Buyer has entered into with, or any instruments any Buyer has received from, the Company prior to the date hereof with respect to any prior investment made by such Buyer in the Company or (ii) waive, alter, modify or amend in any respect any obligations of the Company, or any rights of or benefits to any Buyer or any other Person, in any agreement entered into prior to the date hereof between or among the Company and any Buyer, or any instruments any Buyer received from the Company prior to the date hereof, and all such agreements and instruments shall continue in full force and effect. Except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. For clarification purposes, the Recitals are part of this Agreement. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Required Buyers, and any amendment to any provision of this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Securities, as applicable, provided that no such amendment shall be effective to the extent that it (1) applies to less than all of the holders of the Securities then outstanding or (2) imposes any obligation or liability on any Buyer without such Buyer’s prior written consent (which may be granted or withheld in such Buyer’s sole discretion). No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party, provided that the Required Buyers may waive any provision of this Agreement, and any waiver of any provision of this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Securities, as applicable, provided that no such waiver shall be effective to the extent that it (1) applies to less than all of the holders of the Securities then outstanding (unless a party gives a waiver as to itself only) or (2) imposes any obligation or liability on any Buyer without such Buyer’s prior written consent (which may be granted or withheld in such Buyer’s sole discretion). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents who are holders of Shares. The Company has not, directly or indirectly, made any agreements with any Buyers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other obligation to provide any financing to the Company or otherwise. As a material inducement for each Buyer to enter into this Agreement, the Company expressly acknowledges and agrees that no due diligence or other investigation or inquiry conducted by a Buyer, any of its advisors or any of its representatives shall affect such Buyer’s right to rely on, or shall modify or qualify in any manner or be an exception to any of, the Company’s representations and warranties contained in this Agreement or any other Transaction Document. “ Required Buyers ” means Buyers having Purchase Prices in the aggregate that are at least equal to a majority of the aggregate Purchase Price for all Buyers.

 

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(f) Notices . Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, if delivered personally; (ii) when sent, if sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (iii) when sent, if sent by e-mail (provided that such sent e-mail is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s e-mail server that such e-mail could not be delivered to such recipient) and (iv) if sent by overnight courier service, one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses, facsimile numbers and e-mail addresses for such communications shall be:

 

If to the Company:

 

TFF Pharmaceuticals, Inc.

2801 Via Fortuna

Suite 425

Austin, Texas 78746

E-mail: rmllsjr@aol.com
Attention: Robert Mills, Jr.

 

with a copy (for informational purposes only) to:

 

Greenberg Traurig, LLP

3161 Michelson Drive, Suite 1000

Irvine, CA 92612

Facsimile: (949) 732-6501

E-mail: DonahueD@gtlaw.com
Attention: Daniel K. Donahue, Esq.

 

If to a Buyer, to its address, facsimile number or e-mail address set forth on the Schedule of Buyers, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers,

 

with a copy (for informational purposes only) to:

 

LKP Global Law, LLP

1901 Avenue of the Stars

Suite 480

Los Angeles, CA 90067

Facsimile: (424) 239-1882

E-mail: kleung@lkpgl.com
Attention: Kevin K. Leung, Esq.

 

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or to such other address, facsimile number or e-mail address and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date and recipient facsimile number or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iv) above, respectively. A copy of the e-mail transmission containing the time, date and recipient e-mail address shall be rebuttable evidence of receipt by e-mail in accordance with clause (iii) above.

 

(g) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including, as contemplated below, any assignee of any of the Securities. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Required Buyers, except in the event of a Change of Control. A Buyer may assign some or all of its rights hereunder in connection with any transfer of any of its Securities without the consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.

 

(h) No Third Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, other than the Indemnitees referred to in Section 9(k).

 

(i) Survival. The representations, warranties, agreements and covenants shall survive the Closing and shall expire on the conversion of the Shares into Conversion Shares. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

 

(j) Further Assurances . Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

(k) Indemnification . In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each holder of any Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “ Indemnitees ”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements for one (1) counsel to all the Buyers (the “ Indemnified Liabilities ”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in any of the Transaction Documents, (b) any breach of any covenant, agreement or obligation of the Company contained in any of the Transaction Documents or (c) any cause of action, suit, proceeding or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) or which otherwise involves such Indemnitee that arises out of or results from (i) the execution, delivery, performance or successful enforcement of any of the Transaction Documents, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of such Buyer or holder of the Securities either as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents or as a party to this Agreement (including, without limitation, as a party in interest or otherwise in any action or proceeding for injunctive or other equitable relief). To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 9(k) shall be the same as those set forth in Section 6 of the Registration Rights Agreement. No Indemnitee shall be entitled to indemnification under this Section 9(k) to the extent an Indemnified Liability arises out of the gross negligence or willful misconduct of such Indemnitee.

 

27

 

 

(l) Construction . The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. No specific representation or warranty shall limit the generality or applicability of a more general representation or warranty. Each and every reference to share prices, shares of Common Stock and any other numbers in this Agreement that relate to the Common Stock shall be automatically adjusted for stock dividends, stock splits, stock combinations and other similar transactions that occur with respect to the Common Stock after the date of this Agreement.

 

(m) Remedies . Each Person having any rights under any provision of this Agreement shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security.

 

(n) Withdrawal Right . Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

(o) Payment Set Aside; Currency . To the extent that the Company makes a payment or payments to any Buyer hereunder or pursuant to any of the other Transaction Documents or any of the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. Unless otherwise expressly indicated, all dollar amounts referred to in this Agreement and the other Transaction Documents are in United States Dollars (“ U.S. Dollars ”), and all amounts owing under this Agreement and all other Transaction Documents shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “ Exchange Rate ” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Agreement, the U.S. Dollar exchange rate as published in The Wall Street Journal on the relevant date of calculation.

 

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(p) Independent Nature of Buyers’ Obligations and Rights . The obligations of each Buyer under the Transaction Documents are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as, and the Company acknowledges that the Buyers do not so constitute, a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Buyers are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by the Transaction Documents or any matters, and the Company acknowledges that the Buyers are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or the transactions contemplated by the Transaction Documents. The decision of each Buyer to purchase Securities pursuant to the Transaction Documents has been made by such Buyer independently of any other Buyer. Each Buyer acknowledges that no other Buyer has acted as agent for such Buyer in connection with such Buyer making its investment hereunder and that no other Buyer will be acting as agent of such Buyer in connection with monitoring such Buyer’s investment in the Securities or enforcing its rights under the Transaction Documents. The Company and each Buyer confirms that each Buyer has independently participated with the Company in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose. The use of a single agreement to effectuate the purchase and sale of the Securities contemplated hereby was solely in the control of the Company, not the action or decision of any Buyer, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Buyer. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Buyer, solely, and not between the Company and the Buyers collectively and not between and among the Buyers.

 

[ Signature pages follow ]

 

29

 

 

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

  

  COMPANY:
   
  TFF PHARMACEUTICALS, Inc.
     
  By: /s/ Robert S. Mills
    Robert S. Mills,
    Chief Executive Officer

  

[ Buyer Signature Page Follows ]

 

30

 

 

BUYER SIGNATURE PAGE FOR SECURITIES PURCHASE AGREEMENT

 

TFF PHARMACEUTICALS, Inc .

 

[ Buyer’s signature to be provided by way of its execution of the Omnibus Signature Page to the Agent’s “Omnibus Signature Page and Investor Questionnaire” with respect to this Offering. ]

 

31

 

 

BUYER ADDENDUM RE ESCROW

( this information is required )

 

By signing above the above signed Buyer hereby certifies and confirms that: In the event that the Escrow Agent makes a disbursement to the above signed Buyer, which may or may not occur, such Buyer hereby confirms that such disbursement is to be made by wire transfer using the following wire transfer instructions. The Escrow Agent, the Company and the Placement Agent can rely on this confirmation and I will not revoke this confirmation unless I confirm to the Company on this form replacement wire transfer instructions at least two Business Days before revoking this confirmation. The Company may instruct the Escrow Agent to, or the Escrow Agent may on its own, withhold any such disbursement until the Company is reasonably satisfied and the Escrow Agent is satisfied in its sole discretion with the instructions and procedures for making such disbursement.

 

Bank Name: ____________________

 

Bank Address: ____________________

 

ABA Number: ____________________

 

Account Number: ____________________

 

Account Name: ____________________

 

Reference: ____________________

 

32

 

 

EXHIBIT A

 

SCHEDULE OF BUYERS

 

33

 

 

EXHIBIT B

 

CERTIFICATE

 

34

 

 

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

TFF PHARMACEUTICALS, INC.

A Delaware Corporation

 

(Pursuant to Sections 241 and 245 of the

General Corporation Law of the State of Delaware)

 

TFF Pharmaceuticals, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “ DGCL ”),

 

DOES HEREBY CERTIFY:

 

1. That the name of this corporation is TFF Pharmaceuticals, Inc., and that this corporation was originally incorporated pursuant to the DGCL on January 24, 2018.

 

2. The corporation has not received payment for any of its stock.

 

3. This Amended and Restated Certificate of Incorporation of the Corporation was duly adopted in accordance with Sections 241 of the DGCL , and restates, integrates and further amends the provisions of the corporation's certificate of incorporation as follows:

 

FIRST: The name of this corporation is TFF Pharmaceuticals, Inc. (the “ Corporation ”).

 

SECOND: The address, including street, number, city and county, of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, Wilmington, DE 19801, County of New Castle; and the name of the registered agent of the Corporation in the State of Delaware at such address is The Corporation Trust Company.

 

THIRD: The nature of the business and of the purposes to be conducted and promoted by the Corporation is to conduct any lawful business, to promote any lawful purpose, and to engage in any lawful act or activity for which corporations may be organized under the DGCL.

 

FOURTH: The total number of shares of stock which this Corporation shall have authority to issue is Fifty One Million (51,000,000) shares, divided into two classes of: (a) Forty Five Million (45,000,000) shares of common stock, par value $0.001 per share (the “ Common Stock ”), and (b) Six Million (6,000,000) shares of preferred stock, par value $0.001 per share (the “ Preferred Stock ”), all of which Preferred Stock has been designated as “ Series A Convertible Preferred Stock ” (the “ Series A Preferred Stock ”).

 

A. COMMON STOCK

 

1. Voting . Except as may otherwise be provided in this Amended and Restated Certificate of Incorporation of the Corporation (as the same may be amended or amended and restated, this “ Certificate of Incorporation ”) or by applicable law, each holder of Common Stock, as such, shall be entitled to one (1) vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote.

 

2. Dividends . Subject to the applicable laws of the State of Delaware, the applicable provisions of this Certificate of Incorporation, and the rights, if any, of the holders of any outstanding series of Preferred Stock as provided for or fixed pursuant to the provisions of Article FOURTH hereof, dividends may be declared and paid on the Common Stock at such times and in such amounts as the Board of Directors of the Corporation (the “ Board ”) in its discretion shall determine.

 

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3. Liquidation Rights . Subject to applicable law and the rights, if any, of the holders of any series of Preferred Stock then outstanding, in the event of a Liquidation Event (as hereinafter defined), the holders of the Common Stock shall be entitled to receive the assets of the corporation available for distribution to its stockholders ratably in proportion to the number of shares of Common Stock held by them.

 

B. PREFERRED STOCK

 

The powers (including voting powers), if any, and the preferences and relative, participating, optional, special or other rights, if any, and the qualifications, limitations or restrictions, if any, of the Series A Preferred Stock are as follows:

 

1. Unless otherwise indicated, references to “ sections ” or “ subsections ” in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.

 

2. Definitions . In addition to the terms defined elsewhere in this Certificate of Incorporation, the following terms have the meanings indicated:

 

“Announced IPO Date” shall have the meaning given in Section 8(e).

 

Business Day ” means any day other than Saturday, Sunday and any day on which banks are required or authorized by law to be closed in the State of Texas.

 

Closing Date ” has the meaning given to it in Section 1(c) of the Securities Purchase Agreement.

 

Commission ” means the Securities and Exchange Commission.

 

Conversion Amount ” means the sum of the Stated Value plus all accrued and unpaid Dividends thereon, plus any other unpaid amounts due to the Holders under this Certificate of Incorporation.

 

“Conversion Price ” shall have the meaning given in Section 8.

 

Dividend Rate ” means a percentage of the Stated Value per share, as adjusted for any stock split, stock dividend, stock combination or other similar transactions with respect to the Series A Preferred Stock, of six percent (6%) per annum, provided, that if an Event of Default shall have occurred and be continuing, the Dividend Rate shall automatically be increased to twelve percent (12%) per annum during the period of such Event of Default, until such Event of Default is later cured.

 

Event of Default ” shall have the meaning given in Section 17.

 

Holder ” means any holder of Series A Preferred Stock.

 

“IPO ” means a firm commitment underwritten initial public offering of the Corporation’s Common Stock pursuant to a registration statement filed on Form S-1 (or any successor from thereto) that is declared effective by the SEC and consummated prior to the Redemption Date.

 

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“IPO Notice” shall have the meaning given in Section 8(e).

 

“IPO Price to Public” means the price to public specified in the IPO registration statement.

 

Junior Securities ” means the (i) Common Stock and all other equity or equity equivalent securities of the Corporation, and (ii) all equity or equity equivalent securities issued by the Corporation after the Original Issue Date that do not rank senior to or pari passu with the Series A Preferred Stock.

 

Offering ” has the meaning given to it in Recital E. of the Securities Purchase Agreement.

 

Original Issue Date ” means the date of the first issuance of any shares of the Series A Preferred Stock regardless of the number of transfers of any particular shares of Series A Preferred Stock and regardless of the number of certificates that may be issued to evidence such Series A Preferred Stock.

 

Person ” means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture or other non-corporate business enterprise, limited liability company, joint stock company, trust, organization, business, labor union or government (or an agency or subdivision thereof) or any court or other federal, state, local or other governmental authority or other entity of any kind.

 

Required Holders ” means the Holders that hold at least a majority of the Series A Preferred Stock then outstanding.

 

Securities Purchase Agreement ” means that certain securities purchase agreement, dated as of March 13, 2018, by and among the Corporation and the purchasers of the Series A Preferred Stock named therein.

 

Stated Value ” means $2.50 per share of Series A Preferred Stock.

 

Subsequent Placement ” has the meaning given to it in Section 4(j) of the Securities Purchase Agreement.

 

Transaction Document(s)” has the meaning set forth in Section 3(b) of the Securities Purchase Agreement.

 

Underlying Shares ” means the shares of Common Stock issuable upon conversion of the Series A Preferred Stock.

 

3. Voting Rights .

 

Except as otherwise required by law or this Certificate of Incorporation, the Series A Preferred Stock shall vote together, and not separately as a class, with the Common Stock and all other shares of stock of the Corporation having general voting power. The holder of each share of Series A Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Series A Preferred Stock could be converted at the record date for determination of the stockholders entitled to vote on such matters, or, if no record date is established, at the date such vote is taken or the effective date of any written consent. Fractional votes of the holders of Series A Preferred Stock shall not, however, be permitted and fractional voting rights shall be (after aggregating all shares into which shares of Series A Preferred Stock held by each Holder could be converted) rounded to the nearest whole number (with one-half being rounded upward). Holders of Series A Preferred Stock shall be entitled to notice of any stockholders meetings in accordance with the Bylaws of the Corporation, as if such Holders owned shares of Common Stock.

 

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In addition to any other vote or consent required by this Certificate of Incorporation or by law, the affirmative vote of the Required Holders shall be necessary to (1) authorize, increase the authorized number of shares of or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any additional shares of Series A Preferred Stock or any shares of capital stock of the Corporation having any right, preference or priority ranking senior to or pari passu with Series A Preferred Stock, (2) authorize, adopt or approve any amendment to this Certificate of Incorporation or the Bylaws that would increase or decrease the par value of the shares of the Series A Preferred Stock, alter or change the powers, preferences or rights of the shares of Series A Preferred Stock or alter or change the powers, preferences or rights of any other capital stock of the Corporation if after such alteration or change such capital stock would be senior to or pari passu with Series A Preferred Stock, (3) amend, alter or repeal the Certificate of Incorporation or the Bylaws so as to affect the shares of Series A Preferred Stock adversely, including in connection with a merger, recapitalization, reorganization or otherwise, (4) authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or otherwise receive any shares of any class or classes of capital stock of the Corporation having any right, preference or priority ranking senior to or pari passu with Series A Preferred Stock, (5) organize a subsidiary of the Corporation or (6) pay or set apart for payment any dividend on any Junior Securities or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any Junior Securities or any warrants, rights, calls or options exercisable for or convertible into any Junior Securities whether in cash, obligations or shares of Corporation or other property, and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any Junior Securities or any such warrants, rights, calls or options.

 

4. Dividends .

 

(a) Holders shall be entitled to receive, on a pari passu basis, out of funds legally available therefor, prior and in preference to any declaration or payment of any dividend on the Junior Securities, cumulative dividends on the Series A Preferred Stock at the Dividend Rate per share. Dividends on the Series A Preferred Stock shall accrue daily commencing as of the Original Issue Date at the Dividend Rate then in effect, and shall be deemed to accrue from the Original Issue Date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Dividends on the Series A Preferred Stock shall (i) be calculated on the basis of a 365-day year, and (ii) be payable when, as and if declared by the Board of Directors.

 

(b) The Corporation shall pay required dividends in cash, except as otherwise provided in this Certificate of Incorporation.

 

(c) Except as authorized in accordance with Section 3, so long as any Series A Preferred Stock is outstanding, the Corporation shall not pay or set apart for payment any dividend on any Junior Securities or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any Junior Securities or any warrants, rights, calls or options exercisable for or convertible into any Junior Securities whether in cash, obligations or shares of Corporation or other property, and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any Junior Securities or any such warrants, rights, calls or options .

 

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5. Registration of Series A Preferred Stock . The Corporation or its transfer agent (the “ Transfer Agent ”) shall register shares of the Series A Preferred Stock, upon records to be maintained by the Corporation or its Transfer Agent, as the case may be, for that purpose (the “ Series A Preferred Stock Register ”), in the name of the record Holders thereof from time to time. To the fullest extent permitted by law, the Corporation may deem and treat the registered Holder of shares of Series A Preferred Stock as the absolute owner thereof for the purpose of any conversion hereof or any distribution to such Holder, and for all other purposes, absent actual written notice to the contrary from the registered Holder.

 

6. Registration of Transfers . The Corporation or its Transfer Agent shall register the transfer of any shares of Series A Preferred Stock in the Series A Preferred Stock Register, upon surrender of certificates evidencing such shares to the Corporation at its address specified in Section 15 of this Certificate of Incorporation. Upon any such registration or transfer, a new certificate evidencing the shares of Series A Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the shares not so transferred, if any, shall be issued to the transferring Holder; provided that if the Corporation does not so record an assignment, transfer or sale (as the case may be) within two (2) Business Days of its receipt of such a request, then the Series A Preferred Stock Register shall be automatically updated to reflect such assignment, transfer or sale (as the case may be).

 

7. Liquidation . In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (a “ Liquidation Event ”), the Holders shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Junior Securities by reason of their ownership thereof, an amount per share in cash equal to the greater of (x) the Stated Value for each share of Series A Preferred Stock then held by them (as adjusted for any stock split, stock dividend, stock combination or other similar transactions with respect to the Series A Preferred Stock), plus all accrued and unpaid dividends on such Series A Preferred Stock as of the date of such event, or (y) the amount payable per share of Common Stock that such Holder of Series A Preferred Stock would have received if such Holder had converted to Common Stock immediately prior to the Liquidation Event all of the shares of Series A Preferred Stock then held by such Holder together with all accrued but unpaid dividends on such Series A Preferred Stock as of the date of such event (the “ Series A Stock Liquidation Preference ”). If, upon the occurrence of a Liquidation Event, the funds thus distributed among the Holders shall be insufficient to permit the payment to such Holders of the full Series A Stock Liquidation Preference, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the Holders in proportion to the aggregate Series A Stock Liquidation Preference that would otherwise be payable to each of such Holders. Such payment shall constitute payment in full to the holders of the Series A Preferred Stock upon the Liquidation Event. After such payment shall have been made in full, or funds necessary for such payment shall have been set aside by the Corporation in trust for the account of the Holders, so as to be immediately available for such payment, such Holders shall be entitled to no further participation in the distribution of the assets of the Corporation. The sale of all or substantially all of the assets of the Corporation, or merger, tender offer or other business combination to which the Corporation is a party in which the voting stockholders of the Corporation prior to such merger, tender offer or other business combination do not own a majority of the voting securities of the resulting entity or by which any person or group acquires beneficial ownership of 50% or more of the voting securities of the Corporation or resulting entity shall, for the purposes of this Certificate of Incorporation, be deemed to be a Liquidation Event.

 

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8. Conversion . The Series A Preferred Stock held by a Holder may be converted into validly issued, fully paid and non-assessable shares of Common Stock on the terms and conditions set forth in this Section 8.

 

(a) Mandatory Conversion.

 

(i) IPO . Upon consummation of the IPO, each share of Series A Preferred Stock shall automatically convert, through no further action on the part of the Corporation or the Holder, into that number of shares of Common Stock equal to the quotient of (i) the Conversion Amount divided by (ii) the Conversion Price. For the purpose of this Section 8(a)(i), the “ Conversion Price ” shall be equal to fifty percent (50%) of the IPO Price to Public (rounded to two decimal places).

 

(ii) Financing . Upon consummation of a Subsequent Placement approved by the Required Holders pursuant to Section 4(j) of the Securities Purchase Agreement, each share of Series A Preferred Stock shall automatically convert, through no further action on the part of the Corporation or the Holder, into that number of shares of Common Stock equal to the quotient of (A) the Conversion Amount divided by (B) the Conversion Price. For the purposes of this Section 8(a)(ii), the “ Conversion Price ” shall be equal to fifty percent (50%) of the purchase price of the securities being sold by the Corporation in such Subsequent Placement (rounded to two decimal places).

 

(b) Optional Conversion . At any time after the Issuance Date and until ten (10) calendar days prior to the consummation of the IPO (as set forth in the IPO Notice), each Holder shall be entitled to convert its Series A Preferred Stock into that number of shares of Common Stock equal to the quotient of (A) the Conversion Amount divided by (B) the Conversion Price. For the purposes of this Section 8(b), the “ Conversion Price ” shall be equal to $2.50, as adjusted for stock splits, stock dividends, stock combinations, recapitalizations, or the like that occur after the Issuance Date in accordance with Section 13.

 

(c) Mechanics of Conversion .

 

(i) Mechanics of Mandatory Conversion . Upon the occurrence of an event specified in Section 8(a)(i) or 8(a)(ii) above, the outstanding shares of Series A Preferred Stock shall be converted into Common Stock automatically without the need for any further action by the Holders and whether or not the certificates representing such shares are surrendered to the Corporation or its Transfer Agent; provided, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series A Preferred Stock are either delivered to the Corporation or its transfer agent as provided below, or the Holder notifies the Corporation or its Transfer Agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series A Preferred Stock, the Holders shall surrender the certificates representing such shares at the office of the Corporation or the Transfer Agent. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates a certificate or certificates for the number of shares of Common Stock into which the shares of Series A Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred.

 

(ii) Mechanics of Optional Conversion . To convert Series A Preferred stock pursuant to Section 8(b) above into shares of Common Stock on any date (a “ Conversion Date ”), the Holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or the Transfer Agent, or notify the Corporation or its Transfer Agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall deliver at such office a copy of a properly and fully-completed and executed notice of conversion in the form attached hereto as Exhibit A (the “ Conversion Notice ”). Thereupon, the Corporation shall promptly issue and deliver to such Holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Series A Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date.

 

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(d) No Fractional Shares; Transfer Taxes . The Corporation shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Corporation shall round such fraction of a share of Common Stock up to the nearest whole share. The Corporation shall pay any and all transfer, stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon any conversion.

 

(e) Announcement of Initial Public Offering . After such time as the Corporation determines that it will consummate an IPO, it shall send a notice to the Holders (the “ IPO Notice ”) of the proposed consummation date of the IPO (the expected date of such consummation is the “ Announced IPO Date ”), but such IPO Notice shall be dispatched in any event no later than ten (10) calendar days prior to such Announced IPO Date. To the extent that the Announced IPO Date is subsequently advanced or delayed, the Corporation shall send an amended IPO Notice of the revised proposed consummation date of the IPO to the Holders; provided, however, the Corporation may not advance the Announced IPO Date to a date less than five (5) Business Days after the date of the latest amending IPO Notice. If any Announced IPO Date is delayed, the amending IPO Notice will be deemed the establishment of a new Announced IPO Date and any Conversion Notice given based on a previously Announced IPO Date will be deemed cancelled unless the Holder providing such Conversion Notice affirms in writing the Conversion Notice as given.

 

9. Redemption Rights .

 

(a) No Optional Redemption . The Corporation shall have no right to redeem the Series A Preferred Stock except as set forth in this Section 9.

 

(b) Mandatory Cash Redemption . On the date that is the 21 month anniversary of the final Closing Date of the Offering, subject to extension upon the prior written approval of the Required Holders (the “ Mandatory Redemption Date ”), the Corporation shall repurchase all of the outstanding shares of Series A Preferred Stock at a redemption price for each Holder equal to the sum of: (i) the product of (A) two, multiplied by (B) the aggregate Stated Value of all of the Series A Preferred Stock shares then held by such Holder (as adjusted for any stock split, stock dividend, stock combination or other similar transactions with respect to the Series A Preferred Stock), plus (ii) all accrued but unpaid dividends on such shares of Series A Preferred Stock to the date of payment (the “ Redemption Price ”), in cash (“ Mandatory Cash Redemption ”).

 

(c) Redemption In-Kind . Upon an Event of Default, and while the Event of Default is continuing, the Required Holders may elect in writing to cause the Corporation (“ Mandatory Redemption Notice ”) to repurchase the Series A Preferred Stock through the Corporation’s distribution of the assets of the Corporation having a value equal to the Redemption Price to the Holders or, upon the election of the Required Holders, a trust or other entity established by the Required Holders for purposes of receiving the assets of the Corporation (“ Mandatory In-Kind Redemption ”). Within ten days of the Corporation’s receipt of the Mandatory Redemption Notice, the Corporation shall hire an independent nationally recognized valuation firm (“ Valuation Firm ”) not unacceptable to the Required Holders for purposes of determining the fair market value of the Corporation’s assets (“ Valuation ”). The Valuation Firm shall conduct the Valuation using such criteria and methodologies as are proposed by the Valuation Firm and not unacceptable to the Corporation or the Required Holders. The Valuation shall assign fair market values to each significant group of assets (each an “ Asset Class ”) of the Corporation. The Valuation Firm shall deliver the Valuation no later than thirty (30) days of its engagement. In the event that the Valuation is less than the aggregate Redemption Price for all Holders, the Corporation shall distribute to the Holders all of the assets of the Corporation within ten (10) days of the Valuation Firm’s delivery of the Valuation. If the Valuation is greater than the aggregate Redemption Price for all Holders, the Corporation shall distribute to the Holders a proportional amount of each Asset Class equal to the Valuation amount assigned to each Asset Class by the Valuation Firm multiplied by a fraction the denominator of which is the Valuation and the numerator is the aggregate Redemption Price for all Holders. Each Holder shall be entitled to receive its proportional share of distributed assets in each Asset Class equal to the Valuation amount assigned to the distributed assets in each Asset Class multiplied by a fraction the denominator of which is the aggregate Redemption Price for all Holders and the numerator is the Redemption Price for such Holder. From the time of the Corporation’s receipt of the Mandatory Redemption Notice until the Corporation’s distribution of the assets in accordance with this Section 9(c), the Corporation shall take no action to sell, transfer or diminish the assets of the Corporation except (i) in the ordinary course of business or (ii) as approved in writing by the required Holders.

 

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(d) Mechanics of Redemption . Upon receipt of payment of the Redemption Price by the Holders of Series A Preferred Stock in the event of a Mandatory Cash Redemption or the Holders’ receipt of their proportional share of the assets of the Corporation in the event of a Mandatory In-Kind Redemption, each Holder will deliver the certificate(s) evidencing the Series A Preferred Stock to be redeemed by the Corporation, unless such Holder is awaiting receipt of a new certificate evidencing such shares from the Corporation pursuant to another provision hereof.

 

(e) Insufficient Legally Available Assets . If the assets of the Corporation legally available for redemption are insufficient to effect the distributions contemplated by Section 9(c), those assets that are legally available shall be used to redeem the maximum possible number of shares of Series A Preferred Stock pro rata among the Holders to be redeemed pursuant to Section 9(c) based upon the Redemption Price held by each such Holder. At any time thereafter when additional assets of the Corporation are legally available for the redemption of Series A Preferred Shares pursuant to Section 9(c), such assets shall immediately be used to redeem the balance of the Series A Preferred Shares that the Corporation has become obligated to redeem pursuant to Section 9(c), but which it has not redeemed.

 

10. Reservation of Common Stock . The Corporation shall at all times reserve and keep available for issuance upon the conversion of shares of Series A Preferred Stock, such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Series A Preferred Stock, and shall take all action to increase the authorized number of shares of Common Stock if at any time there shall be insufficient authorized but unissued shares of Common Stock to permit such reservation or to permit the conversion of all outstanding shares of Series A Preferred Stock.

 

11. Charges, Taxes and Expenses . The issuance of certificates for shares of Series A Preferred Stock and for Underlying Shares issued upon conversion of (or otherwise in respect of) the Series A Preferred Stock shall be made without charge to the Holders for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Corporation; provided , however , that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the registration of any certificates for Common Stock or Series A Preferred Stock in a name other than that of the Holder of such certificates. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring the Series A Preferred Stock or receiving Underlying Shares in respect of the Series A Preferred Stock.

 

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12. Replacement Certificates . If any certificate evidencing Series A Preferred Stock or Underlying Shares is mutilated, lost, stolen or destroyed, the Corporation shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution for such certificate, a new certificate, but only upon receipt of evidence reasonably satisfactory to the Corporation of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Corporation may prescribe.

 

13. Certain Adjustments . The Conversion Price is subject to adjustment from time to time as set forth in this Section 13.

 

(a) Stock Dividends and Splits . If the Corporation, at any time while any shares of Series A Preferred Stock are outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately following the close of business on the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately following the close of business on the effective date of such subdivision or combination.

 

(b) Fundamental Transactions . If, at any time while any shares of Series A Preferred Stock are outstanding, (i) the Corporation effects any merger of the Corporation into or consolidation of the Corporation with another Person, (ii) the Corporation effects any sale of all or substantially all of its assets in one or a series of related transactions, or (iii) the Corporation effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock covered by Section 13(a) above) (in any such case, a “ Fundamental Transaction ”), then upon any subsequent conversion of Series A Preferred Stock, each Holder shall have the right to receive, for each Underlying Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the record holder of such Underlying Shares immediately prior to such record date (the “ Alternate Consideration ”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a manner reasonably acceptable to the holders of a majority of the outstanding shares of Series A Preferred Stock reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then each Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of Series A Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall issue to the Holders a new series of preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 13 and insuring that the Series A Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

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(c) Calculations . All calculations under this Section 13 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

(d) Notice of Adjustments . Upon the occurrence of each adjustment pursuant to this Section 13, the Corporation at its expense will promptly compute such adjustment in accordance with the terms hereof and prepare a certificate describing in reasonable detail such adjustment and the transactions giving rise thereto, including all facts upon which such adjustment is based. Upon written request, the Corporation will promptly deliver a copy of each such certificate to each Holder.

 

(e) Notice of Corporate Events . If the Corporation (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Junior Stock, including, without limitation, any granting of rights or warrants to subscribe for or purchase any capital stock of the Corporation or any subsidiary, or (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Liquidation Event or Fundamental Transaction then the Corporation shall deliver to each Holder a notice that shall specify (A) the record date for the purposes of such dividend, distribution of cash, securities or property or vote of the stockholders of the Corporation, or if a record is not to be taken, the date as of which the holders of shares of Common Stock of record to be entitled to such dividend, distribution of cash, securities or other property or vote of the stockholders is to be determined, (B) the date on which such Liquidation Event or Fundamental Transaction is expected to become effective, and (C) the material terms and conditions of such transaction, at least ten Business Days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Corporation will take all steps reasonably necessary in order to insure that each Holder is given the practical opportunity to convert its Series A Preferred Stock prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.

 

14. Fractional Shares . The Corporation shall not be required to issue or cause to be issued fractional Underlying Shares upon conversion of Series A Preferred Stock. If any fraction of an Underlying Share would, except for the provisions of this Section, be issuable upon conversion of Series A Preferred Stock, the number of Underlying Shares to be issued will be rounded up to the nearest whole share.

 

15. Notices . Any and all notices or other communications or deliveries hereunder (including without limitation any Conversion Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 3:30 p.m. (Texas time) on a Business Day, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Business Day or later than 3:30 p.m. (Texas time) on any Business Day, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Corporation, to 2801 Via Fortuna, Suite 425, Austin, Texas 78746, attention Chief Executive Officer, or (ii) if to a Holder, to the address or facsimile number appearing on the Corporation’s stockholder records or such other address or facsimile number as such Holder may provide to the Corporation in accordance with this Section 15.

 

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16. Dispute Resolution . In the case of a dispute as to the determination of the fair value of consideration other than cash or securities, or the arithmetic calculation of the Conversion Rate or the Redemption Price, the Corporation shall, as soon as practicable upon discovery, and following a good faith effort to resolve the dispute with the Holder, submit (a) the disputed determination of the fair value of consideration other than cash or securities to an independent, reputable investment bank selected by the Corporation or (b) the disputed arithmetic calculation of the Conversion Rate or the Redemption Price to the Corporation’s independent, outside accountant. The Corporation, at the Corporation’s expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Corporation and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

17. Event of Default .

 

(a) Each of the following events shall constitute an “Event of Default”:

 

(i) any material default by the Corporation with respect to any provision, condition or requirement of this Certificate of Incorporation, if such default remains uncured for a period of thirty (30) days after actual knowledge of the Corporation of such default;

 

(ii) any breach of Sections 4(i), 4(j), 4(k), 4(l), 4(p), 4(r), 4(s), 4(t) or 4(v) of the Securities Purchase Agreement;

 

(iii) liquidation proceedings shall be instituted by or against the Corporation and, if instituted against the Corporation by a third party, shall not be dismissed within sixty (60) days of their initiation;

 

(iv) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Corporation and, if instituted against the Corporation by a third party, shall not be dismissed within sixty (60) days of their initiation;

 

(v) the commencement by the Corporation of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Corporation in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Corporation or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by the Corporation in furtherance of any such action; or

 

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(vi) the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Corporation of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law; or (ii) a decree, order, judgment or other similar document adjudging the Corporation as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of the Corporation under any applicable federal, state or foreign law; or (iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for a period of sixty (60) consecutive days.

 

(vii) bankruptcy, insolvency, reorganization or other proceedings for the relief of debtors shall be instituted against the Corporation and shall not be dismissed within sixty (60) days of their initiation;

 

(viii) a final judgment or judgments for the payment of money aggregating in excess of $500,000 are rendered against the Corporation and which judgments are not, within sixty (60) days after the entry thereof, satisfied, bonded, discharged or stayed pending appeal, or are not satisfied, bonded or discharged within sixty (60) days after the expiration of such stay;

 

(ix) the Corporation fails to pay, when due, or within any applicable grace period, any payment with respect to any indebtedness in excess of $500,000 due to any third party (other than, with respect to unsecured indebtedness only, payments contested by the Corporation in good faith by proper proceedings and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP) or is otherwise in breach or violation of any agreement for monies owed or owing by the Corporation in an amount in excess of $500,000, which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder;

 

(x) any representation or warranty made by the Corporation in any Transaction Document is not accurate in any material respect when made or deemed made; or

 

(xi) the validity or enforceability of any provision of any Transaction Document shall be contested by the Corporation, or a proceeding shall be commenced by the Corporation seeking to establish the invalidity or unenforceability thereof.

 

(b) Notice of an Event of Default . The Corporation shall, within two (2) Business Days of becoming aware of the occurrence of an Event of Default, deliver written notice thereof via facsimile and overnight courier (with next day delivery specified) (an “ Event of Default Notice ”) to the Holders.

 

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18. Miscellaneous .

 

(a) The headings herein are for convenience only, do not constitute a part of this Certificate of Incorporation and shall not be deemed to limit or affect any of the provisions hereof.

 

(b) No provision of this Certificate of Incorporation may be amended, except in a written instrument signed by the Corporation and the Required Holders.

 

(c) The Series A Preferred Stock is (i) senior to all other equity interests in the Corporation outstanding as of the Original Issue Date in right of payment, whether with respect to dividends or upon liquidation or dissolution, or otherwise and (ii) will be senior to all other equity or equity equivalent securities issued by the Corporation after the Original Issue Date.

 

(d) Any of the rights of the Holders of Series A Preferred Stock set forth herein may be waived by the affirmative vote of the Required Holders. No waiver of any default with respect to any provision, condition or requirement of this Certificate of Incorporation 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 .

 

FIFTH: The power to make, alter, or repeal the Bylaws, and to adopt any new Bylaw, shall be vested in the Board, subject to the power of the stockholders of the Corporation to alter or repeal any bylaw whether adopted by them or otherwise .

 

SIXTH: To the fullest extent that the DGCL, as it exists on the date hereof or as it may hereafter be amended, permits the limitation or elimination of the liability of directors, no director of this Corporation shall be personally liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Notwithstanding the foregoing, a director shall be liable to the extent provided by applicable law: (a) for any breach of the directors’ duty of loyalty to the Corporation or its stockholders; (b) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the DGCL; or (4) for any transaction from which the director derived any improper personal benefit. Neither the amendment nor repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article, shall adversely affect any right or protection of a director of the Corporation existing at the time of such amendment or repeal.

 

SEVENTH: The Corporation shall, to the fullest extent permitted by DGCL Section 145, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section. The Corporation shall advance expenses to the fullest extent permitted by said section. Such right to indemnification and advancement of expenses shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The indemnification and advancement of expenses provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

 

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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this Corporation on this 13th day of March, 2018.

 

  TFF PHARMACEUTICALS, INC.
       
  By:  
    Name: Robert S. Mills
    Title: Chief Executive Officer

 

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EXHIBIT A

 

FORM OF CONVERSION NOTICE

 

(To be executed by the registered Holder
in order to convert shares of Series A Preferred Stock)

 

The undersigned hereby elects to convert the number of shares of Series A Convertible Preferred Stock indicated below into shares of common stock, $0.001 par value (the “ Common Stock ”), of TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Corporation ”), according to the conditions hereof, as of the date written below.

 

     
  Date to Effect Conversion  
     
     
  Number of shares of Series A Preferred Stock owned prior to Conversion  
     
     
  Number of shares of Series A Preferred Stock to be Converted  
     
     
  Stated Value of shares of Series A Preferred Stock to be Converted  
     
     
  Number of shares of Common Stock to be Issued  
     
     
  Applicable Conversion Price  
     
     
  Number of shares of Series A Preferred Stock subsequent to Conversion  
     
     
  Name of Holder  

 

  By:    
  Name:    
  Title:    

 

 

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EXHIBIT C

 

Registration Rights Agreement

 

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REGISTRATION RIGHTS AGREEMENT FOR INVESTORS

 

THIS REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”) is made as of [●] , 2018, 1 by and among TFF Pharmaceuticals, Inc., a Delaware corporation (“ Company ”), and the persons listed on Schedule A hereto, referred to individually as the “ Stockholder ” and collectively as the “ Stockholders ”.

 

A. In connection with the Securities Purchase Agreement by and among the parties hereto, dated as of [●] , 2018 (the “ Securities Purchase Agreement ”), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to each Investor Shares (as defined in the Securities Purchase Agreement), which will be convertible into Conversion Shares (as defined in the Securities Purchase Agreement) in accordance with the terms of the Series A Preferred Stock, par value $0.001 (the “ Series A Preferred Stock ”), set forth in the Company’s Amended and Restated Certificate of Incorporation (the “ Certificate ”).

 

B. To induce the Stockholders to consummate the transactions contemplated by the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act, and applicable state securities laws to the Stockholders, and their assignees or successors in interest, certain rights to provide for the registration for resale of the Conversion Shares by means of a Registration Statement under the Securities Act, pursuant to the terms of this Agreement. Such Conversion Shares acquired by the Stockholders and their assignees or successors in interest, are referred to collectively as the “ Registrable Securities ”.

 

C. Unless otherwise provided in this Agreement, capitalized terms used herein shall have the respective meanings set forth in Section 13 hereof.

 

NOW, THEREFORE , in consideration of the above premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Stockholder hereby agree as follows:

 

1. Registration .

 

(a) Piggyback Registrations Rights . If, at any time after the Company shall become subject to the periodic reporting obligations (a “ Reporting Company ”) under the Securities and Exchange Act of 1934, as amended (the “ 1934 Act ”) through the date that is five years after the date the Company becomes a Reporting Company, there is not an effective Registration Statement covering the Registrable Securities, and the Company shall determine to prepare and file with the Commission a Registration Statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities (other than on Form S-4 or Form S-8, each as promulgated under the Securities Act, or their then equivalent relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans), then the Company shall send to the Stockholders a written notice of such determination at least twenty (20) days prior to the filing of any such Registration Statement and shall, include in such Registration Statement all Registrable Securities requested by any Stockholder hereunder to be included in the registration within ten (10) days after the Company sends such notice to the Stockholders (the “ Piggyback Shares ”) for resale and offer on a continuous basis pursuant to Rule 415; provided, that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company determines for any reason not to proceed with such registration, the Company will be relieved of its obligation to register any Registrable Securities in connection with such registration, (ii) in case of a determination by the Company to delay registration of its securities, the Company will be permitted to delay the registration of Registrable Securities for the same period as the delay in registering such other securities, (iii) each Stockholder is subject to confidentiality obligations with respect to any information gained in this process or any other material non-public information he, she or it obtains, (iv) each Stockholder or assignee or successor in interest is subject to all applicable laws relating to insider trading or similar restrictions; and (v) if all of the Registrable Securities of the Stockholders cannot be so included due to Commission Comments or Underwriter Cutbacks, then the Company may reduce, in accordance with the provisions of Section 1(c) hereof, the number of securities covered by such Registration Statement to the maximum number which would enable the Company to conduct such offering in accordance with the provisions of Rule 415.

 

 

1 The Agreement will be dated as of the Initial Closing Date.

 

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(b) Initial Registration Statement . At the election of each Stockholder, the Company shall be required to include up to all Piggyback Shares held by such Stockholder for resale and offer on a continuous basis pursuant to Rule 415 in the first Registration Statement filed after the date that it becomes a Reporting Company (the “ Initial Registration Statement ”); provided, however, that if all of the Registrable Securities of the Stockholders cannot be so included due to Commission Comments or Underwriter Cutbacks, then the Company may reduce, in accordance with the provisions of Section 1(c) hereof, the number of securities covered by the Initial Registration Statement to the maximum number which would enable the Company to conduct such offering in accordance with the provisions of Rule 415.

 

(c) Cutback Provisions . In the event all of the Registrable Securities cannot be or are not included in a Registration Statement due to Commission Comments or Underwriter Cutbacks, the Company and the Stockholders agree that securities shall be removed from such Registration Statement in the following order until no further removal is required by Commission Comments or Underwriter Cutbacks:

 

(i) First, any securities held by any former employee, consultant or affiliate of the Company shall be removed, pro rata based on the number of securities being registered for such former employees, consultants or affiliates held by all of the former employees of the Company and any of their affiliates and successors in interest, whether pursuant to agreement or otherwise and any other person with any registration rights outstanding on the date hereof;

 

(ii) Second, the securities held by National Securities Corporation (“ National Securities ”) and its members and affiliates, if any, obtained solely by reason of providing services to the Company, which are being registered pursuant to any registration rights agreement or otherwise (for clarity, any securities held by National Securities or its members or affiliates which were acquired upon payment of a purchase price in cash or property will not be subject to this provision (c)(ii)); and

 

(iii) Third, the Registrable Securities held by the Stockholders that are requested to be included in the Registration Statement shall be removed, pro rata based on the number of Registrable Shares held by each Stockholder in comparison to the number of Registrable Securities held by all Stockholders who have requested to include any Registrable Securities in the Registration Statement.

 

(d) Mandatory Registrations . In the event all of the Piggyback Shares of the Stockholders are not included in a Registration Statement due to Commission Comments or Underwriter Cutbacks, the Company shall prepare and file an additional Registration Statement (the “ Follow-up Registration Statement ”) with the Commission within sixty (60) days following the effectiveness of the previously filed Registration Statement; provided, however , that the time period for filing the Follow-up Registration shall be extended to the extent that the Commission publishes written Commission Guidance or the Company receives written Commission Guidance which provides for a longer period before a Follow-up Registration Statement may be filed. The Follow-up Registration Statement shall cover the resale of all of the Registrable Securities that were excluded from any previously filed Registration Statement. In the event that all of the Piggyback Shares have not been registered in a Registration Statement after the Follow-up Registration Statement has been declared effective, the Company shall use commercially reasonable efforts thereafter to register any remaining unregistered Registrable Securities, subject to the provisions of Section 1(e) hereof.

 

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(e) Filing; Content . The Company will use its commercially reasonable efforts to cause each Registration Statement pursuant to which any Registrable Securities are included, including the Initial or Follow-up Registration Statement, to contain the Plan of Distribution substantially similar to that attached hereto as Schedule B . The Company shall use its commercially reasonable efforts to cause any Registration Statement filed under this Section 1, including the Initial and Follow-up Registration Statement, to be declared effective under the Securities Act as promptly as practicable after the filing thereof and shall keep such Registration Statement continuously effective under the Securities Act until the earlier of (i) one year after its Effective Date (provided, however, the one year period shall be extended for any Grace Period), (ii) such time as all of the Registrable Securities covered by such Registration Statement have been publicly sold by the Stockholders, or (iii) such time as all of the Registrable Securities covered by such Registration Statement may be sold by the Stockholders pursuant to Rule 144 without regard to both the volume limitations for sales as provided in Rule 144 and the limitations for such sales provided in Rule 144(i), if applicable, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Stockholder (“ Effectiveness Period ”). By 5:00 p.m. (New York City time) on the business day immediately following the Effective Date of a Registration Statement, the Company shall file with the Commission in accordance with Rule 424 under the Securities Act the final Prospectus to be used in connection with sales pursuant to such Registration Statement (whether or not such filing is technically required under such Rule).

 

(f) Termination of Registration Rights . The registration rights afforded to the Stockholders under this Section 1 shall terminate on the earliest date when all Registrable Securities of the Stockholder either: (i) have been publicly sold by the Stockholder pursuant to a Registration Statement, (ii) have been covered by an effective Registration Statement which has been effective for an aggregate period of sixteen (16) months (whether or not consecutive), provided, however, the time period shall be calculated so as to exclude any Grace Period, or (iii) may be sold by the Stockholder pursuant to Rule 144 without regard to both the volume limitations for sales as provided in Rule 144 and the limitations for such sales provided in Rule 144(i), if applicable, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Stockholder.

 

2. Demand Registration Rights .

 

(a) Demand Right . Commencing on the date that is one hundred eighty (180) days after the Company becomes a Reporting Company, the Stockholders as a group representing at least 50% of the Registrable Securities (a “ Requesting Group ”) shall have a separate one-time right, by written notice to the Company, signed by such Stockholders (the “ Demand Notice ”), to request the Company to register for resale all Registrable Securities included by the Requesting Group in the Demand Notice (the “ Demand Shares ”) under and in accordance with the provisions of the Securities Act by filing with the Commission a Registration Statement covering the resale of such Demand Shares (the “ Demand Registration Statement ”). A copy of the Demand Notice also shall be provided by the Company to each of the other Stockholders who will have fifteen (15) days to notify the Company in writing to include their Registrable Securities as part of the Demand Shares, the failure of which, however, shall not in any way affect the rights of the Requesting Group pursuant to this Section 2(a). The Demand Registration Statement required hereunder shall be on any form of registration statement then available for the registration of the Registrable Securities, as selected by the Company in accordance with applicable law and regulation. The Company will use its commercially reasonable efforts to file the Demand Registration Statement within forty-five (45) days of the receipt of the Demand Notice, provided if the Demand Notice is given within the forty-five (45) days after the prior fiscal year end, then the Company will use its reasonably commercial efforts to file the Demand Registration Statement within ninety (90) days of the fiscal year end of the Company. The Company shall use its commercially reasonable efforts to cause the Demand Registration Statement to be declared effective under the Securities Act as promptly as practicable after the filing thereof and to keep the Demand Registration Statement continuously effective under the Securities Act during the Effectiveness Period.

 

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(b) Inclusion of Other Registrable Shares and Cutback Provisions . If as a result of Commission Comments, not all shares are included that are desired to be included in a Registration Statement for the Demand Shares, the provisions of Section 1(c) shall apply, subject to the Demand Priority (as defined below) of the Requesting Group. Pursuant to the piggyback registration rights granted under this Agreement, the Company may include the Registrable Shares of the other Stockholders which will be subject to the provision of Section 1(c) hereof, except that under Section 1(c)(iii), there will be no cutback of the Registrable Securities of the Requesting Group until the Stockholders of Piggyback Shares and the shares of any other person exercising piggyback rights under any other registration rights agreement (except for National Securities and their current and former affiliates, which shall have the priority established in Section 1(c)) have been removed, and thereafter if any further Registrable Securities have to be removed then those of the Requesting Group will be removed pro rata (the “ Demand Priority ”). Notwithstanding the foregoing, if any other securities of any person other than the Stockholders or the Requesting Group or National Securities and their current and former affiliates are included on the Demand Registration Statement, such securities will be removed, if required pursuant to Commission Comments, after removal of the securities indicated in Section 1(c)(i) and before the securities indicated in Section 1(c)(ii), as such persons decide among themselves, and if there is no agreement at to such removal provided to the Company within a reasonable time, time being of the essence, then all the such securities will be removed.

 

(c) Termination of Demand Registration Rights . The registration rights afforded to each Stockholder under this Section 2 shall terminate on the earliest date when all Registrable Securities of the Stockholder either: (i) have been publicly sold by the Stockholder pursuant to a Registration Statement, or (ii) may be sold by the Stockholder pursuant to Rule 144 without regard to both the volume limitations for sales as provided in Rule 144 and the limitations for such sales provided in Rule 144(i), if applicable, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Holder in its reasonable discretion.

 

3. Registration Procedures . Whenever any Registrable Securities are to be registered pursuant to this Agreement, the Company shall use its commercially reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall have the following obligations:

 

(a) The Company shall prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such Registration Statement to become effective.

 

(b) The Company shall prepare and file with the Commission such amendments (including post-effective amendments) and supplements to a Registration Statement and the Prospectus used in connection with such Registration Statement, which Prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during the Effectiveness Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement by reason of the Company filing a report on Forms 10-K, 10-Q or Current Report on Form 8-K, or any analogous report under the Securities Exchange Act, the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the Commission on the same day on which the Securities Exchange Act report is filed which created the requirement for the Company to amend or supplement such Registration Statement.

 

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(c) The Company shall furnish to each Stockholder holding Registrable Securities in any Registration Statement, without charge, (i) promptly after the same is prepared and filed with the Commission at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested by such seller, all exhibits and each preliminary Prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the Prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such seller may reasonably request), and (iii) such other documents, including copies of any preliminary or final Prospectus, as such seller may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such seller.

 

(d) The Company shall use its commercially reasonable efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by any seller of the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of all applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Effectiveness Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Effectiveness Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided , however , that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction.

 

(e) The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest practicable time and to notify the Stockholders holding any Registrable Securities included in the offering under such Registration Statement of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

 

(f) The Company shall notify the Stockholder in writing of the happening of any event, as promptly as practicable after becoming aware of such event, as a result of which the Prospectus included in a 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, in the light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and, subject to Section 3(r), promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to the Stockholder (or such other number of copies as the Stockholder may reasonably request).

 

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(g) The Company shall promptly notify the Stockholder in writing (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to the Stockholder by facsimile on the same day of such effectiveness or by overnight delivery), (ii) of any request by the Commission for amendments or supplements to a Registration Statement or related Prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.

 

(h) If the Stockholder is required under applicable securities laws to be described in a Registration Statement as an underwriter, at the reasonable request of such Stockholder, the Company shall use its best efforts to furnish to such Stockholder, on the date of the effectiveness of such Registration Statement and thereafter from time to time on such dates as the Stockholder may reasonably request (i) a letter, dated such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the Stockholder, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Stockholder.

 

(i) If the Stockholder is required under applicable securities laws to be described in a Registration Statement as an underwriter, then at the request of such Stockholder in connection with such Stockholder’s due diligence requirements, the Company shall make available for inspection by (i) the Stockholder, (ii) the Stockholder’s legal counsel, and (iii) one firm of accountants or other agents retained by the Stockholder (collectively, the “ Inspectors ”), all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “ Records ”), as shall be reasonably deemed necessary by each Inspector, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request; provided , however , that each Inspector shall agree to hold in strict confidence and shall not make any disclosure (except to the Stockholder) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the Securities Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector has knowledge. Each Stockholder agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein (or in any other confidentiality agreement between the Company and the Stockholder) shall be deemed to limit the Stockholder’s ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations.

 

(j) The Company shall hold in confidence and not make any disclosure of information concerning the Stockholder provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement, or (v) the Stockholder provides information to the Company intended for inclusion in a Registration Statement. The Company agrees that it shall, upon learning that disclosure of such information concerning the Stockholder is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Stockholder if permitted by applicable law or regulation and allow the Stockholder, at the Stockholder’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

 

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(k) The Company shall (i) if applicable, use its best efforts to cause all of the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) otherwise, use its commercially reasonable efforts to secure designation and quotation of all of the Registrable Securities covered by a Registration Statement on any one of the different levels of The NASDAQ Stock Market, or (iii) if, despite the Company’s best efforts or commercially reasonable efforts, as applicable, to satisfy, the preceding clauses (i) and (ii) the Company is unsuccessful in satisfying the preceding clauses (i) and (ii), to instead secure the inclusion for quotation on the Over-the-Counter Bulletin Board for such Registrable Securities and, without limiting the generality of the foregoing, to use its commercially reasonable efforts to encourage at least two market makers to register with the Financial Industry Regulatory Authority, Inc. (“ FINRA ”) as such with respect to such Registrable Securities. For the avoidance of doubt, subject to and in accordance with Section 5, the Company shall pay all fees and expenses of the Company in connection with satisfying its obligation under this Section 3(k).

 

(l) If requested by the Stockholder, the Company shall (i) as soon as practicable incorporate in a Prospectus supplement or post-effective amendment such information as the Stockholder reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as practicable make all required filings of such Prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; and (iii) as soon as practicable, supplement or make amendments to any Registration Statement if reasonably requested by the Stockholder holding any Registrable Securities.

 

(m) The Company shall cooperate with each Stockholder who holds Registrable Securities being offered and, to the extent applicable, facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Stockholder may reasonably request and registered in such names as the Stockholder may request.

 

(n) The Company shall use its commercially reasonable efforts to cause the Registrable Securities covered by a Registration Statement to be registered with or approved by such other U.S. governmental agencies or authorities, but only in matters not contemplated in Section 3(d) or reasonably related to such matters (which matters are to be governed exclusively by Section 3(d)), as may be strictly necessary to consummate the disposition of such Registrable Securities by the Stockholder strictly in accordance with the Plan of Distribution included in the Registration Statement (as such Plan of Distribution may be modified from time to time in any filing with the Commission).

 

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(o) The Company shall make generally available to its security holders as soon as practicable, but not later than ninety (90) days after the close of the period covered thereby (or, if different, within the period permitted for the filing of reports on Forms 10-K or 10-Q), an earnings statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under the Securities Act) covering a twelve-month period beginning not later than the first day of the Company’s fiscal quarter next following the Effective Date of a Registration Statement.

 

(p) The Company shall otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission in connection with any registration hereunder.

 

(q) Within two (2) business days after a Registration Statement which covers Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Stockholder whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the Commission in the form attached hereto as Exhibit A and the Irrevocable Transfer Agent Instructions in the form attached hereto as Exhibit B .

 

(r) Notwithstanding anything to the contrary herein, at any time after the Effective Date of a Registration Statement, the Company may delay the disclosure of material, non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company, in the best interest of the Company and not, after consultation with legal counsel, otherwise required (a “ Grace Period ”); provided, that the Company shall promptly (i) notify the Stockholder in writing of the existence of material, non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material, non-public information to the Stockholder) and the date on which the Grace Period will begin, and (ii) notify the Stockholder in writing of the date on which the Grace Period ends; and, provided further, that no Grace Period shall exceed sixty (60) consecutive days and during any three hundred sixty-five (365) day period such Grace Periods shall not exceed an aggregate of one hundred twenty (120) days (each, an “ Allowable Grace Period ”). For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Stockholder receives the notice referred to in clause (i) and shall end on and include the later of the date the Stockholder receives the notice referred to in clause (ii) and the date referred to in such notice. The provisions of Section 3(f) hereof shall not be applicable during the period of any Allowable Grace Period. Upon expiration of the Grace Period, the Company shall again be bound by Section 3(f) with respect to the information giving rise thereto unless such material, non-public information is no longer applicable. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of the Stockholder in connection with any sale of Registrable Securities with respect to which the Stockholder has entered into a contract for sale, and delivered a copy of the Prospectus included as part of the applicable Registration Statement (unless an exemption from such Prospectus delivery requirements exists), prior to the Stockholder’s receipt of the notice of a Grace Period or, if earlier, Stockholders knowledge of the material, non-public information concerning the Company that gave rise to the Grace Period, and for which the Stockholder has not yet settled.

 

4. Obligations of the Stockholders .

 

(a) At least five (5) business days prior to the first anticipated filing date of a Registration Statement, the Company shall notify the Stockholders in writing of the information the Company requires from each Stockholder if the Stockholder’s Registrable Securities are to be included in such Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to any Registrable Securities of the Stockholder that the Stockholder shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the effectiveness of the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.

 

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(b) The Stockholder, by the Stockholder’s acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless the Stockholder has notified the Company in writing of the Stockholder's election to exclude all of the Stockholder’s Registrable Securities from such Registration Statement.

 

(c) The Stockholder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 3(e) or 3(f) or of a Grace Period under Section 3(r), the Stockholder will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until the Stockholder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Sections 3(e) or 3(f) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of the Stockholder in connection with any sale of Registrable Securities with respect to which the Stockholder has entered into a contract for sale prior to the Stockholder’s receipt of a notice from the Company of the happening of any event of the kind described in Sections 3(e) or 3(f) or of any Grace Period, or, if earlier, Stockholders knowledge of the material, non-public information concerning the Company or the facts or circumstances that gave rise to the Grace Period or of the Section 3(e) or 3(f) event, and for which the Stockholder has not yet settled.

 

(d) The Stockholder covenants and agrees that it will comply with the Prospectus delivery requirements of the Securities Act as applicable to it or an exemption therefrom in connection with sales of Registrable Securities pursuant to a Registration Statement.

 

5. Registration Expenses . All expenses incident to the Company’s performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts, commissions and placement agent fees) and other Persons retained by the Company (all such expenses being herein called “ Registration Expenses ”), shall be borne by the Company. Further, the Company shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed.

 

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6. Indemnification .

 

In the event any Registrable Securities are included in a Registration Statement under this Agreement:

 

(a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Stockholder, the directors, officers, members, partners, employees, agents, representatives of, and each Person, if any, who controls the Stockholder within the meaning of the Securities Act or the Securities Exchange Act (each, an “ Indemnified Person ”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several, (collectively, “ Claims ”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the Commission, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“ Indemnified Damages ”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“ Blue Sky Filing ”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary Prospectus if used prior to the effective date of such Registration Statement, or contained in the final Prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the Commission) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the Securities Act or the Securities Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, “ Violations ”). Subject to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person or by a Related Information Provider expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto and (ii) shall not be available to the extent such Claim is based on a failure of the Stockholder to deliver or to cause to be delivered the Prospectus made available by the Company, including a corrected Prospectus, if such Prospectus or corrected Prospectus was timely made available by the Company pursuant to Section 3(c); and (iii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Stockholder pursuant to Section 10. “ Related Information Provider ” means, in respect of any Indemnified Person, the Stockholder to which such Indemnified Person is related or another Indemnified Person that is related to the Stockholder to which such Indemnified Person is related.

 

(b) To the fullest extent permitted by law, in connection with any Registration Statement in which a Stockholder’s Registrable Securities are included or in which a Stockholder is otherwise participating, such Stockholder will severally and not jointly indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Stockholder or other Person selling securities in such Registration Statement and any controlling person of any such underwriter or other Stockholder or other Person (each an “ Other Indemnified Person ”), against any Claims or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished by such Stockholder or by a Related Information Provider expressly for use in connection with such Registration Statement; and each such Stockholder will pay, as incurred, any legal or other expenses reasonably incurred by any Other Indemnified Person intended to be indemnified pursuant to this Section 6(b), in connection with investigating or defending any such Claim; provided , however , that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any such Claim if such settlement is effected without the prior written consent of the Stockholder, which consent shall not be unreasonably withheld; provided , further , however , that the Stockholder shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to the Stockholder as a result of the sale of Registrable Securities pursuant to such Registration Statement, except in the case of fraud by such Stockholder. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Other Indemnified Person and shall survive the transfer of the Registrable Securities by the Stockholder pursuant to Section 10.

 

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(c) Promptly after receipt by an Indemnified Person or Other Indemnified Person under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Other Indemnified Person shall, if a claim for indemnification in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and reasonably satisfactory to the Indemnified Person or the Other Indemnified Person, as the case may be; provided , however , that an Indemnified Person or Other Indemnified Person shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for all such Indemnified Persons or all such Other Indemnified Persons to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Other Indemnified Person and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Other Indemnified Person and any other party represented by such counsel in such proceeding. The Other Indemnified Person or Indemnified Person, as applicable, shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to such Other Indemnified Person or such Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Other Indemnified Person or Indemnified Person, as applicable, reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided , however , that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Other Indemnified Person or Indemnified Person, as applicable, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Other Indemnified Person or such Indemnified Person of a release from all liability in respect to the Claim at issue, and such settlement shall not include any admission as to fault on the part of such Other Indemnified Person or such Indemnified Person. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Other Indemnified Person or Indemnified Person, as applicable, with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Other Indemnified Person, as applicable, under this Section 6, except to the extent that the indemnifying party is materially prejudiced in its ability to defend such action.

 

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(d) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred, subject to an undertaking by the Indemnified Person or the Other Indemnified Person, as applicable, to return such payments to the extent a court of competent jurisdiction or other competent authority determines that such payments were unlawful or were not required under this Agreement.

 

(e) Without any duplication or multiplication of damages, the indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Other Indemnified Person or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

 

(f) Unless suspended by the underwriting agreement applicable to any registration, the obligations of the Company and Stockholders under this Section 6 shall survive the completion of any offering of Registrable Securities in a Registration Statement under this Agreement, or otherwise.

 

7. Contribution . To the extent any indemnification by an indemnifying party is prohibited or limited by law, such indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided , however , that: (i) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Securities Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement

 

8. No Delay of Registration . No Stockholder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement.

 

9. Reports under Securities Exchange Act . With a view to making available to the Stockholder the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Stockholder to sell securities of the Company to the public without registration, once the Company becomes a Reporting Company, the Company agrees to use its commercially reasonable efforts to continue to be a Reporting Company for five years and further during such time it is a Reporting Company the Company agrees to use its best efforts to:

 

(a) make and keep public information available, as those terms are understood and defined in Rule 144;

 

(b) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

 

(c) furnish to the Stockholder so long as the Stockholder owns Registrable Securities, promptly upon request, (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the Securities Act and the Securities Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Stockholder to sell such securities pursuant to Rule 144 without registration.

 

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10. Assignment of Registration Rights . The rights under this Agreement shall be automatically assignable by the Stockholder to any transferee of all or any portion of the Stockholder’s Registrable Securities if: (i) the Stockholder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is or might be restricted under the Securities Act and applicable state securities laws; and (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein.

 

11. Subsequent Registration Rights . The Company agrees that after the date hereof and excluding any registration rights agreement with National Securities or its members and affiliates, it will not grant to any person any registration right or proceed to register any securities of any person unless it provides in such agreement or registration that any securities being registered under such agreement or registration will be subject to the cutback provisions of this Agreement as provided in Section 1(c) and Section 2(b).

 

12. Amendment of Registration Rights . Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least a majority of the then outstanding Registrable Securities. Any amendment so effected will be binding upon all Holders, whether or not such Stockholder consents thereto.

 

13. Definitions .

 

(a) “ Commission ” means the Securities and Exchange Commission.

 

(b) “ Commission Comments ” means written comments pertaining solely to Rule 415 or other comments to the extent they relate to Rule 415 which are received by the Company from the Commission, and a copy of which shall have been provided by the Company to the Stockholder, to a filed Registration Statement which limit the amount of shares which may be included therein to a number of shares which is less than such amount sought to be included thereon as filed with the Commission.

 

(c) “ Commission Guidance ” means (i) any publicly-available written or oral guidance, comments, requirements or requests of the Commission staff, (ii) the Securities Act or (iii) the Securities Exchange Act.

 

(d) “ Common Stock ” means the common stock, $0.001 par value per share, of the Company.

 

(e) “ Effective Date ” means, as to a Registration Statement, the date on which such Registration Statement is first declared effective by the Commission.

 

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(f) “ Person ” means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

 

(g) “ Prospectus ” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus

 

(h) “ Registrable Securities ” means (i) the Conversion Shares issued or issuable to the Stockholder or its assignees or successor in interest pursuant to conversion of the Shares and (ii) any other shares of Common Stock or any other securities issued or issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with an exchange or combination of shares, recapitalization, merger, consolidation or other reorganization.

 

(i) “ Registration Statement ” means any registration statement (including, without limitation, the Initial Registration Statement or the Follow-up Registration Statement) required to be filed hereunder (which, at the Company’s option, may be an existing registration statement of the Company previously filed with the Commission, but not declared effective), including (in each case) the Prospectus, amendments and supplements to the Registration Statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in the Registration Statement.

 

(j) “ Reporting Company ” means a company that is obligated to file periodic reports under Sections 13 or 15(d) of the Securities Exchange Act.

 

(k) “ 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 that may at any time permit the Stockholder to sell securities of the Company to the public without registration.

 

(l) “ Rule 415 ” means Rule 415 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.

 

(m) “ Rule 424 ” means Rule 424 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.

 

(n) “ Securities Act ” means the Securities Act of 1933, as amended from time to time together with the regulations promulgated thereunder.

 

(o) “ Securities Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, together with the regulations promulgated thereunder.

 

(p) “ Underwriter Cutbacks ” means any reduction in the number of shares suggested by any managing underwriter to be included in a registration under a Registration Statement based upon the guidance in this Section 13(p). In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under Section 1 to include any of the Stockholders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities to be sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling shareholders according to the total amount of securities entitled to be included therein owned by each selling shareholder or in such other proportions as shall mutually be agreed to by such selling shareholders); provided, that any such cutback will be effected in accordance with the priorities established by Section 1(c); provided further that in no event shall the amount of securities of the selling Stockholders included in the offering be reduced below 30% of the total amount of securities included in such offering.

 

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14. Market Stand-Off . In connection with the Initial Public Offering of the Company’s securities, if any, each Stockholder hereby agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however or whenever acquired (other than those included in the registration, if any) without the prior written consent of the managing or lead underwriter of such offering, for a period of one hundred eighty (180) days from the effective date of such registration (the “ Restricted Period ”), and to the extent requested by the underwriter, each Stockholder shall, at the time of such offering, execute an agreement reflecting these requirements binding on such Stockholder that are substantially consistent with this Section 14; provided , however , that if during the last seventeen (17) days of the Restricted Period the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the Restricted Period the Company announces that it will release earnings results during the sixteen (16) day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any FINRA rules, the restrictions imposed by this Section 14 shall continue to apply until the end of the third (3rd) trading day following the expiration of the fifteen (15) day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the Restricted Period extend beyond two hundred sixteen (216) days after the effective date of the registration statement. In order to enforce the restriction set forth above or any other restriction agreed by Stockholder, including without limitation any restriction requested by the underwriters of any Initial Public Offering of the securities of the Company agreed by such Stockholder, the Company may impose stop-transfer instructions with respect to any security acquired under or subject to this Agreement until the end of the applicable stand-off period. The Company’s underwriters shall be third-party beneficiaries of the agreement set forth in this Section 14. Each Stockholder agrees that prior to the Company’s Initial Public Offering it will not transfer securities of the Company unless each transferee agrees in writing to be bound by all of the provisions of this Section 14, provided that this Section 14 shall not apply to transfers pursuant to a Registration Statement.

Each Stockholder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Stockholder issued before the Company’s Initial Public Offering (and the shares or securities of every other person subject to the restriction contained in this Section 14):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF UP TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

 

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After the Company’s Initial Public Offering and expiration of any lock-up period, upon request of any Stockholder who is a holder of record of the shares represented by any stock certificate(s) bearing such legend and the surrender of such certificate(s) in connection with such request, the Company shall cause its transfer agent to promptly issue replacement certificate(s) not bearing such legend representing the shares represented by such surrendered stock certificate(s).

  

15. Miscellaneous .

 

(a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from such record owner of such Registrable Securities.

 

(b) Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile or email (provided that for notices via facsimile, confirmation of transmission is mechanically or electronically generated and kept on file by the sending party, and that for notices via email, such email is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s email server that such email could not be delivered to such recipient); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses, facsimile numbers and email addresses for such communications shall be:

 

If to the Company:

 

TFF Pharmaceuticals, Inc.

2801 Via Fortuna

Suite 425

Austin, Texas 78746

Attention: Robert Mills, Jr.

 

with a copy (for informational purposes only) to:

 

Greenberg Traurig, LLP

3161 Michelson Drive, Suite 1000

Irvine, CA 92612

Facsimile: (949) 732-6501

E-mail: DonahueD@gtlaw.com

Attention: Daniel K. Donahue, Esq.

and

 

If to any Stockholder, at the address for such Stockholder on the records of the Company, which may include the information on Schedule A hereto.

 

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or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. A copy of the email transmission containing the time, date and recipient e-mail address shall be rebuttable evidence of receipt by email in accordance with clause (ii) above.

 

(c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

 

(d) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the State of New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such 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. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(e) This Agreement and the instruments referenced herein and therein constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the instruments referenced herein and therein supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

 

(f) Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

 

(g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

(h) This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission or other electronic transmission (such as but not limited to an email attachment in PDF format) of a copy of this Agreement bearing the signature of the party so delivering this Agreement. This Agreement may also be executed by electronic signature of such Person.

 

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(i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

(j) All consents and other determinations required to be made by the Stockholder pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by the Stockholder.

 

(k) 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.

 

(l) This Agreement is intended for the benefit of, and shall be binding upon, the parties hereto and their respective successors and permitted assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

 

(m) The obligations of each Stockholder hereunder are several and not joint with the obligations of any other Stockholder, and no provision of this Agreement is intended to confer any obligations on a Stockholder vis-à-vis any other Stockholder. Nothing contained herein, and no action taken by any Stockholder pursuant hereto, shall be deemed to constitute the Stockholder as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Stockholder are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated herein.

 

(n) Currency . As used herein, “Dollar”, “US Dollar” and “$” each mean the lawful money of the United States.

 

[Signature pages follow immediately]

 

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

 

  COMPANY:
   
  TFF PHARMACEUTICALS, INC.
     
  By:          
    Name:            
    Title:

 

[Stockholder Signature Page Follows]

 

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STOCKHOLDER SIGNATURE PAGE FOR REGISTRATION RIGHTS AGREEMENT

 

WITH TFF PHARMACEUTICALS, INC.

 

[ Stockholder’s signature to be provided by way of its execution of the Omnibus Signature Page to the Agent’s “Omnibus Signature Page and Investor Questionnaire” with respect to this Offering. ]

 

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EXHIBIT A

 

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

 

[Transfer Agent]

[Address]

Attention:

 

Re: TFF Pharmaceuticals, Inc.

 

Ladies and Gentlemen:

 

[We are][I am] counsel to TFF Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and have represented the Company in connection with that certain Registration Rights Agreement with _____________ (the “Stockholder”) (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), under the Securities Act of 1933, as amended (the “1933 Act”). In connection with the Company's obligations under the Registration Rights Agreement, on ____________ ___, 20__, the Company filed a registration statement on Form S-[1] (File No. 333-_____________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names the Stockholder as a selling stockholder thereunder.

 

In connection with the foregoing, [we][I] advise you that a member of the SEC’s staff has advised [us][me] by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and [we][I] have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

 

If applicable, you may receive notices from the Company pursuant to the Company’s rights or obligations under the Registration Rights Agreement in connection with stop orders or other restrictions on transfer of the shares included in such Registration Statement, but [we][I] [are][am] not obligated to update this letter or otherwise inform you of any such stop order or restriction.

 

[Other applicable disclosure to be inserted here, if appropriate.]

 

Very truly yours,

 

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EXHIBIT B

 

IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

 

_______________, 2018

 

[Addressed to Transfer Agent]

_______________________

_______________________

 

Attention: [________________________]

 

Ladies and Gentlemen:

 

Reference is made to that certain Registration Rights Agreement, dated as of [●] , 2018 (the “ Agreement ”), by and among TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), and _________________________ (the “ Stockholder ”), pursuant to which the Company is obligated to register certain shares held by the Stockholder (the “ Stockholder Shares ”) of Common Stock of the Company, par value $0.001 per share (the “ Common Stock ”).

 

This letter shall serve as our irrevocable authorization and direction to you (provided that you are the transfer agent of the Company at such time) to issue shares of Common Stock upon transfer or resale of the Stockholder Shares, unless we have otherwise informed you of the termination of effectiveness of the registration statement in which the Stockholder Shares are included, a stop order or another transfer restriction. We may also later inform you that after the termination of effectiveness of such registration statement that a registration statement in which the Stockholder’s Shares are included, or that such stop order has been lifted or that such transfer restriction is not applicable, in which case this authorization and direction shall be reinstated and be effective.

 

You acknowledge and agree that so long as you have previously received (a) written confirmation from the Company's legal counsel that either (i) a registration statement covering resales of the Stockholder Shares has been declared and remains effective by the Securities and Exchange Commission (the “ SEC ”) under the Securities Act of 1933, as amended (the “ 1933 Act ”), or (ii) sales of the Stockholder Shares may be made in conformity with Rule 144 under the 1933 Act (“ Rule 144 ”), (b) if applicable, a copy of such registration statement, and (c) notice from legal counsel to the Company or any Stockholder that a transfer of Stockholder Shares has been effected either pursuant to the registration statement (and a prospectus delivered to the transferee) or pursuant to Rule 144 , then as promptly as practicable , you shall issue the certificates representing the Stockholder Shares registered in the names of such transferees, and such certificates shall not bear any legend restricting transfer of the Common Stock evidenced thereby and should not be subject to any stop-transfer restriction; provided, however, that if such shares of Common Stock and are not registered for resale under the 1933 Act or able to be sold under Rule 144, then the certificates for such Common Shares shall bear the following legend:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

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A form of written confirmation from the Company’s outside legal counsel that a registration statement covering resales of the Stockholder Shares has been declared effective by the SEC under the 1933 Act is attached hereto. We will inform you of any stop orders or other transfer restrictions.

 

Please execute this letter in the space indicated to acknowledge your agreement to act in accordance with these instructions. Should you have any questions concerning this matter, please contact me at ____________.

 

  Very truly yours,
     
  TFF Pharmaceuticals, Inc.
     
  By:  
    Name:
    Title:

 

THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

 

this ___ day of ________________, 2018

 

[TRANSFER AGENT]

 

By:    
  Name:  
  Title:  

 

Enclosures

 

Copy: Stockholder

 

73

 

 

SCHEDULE A

 

LIST OF STOCKHOLDERS

 

Name   Address
     

  

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SCHEDULE B

 

SELLING STOCKHOLDERS

 

The shares of common stock being offered by the selling stockholders are those issuable to the selling stockholders upon [conversion of the Series A Convertible Preferred Stock and exercise of the warrants]. For additional information regarding the issuance of the [Series A Convertible Preferred Stock and the warrants], see “Private Placement of Series A Convertible Preferred Stock” above. We are registering the shares of common stock in order to permit the selling stockholders to offer the shares for resale [from time to time]. Except for the ownership of [the Series A Convertible Preferred Stock issued pursuant to and in connection with the Securities Purchase Agreement, and the warrants issued pursuant to and the agreements governing our engagement of National Securities Corporation as a placement agent for the private placement of the Series A Convertible Preferred Stock and the engagement of National Securities Corporation as an underwriter for a public offering of common stock by the Company, and our engagement of an affiliate of National Securities Corporation as a consultant in respect of our patents and intellectual property] the selling stockholders have not had any material relationship with us within the past three years.

 

The table below lists the selling stockholders and other information regarding the beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) of the shares of common stock held by each of the selling stockholders. The second column lists the number of shares of common stock beneficially owned by the selling stockholders, based on their respective ownership of shares of common stock [, Series A Convertible Preferred Stock and warrants,] as of ________, 20__, [assuming conversion of the Series A Convertible Preferred Stock and exercise of the warrants held by each such selling stockholder on that date but taking account of any limitations on conversion and exercise set forth therein].

 

The third column lists the shares of common stock being offered by this prospectus by the selling stockholders [and does not take into account any limitations on (i) conversion of the Series A Convertible Preferred Stock or (ii) exercise of the warrants set forth therein].

 

In accordance with the terms of a registration rights agreement with the holders of the Series A Convertible Preferred Stock and the warrants, this prospectus generally covers the resale of [(i) the shares of common stock issued upon conversion of the Series A Convertible Preferred Stock and (ii) the maximum number of shares of common stock issuable upon exercise of the warrants, in each case, determined as if the outstanding Series A Convertible Preferred Stock and warrants were converted or exercised (as the case may be) in full (without regard to any limitations on conversion or exercise contained therein) as of the trading day immediately preceding the date this registration statement was initially filed with the SEC]. Because the conversion price of the Series A Convertible Preferred Stock and the exercise price of the warrants may be adjusted, the number of shares that will actually be issued may be more or less than the number of shares being offered by this prospectus. The fourth column assumes the sale of all of the shares offered by the selling stockholders pursuant to this prospectus.

 

See “Plan of Distribution.”

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Name of Selling Stockholder
 

Number of Shares of Common Stock

Owned Prior to the Offering

  Maximum Number of Shares of Common Stock to be Sold Pursuant to this Prospectus   Number of Shares of Common Stock Owned After the Offering
             

  

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PLAN OF DISTRIBUTION

 

We are registering the shares of common stock issued upon conversion of the Series A Convertible Preferred Stock to permit the resale of these shares of common stock by the holders of Common Stock from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock.

 

The selling stockholders may sell all or a portion of the shares of common stock held by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions, pursuant to one or more of the following methods:

 

on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
in the over-the-counter market;
in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
through the writing or settlement of options, whether such options are listed on an options exchange or otherwise;
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
an exchange distribution in accordance with the rules of the applicable exchange;
privately negotiated transactions;
short sales made after the date the Registration Statement is declared effective by the SEC;
broker-dealers may agree with a selling security holder to sell a specified number of such shares at a stipulated price per share;
a combination of any such methods of sale; and
any other method permitted pursuant to applicable law.

 

The selling stockholders may also sell shares of common stock under Rule 144 promulgated under the Securities Act of 1933, as amended, if available, rather than under this prospectus. In addition, the selling stockholders may transfer the shares of common stock by other means not described in this prospectus. If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.

 

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The selling stockholders may pledge or grant a security interest in some or all of the [Series A Convertible Preferred Stock, warrants or] shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

To the extent required by the Securities Act and the rules and regulations thereunder, the selling stockholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed, which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.

 

Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

 

There can be no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this prospectus forms a part.

 

The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and in each case together with the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any Person to engage in market-making activities with respect to the shares of common stock.

 

We will pay all expenses of the registration of the shares of common stock pursuant to the registration rights agreement, estimated to be $[     ] in total, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, a selling stockholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act in accordance with the registration rights agreements or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act that may arise from any written information furnished to us by the selling stockholder specifically for use in this prospectus, in accordance with the related registration rights agreements or we may be entitled to contribution.

 

Once sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

 

78

 

 

 

EXHIBIT D

 

ESCROW AGREEMENT

 

79

 

 

SUBSCRIPTION ESCROW AGREEMENT

 

This Subscription Escrow Agreement (the “Escrow Agreement”), dated as of the effective date (the “Effective Date”) set forth on Schedule 1 attached hereto (“Schedule 1”), by and among the corporation identified on Schedule 1 (the “Issuer”), the corporation identified on Schedule 1 (the “Depositor”) and Delaware Trust Company, as escrow agent hereunder (the “Escrow Agent”).

 

WHEREAS , the Issuer will offer to certain accredited investors, pursuant to a Securities Purchase Agreement, as may be subsequently amended, the subscription and sale of up to $14 million of shares of Series A Convertible Preferred Stock, $0.001 par value (the “Shares”), at a price of $2.50 per Share; and

 

WHEREAS, the Depositor has been named as the placement agent in connection with the proposed offering of the Shares.

 

NOW THEREFORE , in consideration of the foregoing and of the mutual covenants hereinafter set forth, the parties hereto agree as follows:

 

1. Appointment . The Issuer and Depositor hereby appoint the Escrow Agent as their escrow agent for the purposes set forth herein, and the Escrow Agent hereby accepts such appointment under the terms and conditions set forth herein.

 

2. Escrow Fund. All funds received by the Depositor and the Issuer in connection with the sale of Shares shall be deposited with the Escrow Agent (the “Escrow Deposit”). The Escrow Agent shall, subject to the terms and conditions hereof, hold the Escrow Deposit and any proceeds thereof (the “Escrow Fund”) as directed in Section 3.

 

3. Investment of Escrow Fund. During the term of this Escrow Agreement, the Escrow Fund shall be held in a non-interest bearing account by the Escrow Agent as indicated on Schedule 1 or such other non-interest bearing investments as shall be directed in writing jointly by the Issuer and the Depositor and as shall be acceptable to the Escrow Agent. The Escrow Agent may earn compensation in the form of short-term interest (“float”) on items like uncashed distribution checks (from the date issued until the date cashed), funds that it is directed not to invest, deposits awaiting investment direction or received too late to be invested overnight in previously directed investments.

 

4. Disposition and Termination. The Depositor and the Issuer agree to jointly notify the Escrow Agent in writing of the closing date of the offering (the “Offering Closing Date”) and whether or not the Issuer received subscriptions that will result in the Issuer receiving gross proceeds of at least $8,000,000 (the “Minimum Subscription Amount”). Upon receipt of such written notification the following procedure will take place.

 

(i) If the Escrow Agent receives into the Escrow Fund subscriptions for the Minimum Subscription Amount on or before June 30, 2018, subject to extension by the mutual written agreement of the Company and Depositor to a date no later than December 31, 2018 (“Outside Date”) , the Escrow Fund will be promptly paid to or credited to the accounts of, or otherwise transferred to, the Issuer and the Depositor pursuant to the joint-instructions from the Issuer and the Depositor.

 

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(ii) If the Issuer does not receive into the Escrow Fund subscriptions for the Minimum Subscription Amount by the Outside Date, or if any subscription is not accepted by the Issuer or the offering is abandoned or terminated, the Escrow Agent shall be provided by Depositor with suitable notice and a list containing the amount received from each subscriber whose funds have been deposited with the Escrow Agent (with respect to each subscriber the “Subscriber Investment Amount”) and the name, address and Taxpayer Identification Number (“TIN”) of each subscriber. The aggregate of all Subscriber Investment Amounts shall not exceed the amount of the Escrow Fund on the Offering Closing Date. The Escrow Agent shall distribute to each subscriber the appropriate Subscriber Investment Amount without interest or deduction within 10 days of receipt of the information described in this Section 4(ii).

 

Upon delivery of the Escrow Fund to the Issuer or the subscribers as the case may be, by the Escrow Agent, this Escrow Agreement shall terminate, subject to the provisions of Section 8.

 

5. Escrow Agent . The Escrow Agent undertakes to perform only such duties as are expressly set forth herein and no duties shall be implied. The Escrow Agent shall have no liability under and no duty to inquire as to the provisions of any agreement other than this Escrow Agreement. The Escrow Agent may rely upon and shall not be liable for acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall be under no duty to inquire into or investigate the validity, accuracy or content of any such document. The Escrow Agent shall have no duty to solicit any payments which may be due it or the Escrow Fund. The Escrow Agent shall not be liable for any action taken or omitted by it in good faith except to the extent that a court of competent jurisdiction determines that the Escrow Agent’s gross negligence or willful misconduct was the primary cause of any loss to the Issuer or Depositor. The Escrow Agent may execute any of its powers and perform any of its duties hereunder directly or through agents or attorneys (and shall be liable only for the careful selection of any such agent or attorney) and may consult with counsel, accountants and other skilled persons to be selected and retained by it. The Escrow Agent shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the advice or opinion of any such counsel, accountants or other skilled persons. In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder or shall receive instructions, claims or demands from any party hereto which, in its opinion, conflict with any of the provisions of this Escrow Agreement, it shall be entitled to refrain from taking any action and its sole obligation shall be to keep safely all property held in escrow until it shall be directed otherwise in writing by all of the other parties hereto or by a final order or judgment of a court of competent jurisdiction. Anything in this Escrow Agreement to the contrary notwithstanding, in no event shall the Escrow Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.

 

6. Succession. The Escrow Agent may resign and be discharged from its duties or obligations hereunder by giving 10 days advance notice in writing of such resignation to the other parties hereto specifying a date when such resignation shall take effect. The Escrow Agent shall have the right to withhold an amount equal to any amount due and owing to the Escrow Agent, plus any costs and expenses the Escrow Agent shall reasonably believe may be incurred by the Escrow Agent in connection with the termination of the Escrow Agreement. Any corporation or association into which the Escrow Agent may be merged or converted or with which it may be consolidated shall be the Escrow Agent under this Escrow Agreement without further act.

 

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7. Fees . The Issuer agrees to (i) pay the Escrow Agent upon execution of this Escrow Agreement and from time to time thereafter reasonable compensation for the services to be rendered hereunder, which unless otherwise agreed in writing shall be as described in Schedule 1 attached hereto, and (ii) pay or reimburse the Escrow Agent upon request for all expenses, disbursements and advances, including reasonable attorney’s fees and expenses, incurred or made by it in connection with the preparation, execution, performance, delivery, modification and termination of this Escrow Agreement. Provided the Minimum Subscription Amount is received and an Offering Closing Date is established, upon such closing the Escrow Agent is authorized to deduct such fees from the Escrow Fund without prior authorization from the Issuer or Depositor.

 

8. Indemnity. The Issuer and the Depositor shall jointly and severally indemnify, defend and save harmless the Escrow Agent and its directors, officers, agents and employees (the “indemnitees”) from all loss, liability or expense (including the fees and expenses of in house or outside counsel) arising out of or in connection with (i) the Escrow Agent’s execution and performance of this Escrow Agreement, except in the case of any indemnitee to the extent that such loss, liability or expense is due to the gross negligence or willful misconduct of the Escrow Agent, or (ii) its following any instructions or other directions from the Issuer or the Depositor, except to the extent that its following any such instruction or direction is expressly forbidden by the terms hereof. The parties hereto acknowledge that the foregoing indemnities shall survive the resignation or removal of the Escrow Agent or the termination of this Escrow Agreement. The parties hereby grant the Escrow Agent a lien on, right of set-off against and security interest in the Escrow Fund for the payment of any claim for indemnification, compensation, expenses and amounts due hereunder.

 

9. TINs. The Issuer and the Depositor represent that its correct Taxpayer Identification Number (“TIN”) assigned by the Internal Revenue Service or any other taxing authority is set forth in Schedule 1. All interest or other income earned under the Escrow Agreement, if any, shall be allocated to the Issuer and reported, to the extent required by law, by the Escrow Agent to the IRS or any other taxing authority, as applicable, on IRS form 1099 or 1042S (or other appropriate form) as income earned from the Escrow Fund by the Issuer whether or not said income has been distributed during the year.  Unless otherwise indicated in writing by the parties hereto, no taxes or other withholdings are required to be made under applicable law or otherwise with respect to any payment to be made by Escrow Agent. All documentation necessary to support a claim of exemption or reduction in such taxes or other withholdings has been timely collected by Issuer and copies will be provided to Escrow Agent promptly upon a request therefor. Unless otherwise agreed to in writing by Escrow Agent, all tax returns required to be filed with the IRS and any other taxing authority as required by law with respect to payments made hereunder shall be timely filed and prepared by Issuer, including but not limited to, any applicable reporting or withholding pursuant to the Foreign Account Tax Reporting Act (“FATCA”).  The parties hereto acknowledge and agree that the Escrow Agent shall have no responsibility for the preparation and/or filing of any tax return or any applicable FATCA reporting with respect to the Escrow Fund.  The Escrow Agent shall withhold any taxes it deems appropriate, including but not limited to required withholding in the absence of proper tax documentation, and shall remit such taxes to the appropriate authorities as it determines may be required by any law or regulation in effect at the time of the distribution.

 

10. Notices. All communications hereunder shall be in writing and shall be deemed to be duly given and received:

 

(i) upon delivery if delivered personally or upon confirmed transmittal if by facsimile or by other electronic means;

 

(ii) on the next Business Day (as hereinafter defined) if sent by overnight courier; or

 

(iii) four (4) Business Days after mailing if mailed by prepaid registered mail, return receipt requested, to the appropriate notice address set forth on Schedule 1 or at such other address as any party hereto may have furnished to the other parties in writing by registered mail, return receipt requested.

 

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Notwithstanding the above, in the case of communications delivered to the Escrow Agent pursuant to (ii) and (iii) of this Section 10, such communications shall be deemed to have been given on the date received by the Escrow Agent. In the event that the Escrow Agent, in its sole discretion, shall determine that an emergency exists, the Escrow Agent may use such other means of communication as the Escrow Agent deems appropriate. “Business Day” shall mean any day other than a Saturday, Sunday or any other day on which the Escrow Agent located at the notice address set forth on Schedule 1 is authorized or required by law or executive order to remain closed.

 

11. Security Procedures. In the event Escrow Fund transfer instructions are given (other than in writing at the time of execution of this Escrow Agreement), whether in writing, by telecopier or otherwise, the Escrow Agent is authorized to seek confirmation of such instructions by telephone call-back to the person or persons designated on schedule 2 hereto (“Schedule 2”), and the Escrow Agent may rely upon the confirmation of anyone purporting to be the person or persons so designated. The persons and telephone numbers for call-backs may be changed only in a writing actually received and acknowledged by the Escrow Agent. The Escrow Agent and the beneficiary’s bank in any funds transfer may rely solely upon any account numbers or similar identifying numbers provided by the Issuer or the Depositor to identify (i) the beneficiary, (ii) the beneficiary’s bank, or (iii) an intermediary bank. The Escrow Agent may apply any of the escrowed funds for any payment order it executes using any such identifying number, even where its use may result in a person other than the beneficiary being paid, or the transfer of funds to a bank other than the beneficiary’s bank or an intermediary bank designated. The parties to this Escrow Agreement acknowledge that these security procedures are commercially reasonable.

 

12. Miscellaneous. The provisions of this Escrow Agreement may be waived, altered, amended or supplemented, in whole or in part, only by a writing signed by all of the parties hereto. Neither this Escrow Agreement nor any right or interest hereunder may be assigned in whole or in part by any party, except as provided in Section 6, without the prior consent of the other parties. This Escrow Agreement shall be governed by and construed under the laws of the State of Delaware. Each party hereto irrevocably waives any objection on the grounds of venue, forum non-conveniens or any similar grounds and irrevocably consents to service of process by mail or in any other manner permitted by applicable law and consents to the jurisdiction of the courts located in the State of Delaware. The parties further hereby waive any right to a trial by jury with respect to any lawsuit or judicial proceeding arising or relating to this Escrow Agreement. No party to this Escrow Agreement is liable to any other party for losses due to, or if it is unable to perform its obligations under the terms of this Escrow Agreement because of, acts of God, fire, floods, strikes, equipment or transmission failure, or other causes reasonably beyond its control. This Escrow Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

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IN WITNESS WHEREOF , the parties hereto have executed this Escrow Agreement as of the date set forth in Schedule 1.

 

  Delaware Trust Company
  as Escrow Agent
     
  By :                        
    Name:
    Its:
     
  TFF Pharmaceuticals, Inc.
     
  By :  
    Name:
    Its:
     
  National Securities Corporation
     
  By :  
    Name:
    Its:

 

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(q) Schedule 1

 

Effective Date: March 7, 2018
   
Name of Issuer: TFF Pharmaceuticals, Inc.
Issuer Notice Address: 2801 Via Fortune, Suite 425, Austin, Texas 78746
Issuer E-mail: rsmillsjr@aol.com
Issuer TIN: 82-4344737
   
Name of Depositor: National Securities Corporation
Depositor Notice Address: 200 Vesey Street, 25th Floor, New York, NY 10281
Depositor E-mail: jrich@nationalsecuritiesib.com
Depositor TIN:  
   
Name of Escrow Agent: Delaware Trust Company
Escrow Agent Notice Address: 2711 Centerville Road, Suite 400
  Wilmington, DE 19808
  Attn: Escrow Administration
  E-mail: trust@delawaretrust.com
  Telephone: 866-291-6119
  Facsimile: 302-636-8666

 

Investment: [specify]

 

BlackRock Temp Fund Cash Management Shares (the “Share Class”), an institutional money market mutual fund for which the Escrow Agent serves as shareholder servicing agent and/or custodian or subcustodian. The parties hereto: (i) acknowledge Escrow Agent’s disclosure of the services the Escrow Agent is providing to and the fees it receives from BlackRock; (ii) consent to the Escrow Agent’s receipt of these fees in return for providing shareholder services for the Share Class; and (iii) acknowledge that the Escrow Agent has provided on or before the date hereof a BlackRock Temp Fund Cash Management Shares prospectus which discloses, among other things, the various expenses of the Share Class and the fees to be received by the Escrow Agent.

 

Such other investments as Issuer, Depositor and Escrow Agent may from time to time mutually agree upon in a writing executed and delivered by the Issuer and the Depositor and accepted by the Escrow Agent.

 

The funds shall not be invested.

 

Escrow Agent’s compensation: See Appended Schedule 3

 

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Schedule 2

 

Telephone Number(s) for Call-Backs and

Person(s) Designated to Confirm Funds Transfer Instructions

 

If to Issuer:

 

Name   Telephone Number
     

 

If to Depositor:

 

Name   Telephone Number
     

 

Telephone call-backs may be made to each Issuer and Depositor if joint instructions are required pursuant to this Escrow Agreement.

 

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Schedule 3

 

Escrow Agent Fees:

 

$1,000 - set-up fee payable in advance of the closing of the transaction

 

$3,000 – annual administration fee covering up to 100 deposits, payable in advance of the closing of the transaction and upon each subsequent annual anniversary date. There is an additional administration fee of $750.00 for each block of 50 deposits over the initial 100 deposits.

 

TRANSACTION FEES:

 

Wire transfer of fund: $35.00/domestic wire initiated; $75.00/international payment

 

Checks Cut: $10.00/check cut

 

1099 Preparation: $12.00/1099 prepared

 

1042-S Preparation: $50.00/per 1042-S

 

Returned Check: $30.00/returned item

 

An additional annual fee of 15 basis points on the escrow account balance payable in advance may be charged for investments other than institutional money market funds with which the Escrow Agent has established servicing arrangements. Out-of-pocket expenses, fees and disbursements and services of an unanticipated or unexpected nature are not included in the above schedule.

 

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EXHIBIT E

 

2018 stock incentive plan

 

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TFF PHARMACEUTICALS, inc.

 

2018 STOCK INCENTIVE PLAN

 

1. Purpose of Plan .

 

The purpose of this TFF Pharmaceuticals, Inc. 2018 Stock Incentive Plan (the “ Plan ”) is to advance the interests of TFF Pharmaceuticals, Inc., a Delaware corporation (“ Company ”), and its stockholders by enabling the Company and its Subsidiaries to attract and retain qualified individuals through opportunities for equity participation in the Company, and to reward those individuals who contribute to the Company’s achievement of its economic objectives.

 

2. Definitions .

 

The following terms will have the meanings set forth below, unless the context clearly otherwise requires:

 

2.1. “ Board ” means the Company’s Board of Directors.

 

2.2. “ Broker Exercise Notice ” means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option and/or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver stock certificates to be issued upon such exercise directly to such broker or dealer or their nominee.

 

2.3. “ Cause ” means (i) dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or any Subsidiary, (ii) any unlawful or criminal activity of a serious nature, (iii) any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Participant’s overall duties, (iv) any material breach of any confidentiality or noncompete agreement entered into with the Company or any Subsidiary, or (v) with respect to a particular Participant, any other act or omission that constitutes “cause” as may be defined in any employment, consulting or similar agreement between such Participant and the Company or any Subsidiary.

 

2.4. “ Change in Control ” means an event described in Section 11.1 of the Plan.

 

2.5. “ Code ” means the Internal Revenue Code of 1986, as amended.

 

2.6. “ Committee ” means the Compensation Committee of the Board or its delegates who are administering the Plan, as provided in Section 3 of the Plan, or, if no such committee is designated by the Board, the Board. At any time there is no Committee to administer the Plan, any references in this Plan to the Committee shall be deemed to refer to the Board.

 

2.7. “ Common Stock ” means the common stock of the Company, $0.001 par value per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.3 of the Plan.

 

2.8. “ Disability ” means any medically determinable physical or mental impairment resulting in the service provider’s inability to perform the duties of his or her position or any substantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

 

2.9. “ Effective Date ” means January 24, 2018, but no Incentive Stock Option shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.

 

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2.10. “ Eligible Recipients ” means all employees, officers, consultants and directors of the Company or any Subsidiary, and any person who has a relationship with the Company or any Subsidiary.

 

2.11. “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

2.12. “ Fair Market Value ” means, with respect to the Common Stock, as of any date: (i) the mean between the reported high and low sale prices of the Common Stock at the end of the regular trading session if the Common Stock is listed, admitted to unlisted trading privileges, or reported on any national securities exchange or on the NASDAQ Global Select or Global Market on such date (or, if no shares were traded on such day, as of the next preceding day on which there was such a trade); or (ii) if the Common Stock is not so listed, admitted to unlisted trading privileges, or reported on any national exchange or on the NASDAQ Global Select or Global Market, the closing bid price as of such date at the end of the regular trading session, as reported by the Nasdaq Capital Market, OTC Bulletin Board, The OTC Market, or other comparable service; or (iii) if the Common Stock is not so listed or reported, such price as the Committee determines in good faith in the exercise of its reasonable discretion.

 

2.13. “ Incentive Award ” means an Option, Restricted Stock Award, Restricted Stock Unit or Performance Award granted to an Eligible Recipient pursuant to the Plan.

 

2.14. “ Incentive Stock Option ” means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that qualifies as an “incentive stock option” within the meaning of Section 422 of the Code.

 

2.15. “ Non-Statutory Stock Option ” means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not qualify as an Incentive Stock Option.

 

2.16. “ Option ” means an Incentive Stock Option or a Non-Statutory Stock Option.

 

2.17. “ Participant ” means an Eligible Recipient who receives one or more Incentive Awards under the Plan.

 

2.18. “ Performance Awards ” means an award of Common Stock or cash granted to an Eligible Recipient pursuant to Section 8 of the Plan and with respect to which shares of Common Stock or cash will be transferred to the Eligible Recipient in accordance with the provisions of such Section 8 and any agreement evidencing a Performance Award.

 

2.19. “ Performance Criteria ” means the performance criteria that may be used by the Committee in granting Restricted Stock Awards or Performance Awards contingent upon achievement of such performance goals as the Committee may determine in its sole discretion. The Committee may select one criterion or multiple criteria for measuring performance, and the measurement may be based upon Company, Subsidiary or business unit performance, or the individual performance of the Eligible Recipient, either absolute or by relative comparison to other companies, other Eligible Recipients or any other external measure of the selected criteria. The Performance Criteria for Incentive Awards that are intended to constitute “performance-based” compensation within the meaning of Section 162(m) of the Code will be based on one or more of the following criteria: earnings before interest, taxes, depreciation and amortization; total stockholder return; return on equity or average stockholders’ equity; return on assets, investment, or capital employed; stock price margin (including gross margin); income (before or after taxes); operating income (before or after taxes); pre-tax profit; operating cash flow; sales or revenue targets; increases in revenue; expenses and cost reduction goals; improvement in or attainment of working capital levels; economic value added; market share; cash flow (including cash flow per share); share price performance; debt reduction; strategic partnerships and transactions; stockholders’ equity; capital expenditures; operating profit or net operating profit; growth of net income or operating income; and budget management; or any of the foregoing criteria adjusted in a manner prescribed within the time permitted under Section 162(m) of the Code by the Committee (i) to exclude one or more specified components of the calculation thereof or (ii) to include one or more other specified items, including, but not limited to, exclusions under subsection (i) or inclusions under subsection (ii) designed to reflect changes during the Performance Period in generally accepted accounting principles or in tax rates, currency fluctuations, the effects of acquisitions or dispositions of a business or investments in whole or in part, extraordinary or nonrecurring items, the gain or loss from claims or litigation and related insurance recoveries, the effects of impairment of tangible or intangible assets, or the effects of restructuring or reductions in force or other business recharacterization activities, income or expense related to defined benefit or defined contribution pension plans, uninsured losses from natural catastrophes or political and legal developments affecting the Company’s business (including losses as a result of war, terrorism, confiscation, expropriation, seizure, new regulatory requirements, business interruption or similar events).

 

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2.20. “ Performance Period ” means, in respect of a Performance Award, a period of time established by the Committee within which the Performance Criteria relating to such Performance Award are to be achieved.

 

2.21 “ Previously Acquired Shares ” means shares of Common Stock that are already owned by the Participant or, with respect to any Incentive Award, that are to be issued upon the grant, exercise or vesting of such Incentive Award.

 

2.22. “ Restricted Stock Award ” means an award of Common Stock granted to an Eligible Recipient pursuant to Section 7 of the Plan that is subject to the restrictions on transferability and the risk of forfeiture imposed by the provisions of such Section 7.

 

2.23. “ Restricted Stock Unit ” means an award granted to an Eligible Recipient pursuant to Section 7 of the Plan that represents a contractual obligation on the part of the Company to transfer shares of Common Stock to the Eligible Participant upon the satisfaction of specified Performance Criteria and/or the completion of a specified period of employment with the Company and its Subsidiaries.

 

2.24 “ Retirement ” means normal or approved early termination of employment or service.

 

2.25. “ Securities Act ” means the Securities Act of 1933, as amended.

 

2.26. “ Subsidiary ” means any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity interest, as determined by the Committee.

 

3. Plan Administration .

 

3.1. The Committee . The Plan will be administered by the Committee. So long as the Company has a class of its equity securities registered under Section 12 of the Exchange Act, the Committee will consist solely of two or more members of the Board who are “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act and who are considered “outside directors” within the meaning of Section 162(m) of the Code. The Committee, if established, will act by majority approval of the members (unanimous approval with respect to action by written consent), and a majority of the members of the Committee will constitute a quorum. To the extent consistent with applicable corporate law of the Company’s jurisdiction of incorporation, the Committee may delegate to any officers of the Company the duties, power and authority of the Committee under the Plan (other than those that must be exercised by the Committee to satisfy the requirements of Section 162(m) of the Code) pursuant to such conditions or limitations as the Committee may establish; provided, however, that only the Committee may exercise such duties, power and authority with respect to Eligible Recipients who are subject to Section 16 of the Exchange Act. The Committee may exercise its duties, power and authority under the Plan in its sole and absolute discretion without the consent of any Participant or other party, unless the Plan specifically provides otherwise. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Incentive Award granted under the Plan.

 

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3.2. Authority of the Committee .

 

(a) In accordance with and subject to the provisions of the Plan, the Committee will have the authority to determine all provisions of Incentive Awards as the Committee may deem necessary or desirable and as consistent with the terms of the Plan, including, without limitation, the following: (i) the Eligible Recipients to be selected as Participants; (ii) the nature and extent of the Incentive Awards to be made to each Participant (including the number of shares of Common Stock to be subject to each Incentive Award, any exercise price, the manner in which Incentive Awards will vest or become exercisable and whether Incentive Awards will be granted in tandem with other Incentive Awards) and the form of written agreement, if any, evidencing such Incentive Award; (iii) any Performance Criteria applicable to any Incentive Awards; (iv) the time or times when Incentive Awards will be granted and, where applicable, settled; (v) the duration of each Incentive Award; (vi) the restrictions and other conditions to which the payment or vesting of Incentive Awards may be subject. In addition, the Committee will have the authority under the Plan in its sole discretion to pay the economic value of any Incentive Award in the form of cash, Common Stock or any combination of both.

 

(b) Subject to Section 3.2(d), below, the Committee will have the authority under the Plan to amend or modify the terms of any outstanding Incentive Award in any manner, including, without limitation, the authority to modify the number of shares or other terms and conditions of an Incentive Award, extend the term of an Incentive Award, accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an Incentive Award other than an Incentive Award intended to qualify as “performance-based” compensation within the meaning of Section 162(m) of the Code, accept the surrender of any outstanding Incentive Award or, to the extent not previously exercised or vested, authorize the grant of new Incentive Awards in substitution for surrendered Incentive Awards; provided, however that the amended or modified terms are permitted by the Plan as then in effect and that any Participant adversely affected by such amended or modified terms has consented to such amendment or modification. Notwithstanding the foregoing, no Performance Award (or any other Incentive Award) that is subject to the requirements and restrictions of Section 409A of the Code may be amended in a manner that would violate Section 409A of the Code.

 

(c) In the event of (i) any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in corporate structure or shares; (ii) any purchase, acquisition, sale, disposition or write-down of a significant amount of assets or a significant business; (iii) any change in accounting principles or practices, tax laws or other such laws or provisions affecting reported results; or (iv) any other similar change, in each case with respect to the Company or any other entity whose performance is relevant to the grant or vesting of an Incentive Award, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) may, without the consent of any affected Participant, amend or modify the vesting criteria (including Performance Criteria) of any outstanding Incentive Award that is based in whole or in part on the financial performance of the Company (or any Subsidiary or division or other subunit thereof) or such other entity so as equitably to reflect such event, with the desired result that the criteria for evaluating such financial performance of the Company or such other entity will be substantially the same (in the sole discretion of the Committee or the board of directors of the surviving corporation) following such event as prior to such event; provided, however, that the amended or modified terms are permitted by the Plan as then in effect.

 

(d) Notwithstanding any other provision of this Plan other than Section 4.3, the Committee may not, without prior approval of the Company’s stockholders, seek to effect any re-pricing of any previously granted, “underwater” Option by: (i) amending or modifying the terms of the Option to lower the exercise price; (ii) canceling the underwater Option and granting either (A) replacement Options having a lower exercise price; (B) Restricted Stock Awards; or (C) Performance Awards in exchange; or (iii) repurchasing the underwater Options and granting new Incentive Awards under this Plan. For purposes of this Section 3.2(d) and Section 11.4, an Option will be deemed to be “underwater” at any time when the Fair Market Value of the Common Stock is less than the exercise price of the Option.

 

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3.3 Annual Award Limitation . The total number of Restricted Stock Awards, Restricted Stock Units and other shares of Common Stock subject to or underlying Options or Performance Awards awarded to any Participant during any year may not exceed 250,000 shares. A Performance Award, as measured on the date of grant, paid to a Participant with respect to any Performance Period may not exceed $500,000 times the number of years in the Performance Period.

 

4. Shares Available for Issuance .

 

4.1. Maximum Number of Shares Available; Certain Restrictions on Awards . Subject to adjustment as provided in Section 4.3 of the Plan, the maximum number of shares of Common Stock that will be available for issuance under the Plan will be 1,630,000, and the maximum number of shares of Common Stock that will be available for issuance in connection with Incentive Stock Options is 1,630,000. The shares available for issuance under the Plan may, at the election of the Committee, be either treasury shares or shares authorized but unissued, and, if treasury shares are used, all references in the Plan to the issuance of shares will, for corporate law purposes, be deemed to mean the transfer of shares from treasury.

 

4.2. Accounting for Incentive Awards . Shares of Common Stock that are issued under the Plan or that are subject to outstanding Incentive Awards will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan; provided, however, that shares subject to an Incentive Award that lapses, expires, is forfeited (including issued shares forfeited under a Restricted Stock Award) or for any reason is terminated unexercised or unvested or is settled or paid in cash or any form other than shares of Common Stock will automatically again become available for issuance under the Plan. To the extent that the exercise price of any Option and/or associated tax withholding obligations are paid by tender or attestation as to ownership of Previously Acquired Shares, or to the extent that such tax withholding obligations are satisfied by withholding of shares otherwise issuable upon exercise of the Option, only the number of shares of Common Stock issued net of the number of shares tendered, attested to or withheld will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan.

 

4.3. Adjustments to Shares and Incentive Awards . In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to the number and kind of securities or other property (including cash) available for issuance or payment under the Plan and, in order to prevent dilution or enlargement of the rights of Participants, the number and kind of securities or other property (including cash) subject to outstanding Incentive Awards and the exercise price of outstanding Options.

 

5. Participation .

 

Participants in the Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of economic objectives of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time one or more Incentive Awards, singly or in combination or in tandem with other Incentive Awards, as may be determined by the Committee in its sole discretion. Incentive Awards will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the date of any related agreement with the Participant.

 

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6. Options .

 

6.1. Grant . An Eligible Recipient may be granted one or more Options under the Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may designate whether an Option is to be considered an Incentive Stock Option or a Non-Statutory Stock Option. To the extent that any Incentive Stock Option granted under the Plan ceases for any reason to qualify as an “incentive stock option” for purposes of Section 422 of the Code, such Incentive Stock Option will continue to be outstanding for purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock Option.

 

6.2. Exercise Price . The per share price to be paid by a Participant upon exercise of an Option will be determined by the Committee in its discretion at the time of the Option grant; provided, however, that such price will not be less than 100% of the Fair Market Value of one share of Common Stock on the date of grant with respect to any Incentive Stock Option (110% of the Fair Market Value with respect to an Incentive Stock Option if, at the time such Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company).

 

6.3. Exercisability and Duration . An Option will become exercisable at such times and in such installments and upon such terms and conditions as may be determined by the Committee in its sole discretion at the time of grant (including without limitation (i) the achievement of one or more of the Performance Criteria and/or (ii) that the Participant remain in the continuous employ or service of the Company or a Subsidiary for a certain period); provided, however, that if the Committee does not specify the expiration date of the Option, the expiration date shall be 10 years from the date on which the Option was granted. In no case may an Option may be exercisable after 10 years from its date of grant (five years from its date of grant in the case of an Incentive Stock Option if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company).

 

6.4. Payment of Exercise Price . The total purchase price of the shares to be purchased upon exercise of an Option will be paid entirely in cash (including check, bank draft or money order); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by tender of a Broker Exercise Notice, by tender, or attestation as to ownership, of Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company’s earnings for financial reporting purposes and that are otherwise acceptable to the Committee, or by a combination of such methods. For purposes of such payment, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value on the exercise date.

 

6.5. Manner of Exercise . An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in the Plan and in the agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company at its legal department and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.4 of the Plan.

 

7. Restricted Stock Awards and Restricted Stock Units .

 

7.1. Grant . An Eligible Recipient may be granted one or more Restricted Stock Awards or Restricted Stock Units under the Plan, and such Restricted Stock Awards and Restricted Stock Units will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Restricted Stock Awards and Restricted Stock Units as it deems appropriate, including, without limitation, (i) the achievement of one or more of the Performance Criteria and/or (ii) that the Participant remain in the continuous employ or service of the Company or a Subsidiary for a certain period.

 

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7.2. Rights as a Stockholder; Transferability . Except as provided in Sections 7.1, 7.3, 7.4 and 12.3 of the Plan, a Participant will have all voting, dividend, liquidation and other rights with respect to shares of Common Stock issued to the Participant as a Restricted Stock Award or pursuant to a Restricted Stock Unit under this Section 7 upon the Participant becoming the holder of record of such shares as if such Participant were a holder of record of shares of unrestricted Common Stock.

 

7.3. Dividends and Distributions . Unless the Committee determines otherwise in its sole discretion (either in the agreement evidencing the Restricted Stock Award at the time of grant or at any time after the grant of the Restricted Stock Award), any dividends or distributions (other than regular quarterly cash dividends) paid with respect to shares of Common Stock subject to the unvested portion of a Restricted Stock Award will be subject to the same restrictions as the shares to which such dividends or distributions relate. The Committee will determine in its sole discretion whether any interest will be paid on such dividends or distributions. A Participant to whom Restricted Stock Units have been granted will have no rights to receive any dividends or distributions with respect to the shares of Common Stock underlying the Restricted Stock Units unless and until the Restricted Stock Units is settled and the Participant becomes the holder of record of any shares of Common Stock delivered in settlement of such Restricted Stock Units.

 

7.4. Enforcement of Restrictions . To enforce the restrictions referred to in this Section 7, the Committee may place a legend on the stock certificates referring to such restrictions and may require the Participant, until the restrictions have lapsed, to keep the stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent, or to maintain evidence of stock ownership, together with duly endorsed stock powers, in a certificateless book-entry stock account with the Company’s transfer agent.

 

8. Performance Awards .

 

8.1. Grant . An Eligible Recipient may be granted one or more Performance Awards under the Plan, and such Performance Awards will be subject to such terms and conditions, if any, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Performance Awards as it deems appropriate, including, without limitation, (i) the achievement of one or more of the Performance Criteria and/or (ii) that the Participant remain in the continuous employ or service of the Company or a Subsidiary for a certain period.

 

8.2 Performance Periods . The Performance Period with respect to each Performance Award will be such period of time commencing with the date of grant as is determined by the Committee on the date of grant.

 

8.3 Specification of Performance Criteria . Any grant of Performance Awards will specify Performance Criteria that, if achieved, will result in payment or early payment of the Award, and each grant may specify in respect of such specified Performance Criteria a minimum acceptable level of achievement and shall set forth a formula for determining the amount of the Performance Award that will be earned if performance is at or above the minimum level, but falls short of full achievement of the specified Performance Criteria. The grant of Performance Awards will specify that, before the Performance Awards will be earned and paid, the Compensation Committee of the Board must certify that the Performance Criteria have been satisfied.

 

8.4. Settlement – Time of Payment .

 

(a) At the time any Performance Award is granted, the agreement evidencing the Performance Award will specify the time at which the vested portion of the Performance Award will be settled. In no event may the time of payment be changed after the Performance Award is granted.

 

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(b) The agreement may specify that settlement will be made upon vesting or the settlement will occur with respect to all vested Performance Awards as of a specified time.

 

(c) To the extent the agreement does not provide for the settlement of vested Performance Awards on or before the date that is 2-1/2 months after the end of the year in which the Performance Award (or the relevant portion thereof) vests, the agreement will provide for payment to occur: (a) upon the Eligible Recipient’s separation from service, death or disability; (b) upon a change in control of the Company; or (c) upon a specified date or pursuant to a specified schedule. In all cases in which payment is to be made in accordance with this Section 8.2(c), the times specified for payment will be interpreted and administered in accordance with the requirements of Section 409A of the Code and any applicable regulations or guidance issued in connection with that Code section.

 

8.3. Settlement – Form of Payment . As specified in the agreement evidencing the Performance Award, or some other written agreement between the Company and the Eligible Recipient, vested Performance Awards will be settled in cash or shares of Common Stock.

 

8.4. Rights as a Stockholder . A Participant holding a Performance Award shall have no rights as a holder of Common Stock unless and until the Performance Award is settled and shares of Common Stock are delivered to the Participant in such settlement.

 

8.5. Dividends and Distributions . Unless the Committee determines otherwise in its sole discretion (either in the agreement evidencing the Performance Award at the time of grant or at any time after the grant of the Performance Award), the Participant shall not be entitled to receive dividends or distributions with respect to the Shares subject to a Performance Award unless and until the Performance Award is settled and shares of Common Stock are delivered to the Participant in such settlement.

 

8.6. Unfunded and Unsecured Obligation of the Company . A Performance Award represents an unfunded and unsecured obligation of the Company to make payment to a Participant in accordance with the terms of this Plan or an award agreement. The Participant’s rights with respect to a Performance Award shall be those of an unsecured creditor of the Company.

 

9. Effect of Termination of Employment or Other Service .

 

9.1. Termination Due to Death or Disability . In the event a Participant’s employment or other service with the Company and all Subsidiaries is terminated by reason of death or Disability:

 

(a) All outstanding Options then held by the Participant will, to the extent exercisable as of such termination, remain exercisable for a period of six (6) months after such termination (but in no event after the expiration date of any such Option); and

 

(b) All Restricted Stock Awards and Restricted Stock Units then held by the Participant that have not vested as of such termination will be terminated and forfeited; and

 

(c) All outstanding Performance Awards then held by the Participant that have not vested as of such termination will be terminated and forfeited.

 

9.2. Termination Due to Retirement . Subject to Section 9.5 of the Plan, in the event a Participant’s employment or other service with the Company and all Subsidiaries is terminated by reason of Retirement:

 

(a) All outstanding Options then held by the Participant will, to the extent exercisable as of such termination, remain exercisable in full for a period of three (3) months after such termination (but in no event after the expiration date of any such Option). Options not exercisable as of such Retirement will be forfeited and terminate; and

 

(b) All Restricted Stock Awards and Restricted Stock Units then held by the Participant that have not vested as of such termination will be terminated and forfeited; and

 

(c) All outstanding Performance Awards then held by the Participant that have not vested as of such termination will be terminated and forfeited.

 

9.3. Termination for Reasons Other than Death, Disability or Retirement . Subject to Section 9.5 of the Plan, in the event a Participant’s employment or other service is terminated with the Company and all Subsidiaries for any reason other than death, Disability or Retirement, or a Participant is in the employ of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless the Participant continues in the employ of the Company or another Subsidiary):

 

(a) All outstanding Options then held by the Participant will, to the extent exercisable as of such termination, remain exercisable in full for a period of three (3) months after such termination (but in no event after the expiration date of any such Option), and Options not exercisable as of such termination will be forfeited and terminate; and

 

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(b) All Restricted Stock Awards and Restricted Stock Units then held by the Participant that have not vested as of such termination will be terminated and forfeited; and

 

(c) All outstanding Performance Awards then held by the Participant that have not vested as of such termination will be terminated and forfeited.

 

9.4. Modification of Rights Upon Termination . Notwithstanding the other provisions of this Section 9, the Committee may, in its sole discretion (which may be exercised in connection with the grant or after the date of grant, including following such termination), determine that upon a Participant’s termination of employment or other service with the Company and all Subsidiaries, any Options (or any part thereof) then held by such Participant may become or continue to become exercisable and/or remain exercisable following such termination of employment or service, and Restricted Stock Awards, Restricted Stock Units and Performance Awards then held by such Participant may vest and/or continue to vest or become free of restrictions and conditions to issuance, as the case may be, following such termination of employment or service, in each case in the manner determined by the Committee.

 

9.5. Effects of Actions Constituting Cause . Notwithstanding anything in the Plan to the contrary, in the event that a Participant is determined by the Committee, acting in its sole discretion, to have committed any action which would constitute Cause as defined in Section 2.3, irrespective of whether such action or the Committee’s determination occurs before or after termination of such Participant’s employment or service with the Company or any Subsidiary, all rights of the Participant under the Plan and any agreements evidencing an Incentive Award then held by the Participant shall terminate and be forfeited without notice of any kind. The Company may defer the exercise of any Option or the vesting of any Restricted Stock Award or Performance Award for a period of up to ninety (90) days in order for the Committee to make any determination as to the existence of Cause.

 

9.6. Determination of Termination of Employment or Other Service . Unless the Committee otherwise determines in its sole discretion, a Participant’s employment or other service will, for purposes of the Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company or the Subsidiary for which the Participant provides employment or service, as determined by the Committee in its sole discretion based upon such records.

 

10. Payment of Withholding Taxes .

 

10.1. General Rules . The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, foreign, state and local withholding and employment-related tax requirements attributable to an Incentive Award, including, without limitation, the grant, exercise or vesting of, or payment of dividends with respect to, an Incentive Award or a disqualifying disposition of stock received upon exercise of an Incentive Stock Option, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any action, including issuing any shares of Common Stock, with respect to an Incentive Award.

 

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10.2. Special Rules . The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment-related tax obligation described in Section 10.1 of the Plan by electing to tender, or by attestation as to ownership of, Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company’s earnings for financial reporting purposes and that are otherwise acceptable to the Committee, by delivery of a Broker Exercise Notice or a combination of such methods. For purposes of satisfying a Participant’s withholding or employment-related tax obligation, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value.

 

11. Change in Control .

 

11.1. A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs has occurred:

 

(a) the sale, lease, exchange or other transfer, directly or indirectly, of substantially all of the assets of the Company (in one transaction or in a series of related transactions) to any Successor;

 

(b) the approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company;

 

(c) any Successor (as defined in Section 11.2 below), other than a Bona Fide Underwriter (as defined in Section 11.2 below), becomes after the effective date of the Plan the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of (i) 25% or more, but not 50% or more, of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at elections of directors, unless the transaction resulting in such ownership has been approved in advance by the Continuity Directors (as defined in Section 11.2 below), or (ii) more than 50% of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Continuity Directors);

 

(d) a merger or consolidation to which the Company is a party if the stockholders of the Company immediately prior to effective date of such merger or consolidation have “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), immediately following the effective date of such merger or consolidation, of securities of the surviving corporation representing (i) 50% or more, but not more than 80%, of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors, unless such merger or consolidation has been approved in advance by the Continuity Directors, or (ii) less than 50% of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Continuity Directors); or

 

(e) the Continuity Directors cease for any reason to constitute at least 50% or more of the Board.

 

11.2. Change in Control Definitions . For purposes of this Section 11:

 

(a) “ Continuity Directors ” of the Company will mean any individuals who are members of the Board on the effective date of the Plan and any individual who subsequently becomes a member of the Board whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Continuity Directors (either by specific vote or by approval of the Company’s proxy statement in which such individual is named as a nominee for director without objection to such nomination).

 

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(b) “ Bona Fide Underwriter ” means an entity engaged in business as an underwriter of securities that acquires securities of the Company through such entity’s participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition.

 

(c) “ Successor ” means any individual, corporation, partnership, group, association or other “person,” as such term is used in Section 13(d) or Section 14(d) of the Exchange Act, other than the Company, any “affiliate” (as defined below) or any benefit plan(s) sponsored by the Company or any affiliate that succeeds to, or has the practical ability to control (either immediately or solely with the passage of time), the Company’s business directly, by merger, consolidation or other form of business combination, or indirectly, by purchase of the Company’s outstanding securities ordinarily having the right to vote at the election of directors or all or substantially all of its assets or otherwise. For this purpose, an “affiliate” is (i) any corporation at least a majority of whose outstanding securities ordinarily having the right to vote at elections of directors is owned directly or indirectly by the Company; (ii) any other form of business entity in which the Company, by virtue of a direct or indirect ownership interest, has the right to elect a majority of the members of such entity’s governing body or (iii) any entity that at the time of the approval of this Plan owns in excess of 10% of the Company’s common stock and its affiliates.

 

11.3. Acceleration of Vesting . Without limiting the authority of the Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the Company occurs, then, if approved by the Committee in its sole discretion either in an agreement evidencing an Incentive Award at the time of grant or at any time after the grant of an Incentive Award: (a) all Options that have been outstanding for at least six months will become immediately exercisable in full and will remain exercisable in accordance with their terms; and (b) all Restricted Stock Awards and Restricted Stock Units that have been outstanding for at least six months will become immediately fully vested and non-forfeitable; and (c) any conditions to the issuance of cash or shares of Common Stock pursuant to Performance Awards that have been outstanding for at least six months will lapse.

 

11.4. Cash Payment . If a Change in Control of the Company occurs, then the Committee, if approved by the Committee in its sole discretion either in an agreement evidencing an Incentive Award at the time of grant or at any time after the grant of an Incentive Award, and without the consent of any Participant affected thereby, may determine that:

 

(a) Some or all Participants holding outstanding Options will receive, with respect to some or all of the shares of Common Stock subject to such Options (“Option Shares”), either (i) as of the effective date of any such Change in Control, cash in an amount equal to the excess of the Fair Market Value of such Option Shares on the last business day prior to the effective date of such Change in Control over the exercise price per share of such Option Shares, (ii) immediately prior to such Change of Control, a number of shares of Common Stock having an aggregate Fair Market Value equal to the excess of the Fair Market Value of the Option Shares as of the last business day prior to the effective date of such Change in Control over the exercise price per share of such Option Shares; or (iii) any combination of cash or shares of Common Stock with the amount of each component to be determined by the Committee not inconsistent with the foregoing clauses (i) and (ii), as proportionally adjusted; and

 

(b) any Options which, as of the effective date of any such Change in Control, are “underwater” (as defined in Section 3.2(d)) shall terminate as of the effective date of any such Change in Control; and

 

(c) some or all Participants holding Performance Awards will receive, with respect to some or all of the shares of Common Stock subject to such Performance Awards that remain subject to issuance based upon the future achievement of Performance Criteria or other future event as of the effective date of any such Change in Control of the Company, cash in an amount equal the Fair Market Value of such shares immediately prior to the effective date of such Change in Control.

 

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11.5. Limitation on Change in Control Payments . Notwithstanding anything in Section 11.3 or 11.4 of the Plan to the contrary, if, with respect to a Participant, the acceleration of the exercisability of an Option as provided in Section 11.3 or the payment of cash or shares of Common Stock in exchange for all or part of an Option as provided in Section 11.4 (which acceleration or payment could be deemed a “payment” within the meaning of Section 280G(b)(2) of the Code), together with any other “payments” that such Participant has the right to receive from the Company or any corporation that is a member of an “affiliated group” (as defined in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company is a member, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the “payments” to such Participant pursuant to Section 11.3 or 11.4 of the Plan will be reduced to the largest amount as will result in no portion of such “payments” being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that if a Participant is subject to a separate agreement with the Company or a Subsidiary which specifically provides that payments attributable to one or more forms of employee stock incentives or to payments made in lieu of employee stock incentives will not reduce any other payments under such agreement, even if it would constitute an excess parachute payment, or provides that the Participant will have the discretion to determine which payments will be reduced in order to avoid an excess parachute payment, then the limitations of this Section 11.4 will, to that extent, not apply.

 

12. Rights of Eligible Recipients and Participants; Transferability.

 

12.1. Employment or Service . Nothing in the Plan will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any Eligible Recipient or Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue in the employ or service of the Company or any Subsidiary.

 

12.2. Rights as a Stockholder . As a holder of Incentive Awards (other than Restricted Stock Awards), a Participant will have no rights as a stockholder unless and until such Incentive Awards are exercised for, or paid in the form of, shares of Common Stock and the Participant becomes the holder of record of such shares. Except as otherwise provided in the Plan, no adjustment will be made for dividends or distributions with respect to such Incentive Awards as to which there is a record date preceding the date the Participant becomes the holder of record of such shares, except as the Committee may determine in its discretion.

 

12.3. Restrictions on Transfer .

 

(a) Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by subsections (b) and (c) below, no right or interest of any Participant in an Incentive Award prior to the exercise (in the case of Options) or vesting (in the case of Restricted Stock Awards) or settlement (in the case of Restricted Stock Units or Performance Awards) of such Incentive Award will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise.

 

(b) A Participant will be entitled to designate a beneficiary to receive an Incentive Award upon such Participant’s death, and in the event of such Participant’s death, payment of any amounts due under the Plan will be made to, and exercise of any Options (to the extent permitted pursuant to Section 9 of the Plan) may be made by, such beneficiary. If a deceased Participant has failed to designate a beneficiary, or if a beneficiary designated by the Participant fails to survive the Participant, payment of any amounts due under the Plan will be made to, and exercise of any Options (to the extent permitted pursuant to Section 9 of the Plan) may be made by, the Participant’s legal representatives, heirs and legatees. If a deceased Participant has designated a beneficiary and such beneficiary survives the Participant but dies before complete payment of all amounts due under the Plan or exercise of all exercisable Options, then such payments will be made to, and the exercise of such Options may be made by, the legal representatives, heirs and legatees of the beneficiary.

 

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(c) Upon a Participant’s request, the Committee may, in its sole discretion, permit a transfer of all or a portion of a Non-Statutory Stock Option, other than for value, to such Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person sharing such Participant’s household (other than a tenant or employee), a trust in which any of the foregoing have more than fifty percent of the beneficial interests, a foundation in which any of the foregoing (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests. Any permitted transferee will remain subject to all the terms and conditions applicable to the Participant prior to the transfer. A permitted transfer may be conditioned upon such requirements as the Committee may, in its sole discretion, determine, including, but not limited to execution and/or delivery of appropriate acknowledgements, opinion of counsel, or other documents by the transferee.

 

12.4. Non-Exclusivity of the Plan . Nothing contained in the Plan is intended to modify or rescind any previously approved compensation plans or programs of the Company or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable.

 

13. Securities Law and Other Restrictions .

 

Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Incentive Awards granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable securities laws of a state or foreign jurisdiction or an exemption from such registration under the Securities Act and applicable state or foreign securities laws, and (b) there has been obtained any other consent, approval or permit from any other U.S. or foreign regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions.

 

14. Plan Amendment, Modification and Termination .

 

The Board may suspend or terminate the Plan or any portion thereof at any time, and may amend the Plan from time to time in such respects as the Board may deem advisable in order that Incentive Awards under the Plan will conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company; provided, however, that no such amendments to the Plan will be effective without approval of the Company’s stockholders if: (i) stockholder approval of the amendment is then required pursuant to Section 422 of the Code or the rules of any stock exchange or the NASDAQ Global Select, Global or Capital Market or similar regulatory body; or (ii) such amendment seeks to modify Section 3.2(d) hereof. No termination, suspension or amendment of the Plan may adversely affect any outstanding Incentive Award without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 3.2(c), 4.3 and 11 of the Plan.

 

15. Effective Date and Duration of the Plan .

 

The Plan is effective as of the Effective Date. The Plan will terminate at midnight on January 24, 2028 and may be terminated prior to such time by Board action. No Incentive Award will be granted after termination of the Plan. Incentive Awards outstanding upon termination of the Plan may continue to be exercised, or become free of restrictions, according to their terms.

 

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16. Miscellaneous .

 

16.1. Governing Law . Except to the extent expressly provided herein or in connection with other matters of corporate governance and authority (all of which shall be governed by the laws of the Company’s jurisdiction of incorporation), the validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed exclusively in accordance with the laws of the State of Delaware notwithstanding the conflicts of laws principles of any jurisdictions.

 

16.2. Successors and Assigns . The Plan will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and the Participants.

 

 

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Exhibit 10.3

 

AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT FOR INVESTORS

 

THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”) is made as of May 16 , 2019, by and among TFF Pharmaceuticals, Inc., a Delaware corporation (“ Company ”), and the persons listed on Schedule A hereto, referred to individually as the “ Stockholder ” and collectively as the “ Stockholders ”.

 

A. The Company and certain of the Stockholders (the “ Existing Stockholders ”) are parties to that certain Registration Rights Agreement dated as of March 13, 2018.

 

B. In connection with the Securities Purchase Agreement by and among the Company and certain of the Stockholders hereto, dated as of May 16 , 2019 (the “ Securities Purchase Agreement ”), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to such Stockholder Shares (as defined in the Securities Purchase Agreement), which will be convertible into Conversion Shares (as defined in the Securities Purchase Agreement) in accordance with the terms of the Series A Preferred Stock, par value $0.001 (the “ Series A Preferred Stock ”), set forth in the Company’s Second Amended and Restated Certificate of Incorporation (the “ Certificate ”).

 

C. The Company has agreed to provide certain registration rights under the Securities Act, and applicable state securities laws to the Stockholders, and their assignees or successors in interest, certain rights to provide for the registration for resale of the Conversion Shares by means of a Registration Statement under the Securities Act, pursuant to the terms of this Agreement. Such Conversion Shares acquired by the Stockholders and their assignees or successors in interest, are referred to collectively as the “ Registrable Securities ”.

 

D. In accordance with Section 12 of the Prior Agreement, the Company and the Existing Stockholders desire to amend and restate the Prior Agreement in its entirety as set forth herein.

 

E. Unless otherwise provided in this Agreement, capitalized terms used herein shall have the respective meanings set forth in Section 13 hereof.

 

NOW, THEREFORE , in consideration of the above premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Stockholder hereby agree as follows:

 

1. Registration .

 

(a) Piggyback Registrations Rights . If, at any time after the Company shall become subject to the periodic reporting obligations (a “ Reporting Company ”) under the Securities and Exchange Act of 1934, as amended (the “ 1934 Act ”) through the date that is five years after the date the Company becomes a Reporting Company, there is not an effective Registration Statement covering the Registrable Securities, and the Company shall determine to prepare and file with the Commission a Registration Statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities (other than on Form S-4 or Form S-8, each as promulgated under the Securities Act, or their then equivalent relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans), then the Company shall send to the Stockholders a written notice of such determination at least twenty (20) days prior to the filing of any such Registration Statement and shall, include in such Registration Statement all Registrable Securities requested by any Stockholder hereunder to be included in the registration within ten (10) days after the Company sends such notice to the Stockholders (the “ Piggyback Shares ”) for resale and offer on a continuous basis pursuant to Rule 415; provided, that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company determines for any reason not to proceed with such registration, the Company will be relieved of its obligation to register any Registrable Securities in connection with such registration, (ii) in case of a determination by the Company to delay registration of its securities, the Company will be permitted to delay the registration of Registrable Securities for the same period as the delay in registering such other securities, (iii) each Stockholder is subject to confidentiality obligations with respect to any information gained in this process or any other material non-public information he, she or it obtains, (iv) each Stockholder or assignee or successor in interest is subject to all applicable laws relating to insider trading or similar restrictions; and (v) if all of the Registrable Securities of the Stockholders cannot be so included due to Commission Comments or Underwriter Cutbacks, then the Company may reduce, in accordance with the provisions of Section 1(c) hereof, the number of securities covered by such Registration Statement to the maximum number which would enable the Company to conduct such offering in accordance with the provisions of Rule 415.

 

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(b) Initial Registration Statement . At the election of each Stockholder, the Company shall be required to include up to all Piggyback Shares held by such Stockholder for resale and offer on a continuous basis pursuant to Rule 415 in the first Registration Statement filed after the date that it becomes a Reporting Company (the “ Initial Registration Statement ”); provided, however, that if all of the Registrable Securities of the Stockholders cannot be so included due to Commission Comments or Underwriter Cutbacks, then the Company may reduce, in accordance with the provisions of Section 1(c) hereof, the number of securities covered by the Initial Registration Statement to the maximum number which would enable the Company to conduct such offering in accordance with the provisions of Rule 415.

 

(c) Cutback Provisions . In the event all of the Registrable Securities cannot be or are not included in a Registration Statement due to Commission Comments or Underwriter Cutbacks, the Company and the Stockholders agree that securities shall be removed from such Registration Statement in the following order until no further removal is required by Commission Comments or Underwriter Cutbacks:

 

(i) First, any securities held by any current or former employee, consultant or affiliate of the Company shall be removed, pro rata based on the number of securities being registered for such employees, consultants or affiliates held by all such employees, consultants or affiliates, and any of their affiliates and successors in interest, whether pursuant to agreement or otherwise and any other person with any registration rights outstanding on the date hereof;

 

(ii) Second, the securities held by National Securities Corporation (“ National Securities ”) and its members and affiliates, if any, obtained solely by reason of providing services to the Company, which are being registered pursuant to any registration rights agreement or otherwise (for clarity, any securities held by National Securities or its members or affiliates which were acquired upon payment of a purchase price in cash or property will not be subject to this provision (c)(ii)); and

 

(iii) Third, the Registrable Securities held by the Stockholders that are requested to be included in the Registration Statement shall be removed, pro rata based on the number of Registrable Shares held by each Stockholder in comparison to the number of Registrable Securities held by all Stockholders who have requested to include any Registrable Securities in the Registration Statement.

 

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(d) Mandatory Registrations . In the event all of the Piggyback Shares of the Stockholders are not included in a Registration Statement due to Commission Comments or Underwriter Cutbacks, the Company shall prepare and file an additional Registration Statement (the “ Follow-up Registration Statement ”) with the Commission within sixty (60) days following the effectiveness of the previously filed Registration Statement; provided, however , that the time period for filing the Follow-up Registration shall be extended to the extent that the Commission publishes written Commission Guidance or the Company receives written Commission Guidance which provides for a longer period before a Follow-up Registration Statement may be filed. The Follow-up Registration Statement shall cover the resale of all of the Registrable Securities that were excluded from any previously filed Registration Statement. In the event that all of the Piggyback Shares have not been registered in a Registration Statement after the Follow-up Registration Statement has been declared effective, the Company shall use commercially reasonable efforts thereafter to register any remaining unregistered Registrable Securities, subject to the provisions of Section 1(e) hereof.

 

(e) Filing; Content . The Company will use its commercially reasonable efforts to cause each Registration Statement pursuant to which any Registrable Securities are included, including the Initial or Follow-up Registration Statement, to contain the Plan of Distribution substantially similar to that attached hereto as Schedule B . The Company shall use its commercially reasonable efforts to cause any Registration Statement filed under this Section 1, including the Initial and Follow-up Registration Statement, to be declared effective under the Securities Act as promptly as practicable after the filing thereof and shall keep such Registration Statement continuously effective under the Securities Act until the earlier of (i) one year after its Effective Date (provided, however, the one year period shall be extended for any Grace Period), (ii) such time as all of the Registrable Securities covered by such Registration Statement have been publicly sold by the Stockholders, or (iii) such time as all of the Registrable Securities covered by such Registration Statement may be sold by the Stockholders pursuant to Rule 144 without regard to both the volume limitations for sales as provided in Rule 144 and the limitations for such sales provided in Rule 144(i), if applicable, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Stockholder (“ Effectiveness Period ”). By 5:00 p.m. (New York City time) on the business day immediately following the Effective Date of a Registration Statement, the Company shall file with the Commission in accordance with Rule 424 under the Securities Act the final Prospectus to be used in connection with sales pursuant to such Registration Statement (whether or not such filing is technically required under such Rule).

 

(f) Termination of Registration Rights . The registration rights afforded to the Stockholders under this Section 1 shall terminate on the earliest date when all Registrable Securities of the Stockholder either: (i) have been publicly sold by the Stockholder pursuant to a Registration Statement, (ii) have been covered by an effective Registration Statement which has been effective for an aggregate period of sixteen (16) months (whether or not consecutive), provided, however, the time period shall be calculated so as to exclude any Grace Period, or (iii) may be sold by the Stockholder pursuant to Rule 144 without regard to both the volume limitations for sales as provided in Rule 144 and the limitations for such sales provided in Rule 144(i), if applicable, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Stockholder.

 

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2. Demand Registration Rights .

 

(a) Demand Right . Commencing on the date that is one hundred eighty (180) days after the Company becomes a Reporting Company, the Stockholders as a group representing at least 50% of the Registrable Securities (a “ Requesting Group ”) shall have a separate one-time right, by written notice to the Company, signed by such Stockholders (the “ Demand Notice ”), to request the Company to register for resale all Registrable Securities included by the Requesting Group in the Demand Notice (the “ Demand Shares ”) under and in accordance with the provisions of the Securities Act by filing with the Commission a Registration Statement covering the resale of such Demand Shares (the “ Demand Registration Statement ”). A copy of the Demand Notice also shall be provided by the Company to each of the other Stockholders who will have fifteen (15) days to notify the Company in writing to include their Registrable Securities as part of the Demand Shares, the failure of which, however, shall not in any way affect the rights of the Requesting Group pursuant to this Section 2(a). The Demand Registration Statement required hereunder shall be on any form of registration statement then available for the registration of the Registrable Securities, as selected by the Company in accordance with applicable law and regulation. The Company will use its commercially reasonable efforts to file the Demand Registration Statement within forty-five (45) days of the receipt of the Demand Notice, provided if the Demand Notice is given within the forty-five (45) days after the prior fiscal year end, then the Company will use its reasonably commercial efforts to file the Demand Registration Statement within ninety (90) days of the fiscal year end of the Company. The Company shall use its commercially reasonable efforts to cause the Demand Registration Statement to be declared effective under the Securities Act as promptly as practicable after the filing thereof and to keep the Demand Registration Statement continuously effective under the Securities Act during the Effectiveness Period.

 

(b) Inclusion of Other Registrable Shares and Cutback Provisions . If as a result of Commission Comments, not all shares are included that are desired to be included in a Registration Statement for the Demand Shares, the provisions of Section 1(c) shall apply, subject to the Demand Priority (as defined below) of the Requesting Group. Pursuant to the piggyback registration rights granted under this Agreement, the Company may include the Registrable Shares of the other Stockholders which will be subject to the provision of Section 1(c) hereof, except that under Section 1(c)(iii), there will be no cutback of the Registrable Securities of the Requesting Group until the Stockholders of Piggyback Shares and the shares of any other person exercising piggyback rights under any other registration rights agreement (except for National Securities and their current and former affiliates, which shall have the priority established in Section 1(c)) have been removed, and thereafter if any further Registrable Securities have to be removed then those of the Requesting Group will be removed pro rata (the “ Demand Priority ”). Notwithstanding the foregoing, if any other securities of any person other than the Stockholders or the Requesting Group or National Securities and their current and former affiliates are included on the Demand Registration Statement, such securities will be removed, if required pursuant to Commission Comments, after removal of the securities indicated in Section 1(c)(i) and before the securities indicated in Section 1(c)(ii), as such persons decide among themselves, and if there is no agreement at to such removal provided to the Company within a reasonable time, time being of the essence, then all the such securities will be removed.

 

(c) Termination of Demand Registration Rights . The registration rights afforded to each Stockholder under this Section 2 shall terminate on the earliest date when all Registrable Securities of the Stockholder either: (i) have been publicly sold by the Stockholder pursuant to a Registration Statement, or (ii) may be sold by the Stockholder pursuant to Rule 144 without regard to both the volume limitations for sales as provided in Rule 144 and the limitations for such sales provided in Rule 144(i), if applicable, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Holder in its reasonable discretion.

 

3. Registration Procedures . Whenever any Registrable Securities are to be registered pursuant to this Agreement, the Company shall use its commercially reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall have the following obligations:

 

(a) The Company shall prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such Registration Statement to become effective.

 

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(b) The Company shall prepare and file with the Commission such amendments (including post-effective amendments) and supplements to a Registration Statement and the Prospectus used in connection with such Registration Statement, which Prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during the Effectiveness Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement by reason of the Company filing a report on Forms 10-K, 10-Q or Current Report on Form 8-K, or any analogous report under the Securities Exchange Act, the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the Commission on the same day on which the Securities Exchange Act report is filed which created the requirement for the Company to amend or supplement such Registration Statement.

 

(c) The Company shall furnish to each Stockholder holding Registrable Securities in any Registration Statement, without charge, (i) promptly after the same is prepared and filed with the Commission at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested by such seller, all exhibits and each preliminary Prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the Prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such seller may reasonably request), and (iii) such other documents, including copies of any preliminary or final Prospectus, as such seller may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such seller.

 

(d) The Company shall use its commercially reasonable efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by any seller of the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of all applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Effectiveness Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Effectiveness Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided , however , that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction.

 

(e) The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest practicable time and to notify the Stockholders holding any Registrable Securities included in the offering under such Registration Statement of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

 

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(f) The Company shall notify the Stockholder in writing of the happening of any event, as promptly as practicable after becoming aware of such event, as a result of which the Prospectus included in a 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, in the light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and, subject to Section 3(r), promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to the Stockholder (or such other number of copies as the Stockholder may reasonably request).

 

(g) The Company shall promptly notify the Stockholder in writing (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to the Stockholder by facsimile on the same day of such effectiveness or by overnight delivery), (ii) of any request by the Commission for amendments or supplements to a Registration Statement or related Prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.

 

(h) If the Stockholder is required under applicable securities laws to be described in a Registration Statement as an underwriter, at the reasonable request of such Stockholder, the Company shall use its best efforts to furnish to such Stockholder, on the date of the effectiveness of such Registration Statement and thereafter from time to time on such dates as the Stockholder may reasonably request (i) a letter, dated such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the Stockholder, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Stockholder.

 

(i) If the Stockholder is required under applicable securities laws to be described in a Registration Statement as an underwriter, then at the request of such Stockholder in connection with such Stockholder’s due diligence requirements, the Company shall make available for inspection by (i) the Stockholder, (ii) the Stockholder’s legal counsel, and (iii) one firm of accountants or other agents retained by the Stockholder (collectively, the “ Inspectors ”), all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “ Records ”), as shall be reasonably deemed necessary by each Inspector, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request; provided , however , that each Inspector shall agree to hold in strict confidence and shall not make any disclosure (except to the Stockholder) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the Securities Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector has knowledge. Each Stockholder agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein (or in any other confidentiality agreement between the Company and the Stockholder) shall be deemed to limit the Stockholder’s ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations.

 

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(j) The Company shall hold in confidence and not make any disclosure of information concerning the Stockholder provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement, or (v) the Stockholder provides information to the Company intended for inclusion in a Registration Statement. The Company agrees that it shall, upon learning that disclosure of such information concerning the Stockholder is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Stockholder if permitted by applicable law or regulation and allow the Stockholder, at the Stockholder’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

 

(k) The Company shall (i) if applicable, use its best efforts to cause all of the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) otherwise, use its commercially reasonable efforts to secure designation and quotation of all of the Registrable Securities covered by a Registration Statement on any one of the different levels of The NASDAQ Stock Market, or (iii) if, despite the Company’s best efforts or commercially reasonable efforts, as applicable, to satisfy, the preceding clauses (i) and (ii) the Company is unsuccessful in satisfying the preceding clauses (i) and (ii), to instead secure the inclusion for quotation on the Over-the-Counter Bulletin Board for such Registrable Securities and, without limiting the generality of the foregoing, to use its commercially reasonable efforts to encourage at least two market makers to register with the Financial Industry Regulatory Authority, Inc. (“ FINRA ”) as such with respect to such Registrable Securities. For the avoidance of doubt, subject to and in accordance with Section 5, the Company shall pay all fees and expenses of the Company in connection with satisfying its obligation under this Section 3(k).

 

(l) If requested by the Stockholder, the Company shall (i) as soon as practicable incorporate in a Prospectus supplement or post-effective amendment such information as the Stockholder reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as practicable make all required filings of such Prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; and (iii) as soon as practicable, supplement or make amendments to any Registration Statement if reasonably requested by the Stockholder holding any Registrable Securities.

 

(m) The Company shall cooperate with each Stockholder who holds Registrable Securities being offered and, to the extent applicable, facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Stockholder may reasonably request and registered in such names as the Stockholder may request.

 

(n) The Company shall use its commercially reasonable efforts to cause the Registrable Securities covered by a Registration Statement to be registered with or approved by such other U.S. governmental agencies or authorities, but only in matters not contemplated in Section 3(d) or reasonably related to such matters (which matters are to be governed exclusively by Section 3(d)), as may be strictly necessary to consummate the disposition of such Registrable Securities by the Stockholder strictly in accordance with the Plan of Distribution included in the Registration Statement (as such Plan of Distribution may be modified from time to time in any filing with the Commission).

 

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(o) The Company shall make generally available to its security holders as soon as practicable, but not later than ninety (90) days after the close of the period covered thereby (or, if different, within the period permitted for the filing of reports on Forms 10-K or 10-Q), an earnings statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under the Securities Act) covering a twelve-month period beginning not later than the first day of the Company’s fiscal quarter next following the Effective Date of a Registration Statement.

 

(p) The Company shall otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission in connection with any registration hereunder.

 

(q) Within two (2) business days after a Registration Statement which covers Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Stockholder whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the Commission in the form attached hereto as Exhibit A and the Irrevocable Transfer Agent Instructions in the form attached hereto as Exhibit B .

 

(r) Notwithstanding anything to the contrary herein, at any time after the Effective Date of a Registration Statement, the Company may delay the disclosure of material, non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company, in the best interest of the Company and not, after consultation with legal counsel, otherwise required (a “ Grace Period ”); provided, that the Company shall promptly (i) notify the Stockholder in writing of the existence of material, non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material, non-public information to the Stockholder) and the date on which the Grace Period will begin, and (ii) notify the Stockholder in writing of the date on which the Grace Period ends; and, provided further, that no Grace Period shall exceed sixty (60) consecutive days and during any three hundred sixty-five (365) day period such Grace Periods shall not exceed an aggregate of one hundred twenty (120) days (each, an “ Allowable Grace Period ”). For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Stockholder receives the notice referred to in clause (i) and shall end on and include the later of the date the Stockholder receives the notice referred to in clause (ii) and the date referred to in such notice. The provisions of Section 3(f) hereof shall not be applicable during the period of any Allowable Grace Period. Upon expiration of the Grace Period, the Company shall again be bound by Section 3(f) with respect to the information giving rise thereto unless such material, non-public information is no longer applicable. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of the Stockholder in connection with any sale of Registrable Securities with respect to which the Stockholder has entered into a contract for sale, and delivered a copy of the Prospectus included as part of the applicable Registration Statement (unless an exemption from such Prospectus delivery requirements exists), prior to the Stockholder’s receipt of the notice of a Grace Period or, if earlier, Stockholders knowledge of the material, non-public information concerning the Company that gave rise to the Grace Period, and for which the Stockholder has not yet settled.

 

4. Obligations of the Stockholders .

 

(a) At least five (5) business days prior to the first anticipated filing date of a Registration Statement, the Company shall notify the Stockholders in writing of the information the Company requires from each Stockholder if the Stockholder’s Registrable Securities are to be included in such Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to any Registrable Securities of the Stockholder that the Stockholder shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the effectiveness of the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.

 

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(b) The Stockholder, by the Stockholder’s acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless the Stockholder has notified the Company in writing of the Stockholder’s election to exclude all of the Stockholder’s Registrable Securities from such Registration Statement.

 

(c) The Stockholder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 3(e) or 3(f) or of a Grace Period under Section 3(r), the Stockholder will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until the Stockholder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Sections 3(e) or 3(f) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of the Stockholder in connection with any sale of Registrable Securities with respect to which the Stockholder has entered into a contract for sale prior to the Stockholder’s receipt of a notice from the Company of the happening of any event of the kind described in Sections 3(e) or 3(f) or of any Grace Period, or, if earlier, Stockholders knowledge of the material, non-public information concerning the Company or the facts or circumstances that gave rise to the Grace Period or of the Section 3(e) or 3(f) event, and for which the Stockholder has not yet settled.

 

(d) The Stockholder covenants and agrees that it will comply with the Prospectus delivery requirements of the Securities Act as applicable to it or an exemption therefrom in connection with sales of Registrable Securities pursuant to a Registration Statement.

 

5. Registration Expenses . All expenses incident to the Company’s performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts, commissions and placement agent fees) and other Persons retained by the Company (all such expenses being herein called “ Registration Expenses ”), shall be borne by the Company. Further, the Company shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed.

 

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6. Indemnification .

 

In the event any Registrable Securities are included in a Registration Statement under this Agreement:

 

(a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Stockholder, the directors, officers, members, partners, employees, agents, representatives of, and each Person, if any, who controls the Stockholder within the meaning of the Securities Act or the Securities Exchange Act (each, an “ Indemnified Person ”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several, (collectively, “ Claims ”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the Commission, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“ Indemnified Damages ”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“ Blue Sky Filing ”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary Prospectus if used prior to the effective date of such Registration Statement, or contained in the final Prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the Commission) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the Securities Act or the Securities Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, “ Violations ”). Subject to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person or by a Related Information Provider expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto and (ii) shall not be available to the extent such Claim is based on a failure of the Stockholder to deliver or to cause to be delivered the Prospectus made available by the Company, including a corrected Prospectus, if such Prospectus or corrected Prospectus was timely made available by the Company pursuant to Section 3(c); and (iii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Stockholder pursuant to Section 10. “ Related Information Provider ” means, in respect of any Indemnified Person, the Stockholder to which such Indemnified Person is related or another Indemnified Person that is related to the Stockholder to which such Indemnified Person is related.

 

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(b) To the fullest extent permitted by law, in connection with any Registration Statement in which a Stockholder’s Registrable Securities are included or in which a Stockholder is otherwise participating, such Stockholder will severally and not jointly indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Stockholder or other Person selling securities in such Registration Statement and any controlling person of any such underwriter or other Stockholder or other Person (each an “ Other Indemnified Person ”), against any Claims or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished by such Stockholder or by a Related Information Provider expressly for use in connection with such Registration Statement; and each such Stockholder will pay, as incurred, any legal or other expenses reasonably incurred by any Other Indemnified Person intended to be indemnified pursuant to this Section 6(b), in connection with investigating or defending any such Claim; provided , however , that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any such Claim if such settlement is effected without the prior written consent of the Stockholder, which consent shall not be unreasonably withheld; provided , further , however , that the Stockholder shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to the Stockholder as a result of the sale of Registrable Securities pursuant to such Registration Statement, except in the case of fraud by such Stockholder. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Other Indemnified Person and shall survive the transfer of the Registrable Securities by the Stockholder pursuant to Section 10.

 

(c) Promptly after receipt by an Indemnified Person or Other Indemnified Person under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Other Indemnified Person shall, if a claim for indemnification in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and reasonably satisfactory to the Indemnified Person or the Other Indemnified Person, as the case may be; provided , however , that an Indemnified Person or Other Indemnified Person shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for all such Indemnified Persons or all such Other Indemnified Persons to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Other Indemnified Person and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Other Indemnified Person and any other party represented by such counsel in such proceeding. The Other Indemnified Person or Indemnified Person, as applicable, shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to such Other Indemnified Person or such Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Other Indemnified Person or Indemnified Person, as applicable, reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided , however , that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Other Indemnified Person or Indemnified Person, as applicable, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Other Indemnified Person or such Indemnified Person of a release from all liability in respect to the Claim at issue, and such settlement shall not include any admission as to fault on the part of such Other Indemnified Person or such Indemnified Person. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Other Indemnified Person or Indemnified Person, as applicable, with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Other Indemnified Person, as applicable, under this Section 6, except to the extent that the indemnifying party is materially prejudiced in its ability to defend such action.

 

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(d) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred, subject to an undertaking by the Indemnified Person or the Other Indemnified Person, as applicable, to return such payments to the extent a court of competent jurisdiction or other competent authority determines that such payments were unlawful or were not required under this Agreement.

 

(e) Without any duplication or multiplication of damages, the indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Other Indemnified Person or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

 

(f) Unless suspended by the underwriting agreement applicable to any registration, the obligations of the Company and Stockholders under this Section 6 shall survive the completion of any offering of Registrable Securities in a Registration Statement under this Agreement, or otherwise.

 

7. Contribution . To the extent any indemnification by an indemnifying party is prohibited or limited by law, such indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided , however , that: (i) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Securities Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement

 

8. No Delay of Registration . No Stockholder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement.

 

9. Reports under Securities Exchange Act . With a view to making available to the Stockholder the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Stockholder to sell securities of the Company to the public without registration, once the Company becomes a Reporting Company, the Company agrees to use its commercially reasonable efforts to continue to be a Reporting Company for five years and further during such time it is a Reporting Company the Company agrees to use its best efforts to:

 

(a) make and keep public information available, as those terms are understood and defined in Rule 144;

 

(b) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

 

(c) furnish to the Stockholder so long as the Stockholder owns Registrable Securities, promptly upon request, (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the Securities Act and the Securities Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Stockholder to sell such securities pursuant to Rule 144 without registration.

 

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10. Assignment of Registration Rights . The rights under this Agreement shall be automatically assignable by the Stockholder to any transferee of all or any portion of the Stockholder’s Registrable Securities if: (i) the Stockholder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is or might be restricted under the Securities Act and applicable state securities laws; and (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein.

 

11. Subsequent Registration Rights . The Company agrees that after the date hereof and excluding any registration rights agreement with National Securities or its members and affiliates, it will not grant to any person any registration right or proceed to register any securities of any person unless it provides in such agreement or registration that any securities being registered under such agreement or registration will be subject to the cutback provisions of this Agreement as provided in Section 1(c) and Section 2(b).

 

12. Amendment of Registration Rights . Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least a majority of the then outstanding Registrable Securities. Any amendment so effected will be binding upon all Stockholders, whether or not such Stockholder consents thereto.

 

13. Definitions .

 

(a) “ Commission ” means the Securities and Exchange Commission.

 

(b) “ Commission Comments ” means written comments pertaining solely to Rule 415 or other comments to the extent they relate to Rule 415 which are received by the Company from the Commission, and a copy of which shall have been provided by the Company to the Stockholder, to a filed Registration Statement which limit the amount of shares which may be included therein to a number of shares which is less than such amount sought to be included thereon as filed with the Commission.

 

(c) “ Commission Guidance ” means (i) any publicly-available written or oral guidance, comments, requirements or requests of the Commission staff, (ii) the Securities Act or (iii) the Securities Exchange Act.

 

(d) “ Common Stock ” means the common stock, $0.001 par value per share, of the Company.

 

(e) “ Effective Date ” means, as to a Registration Statement, the date on which such Registration Statement is first declared effective by the Commission.

 

(f) “ Person ” means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

 

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(g) “ Prospectus ” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus

 

(h) “ Registrable Securities ” means (i) the Conversion Shares issued or issuable to the Stockholder or its assignees or successor in interest pursuant to conversion of the Shares and (ii) any other shares of Common Stock or any other securities issued or issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with an exchange or combination of shares, recapitalization, merger, consolidation or other reorganization.

 

(i) “ Registration Statement ” means any registration statement (including, without limitation, the Initial Registration Statement or the Follow-up Registration Statement) required to be filed hereunder (which, at the Company’s option, may be an existing registration statement of the Company previously filed with the Commission, but not declared effective), including (in each case) the Prospectus, amendments and supplements to the Registration Statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in the Registration Statement.

 

(j) “ Reporting Company ” means a company that is obligated to file periodic reports under Sections 13 or 15(d) of the Securities Exchange Act.

 

(k) “ 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 that may at any time permit the Stockholder to sell securities of the Company to the public without registration.

 

(l) “ Rule 415 ” means Rule 415 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.

 

(m) “ Rule 424 ” means Rule 424 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.

 

(n) “ Securities Act ” means the Securities Act of 1933, as amended from time to time together with the regulations promulgated thereunder.

 

(o) “ Securities Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, together with the regulations promulgated thereunder.

 

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(p) “ Underwriter Cutbacks ” means any reduction in the number of shares suggested by any managing underwriter to be included in a registration under a Registration Statement based upon the guidance in this Section 13(p). In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under Section 1 to include any of the Stockholders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities to be sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling shareholders according to the total amount of securities entitled to be included therein owned by each selling shareholder or in such other proportions as shall mutually be agreed to by such selling shareholders); provided, that any such cutback will be effected in accordance with the priorities established by Section 1(c); provided further that in no event shall the amount of securities of the selling Stockholders included in the offering be reduced below 30% of the total amount of securities included in such offering.

 

14. Market Stand-Off . In connection with the Initial Public Offering of the Company’s securities, if any, each Stockholder hereby agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however or whenever acquired (other than those included in the registration, if any) without the prior written consent of the managing or lead underwriter of such offering, for a period of one hundred eighty (180) days from the effective date of such registration (the “ Restricted Period ”), and to the extent requested by the underwriter, each Stockholder shall, at the time of such offering, execute an agreement reflecting these requirements binding on such Stockholder that are substantially consistent with this Section 14; provided , however , that if during the last seventeen (17) days of the Restricted Period the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the Restricted Period the Company announces that it will release earnings results during the sixteen (16) day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any FINRA rules, the restrictions imposed by this Section 14 shall continue to apply until the end of the third (3rd) trading day following the expiration of the fifteen (15) day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the Restricted Period extend beyond two hundred sixteen (216) days after the effective date of the registration statement. In order to enforce the restriction set forth above or any other restriction agreed by Stockholder, including without limitation any restriction requested by the underwriters of any Initial Public Offering of the securities of the Company agreed by such Stockholder, the Company may impose stop-transfer instructions with respect to any security acquired under or subject to this Agreement until the end of the applicable stand-off period. The Company’s underwriters shall be third-party beneficiaries of the agreement set forth in this Section 14. Each Stockholder agrees that prior to the Company’s Initial Public Offering it will not transfer securities of the Company unless each transferee agrees in writing to be bound by all of the provisions of this Section 14, provided that this Section 14 shall not apply to transfers pursuant to a Registration Statement.

 

Each Stockholder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Stockholder issued before the Company’s Initial Public Offering (and the shares or securities of every other person subject to the restriction contained in this Section 14):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF UP TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

 

After the Company’s Initial Public Offering and expiration of any lock-up period, upon request of any Stockholder who is a holder of record of the shares represented by any stock certificate(s) bearing such legend and the surrender of such certificate(s) in connection with such request, the Company shall cause its transfer agent to promptly issue replacement certificate(s) not bearing such legend representing the shares represented by such surrendered stock certificate(s).

 

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15. Miscellaneous .

 

(a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from such record owner of such Registrable Securities.

 

(b) Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile or email (provided that for notices via facsimile, confirmation of transmission is mechanically or electronically generated and kept on file by the sending party, and that for notices via email, such email is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s email server that such email could not be delivered to such recipient); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses, facsimile numbers and email addresses for such communications shall be:

 

If to the Company:

 

TFF Pharmaceuticals, Inc.

2801 Via Fortuna

Suite 425

Austin, Texas 78746

E-mail: kcoleman@tffpharma.com
Attention: Kirk Coleman

 

with a copy (for informational purposes only) to:

 

Greenberg Traurig, LLP

3161 Michelson Drive, Suite 1000

Irvine, CA 92612

Facsimile: (949) 732-6501

E-mail: DonahueD@gtlaw.com

Attention: Daniel K. Donahue, Esq.

and

 

If to any Stockholder, at the address for such Stockholder on the records of the Company, which may include the information on Schedule A hereto.

 

or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. A copy of the email transmission containing the time, date and recipient e-mail address shall be rebuttable evidence of receipt by email in accordance with clause (ii) above.

 

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(c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

 

(d) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the State of New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such 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. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(e) This Agreement and the instruments referenced herein and therein constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the instruments referenced herein and therein supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

 

(f) Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

 

(g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

(h) This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission or other electronic transmission (such as but not limited to an email attachment in PDF format) of a copy of this Agreement bearing the signature of the party so delivering this Agreement. This Agreement may also be executed by electronic signature of such Person.

 

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(i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

(j) All consents and other determinations required to be made by the Stockholder pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by the Stockholder.

 

(k) 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.

 

(l) This Agreement is intended for the benefit of, and shall be binding upon, the parties hereto and their respective successors and permitted assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

 

(m) The obligations of each Stockholder hereunder are several and not joint with the obligations of any other Stockholder, and no provision of this Agreement is intended to confer any obligations on a Stockholder vis-à-vis any other Stockholder. Nothing contained herein, and no action taken by any Stockholder pursuant hereto, shall be deemed to constitute the Stockholder as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Stockholder are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated herein.

 

(n) Currency . As used herein, “Dollar”, “US Dollar” and “$” each mean the lawful money of the United States.

 

[Signature pages follow immediately]

 

18

 

IN WITNESS WHEREOF , the parties have executed this Amended and Restated Registration Rights Agreement as of the date first written above.

 

  COMPANY:
   
  TFF PHARMACEUTICALS, INC.
     
  By:   /s/ Glenn Mattes
    Name: Glenn Mattes
    Title: Chief Executive Officer and President

 

[Stockholder Signature Page Follows]

 

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STOCKHOLDER SIGNATURE PAGE FOR REGISTRATION RIGHTS AGREEMENT

 

WITH TFF PHARMACEUTICALS, INC.

 

[ Stockholder’s signature to be provided (i) with respect to Existing Stockholders, by the consent of the required Stockholders, and (ii) for all other Stockholders, by way of its execution of the Omnibus Signature Page to the Agent’s “Omnibus Signature Page and Investor Questionnaire” with respect to this Offering. ]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT A

 

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

 

[Transfer Agent]

[Address]

Attention:

 

Re: TFF Pharmaceuticals, Inc.

 

Ladies and Gentlemen:

 

[We are][I am] counsel to TFF Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and have represented the Company in connection with that certain Registration Rights Agreement with _____________ (the “Stockholder”) (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), under the Securities Act of 1933, as amended (the “1933 Act”). In connection with the Company’s obligations under the Registration Rights Agreement, on ____________ ___, 20__, the Company filed a registration statement on Form S-[1] (File No. 333-_____________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names the Stockholder as a selling stockholder thereunder.

 

In connection with the foregoing, [we][I] advise you that a member of the SEC’s staff has advised [us][me] by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and [we][I] have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

 

If applicable, you may receive notices from the Company pursuant to the Company’s rights or obligations under the Registration Rights Agreement in connection with stop orders or other restrictions on transfer of the shares included in such Registration Statement, but [we][I] [are][am] not obligated to update this letter or otherwise inform you of any such stop order or restriction.

 

[Other applicable disclosure to be inserted here, if appropriate.]

 

  Very truly yours,

 

 

 

 

EXHIBIT B

 

IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

 

_______________, 2018

 

[Addressed to Transfer Agent]

_______________________

_______________________

 

Attention: [________________________]

 

Ladies and Gentlemen:

 

Reference is made to that certain Registration Rights Agreement, dated as of [●] , 2018 (the “ Agreement ”), by and among TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), and _________________________ (the “ Stockholder ”), pursuant to which the Company is obligated to register certain shares held by the Stockholder (the “ Stockholder Shares ”) of Common Stock of the Company, par value $0.001 per share (the “ Common Stock ”).

 

This letter shall serve as our irrevocable authorization and direction to you (provided that you are the transfer agent of the Company at such time) to issue shares of Common Stock upon transfer or resale of the Stockholder Shares, unless we have otherwise informed you of the termination of effectiveness of the registration statement in which the Stockholder Shares are included, a stop order or another transfer restriction. We may also later inform you that after the termination of effectiveness of such registration statement that a registration statement in which the Stockholder’s Shares are included, or that such stop order has been lifted or that such transfer restriction is not applicable, in which case this authorization and direction shall be reinstated and be effective.

 

You acknowledge and agree that so long as you have previously received (a) written confirmation from the Company’s legal counsel that either (i) a registration statement covering resales of the Stockholder Shares has been declared and remains effective by the Securities and Exchange Commission (the “ SEC ”) under the Securities Act of 1933, as amended (the “ 1933 Act ”), or (ii) sales of the Stockholder Shares may be made in conformity with Rule 144 under the 1933 Act (“ Rule 144 ”), (b) if applicable, a copy of such registration statement, and (c) notice from legal counsel to the Company or any Stockholder that a transfer of Stockholder Shares has been effected either pursuant to the registration statement (and a prospectus delivered to the transferee) or pursuant to Rule 144 , then as promptly as practicable , you shall issue the certificates representing the Stockholder Shares registered in the names of such transferees, and such certificates shall not bear any legend restricting transfer of the Common Stock evidenced thereby and should not be subject to any stop-transfer restriction; provided, however, that if such shares of Common Stock and are not registered for resale under the 1933 Act or able to be sold under Rule 144, then the certificates for such Common Shares shall bear the following legend:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

 

 

 

A form of written confirmation from the Company’s outside legal counsel that a registration statement covering resales of the Stockholder Shares has been declared effective by the SEC under the 1933 Act is attached hereto. We will inform you of any stop orders or other transfer restrictions.

 

Please execute this letter in the space indicated to acknowledge your agreement to act in accordance with these instructions. Should you have any questions concerning this matter, please contact me at ____________.

 

  Very truly yours,
     
  TFF Pharmaceuticals, Inc.
     
  By:  
    Name:
    Title:

 

THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

 

this ___ day of ________________, 2018

 

[TRANSFER AGENT]

 

By:    
  Name:  
  Title:  

 

Enclosures

 

Copy: Stockholder

 

 

 

 

SCHEDULE A

 

LIST OF STOCKHOLDERS

 

Name   Address
     

 

 

 

 

SCHEDULE B

 

SELLING STOCKHOLDERS

 

The shares of common stock being offered by the selling stockholders are those issuable to the selling stockholders upon [conversion of the Series A Convertible Preferred Stock and exercise of the warrants]. For additional information regarding the issuance of the [Series A Convertible Preferred Stock and the warrants], see “Private Placement of Series A Convertible Preferred Stock” above. We are registering the shares of common stock in order to permit the selling stockholders to offer the shares for resale [from time to time]. Except for the ownership of [the Series A Convertible Preferred Stock issued pursuant to and in connection with the Securities Purchase Agreement, and the warrants issued pursuant to and the agreements governing our engagement of National Securities Corporation as a placement agent for the private placement of the Series A Convertible Preferred Stock and the engagement of National Securities Corporation as an underwriter for a public offering of common stock by the Company, and our engagement of an affiliate of National Securities Corporation as a consultant in respect of our patents and intellectual property] the selling stockholders have not had any material relationship with us within the past three years.

 

The table below lists the selling stockholders and other information regarding the beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) of the shares of common stock held by each of the selling stockholders. The second column lists the number of shares of common stock beneficially owned by the selling stockholders, based on their respective ownership of shares of common stock [, Series A Convertible Preferred Stock and warrants,] as of ________, 20__, [assuming conversion of the Series A Convertible Preferred Stock and exercise of the warrants held by each such selling stockholder on that date but taking account of any limitations on conversion and exercise set forth therein].

 

The third column lists the shares of common stock being offered by this prospectus by the selling stockholders [and does not take into account any limitations on (i) conversion of the Series A Convertible Preferred Stock or (ii) exercise of the warrants set forth therein].

 

In accordance with the terms of a registration rights agreement with the holders of the Series A Convertible Preferred Stock and the warrants, this prospectus generally covers the resale of [(i) the shares of common stock issued upon conversion of the Series A Convertible Preferred Stock and (ii) the maximum number of shares of common stock issuable upon exercise of the warrants, in each case, determined as if the outstanding Series A Convertible Preferred Stock and warrants were converted or exercised (as the case may be) in full (without regard to any limitations on conversion or exercise contained therein) as of the trading day immediately preceding the date this registration statement was initially filed with the SEC]. Because the conversion price of the Series A Convertible Preferred Stock and the exercise price of the warrants may be adjusted, the number of shares that will actually be issued may be more or less than the number of shares being offered by this prospectus. The fourth column assumes the sale of all of the shares offered by the selling stockholders pursuant to this prospectus.

 

See “Plan of Distribution.”

 

 

 

 

Name of Selling Stockholder  

Number of Shares of Common Stock Owned Prior to the Offering

  Maximum Number of Shares of Common Stock to be Sold Pursuant to this Prospectus   Number of Shares of Common Stock Owned After the Offering
             
             
             

 

 

 

 

PLAN OF DISTRIBUTION

 

We are registering the shares of common stock issued upon conversion of the Series A Convertible Preferred Stock to permit the resale of these shares of common stock by the holders of Common Stock from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock.

 

The selling stockholders may sell all or a portion of the shares of common stock held by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions, pursuant to one or more of the following methods:

 

on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
in the over-the-counter market;
in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
through the writing or settlement of options, whether such options are listed on an options exchange or otherwise;
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
an exchange distribution in accordance with the rules of the applicable exchange;
privately negotiated transactions;
short sales made after the date the Registration Statement is declared effective by the SEC;
broker-dealers may agree with a selling security holder to sell a specified number of such shares at a stipulated price per share;
a combination of any such methods of sale; and
any other method permitted pursuant to applicable law.

 

The selling stockholders may also sell shares of common stock under Rule 144 promulgated under the Securities Act of 1933, as amended, if available, rather than under this prospectus. In addition, the selling stockholders may transfer the shares of common stock by other means not described in this prospectus. If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.

 

 

 

 

The selling stockholders may pledge or grant a security interest in some or all of the [Series A Convertible Preferred Stock, warrants or] shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

To the extent required by the Securities Act and the rules and regulations thereunder, the selling stockholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed, which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.

 

Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

 

There can be no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this prospectus forms a part.

 

The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and in each case together with the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any Person to engage in market-making activities with respect to the shares of common stock.

 

We will pay all expenses of the registration of the shares of common stock pursuant to the registration rights agreement, estimated to be $[     ] in total, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, a selling stockholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act in accordance with the registration rights agreements or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act that may arise from any written information furnished to us by the selling stockholder specifically for use in this prospectus, in accordance with the related registration rights agreements or we may be entitled to contribution.

 

Once sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

 

 

 

 

Exhibit 10.4

 

contribution AND SUBSCRIPTION AGREEMENT

 

THIS CONTRIBUTION AND SUBSCRIPTION AGREEMENT (this “ Agreement ”) is made as of this 24th day of January, 2018 by and between Lung Therapeutics, Inc., a Texas corporation (the “ Contributor ”), and TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”).

 

R   E   C   I   T   A   L   S

 

A. The Company desires to acquire certain assets of the Contributor related to its Thin Film Freezing (TFF) process (collectively, the “ TFF Assets ”).

 

B. Subject to the terms and conditions of this Agreement, the Contributor desires to contribute the TFF Assets to the Company in exchange for 4,000,000 shares (the “ Shares ”) of the common stock of the Company, $0.001 par value per share (the “ Common Stock ”).

 

NOW, THEREFORE, in consideration of the mutual premises herein made, and in consideration of the representations, warranties and covenants herein contained, the parties hereto agree as follows:

 

SECTION 1: Contribution and Subscription . On the terms and subject to the conditions set forth in this Agreement, the Contributor hereby agrees to contribute, transfer, assign and deliver to the Company, and the Company hereby accepts the contribution, transfer and assignment from the Contributor, the TFF Assets described below in exchange for the Company’s issuance of the Shares to the Contributor.

 

(a) TFF Asset Contribution . The Contributor hereby contributes, transfers, assigns, conveys and delivers to the Company, free and clear of all liens, claims, security interests or other encumbrances, the TFF Assets, as more specifically described below:

 

(1) The Patent License Agreement No. PM1504101, dated as of July 8, 2015, by and between the Contributor and The University of Texas at Austin (the “ PLA ”), it being understood that the Company will be responsible for any payments required by The University of Texas at Austin with respect to an assignment of the PLA;

 

(2) The Master Services Agreement, dated as of August 31, 2015, by and between the Contributor and Hovione Inter Limited, a Swiss company (the “ MSA ”);

 

(3) All intellectual property and intellectual property rights that are owned or controlled by the Contributor that are or were used in, necessary for the conduct of, or related to, the PLA or the MSA, together with the goodwill associated with the PLA and the MSA;

 

(4) All sponsored research and associated reports, data, materials, books and records relating to the PLA or the MSA;

 

(5) All books, records, files, data, customer lists, customer records, research and development reports and advertising and promotional materials that relate to the PLA and the MSA; and

 

(6) The equipment specified on Appendix A attached hereto.

 

 

 

 

(b) Excluded Assets . Except for the TFF Assets, the Company shall not acquire, and the Contributor shall retain, all remaining assets of the Contributor.

 

(c) Assumed Liabilities . The Company agrees to assume and be responsible for all liabilities and obligations arising on or after the date hereof associated with the Company’s use, ownership or operation of the TFF Assets (the “ Assumed Liabilities ”).

 

(d) Excluded Liabilities . Other than the Assumed Liabilities, the Company shall not assume any liabilities or obligations of the Contributor of any kind, whether known or unknown, contingent, matured or otherwise, whether currently existing or hereinafter created.

 

SECTION 2: Representations and Warranties . The Parties each have the requisite power and authority to, and have each obtained all necessary corporate approvals, as applicable, to execute and deliver this Agreement, to carry out its obligations hereunder, and to consummate the transactions contemplated hereby.

 

SECTION 3: Assignment . This Agreement shall constitute the “General Assignment” of the assets and rights contributed hereunder, and the Contributor hereby transfers, grants, and assigns to the Company the Contributor’s entire right, title, and interest in and to the TTF Assets.

 

SECTION 4: Lock-Up .

 

(a) General . The Contributor agrees that, during the period beginning on and including the close of an initial public offering of the Common Stock (“ Effective Date ”) through and including the twelve-month anniversary of the Effective Date (the “ Lock-Up Period ”), the Contributor, or any affiliated party of the Contributor, will not, without the prior written consent of the Company, directly or indirectly:

 

(1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the Founder has or hereafter acquires the power of disposition, or

 

(2) enter into any swap or other agreement, arrangement or transaction that transfers to another, in whole or in part, directly or indirectly, any of the economic consequence of ownership of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for any Common Stock, whether any transaction described in clause (a) or (b) above is to be settled by delivery of Common Stock, other securities, in cash or otherwise.

 

2

 

 

(b) Limited Exception . Notwithstanding the provisions set forth in Section 4(a), the Contributor may, without the prior written consent of the Company, transfer any shares of Common Stock acquired in an open market purchase following the Effective Date.

 

SECTION 5: Tax Treatment of Contribution . The Parties hereto acknowledge that the Contributor’s transfer of the TFF Assets to the Company and the Company’s issuance of the Shares to the Contributor will close concurrent with those transactions under that certain Securities Purchase Agreement (the “ Purchase Agreement ”) to be entered into by and among the Company and certain investors, all of which shall constitute a single integrated plan intended to qualify as a tax-free transaction under Section 351 of the Internal Revenue Code of 1986, as amended. The Parties further agree that each of them will report all such transactions in a manner consistent with such qualification.

 

SECTION 6: Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Greenberg Traurig, LLP, 3161 Michelson Drive, Suite 1000, Irvine, California 92612, commencing concurrently with the Initial Closing (as defined in the Purchase Agreement).

 

SECTION 7: Further Assurances . Each party shall perform such acts, execute and deliver such instruments and documents, and do all such things as reasonably necessary to accomplish the transactions contemplated in this Agreement and/or otherwise give effect to this Agreement, including but not limited to any consents or assignments required to assign the PLA.

 

SECTION 8: Miscellaneous .

 

(a) Amendments and Waivers . Except as otherwise provided herein, no modification, amendment or waiver of any provision hereof shall be effective against the parties unless such modification, amendment or waiver is approved in writing by each party against whom such modification, agreement or waiver is to apply. The failure of any party to enforce any provision of this Agreement or under any agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement.

 

(b) Successors and Assigns . This Agreement is intended to bind and inure to the benefit of and be enforceable by the Parties and their respective successors and assigns.

 

(c) Severability . Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable under any applicable law or rule in any jurisdiction, such provision will be ineffective only to the extent of such invalidity, illegality or unenforceability in such jurisdiction, without invalidating the remainder of this Agreement in such jurisdiction or any provision hereof in any other jurisdiction.

 

(d) Counterparts . This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, by all such counterparts taken together will constitute one and the same Agreement.

 

(e) Descriptive Headings . The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

 

(f) Complete Agreement . This Agreement embodies the complete agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

 

(g) Governing Law . All issues concerning the enforceability, validity and binding effect of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Delaware.

 

* * *

 

3

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Contribution Agreement on the date and year first above written:

 

  LUNG THERAPEUTICS, INC.,
  a Texas corporation
     
  By: /s/ Brian Windsor
  Name: Brian Windsor
  Title: Chief Executive Officer
     
  TFF PHARMACEUTICALS, INC.,
  a Delaware corporation
     
  By: /s/ Robert S. Mills
  Name:  Robert S. Mills, Jr.
  Title: Chief Executive Officer

 

 

 

 

Appendix A

 

One (1) Freezer Cylinder Apparatus and Cage

One (1) AdVantage Pro lyophilizer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.5

 

Patent License Agreement
Agreement No. PM1504101

 

This Patent License Agreement is between the Licensor and the Licensee identified below (collectively, “Parties”, or singly, “Party”).

 

No binding agreement between the Parties will exist until this Patent License Agreement has been signed by both Parties. Unsigned drafts of this Patent License Agreement shall not be considered offers.

 

Background

 

Licensor owns or controls Patent Rights. Licensee desires to secure the right and license to use, develop, manufacture, market, and commercialize the Patent Rights. Licensor has determined that such use, development, and commercialization of the Patent Rights is in the public’s best interest and is consistent with Licensor’s educational and research missions and goals. Licensor desires to have the Patent Rights developed and used for the benefit of Licensee, the inventors, Licensor, and the public.

 

Certain Patent Rights covered by the Patent License Agreement were assigned to Board of Regents of the University of Texas System by Dow Global Technologies Inc.

 

The University of Texas at Austin, on behalf of the Board of Regents of the University of Texas System, has entered an Inter-Institutional Agreement with The University of Texas Health and Science Center San Antonio to provide The University of Texas at Austin rights to license certain jointly owned Patent Rights covered by the Patent License Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants and premises herein contained, the Parties hereby agree as follows:

 

The Terms and Conditions of Patent License attached hereto as Exhibit A are incorporated herein by reference in their entirety (the “Terms and Conditions”). In the event of a conflict between provisions of this Patent License Agreement and the Terms and Conditions, the provisions in this Patent License Agreement shall govern. Unless defined in this Patent License Agreement, capitalized terms used in this Patent License Agreement shall have the meanings given to them in the Terms and Conditions.

 

The section numbers used in the left hand column in the table below correspond to the section numbers in the Terms and Conditions.

 

1.    Definitions
  Effective Date Date of last signature below.
  Licensor The University of Texas at Austin, on behalf of the Board of Regents of the University of Texas System, an agency of the State of Texas, whose address is 3925 W. Braker Lane, Suite 1.9A (R3500), Austin, Texas 78759.

 

 

 

 

  Licensee Lung Therapeutics, Inc., a Texas corporation, with its principal place of business at 7500 Rialto Boulevard, Ste. 250, Austin, Texas 78735
  Contract Year and Contract Quarters

(Check one box to correspond with Licensee fiscal year and quarters)

 

¨ Contract Year is 12-month period ending on December 31 and Contract Quarters are 3-month periods ending on March 31, June 30, Sept. 30, Dec. 31.
OR
¨ Other: Contract Year is 12-month period ending on (specify): [month and day]; Contract Quarters are 3-month periods ending on (specify): [month and day, Q1], [month and day, Q2], [month and day, Q3], [month and day, Q4]

  Territory Worldwide
  Field

Exclusive Field ” for Patent Rights listed in Exhibit B

Limited Exclusive Field ” for Patent Rights listed in Exhibit C

  Patent Rights See Exhibit B “ Exclusive Patent Rights ” and Exhibit C “ Limited Exclusive Patent Rights
  USPTO Entity Status as of Effective Date Check one box:
¨ Small
¨ Large
2.4.    Diligence Milestones
  Milestones and deadlines Milestone Events Deadlines
1. Before the first anniversary of the Effective Date, Licensee shall provide a detailed commercialization plan that must include a financing plan, and a timeline for bringing the first indication to market, including clinical trials and regulatory approval, plans for developing thin film freezing as a platform for clinical grade manufacturing, and plans for developing products or methods related to each of the Licensed Patents.  Such commercialization plan must meet Licensor’s approval and such approval shall not be unreasonably withheld.  The Patent License Agreement will be amended by mutual agreement to insert commercial diligence milestones based on this commercialization plan. First anniversary of Effective Date.

 

  2  

 

 

3.    Compensation
3.1(a) Patent expenses due on first anniversary of Effective Date subject to Sections 3.1(a), 6.1 and 6.5 in Terms and Conditions, and Special Provision 20.1 Amount and due date Based on invoices
received as of:
$235,187.98 May 18, 2015
3.1(b) Milestone fees Milestone Events Milestone Fees
1.    Submit IND (or foreign equivalent) on a first indication for a Licensed Product $100,000
2.    Initiation of Phase II clinical trial (or foreign equivalent) on a first indication for a Licensed Product $200,000
3.    Initiation of Phase III clinical trial (or foreign equivalent) on a first indication for a Licensed Product $500,000
4.    Regulatory Approval in US (or foreign equivalent) on a first indication for a Licensed Product $500,000
5.    FDA Granted Orphan Exclusivity Period As set forth in Special Provision 202
3.1(c) Scheduled license fee payments $5,000 due on December 31, 2018 for the 2018 Contract Year $15,000 due on December 31 for each Contract Year thereafter

 

  3  

 

 

3.1(d) Sublicense Fees

40% of Non-Royalty Sublicensing Consideration from a Sublicense Agreement executed prior to submission of IND (or foreign equivalent);

 

25% of Non-Royalty Sublicensing Consideration from a Sublicense Agreement executed after IND submission but prior to initiation of Phase I clinical trial (or foreign equivalent);

 

15% of Non-Royalty Sublicensing Consideration from a Sublicense Agreement executed after initiation of Phase I clinical trial (or foreign equivalent), but prior to initiation of Phase II clinical trial (or foreign equivalent);

 

10% of Non-Royalty Sublicensing Consideration from a Sublicense Agreement executed after initiation of Phase II clinical trial (or foreign equivalent), but prior to initiation of Phase III clinical trial (or foreign equivalent);

 

7.5% of Non-Royalty Sublicensing Consideration from a Sublicense Agreement executed after initiation of Phase III clinical trial (or foreign equivalent), or first sale whichever comes earlier.

3.1(e) Assignment fee $100,000
3.1(f) FDA Priority Review Voucher 25%
3.2 Running royalty rate (applies to Net Sales by Licensee, Affiliates and Sublicensees) 2%
18.    Contact Information
  Licensee Contacts Licensor Contacts
 

Contact for Notice:

Attn: Brian Windsor
7500 Rialto Boulevard, Ste. 250
Austin, Texas 78735
Phone: 512.872.7527
E-mail: bwindsor@lungtx.com

 

Accounting contact:

Attn: Brian Windsor
7500 Rialto Boulevard, Ste. 250
Austin, Texas 78735
Phone: 512.872.7527
E-mail: bwindsor@lungtx.com

Contact for Notice:

Attn: Contract Manager
3925 W. Braker Lane, Suite 1.9A (R3500)
Austin, TX 78759
Fax: 512.475.6894
Phone: 512.471.2995
E-mail: licensing@otc.utexas.edu

 

Payment and reporting contact:
Checks payable to “ The University of Texas at Austin

       

 

  4  

 

 

 

Patent prosecution contact:

Attn: Brian Windsor
7500 Rialto Boulevard, Ste. 250
Austin, Texas 78735
Phone: 512.872.7527
E-mail: bwindsor@lungtx.com

Attn: Accounting
3925 W. Braker Lane, Suite 1.9A (R3500)
Austin, TX 78759
Fax: 512.475.6894
Phone: 512.471.2995
E-mail: accounting@otc.utexas.edu

 

Patent prosecution contact:

Attn: Patents
3925 W. Braker Lane, Suite 1.9A (R3500)
Austin, TX 78759
Fax: 512.475.6894
Phone: 512.471.2995
E-mail: patents@otc.utexas.edu

For Licensor Administrative Purposes Only
Changes to Standard Form Terms and Conditions 1, 2.1, 2.3, 3,1, 3.2, 3.3, 3.4, 6.1, 6.5, 6.7, 9.1, 9.2, 20.1, 20.2
       

 

20.          Special Provision . The Parties hereby agree to the following special provisions set forth in this Section 20 with respect to this Patent License Agreement.

 

20.1       Past Patent Cost Reimbursement Opt Out Period

 

Licensee shall pay past patent expenses as set forth in Section 3.1(a) of the Terms and conditions, except that if Licensee elects to withdraw from paying patent costs for any particular Patent Rights as set forth in Section 6.5 of the Terms and Conditions before the first anniversary of the Effective Date, then Licensee shall not be required to pay the past patent expenses for such withdrawn Patent Rights. For the sake of clarity, the amount due at the first anniversary of the Effective Date shall survive termination.

 

20.2       FDA Granted Orphan Exclusivity Period Milestone Fee

 

If any drug is granted orphan designation by the FDA (e.g., as described in 21 CFR § 316) while that drug is a Licensed Product, then Licensee shall pay Licensor $9,625,000 (the “FDA Granted Orphan Exclusivity Period Milestone Fee”). Such amount will be paid to Licensor in two payments; the first payment of $875,000 is due when cumulative sales (less deductions otherwise specifically allowed in the definition of Net Product Sales) of the approved orphan drug in the territory in which Licensor is granted exclusivity by such designation (the “FDA Granted Orphan Exclusivity Territory”) reach $50,000,000 during the term of the exclusivity granted in such designation (the “Orphan Drug Exclusivity Term”); the second payment of $8,750,000 is due when cumulative sales of such orphan drug in the FDA Granted Orphan Exclusivity Territory reach $500,000,000 during the Orphan Drug Exclusivity Term. For the sake of clarity, payments shall be due only if the orphan drug has applicable sales in the FDA Granted Orphan Exclusivity Territory during the Orphan Drug Exclusivity Term.

 

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Royalties paid to Licensor from the sales of said orphan drug in the FDA Granted Orphan Exclusivity Territory may be credited once against a FDA Granted Orphan Exclusivity Period Milestone Fee payment. For example, if the orphan drug reaches $500,000,000 in cumulative sales in the FDA Granted Orphan Exclusivity Territory, and $750,000 in associated royalties were paid to Licensor, then such paid royalties may be credited against FDA Granted Orphan Exclusivity Period Milestone Fee, and $8,000,000 of the $8,750,000 payment would be due. Licensee’s obligation to pay the FDA Granted Orphan Exclusivity Period Milestone Fee shall survive Termination, but only apply during Orphan Drug Exclusivity Term. For the sake of clarity, if cumulative sales in the FDA Granted Orphan Exclusivity Territory reached $50,000,000, but $1,000 of the $50,000,000 in sales occurred after the Orphan Drug Exclusivity Term ended, then $0 of the $875,000 first payment would be due. For the sake of further clarity, the FDA Granted Orphan Exclusivity Period Milestone Fee shall be due for any and all drugs that are granted orphan designation by the FDA while those drugs are a Licensed Product, regardless of the prior payment of such fee for a different drug.

 

21.          No Other Promises and Agreements; Representation by Counsel . Licensee expressly warrants and represents and does hereby state and represent that no promise or agreement which is not herein expressed has been made to Licensee in executing this Patent License Agreement except those explicitly set forth herein and in the Terms and Conditions, and that Licensee is not relying upon any statement or representation of Licensor or its representatives. Licensee is relying on Licensee’s own judgment and has had the opportunity to be represented by legal counsel. Licensee hereby warrants and represents that Licensee understands and agrees to all terms and conditions set forth in this Patent License Agreement and said Terms and Conditions.

 

22.          Deadline for Execution by Licensee . If this Patent License Agreement is executed first by the Licensor and is not executed by the Licensee and received by the Licensor at the address and in the manner set forth in Section 18 of the Terms and Conditions within 30 days of the date of signature set forth under the Licensor’s signature below, then this Patent License Agreement shall be null and void and of no further effect.

 

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IN WITNESS WHEREOF, the Parties hereto have caused their duly authorized representatives to execute this Patent License Agreement.

 

LICENSOR: THE UNIVERSITY OF TEXAS AT AUSTIN ON BEHALF OF THE BOARD OF REGENTS OF THE UNIVERSITY OF TEXAS SYSTEM   LICENSEE: Lung Therapeutics, Inc.
         
By: /s/ Daniel W. Sharp   By: /s/ Brian Windsor
         
Daniel W. Sharp, J.D.   Brian Windsor
     
Associate Vice President for Research and Director, Office of Technology Commercialization   CEO
     
Date: July 8, 2015   Date: July 8, 2015

 

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EXHIBIT A
Terms and Conditions of Patent License

 

These Terms and Conditions of Patent License (“Terms and Conditions”) are incorporated by reference into the Patent License Agreement to which they are attached. All Section references in these Terms and Conditions shall be references to provisions in these Terms and Conditions unless explicitly stated otherwise.

 

1. Definitions

 

Affiliate ” means any business entity more than 50% owned by Licensee, any business entity which owns more than 50% of Licensee, or any business entity that is more than 50% owned by a business entity that owns more than 50% of Licensee.

 

Agreement ” means collectively (i) these Terms and Conditions, and (ii) the Patent License Agreement.

 

Contract Quarter ” means the three-month periods indicated as the contract Quarter in Section 1 of the Patent License Agreement, or any stub period thereof at the commencement of the Agreement or the expiration or termination of the Agreement.

 

Contract Year ” means the 12-month periods indicated as the Contract Year in Section 1 of the Patent License Agreement, or any stub period thereof at the commencement of the Agreement or the expiration or termination of the Agreement.

 

Effective Date ” means the date indicated as the Effective Date in Section 1 of the Patent License Agreement.

 

Exclusive Field ” means all fields.

 

Fair Market Value ” means the cash consideration an unaffiliated, unrelated buyer would pay in an arm’s length sale of a substantially identical item sold in the same quantity, under the same terms, and at the same time and place.

 

Field ” means Limited Exclusive Field and/or Exclusive Field, as appropriate.

 

Government ” means any agency, department or other unit of the United States of America or the State of Texas.

 

Gross Consideration ” means all cash and non-cash consideration (e.g., securities).

 

Licensed Process ” means a method or process whose practice or use is covered by a Valid Claim.

 

Licensed Product ” means any product or component (i) whose manufacture, use, sale, offer for sale or import is covered by any Valid Claim, or (ii) which is made using a Licensed Process or another Licensed Product.

 

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Licensed Service ” means performance of a service for any consideration using a Licensed Product, or the practice of a Licensed Process. For clarity, research and development of Licensed Products by Licensee, its Affiliates, or a Sublicensee does not constitute a Licensed Service.

 

Licensee ” means the Party identified as the Licensee in Section 1 of the Patent License Agreement.

 

Licensor ” means the Party identified as the Licensor in Section 1 of the Patent License Agreement.

 

Limited Exclusive Field ” means all fields except for the field of vaccines.

 

Milestone Fees ” means all fees identified as Milestone Fees in Section 3.1(b) of the Patent License Agreement.

 

Net Product Sales ” means the Gross Consideration from the Sale of Licensed Products less the following items directly attributable to the Sale of such Licensed Products that are specifically identified on the invoice for such Sale and borne by the Licensee, Affiliates, or Sublicensees as the seller: (a) discounts and rebates actually granted; (b) sales, value added, use and other taxes and government charges actually paid, excluding income taxes; (c) import and export duties actually paid; (d) freight, transport, packing and transit insurance charges actually paid or allowed; and (e) other amounts actually refunded, allowed or credited due to rejections or returns, but not exceeding the original invoiced amount.

 

Additionally, if Licensee, its Affiliates or Sublicensees use a Licensed Product or a Licensed Process for its own internal purposes or otherwise in a situation that does not involve a Sale for which a royalty is paid under Section 3.2, then Net Product Sales shall also include an amount equal to the customary sale price charged to a third party for the same Licensed Product or Licensed Process, except for a reasonable quantity used internally solely for testing or quality control purposes, marketing or demonstration purposes, or seeking governmental approval (e.g., U.S. Food and Drug Administration clinical trial). If there is no customary sale price, then the Net Product Sales shall be an amount equal to the Fair Market Value.

 

Net Sales ” means the total of Net Product Sales and Net Service Sales.

 

Net Service Sales ” means the Gross Consideration received from the Sale of Licensed Services less the following items, directly attributable to the Sale of such Licensed Services that are specifically identified on the invoice for such Sale and borne by the Licensee, Affiliates, or Sublicensees as the seller: (a) discounts and rebates actually granted; (b) sales, value added, use and other taxes and government charges actually paid, excluding income taxes; and (c) other amounts actually refunded, allowed or credited due to rejections or re-works, but not exceeding the original invoiced amount.

 

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Non-Royalty Sublicensing Consideration ” means the Gross Consideration received by the Licensee or its Affiliate from a Sublicensee in consideration of the grant of a sublicense under the Patent Rights (including, without limitation, license or option or distribution fees, fees to maintain license rights, and bonus/milestone payments), but excluding amounts received as running royalties, a profit share, or other revenue sharing based on Net Product Sales or Net Service Sales for which Licensor receives a running royalty under Section 3.2. For the avoidance of doubt, Non-Royalty Sublicensing Consideration shall not include bona fide: (a) running royalties received by Licensee or an Affiliate based on Net Product Sales or Net Service Sales that are royalty-bearing to Licensor under Section 3.2, (b) purchase price for Licensee’s stock or other securities not in excess of Fair Market Value, and (iii) amounts paid and used exclusively for research and development of Licensed Products or Licensed Services by Licensee.

 

Orphan Drug Exclusivity Term ” means the time period described in 21 CFR § 316.31 when no other sponsor’s marketing application for the same drug for the same use or indication will be approved.

 

Patent License Agreement ” means the particular Patent License Agreement to which these Terms and Conditions are attached and incorporated into by reference.

 

Patent Rights ” means the Licensor’s rights in (a) the patents and patent applications listed in Section 1 of the Patent License Agreement; (b) all non-provisional patent applications that claim priority to any provisional application listed in Section 1 of the Patent License Agreement; and (c) all divisionals, continuations, and such claims of continuations-in-part as are entitled to claim priority to the aforesaid patents and/or patent applications, and all reissues, reexaminations, extensions of, and foreign counterparts; and (d) any patents that issue with respect to the aforesaid patent applications. From time to time during the term of the Agreement, upon written agreement by both parties, Licensee and Licensor shall update the list of all patent applications and patents within the Patent Rights.

 

Phase I ” means a human clinical trial of a Licensed Product, including the initial introduction into humans, the principal purpose of which is to obtain sufficient information about the Product’s pharmacokinetics and pharmacological effects to permit the design of further clinical trials, and be generally consistent with 21 CFR § 312.21(a). Said trial may be conducted in any country.

 

Phase II ” means a human clinical trial of a Licensed Product the principal purpose of which is to make a preliminary determination that such Product is safe in a patient population for its intended use and to obtain sufficient information about such Product’s efficacy to permit the design of further clinical trials, and be generally consistent with 21 CFR § 312.21(b). Said trial may be conducted in any country.

 

Phase M ” means a human clinical trial of a Licensed Product, which trial is designed to: (a) establish that a Licensed Product is safe and efficacious for its intended use; (b) define warnings, precautions and adverse reactions that are associated with the Licensed Product in the dosage range to be prescribed; (c) support regulatory approval of such Licensed Product; and (d) be generally consistent with 21 CFR § 312.21(c). Said trial may be conducted in any country.

 

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Prosecution Counsel ” means the law firm or attorney who is handling the prosecution of the Patent Rights. Prosecution Counsel as of the Effective Date is identified in Section 1 of the Patent License Agreement.

 

Quarterly Payment Deadline ” means the day that is 30 days after the last day of any particular Contract Quarter.

 

Regulatory Approval ” means the approval by the Regulatory Authority needed for a particular national jurisdiction to market, sell and use a Licensed Product in that national jurisdiction.

 

Regulatory Authority ” means the governmental authority responsible for granting any necessary licenses or approvals for the marketing, sale and use of a Licensed Product or Licensed Service in a particular national jurisdiction, including without limitation, the FDA, European Medicines Agency or Koseisho (i.e. the Japanese Ministry of Health and Welfare).

 

Sell, Sale or Sold ” means any transfer or other disposition of Licensed Products or Licensed Services for which consideration is received by Licensee, its Affiliates or Sublicensees. A Sale of Licensed Products or Licensed Services will be deemed completed at the time Licensee or its Affiliate or its Sublicensee receives such consideration.

 

Sublicense Agreement ” means any agreement or arrangement pursuant to which Licensee (or an Affiliate or Sublicensee) grants to any third party any license rights of Licensee under the Agreement.

 

Sublicense Fee ” means the fee specified in Section 3.1(d) of the Patent License Agreement.

 

Sublicensee ” means any entity to whom an express sublicense has been granted under the Patent Rights. For clarity, a third party wholesaler or distributor who has no significant responsibility for marketing and promotion of the Licensed Product or Licensed Services within its distribution territory or field (i.e., the third party simply functions as a reseller), and who does not pay any consideration to Licensee or an Affiliate for such wholesale or distributor rights, shall not be deemed a Sublicensee; and the resale by such a wholesaler or distributor shall not be treated as royalty bearing Net Sales by a Sublicensee provided that a royalty is being paid by Licensee for the initial transfer to the wholesaler or distributor pursuant to Section 3.2. This definition does not limit Licensee’s rights to grant or authorize sublicenses under the Agreement.

 

Territory ” means the territory so indicated as the Territory in Section 1 of the Patent License Agreement.

 

Valid Claim ” means a claim of (i) an issued and unexpired patent included within the Patent Rights unless the claim has been held unenforceable or invalid by the final, un-reversed, and un¬appealable decision of a court or other government body of competent jurisdiction, has been irretrievably abandoned or disclaimed, or has otherwise been finally admitted or determined to be invalid, un-patentable or unenforceable, whether through reissue, reexamination, disclaimer or otherwise, or (ii) a pending patent application within the Patent Rights to the extent the claim continues to be prosecuted in good faith.

 

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2. License Grant and Commercialization

 

2.1 Grant

 

(a) For the Patent Rights listed in Exhibit B, Licensor grants to Licensee a royalty-bearing exclusive license under such Patent Rights to manufacture, have manufactured, distribute, have distributed, use, offer for Sale, Sell, lease, loan and/or import Licensed Products in the Exclusive Field in the Territory and to perform Licensed Services in the Exclusive Field in the Territory.

 

For the Patent Rights listed in Exhibit C, Licensor grants to Licensee:

 

1. a royalty-bearing exclusive license to manufacture, have manufactured, distribute, have distributed, use, offer for Sale, Sell, lease, loan and/or import Licensed Products in the Limited Exclusive Field in the Territory and to perform Licensed Services in the Limited Exclusive Field in the Territory, and

 

2. a royalty-bearing non-exclusive license to manufacture, have manufactured, distribute, have distributed, use, offer for Sale, Sell, lease, loan and/or import Licensed Products in the field of vaccines the Territory and to perform Licensed Services in the field of vaccines the Territory. Both parties agree that Licensor can further license the Patent Rights listed in Exhibit C in the field of vaccines.

 

(b) This grant is subject to (i) the payment by Licensee to Licensor of all consideration required under the Agreement, (ii) any rights of, or obligations to, the Government as set forth in Section 11.2 (Government Rights), and (iii) rights retained by Licensor to:

 

1. Publish the scientific findings from research related to the Patent Rights; and

 

2. Manufacture, have manufactured, and use the Patent Rights for teaching, research, patient care, education, and other educationally-related purposes; and

 

3. Grant rights to, and transfer material embodiments of, the Patent Rights to other academic institutions or non-profit research institutions for the purposes identified in clauses (1) and (2) above.

 

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(c) Licensor reserves all rights not expressly granted in the Agreement and disclaims the grant of any implied rights to Licensee.

 

2.2 Affiliates

 

Licensee may extend the license granted herein to any Affiliate provided that the Affiliate agrees in writing to be bound by the Agreement to the same extent as Licensee. Licensee agrees to deliver such written agreement to Licensor within 30 calendar days following execution.

 

2.3 Sublicensing

 

Licensee has the right to grant Sublicense Agreements under the Patent Rights consistent with the terms of the Agreement, subject to the following:

 

(a) A Sublicense Agreement shall not exceed the scope and rights granted to Licensee hereunder. Sublicensee must agree in writing to be bound by the applicable terms and conditions of the Agreement and shall indicate that Licensor is a third party beneficiary and entitled to enforce the terms and conditions of the Sublicense Agreement applicable to the Agreement. In the event of termination of the Agreement, continued sublicense rights shall be governed by Section 7.5(a) (Effect of Termination). Licensee may grant a Sublicensee the right to grant further sub-Sublicense Agreements, in which case such sub-Sublicense Agreements shall be treated as “Sublicense Agreements” and such sub-Sublicensees shall be treated as “Sublicensees” for purposes of the Agreement.

 

(b) Licensee shall deliver to Licensor a true, complete, and correct copy of each Sublicense Agreement granted by Licensee, Affiliate or Sublicensee, and any modification or termination thereof, within 30 days following the applicable execution, modification, or termination of such Sublicense Agreement. If the Sublicense Agreement is not in English, Licensee shall provide Licensor an accurate English translation in addition to a copy of the original agreement.

 

(c) Notwithstanding any such Sublicense Agreement, Licensee will remain primarily liable to Licensor for all of the Licensee’s duties and obligations contained in the Agreement, including without limitation the payment of running royalties due under Section 3.2 whether or not paid to Licensee by a Sublicensee. Any act or omission of a Sublicensee that would be a breach of the Agreement if performed by Licensee will be deemed to be a breach by Licensee unless Licensee complies with the remaining provisions of this paragraph. Each Sublicense Agreement will contain a right of termination by Licensee in the event that the Sublicensee breaches the payment or reporting obligations affecting Licensor or any other terms and conditions of the Sublicense Agreement that would constitute a breach of the Agreement if such acts were performed by Licensee. In the event of a Sublicensee breach, and if after a reasonable opportunity to cure as provided in any such Sublicense Agreement (not to exceed 30 days for a payment breach and 60 days for a non-payment breach), such Sublicensee fails to cure such Sublicensee breach, then the Licensee will terminate the Sublicense Agreement within 30 days thereafter, with copy of such written notice of termination to Licensor, unless agreed to in writing otherwise by Licensor.

 

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(d) If Licensor (as represented by the actual knowledge of the responsible licensing professional in Licensor’s Office of Technology Commercialization responsible for administration of licensor case nos.: 5612 DOW and 5254 JOH) or a third party discovers and notifies Licensor that the Patent Rights are useful for an application covered by the Exclusive Field or Limited Exclusive Field, as appropriate, of use but for which Licensed Products or Licensed Services have not been developed or are not currently under development by Licensee (“New Use”), then Licensor, may give written notice to Licensee of such New Use and within ninety (90) days following Licensee’s receipt of Licensor’s notification, Licensee shall give written notice stating whether Licensee elects to develop Licensed Products or Licensed Services for the New Use.

 

If Licensee elects to develop and commercialize Licensed Products or Licensed Services for the New Use, Licensee shall submit a commercialization plan along with its election and thereafter include in future progress reports descriptions of Licensee’s commercialization efforts in developing Licensed Products or Licensed Services for the New Use pursuant to Section 4 herein.

 

If Licensee elects not to develop and commercialize Licensed Products or Licensed Services for the New Use, Licensor may refer third parties to Licensee who are willing to develop Licensed Products or Licensed Services for the New Use. If such third parties request a sublicense under this agreement, then the Licensee agrees to negotiate in good faith a Sublicense Agreement with any such third party consistent with the terms of Section 2.3.

 

If Licensee is unable or unwilling to enter into a Sublicense Agreement with any such third party on reasonable terms within sixty (60) days of the referral by Licensor, then Licensor shall have the right to grant to the third party license rights under the Patent Rights as Licensor deems necessary, in Licensor’s sole discretion, to serve the New Use, notwithstanding the exclusive license grant of section 2.1.

 

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2.4 Diligent Commercialization

 

Licensee by itself or through its Affiliates and Sublicensees will use diligent efforts to make Licensed Products or Licensed Services commercially available in the Field in the Territory. Without limiting the foregoing, Licensee will (a) maintain a reasonably funded, ongoing and active research, development, manufacturing, regulatory, marketing or sales program required to make License Products or Licensed Services commercially available, and (b) fulfill the milestone events specified in Section 2.4 of the Patent License Agreement by the deadlines indicated therein and (c) use diligent and commercially reasonable efforts to perform and complete the plans described in the annual report submitted pursuant to Section 4.2 (Annual Written Progress Report). If the obligations under this Section 2.4 are not fulfilled, Licensor may treat such failure as a breach in accordance with Section 7.3(b).

 

3. Compensation

 

In consideration of rights granted to Licensee, Licensee will pay Licensor the following fees and royalties. All fees and royalties are not refundable and are not creditable against other fees and royalties except as explicitly set forth herein. Each payment will reference the Patent License Agreement number and will be sent to Licensor’s payment and accounting contact in Section 18 (Notices) of the Patent License Agreement.

 

3.1 Non-Royalty Payments due from Licensee

 

(a) Patent Expenses . Licensee will reimburse Licensor for the past patent expenses stated in Section 3.1(a) of the Patent License Agreement by the first anniversary of the Effective Date, subject to Section 20.1 of the Patent License Agreement. The total amount of past patent expenses due at the first anniversary of the Effective Date shall be paid in five equal amounts due within 15 days of the first, second, third, fourth, and fifth anniversary of the Effective Date. The stated amount is the current estimate for past patent expenses based on invoices received by the Licensor through the stated date. Licensee’s obligations to pay all past and future patent expenses pursuant to Section 6 (Patent Expenses and Prosecution) will not be limited by such amount. With respect to the past patent expenses of the Patent Rights listed in Exhibit C, payments received by Licensor for such past patent expenses from a third party licensee may reduce the amount payable by Licensee.

 

(b) Milestone Fees . Licensee will pay Milestone Fees indicated in Section 3.1(b) and 20.2 of the Patent License Agreement by the Quarterly Payment Deadline for the Contract Quarter in which the milestone events set forth in Section 3.1(b) and 20.2 of the Patent License Agreement are achieved.

 

(c) Scheduled License Fees . Licensee will pay license fees in the amounts set forth in Sections 3.1(c) of the Patent License Agreement in accordance with the stated schedule.

 

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(d) Sublicense Fees . Licensee will pay Sublicense Fees indicated in Section 3.1(d) of the Patent License Agreement on or before the Quarterly Payment Deadline for the Contract Quarter.

 

(e) Assignment Fee . Licensee will pay the assignment fee set forth in Section 3.1(e) of the Patent License Agreement within 15 days of the assignment of the Agreement.

 

(f) FDA Priority Review Voucher : If Licensee receives a voucher under the FDA’s priority review voucher program, Licensee may sell or otherwise commercialize such voucher, if Licensee pays Licensor twenty-five percent (25%) of all proceeds related to the sale of such voucher within thirty (30) days after receipt of such proceeds.

 

3.2 Royalties

 

Licensee will pay a running royalty at the rate set forth in Section 3.2 of the Patent License Agreement on Net Sales in each Contract Quarter, payable on or before the Quarterly Payment Deadline for such Contract Quarter, subject to the following:

 

(a) No more than one royalty shall be paid to Licensor hereunder with respect to the Sale of any one unit of Licensed Product or Licensed Service, whether or not more than one patent or Valid Claim is applicable to the Licensed Product or Licensed Service, or the development, manufacture, or performance thereof.

 

(b) No royalty shall be payable under this Section 3.2 with respect to (i) Sales to an Affiliate or Sublicensee of a particular unit of Licensed Product that is used by such Affiliate or Sublicensee to perform a Licensed Service if Licensor is paid a royalty on the Sale of such Licensed Service, (ii) the Sale of Licensed Products between or among Licensee, its Affiliates, and Sublicensees for re-sale purposes, provided Licensor is paid a royalty with respect to the re-sale, or (iii) payments that constitute Non-Royalty Sublicensing Consideration.

 

3.3 Non-cash Consideration

 

If Licensee receives or anticipates receipt of non-cash consideration from Sales or Sublicenses, the manner in which Licensor will receive its compensation under the Agreement with respect to such non-cash consideration will be negotiated in good faith and timely agreed to by the Parties.

 

4. Reports and Plans

 

The reports specified in thrs Section 4 will be sent to Licensors payment and reporting contact identified in Section 18 (Notices) of the Patent License Agreement. If Licensor requests to have information submitted in a particular format, Licensee will use reasonable efforts to comply with such request.

 

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4.1 Quarterly Payment and Milestone Reports

 

On or before each Quarterly Payment Deadline, Licensee will deliver to Licensor a true and accurate report, certified by an officer of Licensee, giving such particulars of the business conducted by Licensee, its Affiliates and its Sublicensees (including copies of reports provided by Sublicensees and Affiliates to Licensee) during the preceding Contract Quarter under the Agreement as necessary for Licensor to account for Licensee’s payments hereunder, even if no payments are due. The reports shall continue to be delivered after the termination or expiration of the Agreement until such time as all Licensed Products permitted to be Sold after termination or expiration have been Sold or destroyed. Licensee shall provide information in sufficient detail to enable the royalties payable hereunder to be determined and to calculate all of the amounts payable under the Agreement. The report shall include:

 

(a) The name of the Licensee, the Patent License Agreement number, and the period covered by the report;

 

(b) The name of any Affiliates and Sublicensees whose activities are also covered by the report;

 

(c) Identification of each Licensed Product and Licensed Service for which any royalty payments have become payable;

 

(d) Net Product Sales and Net Service Sales segregated on a product-by-product basis, and a country-by-country basis, or an affirmative statement that no Sales were made. The report shall also itemize the permitted deductions from the Gross Consideration used to arrive at the resulting Net Product Sales and Net Service Sales, on a product-by-product and country-by-country basis;

 

(e) The applicable royalty rate;

 

(f) An affirmative statement of whether any milestones with deadlines in that Contract Quarter under Section 2.4 and any milestones under Section 3.1(b) were met or not, and the resulting Milestone Fee payable;

 

(g) Non-Royalty Sublicensing Consideration received by Licensee segregated on a Sublicense-by-Sublicense basis, or an affirmative statement that none was received;

 

(h) If any consideration was received in currencies other than U.S. dollars, the report shall describe the currency exchange calculations; and

 

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(i) Any changes in accounting methodologies used to account for and calculate the items included in the report since the previous report.

 

4.2 Annual Written Progress Report and Commercialization Plan

 

Within 45 days following the end of each Contract Year, Licensee will deliver to Licensor a true and accurate written progress report and commercialization plan, certified by an officer of Licensee, that summarizes (i) Licensee’s efforts and accomplishments during the Contract Year to diligently commercialize Licensed Products and Licensed Services, and (ii) Licensee’s development and commercialization plans with respect to Licensed Products and Licensed Services for the next Contract Year. The report shall also cover such activities by Affiliates and Sublicensees. The report shall contain the following information to the extent relevant to the activities under the Agreement:

 

(a) The name of the Licensee, the Patent License Agreement number, the names of any Affiliates and Sublicensees, and the products and services being developed and/or commercialized;

 

(b) The progress toward completing and the plans for completing the applicable milestone events pursuant to Sections 2.4 and 3.1(b);

 

(c) The research and development activities, including status and plans for obtaining any necessary governmental approvals, performed during the past year, and the plans for research and development activities for the next year; and

 

(d) The marketing activities for the past year and planned for the next year, and Licensee’s internal estimate for Sales for the next year.

 

4.3 Government and Economic Development Reporting

 

If Licensor requests, Licensee will provide information for Licensor’s Government and economic development reporting purposes, including the following:

 

(a) Number and geographic location of new full-time employees created during the past Contract Year; total number and geographic location of full-time employees of Licensee at the end of such Contract Year;

 

(b) Dollar amount of new equity financing received by Licensee during the past Contract Year, and current capitalization, including number and class of outstanding securities;

 

(c) Location and square footage of facilities; and

 

(d) Other information required under Federal and state law.

 

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This information shall be treated as Licensee’s Confidential Information; provided that Licensor is entitled to combine such information with similar information from other Licensor licensees and publicly report such combined aggregate information, without identifying Licensee’s separate specific applicable numbers. If and when Licensee has more than 200 full-time employees, then no further economic development reports will be required from Licensee.

 

5. Payment, Records, and Audits

 

5.1 Payments

 

All amounts referred to in the Patent License Agreement are expressed in U.S. dollars without deductions for taxes, assessments, fees, or charges of any kind. Each payment will reference the agreement number set forth at the beginning of the Patent License Agreement. All payments to Licensor will be made in U.S. dollars by check or wire transfer (Licensee to pay all wire transfer fees) payable to the payee identified in Section 18 of the Patent License Agreement and sent to the payment and reporting contact in Section 18 (Notices) of the Patent License Agreement.

 

5.2 Sales Outside the U.S.

 

If any currency conversion shall be required in connection with the calculation of payments hereunder, such conversion shall be made using the rate used by Licensee for its financial reporting purposes in accordance with Generally Accepted Accounting Principles (or foreign equivalent) or, in the absence of such rate, using the average of the buying and selling exchange rate for conversion between the foreign currency and U.S. Dollars, for current transactions as reported in The Wall Street Journal on the last business days of the Contract Quarter to which such payment pertains. Licensee may not make any tax withholdings from payments to Licensor, but Licensor agrees to supply to Licensee, upon written request, appropriate evidence from appropriate U.S. governmental agencies showing that Licensor is a resident of the United States of America for purposes of the U.S. income tax laws and is tax-exempt under such income tax laws.

 

5.3 Late Payments

 

Amounts that are not paid when due will accrue a late charge from the due date until paid, at a rate equal to 1.0% per month (or the maximum allowed by law, if less).

 

5.4 Records

 

For a period of six years after the Contract Quarter to which the records pertain, Licensee agrees that it and its Affiliates and Sublicensees will each keep complete and accurate records of their Sales, Net Product Sales, Net Service Sales, Milestone Fees, and Non-Royalty Sublicensing Consideration in sufficient detail to enable such payments to be determined and audited.

 

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5.5 Auditing

 

Licensee and its Affiliates will permit Licensor or its representatives, at Licensor’s expense, to periodically examine books, ledgers, and records during regular business hours, at Licensee’s or its Affiliate’s place of business, on at least 30 days advance notice, to the extent necessary to verify any payment or report required under the Agreement. For each Sublicensee, Licensee shall obtain such audit rights for Licensor or itself. If Licensee obtains such audit rights for itself, it will promptly conduct an audit of the Sublicensee’s records upon Licensor’s request, and Licensee will furnish to Licensor a copy of the findings from such audit. No more than one audit of Licensee, each Affiliate, and each Sublicensee shall be conducted under this Section 5.5 in any calendar year. If any amounts due Licensor have been underpaid, then Licensee shall immediately pay Licensor the amount of such underpayment plus accrued interest due in accordance with Section 5.3. If the amount of underpayment is equal to or greater than 5% of the total amount due for the records so examined, Licensee will pay the cost of such audit. Such audits may, at Licensor’s sole discretion, consist of a self-audit conducted by Licensee at Licensee’s expense and certified in writing by an authorized officer of Licensee. All information examined pursuant to this Section 5.5 shall be deemed to be the Confidential Information of the Licensee. Further, whenever Licensee and/or its Affiliates and Sublicensees has its books and records audited by an independent certified public accountant, Licensee and/or its Affiliates and Sublicensees will, within 30 days of the conclusion of such audit, provide Licensor with a written statement of said auditor, setting forth the calculation of amounts due to Licensor over the time period audited, as determined from the books and records of the Licensee, Affiliate or Sublicensee; but said auditor does not need to give any audit opinion with said statement.

 

6. Patent Expenses and Prosecution

 

6.1 Patent Expenses

 

Licensee shall pay for all past (subject to Section 20.1 of the Patent License Agreement) documented, out-of-pocket expenses incurred by Licensor for filing, prosecuting, enforcing, defending and maintaining Patent Rights and related patent searches through the Effective Date of the Agreement, including those identified in Section 3.1(a) of the Patent License Agreement, and all such future expenses incurred by Licensor, for so long as, and in such countries as the Agreement remains in effect. Licensee will pay all patent expenses (except for the payment called for under Section 3.1(a)), including past expenses (subject to Section 20.1 of the Patent License Agreement) that have not been invoiced as of the date indicated in Section 3.1(a) of the Patent License Agreement and future expenses, within 30 days after Licensee’s receipt of an invoice. At the election of Licensor, Licensee will either pay Prosecution Counsel directly for patent expenses or will reimburse Licensor for such patent expenses. Patent expense payment delinquencies (whether owed directly to Prosecution Counsel or to Licensor) will be considered a payment default under Section 7.3(a).

 

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6.2 Direction of Prosecution

 

Licensor will confer with Licensee to develop a strategy for the prosecution and maintenance of Patent Rights. Licensor will request that copies of all documents prepared by the Prosecution Counsel for submission to governmental patent offices be provided to Licensee for review and comment prior to filing, to the extent practicable under the circumstances. At its discretion, Licensor may allow Licensee to instruct Prosecution Counsel directly, provided, that (a) Licensor will maintain final authority in all decisions regarding the prosecution and maintenance of the Patent Rights, (b) Licensor may revoke this authorization to instruct Prosecution Counsel directly at any time, and (c) the Prosecution Counsel remains counsel to the Licensor with an appropriate contract (and shall not jointly represent Licensee unless requested by Licensee and approved by Licensor, and an appropriate engagement letter and conflict waiver are in effect). If Licensee wishes to instruct Prosecution Counsel directly or change Prosecution Counsel, Licensee may request to do so by following the Licensor’s procedures for such. Licensor reserves in its sole discretion the ability to change Prosecution Counsel and to approve or disapprove any requested changes by Licensee. The Parties agree that they share a common legal interest to get valid enforceable patents and that Licensee will maintain as privileged all information received pursuant to this Section.

 

6.3 Ownership

 

All patent applications and patents will be in the name of Licensor (and any co-owner identified in Section 1 of the Patent License Agreement) and owned by Licensor (and such co-owner, if any). No payments due under the Agreement will be reduced as the result of co-ownership interests in the Patent Rights by Licensee or any other party.

 

6.4 Foreign Filings

 

In addition to the U.S., the Patent Rights shall, subject to applicable bar dates, be pursued in such foreign countries as Licensee so designates in writing to Licensor in sufficient time to reasonably enable the preparation of such additional filings, and in those foreign countries in which Licensor has filed applications prior to the Effective Date. If Licensee does not choose to pursue patent rights in a particular foreign country and Licensor chooses to do so, Licensor shall so notify Licensee and thereafter said patent application or patent shall no longer be included in the Patent Rights and Licensee shall have no further rights thereto. Licensor shall have the right to make alternative arrangements with Licensee for upfront payment of foreign patent expenses.

 

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6.5 Withdrawal from Paying Patent Costs

 

If at any time Licensee wishes to cease paying for any costs for any particular Patent Rights or for patent prosecution in a particular jurisdiction, Licensee must give Licensor at least 90 days prior written notice and Licensee will continue to be obligated to pay for the patent costs which reasonably accrue during said notice period. Thereafter, said patent application or patent shall no longer be included in the Patent Rights and Licensee shall have no further rights thereto.

 

6.6 U.S. Patent and Trademark Office Entity Size Status

 

Licensee represents that as of the Effective Date the entity size status of Licensee in accordance with the regulations of the U.S. Patent and Trademark Office is as set forth in Section 1 of the Patent License Agreement. Licensee will inform Licensor in writing on a timely basis of any change in its U.S. Patent and Trademark Office entity size status.

 

6.7 Extension of Patent Term

 

If a Licensed Product is eligible for extending the term of any patent in the Patent Rights under the Drug Price Competition and Patent Term Restoration Act of 1984 and/or any European, Japanese, or other foreign counterparts of this law, then Licensee shall take all necessary steps with the appropriate regulatory authorities to apply in a timely manner for such an extension of the term for such patent. For example, such application must be made to the USPTO within sixty (60) days after the US FDA approves a commercial marketing application for said Licensed Product. Licensee shall prepare and file all documents needed for the application; and Licensee shall take all reasonable actions as may be appropriate to further obtain patent term extension. Licensor shall cooperate and sign such documents as may be reasonably requested by Licensee for the application.

 

Licensee shall keep Licensor informed as to Licensee’s efforts to prepare and file said application, including giving a written report within thirty (30) days after Licensee obtains the applicable marketing approval from the FDA (or foreign counterpart). If Licensee fails to make this required application, then Licensor shall have the option but not the obligation to do so; and if Licensor does elect to file the application, then Licensee shall cooperate and sign such documents as may be needed; and Licensee shall reimburse Licensor’s costs incurred for said application.

 

7. Term and Termination

 

7.1 Term

 

Unless earlier terminated as provided herein, the term of the Agreement will commence on the Effective Date and continue until the last date of expiration or termination of the Patent Rights.

 

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7.2 Termination by Licensee

 

Licensee, at its option, may terminate the Agreement by providing Licensor written notice of intent to terminate, which such termination effective will be 90 days following receipt of such notice by Licensor.

 

7.3 Termination by Licensor

 

Licensor, at its option, may immediately terminate the Agreement, or any part of Patent Rights, or any part of Field, or any part of Territory, or the exclusive nature of the license grant, upon delivery of written notice to Licensee of Licensor’s decision to terminate, if any of the following occur:

 

(a) Licensee becomes in arrears in any payments due under the Agreement, and Licensee fails to make the required payment within 30 days after delivery of written notice from Licensor; or

 

(b) Licensee is in breach of any non-payment provision of the Agreement, and does not cure such breach within 60 days after delivery of written notice from Licensor; or

 

(c) Licensor delivers notice to Licensee of three or more actual breaches of the Agreement in any 12-month period, even in the event that Licensee cures such breaches in the allowed period; or

 

(d) Licensee or its Affiliate or Sublicensee initiates any proceeding or action to challenge the validity, enforceability, or scope of one or more of the Patent Rights, or assist a third party in pursuing such ,) proceeding or action.

 

7.4 Other Conditions of Termination

 

The Agreement will terminate:

 

(a) Immediately without the necessity of any action being taken by Licensor or Licensee, (i) if Licensee becomes bankrupt or insolvent, or (ii) Licensee’s Board of Directors elects to liquidate its assets or dissolve its business, or (iii) Licensee ceases its business operations, or (iv) Licensee makes an assignment for the benefit of creditors or (v) if the business or assets of Licensee are otherwise placed in the hands of a receiver, assignee or trustee, whether by voluntary act of Licensee or otherwise; or

 

(b) At any time by mutual written agreement between Licensee and Licensor.

 

7.5 Effect of Termination

 

If the Agreement is terminated for any reason:

 

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(a) All rights and licenses of Sublicensees shall terminate upon termination of the Agreement; provided however, if the Sublicense Agreement is for all of the Field for all of the Territory, and the Sublicensee is in good standing and agrees in writing to assume all of the obligations of Licensee and provides Licensor with written notice thereof within 30 days after termination of the Agreement, then such Sublicense Agreement shall survive; and

 

(b) Licensee shall cease making, having made, distributing, having distributed, using, selling, offering to sell, leasing, loaning and importing any Licensed Products and performing Licensed Services by the effective date of termination; and

 

(c) Licensee shall tender payment of all accrued royalties and other payments due to Licensor as of the effective date of termination; and

 

(d) Nothing in the Agreement will be construed to release either Party from any obligation that matured prior to the effective date of termination; and

 

(e) The provisions of Sections 8 (Confidentiality), 9 (Infringement and Litigation), 11 (Representations and Disclaimers), 12 (Limit of Liability), 13 (Indemnification), 14 (Insurance), 17 (Use of Name), 18 (Notices), and 19 (General Provisions) will survive any termination or expiration of the Agreement. In addition, the provisions of Sections 3 (Compensation), 4.1 (Quarterly Payment and Milestone Reports), 5 (Payment, Records and Audits), 6.1 (Patent Expenses), and Section 20.2 of the Patent License Agreement shall survive with respect to all activities and payment obligations accruing prior to the termination or expiration of the Agreement.

 

8. Confidentiality

 

8.1 Definition

 

Confidential Information ” means all information that is of a confidential and proprietary nature to Licensor or Licensee and provided by one Party to the other Party under the Agreement.

 

8.2 Protection and Marking

 

Licensor and Licensee each agree that all Confidential Information disclosed in tangible form, and marked “confidential” and forwarded to one by the other, or if disclosed orally, is designated as confidential at the time of disclosure: (i) is to be held in strict confidence by the receiving Party, (ii) is to be used by and under authority of the receiving Party only as authorized in the Agreement, and (iii) shall not be disclosed by the receiving Party, its agents or employees without the prior written consent of the disclosing Party or as authorized in the Agreement. Licensee has the right to use and disclose Confidential Information of Licensor reasonably in connection with the exercise of its rights under the Agreement, including without limitation disclosing to Affiliates, Sublicensees, potential investors, acquirers, and others on a need to know basis, if such Confidential Information is provided under conditions which reasonably protect the confidentiality thereof. Each Party’s obligation of confidence hereunder includes, without limitation, using at least the same degree of care with the disclosing Party’s Confidential Information as it uses to protect its own Confidential Information, but always at least a reasonable degree of care.

 

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8.3 Confidentiality of Terms of Agreement

 

Each Party agrees not to disclose to any third party the terms of the Agreement without the prior written consent of the other Party hereto, except each Party may disclose the terms of the Agreement: (a) to advisors, actual or potential Sublicensees, acquirers or investors, and others on a need to know basis, in each case, under appropriate confidentiality obligations substantially similar to those of this Section 8; and (b) to the extent necessary to comply with applicable laws and court orders (including, without limitation, The Texas Public Information Act, as may be amended from time to time, other open records laws, decisions and rulings, and securities laws, regulations and guidance). If the Agreement is not for all fields of use, then Licensor may disclose the Field to other potential third party licensees. Notwithstanding the foregoing, the existence of the Agreement shall not be considered Confidential Information.

 

8.4 Disclosure Required by Court Order or Law

 

If the receiving Party is required to disclose Confidential Information of another Party hereto, or any terms of the Agreement, pursuant to the order or requirement of a court, administrative agency, or other governmental body or applicable law, the receiving Party may disclose such Confidential Information or terms to the extent required, provided that the receiving Party shall use reasonable efforts to provide the disclosing Party with reasonable advance notice thereof to enable the disclosing Party to seek a protective order and otherwise seek to prevent such disclosure. To the extent that Confidential Information so disclosed does not become part of the public domain by virtue of such disclosure, it shall remain Confidential Information protected pursuant to Section 8.

 

8.5 Copies

 

Each Party agrees not to copy or record any of the Confidential Information of the other Party, except as reasonably necessary to exercise its rights or perform its obligations under the Agreement, and for archival and legal purposes.

 

8.6 Continuing Obligations

 

Subject to the exclusions listed in Section 8.7, the Parties’ confidentiality obligations under the Agreement will survive termination of the Agreement and will continue for a period of five years thereafter.

 

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8.7 Exclusions

 

Information shall not be considered Confidential Information of a disclosing Party under the Agreement to the extent that the receiving Party can establish by competent written proof that such information:

 

(a) Was in the public domain at the time of disclosure; or

 

(b) Later became part of the public domain through no act or omission of the recipient Party, its employees, agents, successors or assigns in breach of the Agreement; or

 

(c) Was lawfully disclosed to the recipient Party by a third party having the right to disclose it not under an obligation of confidentiality; or

 

(d) Was already known by the recipient Party at the time of disclosure; or

 

(e) Was independently developed by the recipient Party without use of the disclosing Party’s Confidential Information.

 

8.8 Copyright Notice

 

The placement of a copyright notice on any Confidential Information will not be construed to mean that such information has been published and will not release the other Party from its obligation of confidentiality hereunder.

 

9. Infringement and Litigation

 

9.1 Notification

 

If either Licensee or Licensor’s designated office for technology commercialization becomes aware of any infringement or potential infringement of Patent Rights in the Field in the Territory, such Party shall give prompt written notice to the other Party of such infringement.

 

9.2 Enforcement Against Infringer.

 

Licensor shall have the right, but no obligation, to enforce the Patent Rights against any infringement by a third party. Licensor shall confer with Licensee and give due consideration to Licensee’s input concerning any such enforcement action. If an action is to be commenced, Licensor and Licensee will endeavor to reach mutual agreement as to how best (i) to prosecute, manage, and fund such action, and (ii) to allocate equitably any net recovery resulting from such action. Licensee is not entitled to commence any enforcement action against an infringer unless Licensor expressly approved in writing for Licensee to do so, which approval may not be unreasonably withheld. If an enforcement action is to be commenced, both Parties agree to cooperate fully with each other and to permit reasonable access to all relevant personnel, records, papers, information, samples, specimens, etc., relevant to the action.

 

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9.3 Cooperation between Licensor and Licensee

 

In any infringement suit or dispute, the Parties agree to cooperate fully with each other. At the request of the Party bringing suit, the other Party will permit reasonable access after reasonable advance notice to all relevant personnel, records, papers, information, samples, specimens, etc., during regular business hours.

 

If it is necessary to name Licensor as a party in such action, then Licensee must first obtain Licensor’s prior written permission, which permission shall not be unreasonably withheld, provided that Licensor shall have reasonable prior input on choice of counsel on any matter where such counsel represents Licensor, and Licensee and such counsel agree to follow all required procedures of the Texas Attorney General regarding retention of outside counsel for state entities.

 

10. Export Compliance

 

Licensee understands that the Arms Export Control Act (AECA), including its implementing International Traffic In Arms Regulations (ITAR), and the Export Administration Act (EAA), including its Export Administration Regulations (EAR), are some (but not all) of the laws and regulations that comprise the U.S. export laws and regulations. Licensee further understands that the U.S. export laws and regulations include (but are not limited to): (a) ITAR and EAR product/service/data-specific requirements; (b) ITAR and EAR ultimate destination-specific requirements; (c) ITAR and EAR end user-specific requirements; (d) Foreign Corrupt Practices Act; and (e) anti-boycott laws and regulations. Licensee will comply with all then-current applicable export laws and regulations of the U.S. Government (and other applicable U.S. laws and regulations) pertaining to the Licensed Products and Licensed Services (including any associated products, items, articles, computer software, media, services, technical data, and other information). Licensee certifies that it will not, directly or indirectly, export (including any deemed export), nor re-export (including any deemed re-export) the Licensed Products and Licensed Services (including any associated products, items, articles, computer software, media, services, technical data, and other information) in violation of applicable U.S. laws and regulations. Licensee will include a provision in its agreements, substantially similar to this Section 10, with its Sublicensees, third party wholesalers and distributors, and physicians, hospitals or other healthcare providers who purchase a Licensed Product, requiring that these parties comply with all then-current applicable U.S. export laws and regulations and other applicable U.S. laws and regulations.

 

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11. Representations and Disclaimers

 

11.1 Licensor Representations

 

Except for the rights, if any, of the Government as set forth in Section 11.2, Licensor represents and warrants to Licensee that to the knowledge of Licensor’s designated office for technology commercialization (i) Licensor is the owner or agent of the entire right, title, and interest in and to Patent Rights (other than the right, title and interest of any joint owner identified in Section 1 of the Patent License Agreement), (ii) Licensor has the right to grant licenses hereunder, and (iii) Licensor has not knowingly granted and will not knowingly grant licenses or other rights under the Patent Rights that are in conflict with the terms and conditions in the Agreement.

 

11.2 Government Rights

 

Licensee understands that Patent Rights may have been developed under a funding agreement with Government and, if so, that Government may have certain rights relative thereto. The Agreement is made subject to the Government’s rights under any such agreement and under any applicable Government law or regulation. To the extent that there is a conflict between any such agreement, such applicable law or regulation and the Agreement, the terms of such Government agreement, and applicable law or regulation, shall prevail. Licensee agrees that, to the extent required by U.S. laws and regulations, Licensed Products used or Sold in the U.S. will be manufactured substantially in the U.S., unless a written waiver is obtained in advance from the U.S. Government.

 

11.3 Licensor Disclaimers

 

EXCEPT AS SPECIFICALLY SET FORTH IN SECTION 11.1, LICENSEE UNDERSTANDS AND AGREES THAT LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE LICENSED PRODUCTS OR LICENSED SERVICES, OR AS TO THE OPERABILITY OR FITNESS FOR ANY USE OR PARTICULAR PURPOSE, MERCHANTABILITY, SAFETY, EFFICACY, APPROVABILITY BY REGULATORY AUTHORITIES, TIME AND COST OF DEVELOPMENT, PATENTABILITY, AND/OR BREADTH OF PATENT RIGHTS. LICENSOR MAKES NO REPRESENTATION AS TO WHETHER ANY PATENT WITHIN PATENT RIGHTS IS VALID, OR AS TO WHETHER THERE ARE ANY PATENTS NOW HELD, OR WHICH WILL BE HELD, BY OTHERS OR BY LICENSOR THAT MIGHT BE REQUIRED FOR USE OF PATENT RIGHTS IN FIELD. NOTHING IN THE AGREEMENT WILL BE CONSTRUED AS CONFERRING BY IMPLICATION, ESTOPPEL OR OTHERWISE ANY LICENSE OR RIGHTS TO ANY PATENTS OR TECHNOLOGY OF LICENSOR OTHER THAN THE PATENT RIGHTS, WHETHER SUCH PATENTS ARE DOMINANT OR SUBORDINATE TO THE PATENT RIGHTS. LICENSOR HAS NO OBLIGATION TO FURNISH TO LICENSEE ANY KNOW-HOW, TECHNOLOGY OR TECHNOLOGICAL INFORMATION.

 

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11.4 Licensee Representation

 

By execution of the Agreement, Licensee represents, acknowledges, covenants and agrees (a) that Licensee has not been induced in any way by Licensor or its employees to enter into the Agreement, and (b) that Licensee has been given an opportunity to conduct sufficient due diligence with respect to all items and issues pertaining to this Section 11 (Representations and Disclaimers) and all other matters pertaining to the Agreement; and (c) that Licensee has adequate knowledge and expertise, or has utilized knowledgeable and expert consultants, to adequately conduct the due diligence, and (c) that Licensee accepts all risks inherent herein. Licensee represents that it is a duly organized, validly existing entity of the form indicated in Section 1 of the Patent License Agreement, and is in good standing under the laws of its jurisdiction of organization as indicated in Section 1 of the Patent License Agreement, and has all necessary corporate or other appropriate power and authority to execute, deliver and perform its obligations hereunder.

 

12. Limit of Liability

 

IN NO EVENT SHALL LICENSOR, THE UNIVERSITY SYSTEM IT GOVERNS, ITS MEMBER INSTITUTIONS, INVENTORS, REGENTS, OFFICERS, EMPLOYEES, STUDENTS, AGENTS OR AFFILIATED ENTERPRISES, BE LIABLE FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY, OR PUNITIVE DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS OR REVENUE) ARISING OUT OF OR IN CONNECTION WITH THE AGREEMENT OR ITS SUBJECT MATTER, REGARDLESS OF WHETHER ANY SUCH PARTY KNOWS OR SHOULD KNOW OF THE POSSIBILITY OF SUCH DAMAGES. OTHER THAN FOR CLAIMS AGAINST LICENSEE FOR INDEMNIFICATION (SECTION 13) OR FOR MISUSE OR MISAPPROPRIATION OR INFRINGEMENT OF LICENSOR’S INTELLECTUAL PROPERTY RIGHTS, LICENSEE WILL NOT BE LIABLE TO LICENSOR FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR PUNITNE DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS OR REVENUE) ARISING OUT OF OR IN CONNECTION WITH THE AGREEMENT OR ITS SUBJECT MATTER, REGARDLESS OF WHETHER LICENSEE KNOWS OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES.

 

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13. Indemnification

 

13.1 Indemnification Obligation

 

Subject to Section 13.2, Licensee agrees to hold harmless, defend and indemnify Licensor, the university system it governs, its member institutions, its Regents, officers, employees, students and agents (“ Indemnified Parties ”) from and against any liabilities, damages, causes of action, suits, judgments, liens, penalties, fines, losses, costs and expenses (including, without limitation, reasonable attorneys’ fees and other expenses of litigation) (collectively “ Liabilities ”) resulting from claims or demands brought by third parties against an Indemnified Party on account of any injury or death of persons, damage to property, or any other damage or loss arising out of or in connection with the Agreement or the exercise or practice by or under authority of Licensee, its Affiliates or their Sublicensees, or third party wholesalers or distributors, or physicians, hospitals or other healthcare providers who purchase a Licensed Product, of the rights granted hereunder.

 

13.2 Conditions of Indemnification

 

Licensee shall have no responsibility or obligation under Section 13.1 for any Liabilities to the extent caused by the gross negligence or willful misconduct by Licensor. Obligations to indemnify, and hold harmless under Section 13.1 are subject to: (a) to the extent authorized by the Texas Constitution and the laws of the State of Texas, and subject to the statutory duties of the Texas Attorney General, the Indemnified Party giving Licensee control of the defense and settlement of the claim and demand; and (b) to the extent authorized by the Texas Constitution and the laws of the State of Texas and subject to statutory duties of the Texas Attorney General, the Indemnified Party providing assistance reasonably requested by Licensee, at Licensee’s expense.

 

14. Insurance

 

14.1 Insurance Requirements

 

Prior to any Licensed Product being used or Sold (including for the purpose of obtaining regulatory approvals), and prior to any Licensed Service being performed by Licensee, an Affiliate, or by a Sublicensee, and for a period of five years after the Agreement expires or is terminated, Licensee shall, at its sole cost and expense, procure and maintain commercial general liability insurance in commercially reasonable and appropriate amounts for the Licensed Product being used or Sold or the Licensed Service being performed. Licensee shall use commercially reasonable efforts to have Licensor, the university system it governs, its member institutions, Regents, officers, employees, students and agents named as additional insureds. Such commercial general liability insurance shall provide, without limitation: (i) product liability coverage; (ii) broad form contractual liability coverage for Licensee’s indemnification under the Agreement; and (iii) coverage for litigation costs.

 

14.2 Evidence of Insurance and Notice of Changes

 

Upon request by Licensor, Licensee shall provide Licensor with written evidence of such insurance. Additionally, Licensee shall provide Licensor with written notice of at least 60 days prior to Licensee cancelling, not renewing, or materially changing such insurance.

 

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15. Assignment

 

The Agreement may not be assigned by Licensee without the prior written consent of Licensor, which consent will not be unreasonably withheld. A merger or other transaction in which the equity holders of Licensee prior to such event hold less than a majority of the equity of the surviving or acquiring entity shall be considered an assignment of the Agreement. For any permitted assignment to be effective, (a) Licensee must be in good standing under this Agreement, (b) the Licensee must pay Licensor the assignment fee pursuant to Section 3.1(e), and (c) the assignee must assume in writing (a copy of which shall be promptly provided to Licensor) all of Licensee’s interests, rights, duties and obligations under the Agreement and agree to comply with all terms and conditions of the Agreement as if assignee were an original Party to the Agreement.

 

16. Governmental Markings

 

16.1 Patent Markings

 

Licensee agrees that all Licensed Products Sold by Licensee, Affiliates, or Sublicensees will be legibly marked with the number of any applicable patent(s) licensed hereunder as part of the Patent Rights in accordance with each country’s patent marking laws, including Title 35, U.S. Code, or if such marking is not practicable, shall so mark the accompanying outer box or product insert for Licensed Products accordingly.

 

16.2 Governmental Approvals and Marketing of Licensed Products and or Licensed Services

 

Licensee will be responsible for obtaining all necessary governmental approvals for the development, production, distribution, Sale, and use of any Licensed Product or performance of any Licensed Service, at Licensee’s expense, including, without limitation, any safety studies. Licensee will have sole responsibility for any warning labels, packaging and instructions as to the use and the quality control for any Licensed Product or Licensed Service.

 

16.3 Foreign Registration and Laws

 

Licensee agrees to register the Agreement with any foreign governmental agency that requires such registration; and Licensee will pay all costs and legal fees in connection with such registration. Licensee is responsible for compliance with all foreign laws affecting the Agreement or the Sale of Licensed Products and Licensed Services to the extent there is no conflict with United States law, in which case United States law will control.

 

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17. Use of Name

 

Licensee will not use the name, trademarks or other marks of Licensor (or the name of the university system it governs, its member institutions, any of its Regents or employees) without the advance written consent of Licensor. Licensor may use Licensee’s name and logo for annual reports, brochures, website, and internal reports without prior consent.

 

18. Notices

 

Any notice or other communication of the Parties required or permitted to be given or made under the Agreement will be in writing and will be deemed effective when sent in a manner that provides confirmation or acknowledgement of delivery and received at the address set forth in Section 18 of the Patent License Agreement (or as changed by written notice pursuant to this Section 18). Notices required under the Agreement may be delivered via E-mail provided such notice is confirmed in writing as indicated.

 

Notices shall be provided to each Party as specified in the “Contact for Notice” address set forth in Section 18 of the Patent License Agreement. Each Party shall update the other Party in writing with any changes in such contact information.

 

19. General Provisions

 

19.1 Binding Effect

 

The Agreement is binding upon and inures to the benefit of the Parties hereto, their respective executors, administrators, heirs, permitted assigns, and permitted successors in interest.

 

19.2 Construction of Agreement

 

Headings are included for convenience only and will not be used to construe the Agreement. The Parties acknowledge and agree that both Parties substantially participated in negotiating the provisions of the Agreement; therefore, both Parties agree that any ambiguity in the Agreement shall not be construed more favorably toward one Party than the other Party, regardless of which Party primarily drafted the Agreement.

 

19.3 Counterparts and Signatures

 

The Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. A Party may evidence its execution and delivery of the Agreement by transmission of a signed copy of the Agreement via facsimile or email.

 

19.4 Compliance with Laws

 

Licensee will comply with all applicable federal, state and local laws and regulations, including, without limitation, all export laws and regulations.

 

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19.5 Governing Law

 

The Agreement will be construed and enforced in accordance with laws of the U.S. and the State of Texas, without regard to choice of law and conflicts of law principles.

 

19.6 Modification

 

Any modification of the Agreement will be effective only if it is in writing and signed by duly authorized representatives of both Parties. No modification will be made by email communications.

 

19.7 Severability

 

If any provision hereof is held to be invalid, illegal or unenforceable in any jurisdiction, the Parties hereto shall negotiate in good faith a valid, legal and enforceable substitute provision that most nearly reflects the original intent of the Parties, and all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be construed in order to carry out the intentions of the Parties hereto as nearly as may be possible. Such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of such other provisions in any other jurisdiction, so long as the essential essence of the Agreement remains enforceable.

 

19.8 Third Party Beneficiaries

 

Nothing in the Agreement, express or implied, is intended to confer any benefits, rights or remedies on any entity, other than the Parties and their permitted successors and assigns. However, if there is a joint owner of any Patent Rights identified in Section 1 of the Patent License Agreement (other than Licensee), then Licensee hereby agrees that the following provisions of these Terms and Conditions extend to the benefit of the co-owner identified therein (excluding the Licensee to the extent it is a co-owner) as if such co-owner was identified in each reference to the Licensor: the retained rights under clause (b) of Section 2.1; Section 11.3 (Licensor Disclaimers); Section 12 (Limitation of Liability); Section 13 (Indemnification); Section 14.1 (Insurance Requirements); Section 17 (Use of Name); and Section 19.10 (Sovereign Immunity, if applicable).

 

19.9 Waiver

 

Neither Party will be deemed to have waived any of its rights under the Agreement unless the waiver is in writing and signed by such Party. No delay or omission of a Party in exercising or enforcing a right or remedy under the Agreement shall operate as a waiver thereof.

 

19.10 Sovereign Immunity

 

Nothing in the Agreement shall be deemed or treated as any waiver of Licensor’s sovereign immunity.

 

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19.11 Entire Agreement

 

The Agreement constitutes the entire Agreement between the Parties regarding the subject matter hereof, and supersedes all prior written or verbal agreements, representations and understandings relative to such matters.

 

19.12 Claims Against Licensor for Breach of Agreement

 

Licensee acknowledges that any claim for breach of the Agreement asserted by Licensee against Licensor shall be subject to Chapter 2260 of the Texas Government Code and that the process provided therein shall be Licensee’s sole and exclusive process for seeking a remedy for any and all alleged breaches of the Agreement by Licensor or the State of Texas.

 

19.13 Grant of Security Interest

 

Licensee hereby grants to Licensor a security interest in and to Licensee’s rights under the Patent License Agreement, as collateral security for the payment by Licensee of any and all sums which may be owed from time to time by Licensee to Licensor. Licensor shall have all rights of a secured party as specified in the Texas Uniform Commercial Code relative to this security interest and the enforcement thereof. Licensee hereby authorizes Licensor to file with the appropriate governmental agencies appropriate UCC¬1 financing statements to evidence this security interest.

 

— END OF EXHIBIT A —

 

  34  

 

 

EXHIBIT B
Exclusive Patent Rights

 

App. No./
Date of Filing
Title Inventor(s) Jointly Owned? (Y/N; if
Y, with whom?)
Prosecution Counsel

Canada Serial No. 2,678,455

Filed on 08/14/2009

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

¨ Yes, w/ The University of Texas Health Science Center at San Antionio

¨ No

Parker Highlander

Patent No. 2124898 Issued in Germany, Spain, and Europe.

Filed on 08/06/2009

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

¨ Yes, w/ The University of Texas Health Science Center at San Antionio

¨ No

Parker Highlander

US National Serial No. 12/522,774

Filed on 07/10/2009

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

¨ Yes, w/ The University of Texas Health Science Center at San Antionio

¨ No

Parker Highlander

 

 

  35  

 

 

App. No./
Date of Filing
Title Inventor(s) Jointly Owned? (Y/N; if
Y, with whom?)
Prosecution Counsel

US Provisional Serial No. 60/884,383

Filed on 1/10/2007

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

¨ Yes, w/ The University of Texas Health Science Center at San Antionio

¨ No

Parker Highlander

Serial No. 14/621,337

Continuation of 12/522,774

Filed on 02/12/2015

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

¨ Yes, w/ The University of Texas Health Science Center at San Antionio

¨ No

Parker Highlander

Serial No. 2124898

Issued in France, and United Kingdom

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

¨ Yes, w/ The University of Texas Health Science Center at San Antionio

¨ No

Parker Highlander

 

 

  36  

 

 

App. No./
Date of Filing
Title Inventor(s) Jointly Owned? (Y/N; if
Y, with whom?)
Prosecution Counsel

PCT/US2008/050795

Filed on 01/10/2008

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

¨ Yes, w/ The University of Texas Health Science Center at San Antionio

¨ No

Parker Highlander

US Serial No. 11/660,012

Filed on 08/15/2007

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (2802 WIL)

Robert O. Williams III

Keith P. Johnston

Jason T. McConville

Robert L. Talbert Jr.

David S. Burgess

Jay I. Peters

Brian D. Scherzer

Christopher J. Tucker

David A. Hayes

Ian B. Gilespie

James E. Hitt

Nicholas S. Beck

Paula C. Garcia

True L Rogers

Timothy J. Young

¨ Yes, w/ The University of Texas Health Science Center at San Antionio

Also subject to INT-27237603 with DOW

¨ No

Parker Highlander

 

 

  37  

 

 

App. No./
Date of Filing
Title Inventor(s) Jointly Owned? (Y/N; if
Y, with whom?)
Prosecution Counsel

US Serial No. 17/713,156

Continuation of 11/660,012

Filed on 05/15/2015

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (2802 WIL)

James E. Hitt

True L Rogers

Brian D. Scherzer

Ian B. Gilespie

Paula C. Garcia

Nicholas S. Beck

Christopher J. Tucker

Timothy J. Young

David A. Hayes

Robert O. Williams III

Keith P. Johnston

Jason T. McConville

Jay I. Peters

Robert L. Talbert Jr.

David S. Burgess

¨ Yes, w/ The University of Texas Health Science Center at San Antionio

Also subject to INT-27237603 with DOW

¨ No

Parker Highlander
PCT/US52005/030543 Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (2802 WIL)

Robert O. Williams III

Keith P. Johnston

Jason T. McConville

Robert L. Talbert Jr.

David S. Burgess

Jay I. Peters

Brian D. Scherzer

Christopher J. Tucker

David A. Hayes

Ian B. Gilespie

James E. Hitt

Nicholas S. Beck

Paula C. Garcia

True L Rogers

Timothy J. Young

¨ Yes, w/ The University of Texas Health Science Center at San Antionio

Also subject to INT-27237603 with DOW

¨ No

Parker Highlander

 

 

  38  

 

 

App. No./
Date of Filing
Title Inventor(s) Jointly Owned? (Y/N; if
Y, with whom?)
Prosecution Counsel

US Provisional Serial No. 60/605,179

Filed on 8/27/2004

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (2802 WIL)

Robert O. Williams III

Keith P. Johnston

Jason T. McConville

¨

¨ No

Also subject to INT-27237603 with DOW

Parker Highlander

US Serial No. 12/778,795

Filed on 05/12/2010

Continuation in Part of US Serial No. 12/371,573 Filed on 02/13/2009

Compositions and Methods of Making Brittle-Matrix Particles Through Blister Pack Freezing (5408 JOH)

Keith P. Johnston

Jasmine Tam (Rowe)

Alan B. Watts

Joshua Engstrom

(A petition was filed to add Robert O. Williams III)

¨

¨ No

Parker Highlander

US Serial No. 10/639,361

Filed on 08/12/2003

Process for Production of Nanoparticles and Microparticles by Spray Freezing Into Liquid (5612 DOW)

Brian D. Scherzer

Jonathan C. Evans

James E. Hitt

¨ Yes,

¨ No, IP was assigned from DOW to The Board of Regents of The University of Texas per INT-27237603

Parker Highlander

Patent No. 4933732 Issued in Japan

Filed on 08/12/2003

Drug Particles From Freezing onto a Surface (5612 DOW)

Brian D. Scherzer

Jonathan C. Evans

James E. Hitt

¨ Yes,

¨ No, IP was assigned from DOW to The Board of Regents of The University of Texas per INT-27237603

Parker Highlander

 

 

  39  

 

 

App. No./
Date of Filing
Title Inventor(s) Jointly Owned? (Y/N; if
Y, with whom?)
Prosecution Counsel

Patent No. 112782 Issued in Singapore

Filed on 08/12/2003

Drug Particles From Freezing onto a Surface (5612 DOW)

Brian D. Scherzer

Jonathan C. Evans

James E. Hitt

¨ Yes,

¨ No, IP was assigned from DOW to The Board of Regents of The University of Texas per INT-27237603

Parker Highlander

PCT/US2003/025338

Filed on 08/12/2003

Drug Particles From Freezing onto a Surface (5612 DOW)

Brian D. Scherzer

Jonathan C. Evans

James E. Hitt

¨ Yes,

¨ No, IP was assigned from DOW to The Board of Regents of The University of Texas per INT-27237603

Parker Highlander

US Serial No. 62/156,052

Filed on 5/1/2015

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

¨ Yes, working with UTHSC-SA to get IIA in place

¨

Parker Highlander

US Serial No. 12/371,573

Filed on 2/13/2009

Templated Open Flocs of Anisotropic Particles for Enhanced Pulmonary Delivery

(5312 JOH)

Joshua Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams

¨ Yes,

¨ No

Parker Highlander

Canada Serial No. 2,723,314

Filed on 2/13/2009

Templated Open Flocs of Anisotropic Particles for Enhanced Pulmonary Delivery

(5312 JOH)

Joshua Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams

¨ Yes,

¨ No

Parker Highlander

Australia Issued Patent No. 2009214443

Filed on 2/13/2009

Templated Open Flocs of Anisotropic Particles for Enhanced Pulmonary Delivery

(5312 JOH)

Joshua Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams

¨ Yes,

¨ No

Parker Highlander

 

 

  40  

 

 

App. No./
Date of Filing
Title Inventor(s) Jointly Owned? (Y/N; if
Y, with whom?)
Prosecution Counsel

Europe Serial No. 09709833.9

Filed on 9/13/2010

Templated Open Flocs of Anisotropic Particles for Enhanced Pulmonary Delivery

(5312 JOH)

Joshua Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams

¨ Yes,

¨ No

Parker Highlander

US Serial No. 61/028,218

Filed on 2/13/2008

Non-Settling Flocs for Surfactant-Free Enhanced Pulmonary Delivery with Pressurized Metered Dose Inhalers

(5312 JOH)

Joshua Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams

¨ Yes,

¨ No

Parker Highlander

PCT/US2009/034162

Filed on 2/13/2009

Tern plated Open Flocs of Anisotropic Particles for Enhanced Pulmonary Delivery

(5312 JOH)

Joshua Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams

¨ Yes,

¨ No

Parker Highlander

 

  41  

 

 

EXHIBIT C
Limited Exclusive Patent Rights

 

App. No./
Date of Filing
Title Inventor(s) Jointly Owned? (Y/N; if
Y, with whom?)
Prosecution Counsel
US Divisional Instructed on 01/13/14 Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua Engstrom

Robert O. Williams

¨ Yes,

¨ No

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Europe Serial No. 08771657.7

Filed on 01/22/2010

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua Engstrom

Robert O. Williams

¨ Yes,

¨ No

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

US Serial No. 12/665,386

Issued US Patent No. 8,968,786

Filed on 12/18/2009

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua Engstrom

Robert O. Williams

¨ Yes,

¨ No

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Serial No. 14/603,211

Filed on 01/22/2015

Divisional of US Serial No. 12/665,386

Filed on 12/18/2009

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua Engstrom

Robert O. Williams

¨ Yes,

¨ No

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

US Provisional Serial No. 60/945,737

Filed on 6/22/2007

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua Engstrom

¨ Yes,

¨ No

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Canada Serial No. 2,691,531

Filed on 12/22/2009

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua Engstrom

¨ Yes,

¨ No

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Japan Serial No. 2010-513468

Filed on 02/19/2010

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. Freezing (5254 JOH)

Keith P. Johnston

Joshua Engstrom

¨ Yes,

¨ No

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

 

 

  42  

 

App. No./
Date of Filing
Title Inventor(s) Jointly Owned? (Y/N; if
Y, with whom?)
Prosecution Counsel

PCT/US2008/067766

Filed on 06/20/2008

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua Engstrom

¨ Yes,

¨ No

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

 

  43  

 

Exhibit 10.6

 

TFF PHARMACEUTICALS, inc.

 

2018 STOCK INCENTIVE PLAN

 

1. Purpose of Plan .

 

The purpose of this TFF Pharmaceuticals, Inc. 2018 Stock Incentive Plan (the “ Plan ”) is to advance the interests of TFF Pharmaceuticals, Inc., a Delaware corporation (“ Company ”), and its stockholders by enabling the Company and its Subsidiaries to attract and retain qualified individuals through opportunities for equity participation in the Company, and to reward those individuals who contribute to the Company’s achievement of its economic objectives.

 

2. Definitions .

 

The following terms will have the meanings set forth below, unless the context clearly otherwise requires:

 

2.1.          “ Board ” means the Company’s Board of Directors.

 

2.2.          “ Broker Exercise Notice ” means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option and/or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver stock certificates to be issued upon such exercise directly to such broker or dealer or their nominee.

 

2.3.          “ Cause ” means (i) dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or any Subsidiary, (ii) any unlawful or criminal activity of a serious nature, (iii) any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Participant’s overall duties, (iv) any material breach of any confidentiality or noncompete agreement entered into with the Company or any Subsidiary, or (v) with respect to a particular Participant, any other act or omission that constitutes “cause” as may be defined in any employment, consulting or similar agreement between such Participant and the Company or any Subsidiary.

 

2.4.          “ Change in Control ” means an event described in Section 11.1 of the Plan.

 

2.5.          “ Code ” means the Internal Revenue Code of 1986, as amended.

 

2.6.          “ Committee ” means the Compensation Committee of the Board or its delegates who are administering the Plan, as provided in Section 3 of the Plan, or, if no such committee is designated by the Board, the Board. At any time there is no Committee to administer the Plan, any references in this Plan to the Committee shall be deemed to refer to the Board.

 

2.7.          “ Common Stock ” means the common stock of the Company, $0.001 par value per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.3 of the Plan.

 

2.8.          “ Disability ” means any medically determinable physical or mental impairment resulting in the service provider’s inability to perform the duties of his or her position or any substantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

 

2.9.           “ Effective Date ” means January 24, 2018, but no Incentive Stock Option shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.

 

 

 

 

2.10.         “ Eligible Recipients ” means all employees, officers, consultants and directors of the Company or any Subsidiary, and any person who has a relationship with the Company or any Subsidiary.

 

2.11.         “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

2.12.         “ Fair Market Value ” means, with respect to the Common Stock, as of any date: (i) the mean between the reported high and low sale prices of the Common Stock at the end of the regular trading session if the Common Stock is listed, admitted to unlisted trading privileges, or reported on any national securities exchange or on the NASDAQ Global Select or Global Market on such date (or, if no shares were traded on such day, as of the next preceding day on which there was such a trade); or (ii) if the Common Stock is not so listed, admitted to unlisted trading privileges, or reported on any national exchange or on the NASDAQ Global Select or Global Market, the closing bid price as of such date at the end of the regular trading session, as reported by the Nasdaq Capital Market, OTC Bulletin Board, The OTC Market, or other comparable service; or (iii) if the Common Stock is not so listed or reported, such price as the Committee determines in good faith in the exercise of its reasonable discretion.

 

2.13.         “ Incentive Award ” means an Option, Restricted Stock Award, Restricted Stock Unit or Performance Award granted to an Eligible Recipient pursuant to the Plan.

 

2.14.         “ Incentive Stock Option ” means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that qualifies as an “incentive stock option” within the meaning of Section 422 of the Code.

 

2.15.         “ Non-Statutory Stock Option ” means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not qualify as an Incentive Stock Option.

 

2.16.         “ Option ” means an Incentive Stock Option or a Non-Statutory Stock Option.

 

2.17.         “ Participant ” means an Eligible Recipient who receives one or more Incentive Awards under the Plan.

 

2.18.         “ Performance Awards ” means an award of Common Stock or cash granted to an Eligible Recipient pursuant to Section 8 of the Plan and with respect to which shares of Common Stock or cash will be transferred to the Eligible Recipient in accordance with the provisions of such Section 8 and any agreement evidencing a Performance Award.

 

2.19.         “ Performance Criteria ” means the performance criteria that may be used by the Committee in granting Restricted Stock Awards or Performance Awards contingent upon achievement of such performance goals as the Committee may determine in its sole discretion. The Committee may select one criterion or multiple criteria for measuring performance, and the measurement may be based upon Company, Subsidiary or business unit performance, or the individual performance of the Eligible Recipient, either absolute or by relative comparison to other companies, other Eligible Recipients or any other external measure of the selected criteria. The Performance Criteria for Incentive Awards that are intended to constitute “performance-based” compensation within the meaning of Section 162(m) of the Code will be based on one or more of the following criteria: earnings before interest, taxes, depreciation and amortization; total stockholder return; return on equity or average stockholders’ equity; return on assets, investment, or capital employed; stock price margin (including gross margin); income (before or after taxes); operating income (before or after taxes); pre-tax profit; operating cash flow; sales or revenue targets; increases in revenue; expenses and cost reduction goals; improvement in or attainment of working capital levels; economic value added; market share; cash flow (including cash flow per share); share price performance; debt reduction; strategic partnerships and transactions; stockholders’ equity; capital expenditures; operating profit or net operating profit; growth of net income or operating income; and budget management; or any of the foregoing criteria adjusted in a manner prescribed within the time permitted under Section 162(m) of the Code by the Committee (i) to exclude one or more specified components of the calculation thereof or (ii) to include one or more other specified items, including, but not limited to, exclusions under subsection (i) or inclusions under subsection (ii) designed to reflect changes during the Performance Period in generally accepted accounting principles or in tax rates, currency fluctuations, the effects of acquisitions or dispositions of a business or investments in whole or in part, extraordinary or nonrecurring items, the gain or loss from claims or litigation and related insurance recoveries, the effects of impairment of tangible or intangible assets, or the effects of restructuring or reductions in force or other business recharacterization activities, income or expense related to defined benefit or defined contribution pension plans, uninsured losses from natural catastrophes or political and legal developments affecting the Company’s business (including losses as a result of war, terrorism, confiscation, expropriation, seizure, new regulatory requirements, business interruption or similar events).

 

 

 

 

2.20.         “ Performance Period ” means, in respect of a Performance Award, a period of time established by the Committee within which the Performance Criteria relating to such Performance Award are to be achieved.

 

2.21         “ Previously Acquired Shares ” means shares of Common Stock that are already owned by the Participant or, with respect to any Incentive Award, that are to be issued upon the grant, exercise or vesting of such Incentive Award.

 

2.22.         “ Restricted Stock Award ” means an award of Common Stock granted to an Eligible Recipient pursuant to Section 7 of the Plan that is subject to the restrictions on transferability and the risk of forfeiture imposed by the provisions of such Section 7.

 

2.23.         “ Restricted Stock Unit ” means an award granted to an Eligible Recipient pursuant to Section 7 of the Plan that represents a contractual obligation on the part of the Company to transfer shares of Common Stock to the Eligible Participant upon the satisfaction of specified Performance Criteria and/or the completion of a specified period of employment with the Company and its Subsidiaries.

 

2.24         “ Retirement ” means normal or approved early termination of employment or service.

 

2.25.         “ Securities Act ” means the Securities Act of 1933, as amended.

 

2.26.         “ Subsidiary ” means any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity interest, as determined by the Committee.

 

3. Plan Administration .

 

3.1.           The Committee . The Plan will be administered by the Committee. So long as the Company has a class of its equity securities registered under Section 12 of the Exchange Act, the Committee will consist solely of two or more members of the Board who are “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act and who are considered “outside directors” within the meaning of Section 162(m) of the Code. The Committee, if established, will act by majority approval of the members (unanimous approval with respect to action by written consent), and a majority of the members of the Committee will constitute a quorum. To the extent consistent with applicable corporate law of the Company’s jurisdiction of incorporation, the Committee may delegate to any officers of the Company the duties, power and authority of the Committee under the Plan (other than those that must be exercised by the Committee to satisfy the requirements of Section 162(m) of the Code) pursuant to such conditions or limitations as the Committee may establish; provided, however, that only the Committee may exercise such duties, power and authority with respect to Eligible Recipients who are subject to Section 16 of the Exchange Act. The Committee may exercise its duties, power and authority under the Plan in its sole and absolute discretion without the consent of any Participant or other party, unless the Plan specifically provides otherwise. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Incentive Award granted under the Plan.

 

 

 

 

3.2. Authority of the Committee .

 

(a)          In accordance with and subject to the provisions of the Plan, the Committee will have the authority to determine all provisions of Incentive Awards as the Committee may deem necessary or desirable and as consistent with the terms of the Plan, including, without limitation, the following: (i) the Eligible Recipients to be selected as Participants; (ii) the nature and extent of the Incentive Awards to be made to each Participant (including the number of shares of Common Stock to be subject to each Incentive Award, any exercise price, the manner in which Incentive Awards will vest or become exercisable and whether Incentive Awards will be granted in tandem with other Incentive Awards) and the form of written agreement, if any, evidencing such Incentive Award; (iii) any Performance Criteria applicable to any Incentive Awards; (iv) the time or times when Incentive Awards will be granted and, where applicable, settled; (v) the duration of each Incentive Award; (vi) the restrictions and other conditions to which the payment or vesting of Incentive Awards may be subject. In addition, the Committee will have the authority under the Plan in its sole discretion to pay the economic value of any Incentive Award in the form of cash, Common Stock or any combination of both.

 

(b)          Subject to Section 3.2(d), below, the Committee will have the authority under the Plan to amend or modify the terms of any outstanding Incentive Award in any manner, including, without limitation, the authority to modify the number of shares or other terms and conditions of an Incentive Award, extend the term of an Incentive Award, accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an Incentive Award other than an Incentive Award intended to qualify as “performance-based” compensation within the meaning of Section 162(m) of the Code, accept the surrender of any outstanding Incentive Award or, to the extent not previously exercised or vested, authorize the grant of new Incentive Awards in substitution for surrendered Incentive Awards; provided, however that the amended or modified terms are permitted by the Plan as then in effect and that any Participant adversely affected by such amended or modified terms has consented to such amendment or modification. Notwithstanding the foregoing, no Performance Award (or any other Incentive Award) that is subject to the requirements and restrictions of Section 409A of the Code may be amended in a manner that would violate Section 409A of the Code.

 

(c)          In the event of (i) any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in corporate structure or shares; (ii) any purchase, acquisition, sale, disposition or write-down of a significant amount of assets or a significant business; (iii) any change in accounting principles or practices, tax laws or other such laws or provisions affecting reported results; or (iv) any other similar change, in each case with respect to the Company or any other entity whose performance is relevant to the grant or vesting of an Incentive Award, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) may, without the consent of any affected Participant, amend or modify the vesting criteria (including Performance Criteria) of any outstanding Incentive Award that is based in whole or in part on the financial performance of the Company (or any Subsidiary or division or other subunit thereof) or such other entity so as equitably to reflect such event, with the desired result that the criteria for evaluating such financial performance of the Company or such other entity will be substantially the same (in the sole discretion of the Committee or the board of directors of the surviving corporation) following such event as prior to such event; provided, however, that the amended or modified terms are permitted by the Plan as then in effect.

 

(d)          Notwithstanding any other provision of this Plan other than Section 4.3, the Committee may not, without prior approval of the Company’s stockholders, seek to effect any re-pricing of any previously granted, “underwater” Option by: (i) amending or modifying the terms of the Option to lower the exercise price; (ii) canceling the underwater Option and granting either (A) replacement Options having a lower exercise price; (B) Restricted Stock Awards; or (C) Performance Awards in exchange; or (iii) repurchasing the underwater Options and granting new Incentive Awards under this Plan. For purposes of this Section 3.2(d) and Section 11.4, an Option will be deemed to be “underwater” at any time when the Fair Market Value of the Common Stock is less than the exercise price of the Option.

 

 

 

 

3.3            Annual Award Limitation . The total number of Restricted Stock Awards, Restricted Stock Units and other shares of Common Stock subject to or underlying Options or Performance Awards awarded to any Participant during any year may not exceed 250,000 shares. A Performance Award, as measured on the date of grant, paid to a Participant with respect to any Performance Period may not exceed $500,000 times the number of years in the Performance Period.

 

4. Shares Available for Issuance .

 

4.1.           Maximum Number of Shares Available; Certain Restrictions on Awards . Subject to adjustment as provided in Section 4.3 of the Plan, the maximum number of shares of Common Stock that will be available for issuance under the Plan will be 1,630,000, and the maximum number of shares of Common Stock that will be available for issuance in connection with Incentive Stock Options is 1,630,000. The shares available for issuance under the Plan may, at the election of the Committee, be either treasury shares or shares authorized but unissued, and, if treasury shares are used, all references in the Plan to the issuance of shares will, for corporate law purposes, be deemed to mean the transfer of shares from treasury.

 

4.2.           Accounting for Incentive Awards . Shares of Common Stock that are issued under the Plan or that are subject to outstanding Incentive Awards will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan; provided, however, that shares subject to an Incentive Award that lapses, expires, is forfeited (including issued shares forfeited under a Restricted Stock Award) or for any reason is terminated unexercised or unvested or is settled or paid in cash or any form other than shares of Common Stock will automatically again become available for issuance under the Plan. To the extent that the exercise price of any Option and/or associated tax withholding obligations are paid by tender or attestation as to ownership of Previously Acquired Shares, or to the extent that such tax withholding obligations are satisfied by withholding of shares otherwise issuable upon exercise of the Option, only the number of shares of Common Stock issued net of the number of shares tendered, attested to or withheld will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan.

 

4.3.           Adjustments to Shares and Incentive Awards . In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to the number and kind of securities or other property (including cash) available for issuance or payment under the Plan and, in order to prevent dilution or enlargement of the rights of Participants, the number and kind of securities or other property (including cash) subject to outstanding Incentive Awards and the exercise price of outstanding Options.

 

5. Participation .

 

Participants in the Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of economic objectives of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time one or more Incentive Awards, singly or in combination or in tandem with other Incentive Awards, as may be determined by the Committee in its sole discretion. Incentive Awards will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the date of any related agreement with the Participant.

 

 

 

 

6. Options .

 

6.1.           Grant . An Eligible Recipient may be granted one or more Options under the Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may designate whether an Option is to be considered an Incentive Stock Option or a Non-Statutory Stock Option. To the extent that any Incentive Stock Option granted under the Plan ceases for any reason to qualify as an “incentive stock option” for purposes of Section 422 of the Code, such Incentive Stock Option will continue to be outstanding for purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock Option.

 

6.2.           Exercise Price . The per share price to be paid by a Participant upon exercise of an Option will be determined by the Committee in its discretion at the time of the Option grant; provided, however, that such price will not be less than 100% of the Fair Market Value of one share of Common Stock on the date of grant with respect to any Incentive Stock Option (110% of the Fair Market Value with respect to an Incentive Stock Option if, at the time such Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company).

 

6.3.           Exercisability and Duration . An Option will become exercisable at such times and in such installments and upon such terms and conditions as may be determined by the Committee in its sole discretion at the time of grant (including without limitation (i) the achievement of one or more of the Performance Criteria and/or (ii) that the Participant remain in the continuous employ or service of the Company or a Subsidiary for a certain period); provided, however, that if the Committee does not specify the expiration date of the Option, the expiration date shall be 10 years from the date on which the Option was granted. In no case may an Option may be exercisable after 10 years from its date of grant (five years from its date of grant in the case of an Incentive Stock Option if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company).

 

6.4.           Payment of Exercise Price . The total purchase price of the shares to be purchased upon exercise of an Option will be paid entirely in cash (including check, bank draft or money order); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by tender of a Broker Exercise Notice, by tender, or attestation as to ownership, of Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company’s earnings for financial reporting purposes and that are otherwise acceptable to the Committee, or by a combination of such methods. For purposes of such payment, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value on the exercise date.

 

6.5.           Manner of Exercise . An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in the Plan and in the agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company at its legal department and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.4 of the Plan.

 

7. Restricted Stock Awards and Restricted Stock Units .

 

7.1.           Grant . An Eligible Recipient may be granted one or more Restricted Stock Awards or Restricted Stock Units under the Plan, and such Restricted Stock Awards and Restricted Stock Units will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Restricted Stock Awards and Restricted Stock Units as it deems appropriate, including, without limitation, (i) the achievement of one or more of the Performance Criteria and/or (ii) that the Participant remain in the continuous employ or service of the Company or a Subsidiary for a certain period.

 

 

 

 

7.2.          Rights as a Stockholder; Transferability . Except as provided in Sections 7.1, 7.3, 7.4 and 12.3 of the Plan, a Participant will have all voting, dividend, liquidation and other rights with respect to shares of Common Stock issued to the Participant as a Restricted Stock Award or pursuant to a Restricted Stock Unit under this Section 7 upon the Participant becoming the holder of record of such shares as if such Participant were a holder of record of shares of unrestricted Common Stock.

 

7.3.          Dividends and Distributions . Unless the Committee determines otherwise in its sole discretion (either in the agreement evidencing the Restricted Stock Award at the time of grant or at any time after the grant of the Restricted Stock Award), any dividends or distributions (other than regular quarterly cash dividends) paid with respect to shares of Common Stock subject to the unvested portion of a Restricted Stock Award will be subject to the same restrictions as the shares to which such dividends or distributions relate. The Committee will determine in its sole discretion whether any interest will be paid on such dividends or distributions. A Participant to whom Restricted Stock Units have been granted will have no rights to receive any dividends or distributions with respect to the shares of Common Stock underlying the Restricted Stock Units unless and until the Restricted Stock Units is settled and the Participant becomes the holder of record of any shares of Common Stock delivered in settlement of such Restricted Stock Units.

 

7.4.          Enforcement of Restrictions . To enforce the restrictions referred to in this Section 7, the Committee may place a legend on the stock certificates referring to such restrictions and may require the Participant, until the restrictions have lapsed, to keep the stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent, or to maintain evidence of stock ownership, together with duly endorsed stock powers, in a certificateless book-entry stock account with the Company’s transfer agent.

 

8. Performance Awards .

 

8.1.          Grant . An Eligible Recipient may be granted one or more Performance Awards under the Plan, and such Performance Awards will be subject to such terms and conditions, if any, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Performance Awards as it deems appropriate, including, without limitation, (i) the achievement of one or more of the Performance Criteria and/or (ii) that the Participant remain in the continuous employ or service of the Company or a Subsidiary for a certain period.

 

8.2           Performance Periods . The Performance Period with respect to each Performance Award will be such period of time commencing with the date of grant as is determined by the Committee on the date of grant.

 

8.3           Specification of Performance Criteria . Any grant of Performance Awards will specify Performance Criteria that, if achieved, will result in payment or early payment of the Award, and each grant may specify in respect of such specified Performance Criteria a minimum acceptable level of achievement and shall set forth a formula for determining the amount of the Performance Award that will be earned if performance is at or above the minimum level, but falls short of full achievement of the specified Performance Criteria. The grant of Performance Awards will specify that, before the Performance Awards will be earned and paid, the Compensation Committee of the Board must certify that the Performance Criteria have been satisfied.

 

8.4.          Settlement – Time of Payment .

 

(a)          At the time any Performance Award is granted, the agreement evidencing the Performance Award will specify the time at which the vested portion of the Performance Award will be settled. In no event may the time of payment be changed after the Performance Award is granted.

 

 

 

 

(b)          The agreement may specify that settlement will be made upon vesting or the settlement will occur with respect to all vested Performance Awards as of a specified time.

 

(c)          To the extent the agreement does not provide for the settlement of vested Performance Awards on or before the date that is 2-1/2 months after the end of the year in which the Performance Award (or the relevant portion thereof) vests, the agreement will provide for payment to occur: (a) upon the Eligible Recipient’s separation from service, death or disability; (b) upon a change in control of the Company; or (c) upon a specified date or pursuant to a specified schedule. In all cases in which payment is to be made in accordance with this Section 8.2(c), the times specified for payment will be interpreted and administered in accordance with the requirements of Section 409A of the Code and any applicable regulations or guidance issued in connection with that Code section.

 

8.3.          Settlement – Form of Payment . As specified in the agreement evidencing the Performance Award, or some other written agreement between the Company and the Eligible Recipient, vested Performance Awards will be settled in cash or shares of Common Stock.

 

8.4.          Rights as a Stockholder . A Participant holding a Performance Award shall have no rights as a holder of Common Stock unless and until the Performance Award is settled and shares of Common Stock are delivered to the Participant in such settlement.

 

8.5.          Dividends and Distributions . Unless the Committee determines otherwise in its sole discretion (either in the agreement evidencing the Performance Award at the time of grant or at any time after the grant of the Performance Award), the Participant shall not be entitled to receive dividends or distributions with respect to the Shares subject to a Performance Award unless and until the Performance Award is settled and shares of Common Stock are delivered to the Participant in such settlement.

 

8.6.          Unfunded and Unsecured Obligation of the Company . A Performance Award represents an unfunded and unsecured obligation of the Company to make payment to a Participant in accordance with the terms of this Plan or an award agreement. The Participant’s rights with respect to a Performance Award shall be those of an unsecured creditor of the Company.

 

9. Effect of Termination of Employment or Other Service .

 

9.1.          Termination Due to Death or Disability . In the event a Participant’s employment or other service with the Company and all Subsidiaries is terminated by reason of death or Disability:

 

(a)          All outstanding Options then held by the Participant will, to the extent exercisable as of such termination, remain exercisable for a period of six (6) months after such termination (but in no event after the expiration date of any such Option); and

 

(b)          All Restricted Stock Awards and Restricted Stock Units then held by the Participant that have not vested as of such termination will be terminated and forfeited; and

 

(c)          All outstanding Performance Awards then held by the Participant that have not vested as of such termination will be terminated and forfeited.

 

9.2.          Termination Due to Retirement . Subject to Section 9.5 of the Plan, in the event a Participant’s employment or other service with the Company and all Subsidiaries is terminated by reason of Retirement:

 

(a)          All outstanding Options then held by the Participant will, to the extent exercisable as of such termination, remain exercisable in full for a period of three (3) months after such termination (but in no event after the expiration date of any such Option). Options not exercisable as of such Retirement will be forfeited and terminate; and

 

 

 

 

(b)          All Restricted Stock Awards and Restricted Stock Units then held by the Participant that have not vested as of such termination will be terminated and forfeited; and

 

(c)          All outstanding Performance Awards then held by the Participant that have not vested as of such termination will be terminated and forfeited.

 

9.3.          Termination for Reasons Other than Death, Disability or Retirement . Subject to Section 9.5 of the Plan, in the event a Participant’s employment or other service is terminated with the Company and all Subsidiaries for any reason other than death, Disability or Retirement, or a Participant is in the employ of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless the Participant continues in the employ of the Company or another Subsidiary):

 

(a)          All outstanding Options then held by the Participant will, to the extent exercisable as of such termination, remain exercisable in full for a period of three (3) months after such termination (but in no event after the expiration date of any such Option), and Options not exercisable as of such termination will be forfeited and terminate; and

 

(b)          All Restricted Stock Awards and Restricted Stock Units then held by the Participant that have not vested as of such termination will be terminated and forfeited; and

 

(c)          All outstanding Performance Awards then held by the Participant that have not vested as of such termination will be terminated and forfeited.

 

9.4.          Modification of Rights Upon Termination . Notwithstanding the other provisions of this Section 9, the Committee may, in its sole discretion (which may be exercised in connection with the grant or after the date of grant, including following such termination), determine that upon a Participant’s termination of employment or other service with the Company and all Subsidiaries, any Options (or any part thereof) then held by such Participant may become or continue to become exercisable and/or remain exercisable following such termination of employment or service, and Restricted Stock Awards, Restricted Stock Units and Performance Awards then held by such Participant may vest and/or continue to vest or become free of restrictions and conditions to issuance, as the case may be, following such termination of employment or service, in each case in the manner determined by the Committee.

 

9.5.          Effects of Actions Constituting Cause . Notwithstanding anything in the Plan to the contrary, in the event that a Participant is determined by the Committee, acting in its sole discretion, to have committed any action which would constitute Cause as defined in Section 2.3, irrespective of whether such action or the Committee’s determination occurs before or after termination of such Participant’s employment or service with the Company or any Subsidiary, all rights of the Participant under the Plan and any agreements evidencing an Incentive Award then held by the Participant shall terminate and be forfeited without notice of any kind. The Company may defer the exercise of any Option or the vesting of any Restricted Stock Award or Performance Award for a period of up to ninety (90) days in order for the Committee to make any determination as to the existence of Cause.

 

9.6.          Determination of Termination of Employment or Other Service . Unless the Committee otherwise determines in its sole discretion, a Participant’s employment or other service will, for purposes of the Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company or the Subsidiary for which the Participant provides employment or service, as determined by the Committee in its sole discretion based upon such records.

 

10. Payment of Withholding Taxes .

 

10.1.        General Rules . The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, foreign, state and local withholding and employment-related tax requirements attributable to an Incentive Award, including, without limitation, the grant, exercise or vesting of, or payment of dividends with respect to, an Incentive Award or a disqualifying disposition of stock received upon exercise of an Incentive Stock Option, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any action, including issuing any shares of Common Stock, with respect to an Incentive Award.

 

 

 

 

10.2.        Special Rules . The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment-related tax obligation described in Section 10.1 of the Plan by electing to tender, or by attestation as to ownership of, Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company’s earnings for financial reporting purposes and that are otherwise acceptable to the Committee, by delivery of a Broker Exercise Notice or a combination of such methods. For purposes of satisfying a Participant’s withholding or employment-related tax obligation, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value.

 

11. Change in Control .

 

11.1.       A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs has occurred:

 

(a)          the sale, lease, exchange or other transfer, directly or indirectly, of substantially all of the assets of the Company (in one transaction or in a series of related transactions) to any Successor;

 

(b)          the approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company;

 

(c)          any Successor (as defined in Section 11.2 below), other than a Bona Fide Underwriter (as defined in Section 11.2 below), becomes after the effective date of the Plan the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of (i) 25% or more, but not 50% or more, of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at elections of directors, unless the transaction resulting in such ownership has been approved in advance by the Continuity Directors (as defined in Section 11.2 below), or (ii) more than 50% of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Continuity Directors);

 

(d)          a merger or consolidation to which the Company is a party if the stockholders of the Company immediately prior to effective date of such merger or consolidation have “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), immediately following the effective date of such merger or consolidation, of securities of the surviving corporation representing (i) 50% or more, but not more than 80%, of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors, unless such merger or consolidation has been approved in advance by the Continuity Directors, or (ii) less than 50% of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Continuity Directors); or

 

(e)          the Continuity Directors cease for any reason to constitute at least 50% or more of the Board.

 

11.2. Change in Control Definitions . For purposes of this Section 11:

 

(a)          “ Continuity Directors ” of the Company will mean any individuals who are members of the Board on the effective date of the Plan and any individual who subsequently becomes a member of the Board whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Continuity Directors (either by specific vote or by approval of the Company’s proxy statement in which such individual is named as a nominee for director without objection to such nomination).

 

 

 

 

(b)          “ Bona Fide Underwriter ” means an entity engaged in business as an underwriter of securities that acquires securities of the Company through such entity’s participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition.

 

(c)          “ Successor ” means any individual, corporation, partnership, group, association or other “person,” as such term is used in Section 13(d) or Section 14(d) of the Exchange Act, other than the Company, any “affiliate” (as defined below) or any benefit plan(s) sponsored by the Company or any affiliate that succeeds to, or has the practical ability to control (either immediately or solely with the passage of time), the Company’s business directly, by merger, consolidation or other form of business combination, or indirectly, by purchase of the Company’s outstanding securities ordinarily having the right to vote at the election of directors or all or substantially all of its assets or otherwise. For this purpose, an “affiliate” is (i) any corporation at least a majority of whose outstanding securities ordinarily having the right to vote at elections of directors is owned directly or indirectly by the Company; (ii) any other form of business entity in which the Company, by virtue of a direct or indirect ownership interest, has the right to elect a majority of the members of such entity’s governing body or (iii) any entity that at the time of the approval of this Plan owns in excess of 10% of the Company’s common stock and its affiliates.

 

11.3.        Acceleration of Vesting . Without limiting the authority of the Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the Company occurs, then, if approved by the Committee in its sole discretion either in an agreement evidencing an Incentive Award at the time of grant or at any time after the grant of an Incentive Award: (a) all Options that have been outstanding for at least six months will become immediately exercisable in full and will remain exercisable in accordance with their terms; and (b) all Restricted Stock Awards and Restricted Stock Units that have been outstanding for at least six months will become immediately fully vested and non-forfeitable; and (c) any conditions to the issuance of cash or shares of Common Stock pursuant to Performance Awards that have been outstanding for at least six months will lapse.

 

11.4.        Cash Payment . If a Change in Control of the Company occurs, then the Committee, if approved by the Committee in its sole discretion either in an agreement evidencing an Incentive Award at the time of grant or at any time after the grant of an Incentive Award, and without the consent of any Participant affected thereby, may determine that:

 

(a)          Some or all Participants holding outstanding Options will receive, with respect to some or all of the shares of Common Stock subject to such Options (“Option Shares”), either (i) as of the effective date of any such Change in Control, cash in an amount equal to the excess of the Fair Market Value of such Option Shares on the last business day prior to the effective date of such Change in Control over the exercise price per share of such Option Shares, (ii) immediately prior to such Change of Control, a number of shares of Common Stock having an aggregate Fair Market Value equal to the excess of the Fair Market Value of the Option Shares as of the last business day prior to the effective date of such Change in Control over the exercise price per share of such Option Shares; or (iii) any combination of cash or shares of Common Stock with the amount of each component to be determined by the Committee not inconsistent with the foregoing clauses (i) and (ii), as proportionally adjusted; and

 

(b)          any Options which, as of the effective date of any such Change in Control, are “underwater” (as defined in Section 3.2(d)) shall terminate as of the effective date of any such Change in Control; and

 

 

 

 

(c)          some or all Participants holding Performance Awards will receive, with respect to some or all of the shares of Common Stock subject to such Performance Awards that remain subject to issuance based upon the future achievement of Performance Criteria or other future event as of the effective date of any such Change in Control of the Company, cash in an amount equal the Fair Market Value of such shares immediately prior to the effective date of such Change in Control.

 

11.5.        Limitation on Change in Control Payments . Notwithstanding anything in Section 11.3 or 11.4 of the Plan to the contrary, if, with respect to a Participant, the acceleration of the exercisability of an Option as provided in Section 11.3 or the payment of cash or shares of Common Stock in exchange for all or part of an Option as provided in Section 11.4 (which acceleration or payment could be deemed a “payment” within the meaning of Section 280G(b)(2) of the Code), together with any other “payments” that such Participant has the right to receive from the Company or any corporation that is a member of an “affiliated group” (as defined in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company is a member, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the “payments” to such Participant pursuant to Section 11.3 or 11.4 of the Plan will be reduced to the largest amount as will result in no portion of such “payments” being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that if a Participant is subject to a separate agreement with the Company or a Subsidiary which specifically provides that payments attributable to one or more forms of employee stock incentives or to payments made in lieu of employee stock incentives will not reduce any other payments under such agreement, even if it would constitute an excess parachute payment, or provides that the Participant will have the discretion to determine which payments will be reduced in order to avoid an excess parachute payment, then the limitations of this Section 11.4 will, to that extent, not apply.

 

12. Rights of Eligible Recipients and Participants; Transferability.

 

12.1.        Employment or Service . Nothing in the Plan will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any Eligible Recipient or Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue in the employ or service of the Company or any Subsidiary.

 

12.2.        Rights as a Stockholder . As a holder of Incentive Awards (other than Restricted Stock Awards), a Participant will have no rights as a stockholder unless and until such Incentive Awards are exercised for, or paid in the form of, shares of Common Stock and the Participant becomes the holder of record of such shares. Except as otherwise provided in the Plan, no adjustment will be made for dividends or distributions with respect to such Incentive Awards as to which there is a record date preceding the date the Participant becomes the holder of record of such shares, except as the Committee may determine in its discretion.

 

12.3.        Restrictions on Transfer .

 

(a)          Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by subsections (b) and (c) below, no right or interest of any Participant in an Incentive Award prior to the exercise (in the case of Options) or vesting (in the case of Restricted Stock Awards) or settlement (in the case of Restricted Stock Units or Performance Awards) of such Incentive Award will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise.

 

(b)          A Participant will be entitled to designate a beneficiary to receive an Incentive Award upon such Participant’s death, and in the event of such Participant’s death, payment of any amounts due under the Plan will be made to, and exercise of any Options (to the extent permitted pursuant to Section 9 of the Plan) may be made by, such beneficiary. If a deceased Participant has failed to designate a beneficiary, or if a beneficiary designated by the Participant fails to survive the Participant, payment of any amounts due under the Plan will be made to, and exercise of any Options (to the extent permitted pursuant to Section 9 of the Plan) may be made by, the Participant’s legal representatives, heirs and legatees. If a deceased Participant has designated a beneficiary and such beneficiary survives the Participant but dies before complete payment of all amounts due under the Plan or exercise of all exercisable Options, then such payments will be made to, and the exercise of such Options may be made by, the legal representatives, heirs and legatees of the beneficiary.

 

 

 

 

(c)          Upon a Participant’s request, the Committee may, in its sole discretion, permit a transfer of all or a portion of a Non-Statutory Stock Option, other than for value, to such Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person sharing such Participant’s household (other than a tenant or employee), a trust in which any of the foregoing have more than fifty percent of the beneficial interests, a foundation in which any of the foregoing (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests. Any permitted transferee will remain subject to all the terms and conditions applicable to the Participant prior to the transfer. A permitted transfer may be conditioned upon such requirements as the Committee may, in its sole discretion, determine, including, but not limited to execution and/or delivery of appropriate acknowledgements, opinion of counsel, or other documents by the transferee.

 

12.4.        Non-Exclusivity of the Plan . Nothing contained in the Plan is intended to modify or rescind any previously approved compensation plans or programs of the Company or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable.

 

13. Securities Law and Other Restrictions .

 

Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Incentive Awards granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable securities laws of a state or foreign jurisdiction or an exemption from such registration under the Securities Act and applicable state or foreign securities laws, and (b) there has been obtained any other consent, approval or permit from any other U.S. or foreign regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions.

 

14. Plan Amendment, Modification and Termination .

 

The Board may suspend or terminate the Plan or any portion thereof at any time, and may amend the Plan from time to time in such respects as the Board may deem advisable in order that Incentive Awards under the Plan will conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company; provided, however, that no such amendments to the Plan will be effective without approval of the Company’s stockholders if: (i) stockholder approval of the amendment is then required pursuant to Section 422 of the Code or the rules of any stock exchange or the NASDAQ Global Select, Global or Capital Market or similar regulatory body; or (ii) such amendment seeks to modify Section 3.2(d) hereof. No termination, suspension or amendment of the Plan may adversely affect any outstanding Incentive Award without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 3.2(c), 4.3 and 11 of the Plan.

 

15. Effective Date and Duration of the Plan .

 

The Plan is effective as of the Effective Date. The Plan will terminate at midnight on January 24, 2028 and may be terminated prior to such time by Board action. No Incentive Award will be granted after termination of the Plan. Incentive Awards outstanding upon termination of the Plan may continue to be exercised, or become free of restrictions, according to their terms.

 

 

 

 

16. Miscellaneous .

 

16.1.        Governing Law . Except to the extent expressly provided herein or in connection with other matters of corporate governance and authority (all of which shall be governed by the laws of the Company’s jurisdiction of incorporation), the validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed exclusively in accordance with the laws of the State of Delaware notwithstanding the conflicts of laws principles of any jurisdictions.

 

16.2.        Successors and Assigns . The Plan will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and the Participants.

 

 

 

Exhibit 10.7

 

AMENDED AND RESTATED CONSULTING AGREEMENT

 

THIS AMENDED AND RESTATED CONSULTING AGREEMENT (the “Agreement”) is made as of the 20 th day of December, 2018 (the “Effective Date”), by and between TFF Pharmaceuticals, Inc., a Delaware corporation (the “Company”), on the one hand, and Robert S. Mills (the “Director”) and RSM Consulting, LLC, a Florida limited liability company (“RSM Consulting”), on the other hand.

 

WHEREAS, the Director is presently serving in the capacity of director on the Company’s Board of Directors (the “Board of Directors”) and is providing consulting services through RSM Consulting to the Company, both pursuant to a Consulting Agreement dated as of February 10, 2018 (the “Consulting Agreement”), by and between the Company and RSM Consulting, which, among other things, contains certain provisions regarding the Director’s right to receive certain grants of options to purchase shares of the Company’s common stock, par value $0.001 (the “Common Stock”); and

 

WHEREAS, the parties mutually desire to amend and restate the Consulting Agreement in order to memorialize the terms under which the Director will continue to serve the Company as a director of the Company and through RSM Consulting, provide consulting services to the Company;

 

NOW, THEREFORE, in consideration for the above recited premises and the mutual promises, agreements and covenants of the Company and the Director contained herein, the adequacy and sufficiency of which are hereby acknowledged, the Company and the Director hereby agree as follows:

 

1. DUTIES AND EFFORT .

 

(a) Through RSM Consulting, the Director will provide consulting services to the Company including, without limitation, advisory services related to the manufacture and commercialization of the Company’s products. The Director will also provide any other customary services as requested by the Company from time to time. The Director agrees to devote such time as is reasonably and customarily necessary to perform completely his duties to the Company hereunder; provided that the Director shall spend such amount of his business time and attention on consulting services for the Company as required by the Board of Directors and/or the Company’s Chief Executive Officer.

 

(b) The Director will also serve as a member of the Company’s Board of Directors. The Company requires that the Director be available to perform the duties of a director customarily related to this function, including all such duties as may be determined and assigned by the Board of Directors and as may be required by the Company’s governing instruments, including its certificate of incorporation, bylaws and its corporate governance charters, each as amended or modified from time to time, and by applicable law, rule or regulation, including, without limitation, the Delaware General Corporation Law (the “ DGCL ”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “ SEC ”) and any exchange or quotation system on which the Company’s securities may be traded from time to time. The Director agrees to devote such time as is reasonably and customarily necessary to perform completely his duties to the Company hereunder. The Director will perform such duties described herein in accordance with the general fiduciary duty of executive officers and directors arising under the DGCL. The Company and the Director, for himself and on behalf of RSM Consulting, agree that this Agreement replaces the Consulting Agreement in its entirety, beginning on the Effective Date.

 

2. TERM . The term of this Agreement shall commence as of the Effective Date and shall continue until the date that the Director is no longer serving as a member of the Board of Directors for any or no reason, or upon his earlier death, incapacity, removal or resignation.

 

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3. NO EMPLOYMENT RELATIONSHIP . This Agreement is not intended to create an employment relationship between the parties. Rather, it is their intention that the Director and RSM Consulting shall each be an independent contractor of the Company. The Director and RSM Consulting shall be solely responsible for the payment or withholding of all federal, state, or local income taxes, social security taxes, unemployment taxes, and any and all other taxes relating to the compensation they receive under this Agreement. The Director and RSM Consulting shall each indemnify and hold the Company harmless from any taxes, penalties, attorney’s fees, and costs incurred by the Company arising out of a breach by the Director and/or RSM Consulting of the foregoing sentence. The Director shall not be eligible to participate in any of the Company’s employee benefit plans.

 

4. COMPENSATION; EQUITY PARTICIPATION .

 

(a) For services to be rendered by the Director in any capacity hereunder, the Company agrees to pay the following compensation:

 

(i) consulting fees as provided in the Consulting Agreement and payable to RSM Consulting, for any consulting services provided through RSM Consulting to the Company that are outside of the Director’s duties as a member of the Board of Directors or under this Agreement, through the Effective Date;

 

(ii) a cash fee of $25,000 per quarter for any consulting services provided through RSM Consulting to the Company that are outside of the Director’s duties as a member of the Board, payable to RSM Consulting in accordance with prevailing Company payroll practices, beginning on the Effective Date;

 

(iii) a cash fee of $8,750 per quarter for Director’s service as a member of the Company’s Board of Directors, payable to the Director;

 

(iv) the Director was previously granted options to purchase 184,023 shares of the Common Stock with an exercise price of $2.50 per share, and will receive, on a one-time basis on the effective date of the registration statement registering the Common Stock for the IPO (as defined below, such effective date being the “Registration Effective Date), Incentive Stock Options, as such term is defined in the Company’s 2018 Stock Incentive Plan (the “Plan”), with an exercise price equal to the offering price of the first firm commitment underwritten initial public offering of shares of the Common Stock through a registered broker-dealer (the “IPO”), in amounts that will maintain the Director’s ownership of the Common Stock, on a fully diluted basis, of 1% of the then-outstanding Common Stock immediately after the Registration Effective Date; provided, however , that the Director must be a member of the Company’s Board of Directors on the Registration Effective Date to be eligible to earn such awards; and

 

(v) thereafter, the Director will be eligible to receive annual grants of Options, Restricted Stock Awards or Restricted Stock Units, on terms (including eligibility) as determined by the Board of Directors.

 

(b) The compensation of the Director (including any participation in the Plan) may be adjusted from time to time as agreed by the parties or as determined by the Compensation Committee of the Board of Directors, or a similar committee of the Board of Directors. All grants of Options, Restricted Stock Awards or Restricted Stock Units to the Director under the Plan will have vesting in twelve equal quarterly installments commencing on their grant dates and will become fully vested upon a Change in Control (as defined in the Plan), provided the Director’s service under this Agreement has not terminated for any or no reason prior to the date of any such vesting. All Options granted to the Director will have a term of ten years.

 

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5. EXPENSES . In addition to the compensation provided in Section 4 hereof, the Company will reimburse the Director for reasonable business related expenses incurred in good faith in the performance of the Director’s duties for the Company hereunder. Such payments shall be made by the Company in accordance with its normal policies for senior executives of the Company.

 

6. RESTRICTIONS RESPECTING CONFIDENTIAL INFORMATION, NON-COMPETITION, ETC.

 

(a) The Director and RSM Consulting each acknowledges and agrees that by virtue of the Director’s involvement with the business and affairs of the Company, he has developed and will continue to develop substantial expertise and knowledge with respect to all aspects of the business, affairs and operations of the Company and has had access to and will continue to have access to all significant aspects of the business and operations of the Company and to confidential and proprietary information of the Company. As such, the Director and RSM Consulting each acknowledges and agrees that the Company will be damaged if either of them were to breach or threaten to breach any of the provisions of this Section 6 or if either of them were to disclose or make unauthorized use of any confidential and proprietary information of the Company or otherwise engage in the activities prohibited by this Section 6. Accordingly, the Director and RSM Consulting each expressly acknowledges and agrees that he and it is knowingly and voluntarily entering into this Agreement, and that the terms, provisions and conditions of this Section 6 are fair and reasonable and necessary to adequately protect the Company and its business.

 

(b) Concurrently with the execution of this Agreement, the Director shall execute the Company’s standard form of Proprietary Information and Inventions Agreement (the “PIIA”), the terms and provisions of which are incorporated herein by reference as binding and operative provisions of this Agreement.

 

(c) During the term of this Agreement and for one (1) year after the termination of this Agreement for any reason, neither the Director nor RSM Consulting shall, directly or indirectly, anywhere within the United States, manage, operate or control, or participate in the ownership, management, operation or control of, or otherwise become materially interested in (whether as an owner, stockholder, lender, executive, employee, officer or director) any business (other than the Company) which is in the business of developing and commercializing drug products competitive with the drug products based on the Company’s patented Thin Film Freezing platform (the “Business”), or, directly or indirectly, induce or influence any person that has a business relationship with the Company or any of its subsidiaries or affiliates relating to the Business to discontinue or reduce the extent of such relationship. For purposes of this Agreement, the Director and RSM Consulting shall each be deemed to be directly or indirectly interested in a business if he or it is engaged or interested in that business as an owner, stockholder, lender, executive, employee, officer or director, but not if the Director’s or RSM Consulting’s interest is limited solely to the ownership of not more than 4.99% of the securities of any class of equity securities of a corporation or other entity whose shares are listed or admitted to trade on a national securities exchange or are quoted on the Over the Counter Bulletin Board or similar public trading system.

 

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(d) During the term of this Agreement, neither the Director nor RSM Consulting shall, either directly or indirectly, whether on his or its own behalf or on behalf of any other individual or entity (other than the Company), solicit or attempt to solicit any client or actively sought prospective client of the Company for the purpose of providing such client or actively sought prospective client a product that is competitive with a product then offered or under development by the Company. For one (1) year after the termination of this Agreement for any reason, neither the Director nor RSM Consulting will, either directly or indirectly, whether on his or its own behalf or on behalf of any other individual or entity, solicit or attempt to solicit any client or actively sought prospective client of the Company with whom the Director had Material Contact during the term of this Agreement for the purpose of providing such client or actively sought prospective client a product that is competitive with a product offered or under development by the Company as of the termination of this Agreement. For purposes of this Section 6(d), the Director will be deemed to have had “Material Contact” with a client or actively sought prospective client of the Company if the Director (i) dealt directly with the client or actively sought prospective client on behalf of the Company; (ii) coordinated or supervised the Company’s dealings with the client or actively sought prospective client; (iii) obtained confidential information about the client or actively sought prospective client as a result of this Agreement; or (iv) received compensation resulting directly from the Company’s sale of products to the client or actively sought prospective client.

 

(e) During the term of this Agreement and for one (1) year after the termination of this Agreement for any reason, neither the Director nor RSM Consulting shall, directly or indirectly, solicit to employ, or employ for himself or others, any employee of the Company, or any subsidiary or affiliate of the Company, who was an officer, director or employee of, or consultant or advisor to, the Company, or any subsidiary or affiliate of the Company, as of the date of the termination of this Agreement or during the preceding six (6) month period, or solicit any such person to leave such person’s position or join the employ of, or act in a similar capacity with, another, then or at a later time.

 

(f) The parties agree that nothing in this Agreement shall be construed to limit or negate the common law of torts, confidentiality, trade secrets, fiduciary duty and obligations where such laws provide the Company with any broader, further or other remedy or protection than those provided herein.

 

(g) Because the breach or any threatened breach of any of the provisions of this Section 6 may result in immediate and irreparable injury to the Company for which the Company may not have an adequate remedy at law, the Director and RSM Consulting each expressly agrees that the Company shall be entitled, in addition to all other rights and remedies available to it at law, in equity or otherwise, to a decree of specific performance of the restrictive covenants contained in this Section 6 and further to a temporary and permanent injunction enjoining such breach or threatened breach, in each case without the necessity of proving damages and without the necessity of posting bond or other security.

 

(h) In the event the Director or RSM Consulting challenges this Agreement and an injunction or other relief is issued staying the implementation of any of the restrictions imposed by Section 6 hereof, the time remaining on the restrictions shall be tolled until the challenge is resolved by final adjudication, settlement or otherwise.

 

(i) The Director and RSM Consulting each acknowledges that the type and periods of restriction imposed by this Section 6 are fair and reasonable and are reasonably required for the protection of the legitimate interests of the Company and the goodwill associated with the business of the Company; and that the time, scope, geographic area and other provisions of this Agreement have been specifically negotiated by sophisticated commercial parties and are given as an integral part of the transactions contemplated hereby. If any of the covenants in this Section 6, or any part hereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants herein, which shall be given full effect, without regard to the invalid portions. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be judicially modified so as to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action.

 

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7. TERMINATION . With or without cause, the Company and the Director may each terminate this Agreement at any time upon 180 days’ prior written notice, and the Company shall be obligated to pay to the Director or RSM Consulting, as the case may be, the compensation and expenses due up to the date of the termination. Nothing contained herein or omitted herefrom shall prevent the Board of Directors or stockholders of the Company from removing the Director as permitted under the Company’s certificate of incorporation, bylaws or its corporate governance policies, each as amended or modified from time to time, and by applicable law, rule or regulation, including, without limitation, the DGCL.

 

8. INDEMNIFICATION . The Company shall indemnify the Director in his capacity as Director and as a director of the Company to the fullest extent permitted by applicable law against all debts, judgments, costs, charges or expenses incurred or sustained by the Director in connection with any action, suit or proceeding to which the Director may be made a party by reason of his being or having been acting as Director or director of the Company, or because of actions taken by the Director that were believed by the Director to be in the best interests of the Company, and the Director shall be entitled to be covered by any directors’ and officers’ liability insurance policies that the Company may maintain for the benefit of its directors and officers, subject to the limitations of any such policies. The Company shall have the right to assume, with legal counsel of its choice, the defense of Director in any such action, suit or proceeding for which the Company is providing indemnification to the Director. Should the Director determine to employ separate legal counsel in any such action, suit or proceeding, any costs and expenses of such separate legal counsel shall be the sole responsibility of the Director. If the Company does not assume the defense of any such action, suit or other proceeding, the Company shall, upon request of the Director, promptly advance or pay any amount for costs or expenses (including, without limitation, the reasonable legal fees and expenses of legal counsel retained by the Director) incurred by the Director in connection with any such action, suit or proceeding. The Company shall not be obligated to indemnify the Director against any actions that constitute, in the reasonable discretion of the Board of Directors, an act of gross negligence or willful misconduct or contrary to the general indemnification provisions of the DGCL or the Company’s certificate of incorporation or bylaws.

 

9. AMENDMENTS; WAIVERS . No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the parties or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought; provided , however , that any such amendment or waiver shall be unanimously approved by the Board of Directors. No waiver of any breach 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 breach 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.

 

10. NOTICES . All notices, requests, demands and other communications provided in connection with this Agreement shall be in writing and shall be deemed to have been duly given at the time when hand delivered, delivered by express courier, or sent by facsimile (with receipt confirmed by the sender’s transmitting device) in accordance with the contact information provided on the signature page hereto or such other contact information as the parties may have duly provided by notice.

 

11. GOVERNING LAW; EXCLUSIVE FORUM. This Agreement shall be interpreted in accordance with, and the rights of the parties hereto shall be determined by, the laws of the State of Delaware without reference to that state’s conflicts of laws principles. Any legal action involving the validity, interpretation, or breach of the terms of this Agreement shall be brought exclusively in the courts of the State of New York located in New York County (or, if appropriate, the federal courts within the Eastern District of New York, seated in New York County). The parties hereby submit to the exclusive jurisdiction and venue of such courts, and they hereby irrevocably waive, to the fullest extent permitted by law, any objection they may now or hereafter have to the personal jurisdiction or venue of such courts or to any claim of inconvenient forum.

 

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12. ASSIGNMENT . The rights and benefits of the Company under this Agreement shall be transferable, and all the covenants and agreements hereunder shall inure to the benefit of, and be enforceable by or against, its successors and assigns. The duties and obligations of the Director and RSM Consulting under this Agreement are personal and therefore the neither the Director nor RSM Consulting may assign or delegate any right or duty under this Agreement without the prior written consent of the Company.

 

13. HEADINGS; CONSTRUCTION . The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 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.

 

14. NO THIRD-PARTY BENEFICIARIES . This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person or entity.

 

15. 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 upon so agreeing, shall incorporate such substitute provision in this Agreement.

 

16. ENTIRE AGREEMENT. This Agreement (together with the PIIA) contains the entire understanding and agreement of the parties, and supersedes any and all other prior and/or contemporaneous understandings and agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof, all of which are merged herein. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by either party, or anyone acting on behalf of either party, which are not embodied herein (or in the PIIA), and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding (except those in the PIIA).

 

17. COUNTERPARTS . This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one instrument. Execution and delivery of this Agreement by facsimile or other electronic signature is legal, valid and binding for all purposes.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF , the parties hereto have caused this Director Agreement to be duly executed and signed as of the day and year first above written.

 

COMPANY:  
   
TFF PHARMACEUTICALS, INC.  
     
By: /s/ Glenn Mattes  
  Glenn Mattes, President and CEO  
     
Contact Information:  
   
2801 Via Fortuna, Suite 425  
Austin, Texas  78746  
     
DIRECTOR:  
     
By: /s/ Robert S. Mills  
  Robert S. Mills  
     
RSM CONSULTING, LLC  
     
By: /s/ Robert S. Mills  
  Robert S. Mills, President  

 

Contact Information for Director and RSM Consulting:

 

 

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Exhibit 10.8

 

AMENDED AND RESTATED

CONSULTING AGREEMENT

 

THIS AMENDED AND RESTATED Consulting Agreement (this “Agreement”), is made by and between TFF Pharmaceuticals, Inc, a Delaware Corporation with its principal place of business at 2801 Via Fortuna, Suite 425, Austin, Texas 78746 (“Company”), and James Brian Windsor, an individual having an address of 5703 Magee Bend, Austin, Texas 78749 (“Consultant”). Company and Consultant shall, at times throughout this Agreement, be referred to individually as a “Party” and collectively as the “Parties”. This Agreement replaces in its entirety that certain Consulting Agreement, dated as of January 24, 2018, by and among the Parties.

 

1. Services

 

1.1 Consultant agrees to furnish such services related to the business of the Company, such as advising Company on scientific matters, as reasonably requested by Company (the “Services”). For purposes of this Agreement, reference to “Company” shall mean TFF Pharmaceuticals, Inc. or its subsidiary or affiliate issuing the Scope(s) of Services.

 

1.2 Consultant acknowledges and agrees that each Scope of Services shall be subject to the terms and conditions of this Agreement, in addition to the specific details set forth in the specific Scope of Services. To the extent any terms or provisions of a Scope of Services conflict with the terms and provisions of this Agreement, the terms and provisions of this Agreement shall control, except to the extent that the applicable Scope of Services expressly and specifically states an intent to supersede this Agreement on a specific matter.

 

1.3 Consultant represents and warrants that Consultant has the necessary skill, experience, and expertise to provide the Services and will provide the Services in accordance with the terms and conditions of this Agreement.

 

1.4 The Parties understand that Company does not have the exclusive right to Consultant’s services. Consultant’s services shall be rendered at mutually agreeable times and locations.

 

2. Compliance with Law and Company Policy; Conflict of Interest

 

2.1 Consultant represents and warrants that Consultant shall perform Consultant’s obligations under this Agreement in compliance with all Company instructions, policies or guidelines and with any and all applicable Federal, State, and local laws and regulations and industry and regulatory agency guidances and standards related to the Services, including but not limited to: the Federal anti-kickback statute, 42 U.S.C. § 1320a-7b(b); Federal Food, Drug and Cosmetic Act and relevant regulations, including Food and Drug Administration (“FDA”) promotional guidelines; all applicable U.S. securities laws and regulations; and U.S. Department of Health and Human Services Office of Inspector General’s (“OIG”) Compliance Program Guidance for Pharmaceutical Manufacturers. Consultant agrees to comply with Company’s reasonable requests for any information and documentation necessary to verify compliance with applicable laws, regulations and industry guidances and standards.

 

2.2 Consultant represents and warrants that neither the Consultant nor, to the Consultant’s knowledge, any of Consultant’s agents or affiliates (“Consultant’s Agents”):

 

(a) are presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from participation in this transaction by any Federal or State law or regulation, including but not limited to the Generic Drug Enforcement Act of 1992, 21 U.S.C. § 335a(a) and (b);

 

(b) have been convicted of a criminal offense related to healthcare; or

 

(c) have been listed by a Federal department or agency as debarred, excluded, or otherwise ineligible for participation in Federal healthcare programs as set forth in 42 U.S.C. § 1320a-7, or any similar state law or regulation.

 

 

 

 

In the event that Consultant or one of Consultant’s Agents becomes debarred in violation of this Section 2.2, Consultant shall notify Company immediately. Consultant acknowledges and agrees that, notwithstanding any provision to the contrary, such debarment constitutes grounds for Company to terminate this Agreement immediately.

 

2.3 Consultant represents and warrants that the performance of the Services hereunder and the acceptance of related compensation will not conflict with any other agreements or policies to which Consultant is subject or a party to, including those of an employer or affiliated institution, or any other lawful restriction of any kind. Further, if Consultant is or becomes an employee or affiliate of any foreign, federal, or state government, agency, or institution (collectively, the “Third-Party Institution”), Consultant represents and warrants that Consultant is not prohibited by any applicable laws, regulations, policies, or ethical guidelines from fulfilling any of Consultant’s obligations and responsibilities or accepting compensation hereunder and that Consultant has confirmed this in writing from the Third-Party Institution’s ethics or compliance officer. Consultant agrees to comply with Company’s requests for any documentation necessary to verify compliance with this Section 2.3.

 

2.4 In the event that any materials are created by Consultant under this Agreement for consumption by a third-party, Consultant agrees to present all such materials to Company. Consultant shall not produce, publish, distribute, or cause to be produced, published, or distributed, any materials related to the Services or information or materials that Consultant received under this Agreement without final approval and express written permission by Company.

 

2.5 Consultant represents and warrants that neither Consultant nor any individual or entity acting on Consultant’s behalf, nor any payee under this Agreement, will, directly or indirectly, offer, pay or accept, or authorize the offering, payment, or acceptance of, any money or anything of value to or from any third party, with the knowledge or intent that the payment, promise or gift, in whole or in part, will be made in order to improperly influence an act or decision that will assist Consultant, the Company or the third party in securing an improper advantage or in improperly obtaining or retaining business or in improperly directing business to any person or entity.

 

Consultant acknowledges and agrees that, notwithstanding any provision to the contrary, any violation of this section constitutes grounds for Company to terminate this Agreement immediately.

 

3. Term and Termination

 

3.1 This Agreement will be deemed effective on October 1, 2018 (the “Effective Date”). This Agreement will continue for a period of five (5) years from the Effective Date (the “Term”). Thereafter, this Agreement shall be subject to renewal for successive periods, upon the further written agreement of the Parties.

 

3.2 Company may terminate this Agreement immediately upon written notice to Consultant for any violation by Consultant of any provision of this Agreement or for cause.

 

3.3 Either Party may terminate this Agreement upon one hundred and twenty (120) days written notice to the other Party.

 

3.4 In the event of termination, Consultant shall be entitled to payment for services actually rendered prior to the effective date of termination. Such payments shall constitute full settlement of any and all claims of Consultant of every description against Company.

 

3.5 Sections 2, 3.4, and 5-9 of this Agreement shall survive the expiration and/or termination of this Agreement.

 

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4. Compensation and Expense Reimbursement.

 

4.1 Subject to the conditions set forth in this Agreement, during the Term of this Agreement, Company will pay Consultant the fees set forth in the applicable Scope of Services. The total amount payable to Consultant for the Services under this Agreement shall not exceed USD$115,000 per annum, payable in quarterly installments of $28,750.  Consultant is not expecting to be provided with health benefits by Company.  Also, Consultant will not be considered an employee of Company while providing services under this Agreement..

 

4.2 The Parties agree that as of the Effective Date, the compensation negotiated and agreed upon are fair market value for the Services and are consistent with the value of similar services. Furthermore, the Parties represent and warrant that the compensation is not and has not been determined in a manner that takes into account the volume or value of any referrals or business otherwise generated by Consultant for Company.

 

4.3 The Parties represent and warrant that no amount paid or reimbursed by or on behalf of Company, nor any services performed by Consultant are intended to be, nor shall they be construed as, an offer or payment made, whether directly or indirectly, to induce or reward the referral of patients, the purchase, lease or order of any item or service, or the recommendation or arranging for the purchase, lease or order of any item or service.

 

4.4 Company will reimburse Consultant for reasonable and customary, out-of-pocket expenses (including, but not limited to, as applicable telephone, facsimile, photocopying and reproduction, courier, postage, parking, mileage, airfare and other travel, lodging and meal costs) specifically agreed upon by the Parties and actually incurred by Consultant in connection with the Services, provided, further, that any expense over $500 shall require the approval of the Company. Consultant shall maintain copies of all documentation in support of any such expenses. Company reserves the right to audit the expenses claimed by Consultant during the Term of this Agreement at any time.

 

4.5 Unless otherwise agreed to in writing by the Parties, Consultant shall invoice Company on a monthly basis for fees and expenses for the Services performed. Such invoices shall include a detailed description of the Services rendered and the time spent in performance of those Services. Company agrees to pay Consultant invoices within fifteen (15) days of receipt. Unless indicated otherwise in a particular Scope of Services, Consultant shall submit such invoices for payment to the following address:

 

TFF Pharmaceuticals, Inc.

2801 Via Fortuna, Suite 425

Austin, Texas 78746

Attn:    Accounts Payable

 

5. Inventions and Proprietary Information

 

5.1 Inventions

 

5.1.1 The Parties agree that each Party’s inventions, technologies, and any other intellectual property existing as of the Effective Date are their separate property and are not affected by this Agreement

 

5.1.2 Consultant will make full and prompt disclosure to Company of all inventions, improvements, discoveries, methods, developments, software and works of authorship relating to Company’s business, whether patentable or not, which are created, made, conceived or reduced to practice by him or under his direction or jointly with others during the Term of this Agreement (all of which are collectively referred to in this Agreement as “Developments”).

 

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5.1.3 Company shall own and have title to any Developments made during the Term of this Agreement. Consultant agrees to assign and does hereby assign to Company (or any person or entity designated by Company) all of Consultant’s right, title and interest, if any, in and to all Developments and all related patents, patent applications, copyrights and copyright applications.

 

5.1.4 Consultant agrees to cooperate fully with Company, both during and after the Term of this Agreement, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property rights (both in the United States and foreign countries) relating to Developments. Consultant shall, at Company’s expense, sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and powers of attorney, which Company may deem necessary or desirable in order to protect its rights and interests in any Developments.

 

5.2 Proprietary Information

 

5.2.1 Consultant agrees that all information, whether or not in writing, of a private, secret or confidential nature concerning Company’s products, business, business relationships or financial affairs (collectively, “Proprietary Information”) is and shall be the exclusive property of Company. By way of illustration, but not limitation, Proprietary Information may include inventions, products, processes, methods, techniques, formulas, compositions, compounds, projects, developments, plans, research data, clinical data, financial data, personnel data, computer programs, customer and supplier lists and contacts at or knowledge of customers or prospective customers of Company. Consultant will not disclose any Proprietary Information to any person or entity other than employees of Company or use the same for any purposes (other than in the performance of his duties as a consultant of Company) without written approval by an officer of Company, either during or after the Term of this Agreement.

 

5.2.2 Consultant agrees that all files, letters, memoranda, reports, records, data, sketches, drawings, laboratory notebooks, program listings or other written, photographic or other tangible material containing Proprietary Information, whether created by Consultant or others, which shall come into his custody or possession, shall be and are the exclusive property of Company to be used by Consultant only in the performance of his duties for Company.

 

5.2.3 Consultant’s obligations under this Section 5.2 shall not apply to any information that (i) is generally known to the public at the time of disclosure or becomes generally known without Consultant violating this Agreement, (ii) is in Consultant’s possession at the time of disclosure without Consultant violating this Agreement, (iii) becomes known to Consultant through disclosure by sources other than Company without such sources violating any confidentiality obligations to Company, or (iv) is independently developed by Consultant without reference to or reliance upon Company’s Proprietary Information.

 

5.2.4 Upon termination of this Agreement or at any other time upon request of Company, Consultant shall promptly deliver to Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, laboratory and research notebooks and other documents (and all copies or reproductions of such materials) containing or relating to Proprietary Information of Company. After such delivery, Consultant shall not retain any such materials or copies thereof.

 

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5.2.5 Consultant shall immediately notify the Company of receipt by Consultant of any process, subpoena, demand, or request by any third party, requiring or requesting the production of Confidential Information, and shall, as soon as practicable but in no event later than three (3) business days from the date of such receipt, submit to the Company a copy of such process, subpoena, demand, or request and inform the Company of all circumstances relating thereto. Consultant shall take all reasonable steps to protect such Confidential Information, including, without limitation, making a motion to quash or seeking a protective order against the disclosure of such Confidential Information; provided , however , that (i) nothing in this Section 5.2.5 shall require Consultant to violate any law or court order, (ii) if a disclosure order is not quashed or a protective order is not obtained, then in response to such disclosure order, Consultant may disclose only such Confidential Information that, based upon the advice of Consultant’s counsel, is legally required to be disclosed, and (iii) Consultant shall use reasonable efforts to obtain reliable assurance that confidential treatment will be accorded by the third party to whom any Confidential Information is so disclosed.

 

5.3 Remedies

 

Consultant acknowledges that any breach of the provisions of this Section 5 shall result in serious and irreparable injury to Company for which Company cannot be adequately compensated by monetary damages alone. Consultant agrees, therefore, that, in addition to any other remedy it may have, Company shall be entitled to enforce the specific performance of the Agreement by Consultant and to seek both temporary and permanent injunctive relief (to the extent permitted by law). Company may terminate this Agreement, effective immediately upon the giving of written notice, if Consultant breaches or threatens to breach any provision of this Section 5.

 

6. Indemnification

 

Each party (the “indemnifying party”) shall indemnify and hold harmless the other party (the “indemnified party”) from and against any and all third party suits, claims, damages, losses and expenses (including but not limited to attorneys’ fees) (collectively, the “Claims”) for bodily injury and tangible personal property damage arising directly out of indemnifying party’s gross negligence or willful misconduct, or based on a breach of such party’s representations, warranties or covenants as provided in this Agreement, but not to the extent that any Claim is based upon or arises from any fault or responsibility of the indemnified party or any third party. The indemnified party shall (i) promptly notify the indemnifying party of any matters in respect of which the indemnity may apply and of which the indemnified party has knowledge; (ii) give the indemnifying party full opportunity to control the response thereto and the defense thereof, including any agreement relating to the settlement thereof, provided that the indemnifying party shall not settle any such claim or action without the prior written consent of the indemnified party (which shall not be unreasonably withheld or delayed); and (iii) cooperate with the indemnifying party, at the indemnifying party’s cost and expense in the defense or settlement thereof. The indemnified party may participate, at its own expense, in such defense and in any settlement discussions directly or through counsel of its choice on a monitoring and non-controlling basis. The obligations to indemnify, defend and hold harmless set forth above in this Section 6 will not be relieved for failure to comply with the provisions herein unless such failure materially prejudices the indemnifying party’s rights or ability to defend such Claim.

 

EXCEPT IN THE CASE OF WILLFUL MISCONDUCT, GROSS NEGLIGENCE OR FRAUDULENT BEHAVIOR OR AMOUNTS FOR WHICH A PARTY IS RESPONSIBLE TO PROVIDE INDEMNIFICATION PURSUANT TO THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY OR ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ITS RESPECTIVE AFFILIATES FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST SAVINGS, LOST PROFITS OR OTHER ECONOMIC LOSS, (OTHER THAN FEES PAYABLE TO CONSULTANT PURSUANT TO THIS AGREEMENT, WHICH THE PARTIES AGREE CONSTITUTES DIRECT DAMAGES)) OR LOSS OF RECORDS OR DATA, AS A RESULT OF OR ARISING OUT OF THIS AGREEMENT, THE PROVISION OF SERVICES HEREUNDER OR ANY OTHER MATTERS RELATING TO OR ARISING FROM THIS AGREEMENT, WHETHER SUCH CLAIM BE IN TORT, CONTRACT OR OTHERWISE, AND WHETHER OR NOT THE POSSIBILITY OF SUCH DAMAGES WAS REASONABLY FORESEEABLE OR DISCLOSED.

 

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7. Publications

 

Consultant may not publish or publicize in any way without the prior written consent of Company, which consent Company may withhold in its sole discretion, any material or manuscript relating to the Services and/or any information or materials that Consultant received in connection with or pursuant to this Agreement or the relationship established between Consultant and Company.

 

8. Independent Contractor Status

 

Consultant shall perform all of his services under this Agreement as an “independent contractor” and not as an employee or agent of Company. Consultant is not authorized to assume or create any obligation or responsibility, express or implied, on behalf of, or in the name of, Company or to bind Company in any manner. Consultant shall not be entitled to any benefits, insurance coverage or privileges, including, without limitation, social security, unemployment, medical or pension benefits, made available to the employees of Company. Consultant agrees to take all action and comply with all applicable administrative regulations necessary for the payment by Consultant of taxes and contributions for unemployment insurance or pensions or annuities or social security payments which are measured by the wages, salaries or other remuneration paid to Consultant.

 

9. Notices

 

All notices required or permitted under this Agreement shall be in writing and shall be mailed, delivered, or faxed and confirmed in writing, addressed to the other Party at the address shown above, or at such other address or addresses as either Party shall designate to the other in accordance with this Section 8, and any such notices and other communications shall take effect at the time of receipt of the Notice.

 

10. Governing Law and Forum Selection

 

The laws of the State of Texas (without giving effect to its conflict and choice of law principles) govern all matters arising out of or relating to this Agreement, including, without limitation, its interpretation, construction, performance, and enforcement. Any dispute arising under or in connection with this Agreement or related to any matter which is the subject thereof shall be subject to the exclusive jurisdiction of the state and federal courts of Texas.

 

11. Entire Agreement; Amendment

 

This Agreement constitutes the entire agreement between the Parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. This Agreement may be amended only by a written instrument executed by Company and Consultant.

 

12. Equitable Remedies

 

Because the Services are personal and unique and because the Consultant will have access to Confidential Information of the Company, the Company will have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement.

 

13. Headings

 

The headings of sections in this Agreement are for convenience of reference only and do not affect or alter this Agreement’s construction or interpretation.

 

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14. Successors and Assigns

 

This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors or heirs, distributees and personal representatives. Neither Company nor the Consultant may make any assignment or transfer of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; provided, however, that, upon thirty (30) days prior written notice to Consultant, the Company may assign or transfer its rights and obligations under this Agreement (i) in connection with any internal reorganization, or merger, sale or similar business combination involving all or substantially all of the Company’s assets or stock, or (ii) to an Affiliate of the Company, without obtaining the prior written consent of the Consultant. For purposes hereof, the term “Affiliate” means any person or entity which controls, is controlled by, or is under common control with the Company.

 

15. Counterparts

 

This Agreement, and any exhibits or subsequent amendment(s) attached hereto, may be executed in counterparts and the counterparts, together, shall constitute a single agreement. A facsimile transmission or electronic copy of this signed Agreement bearing a signature on behalf of a Party shall be legal and binding on such Party.

 

IN WITNESS WHEREOF, each Party is signing this Agreement on the date stated below that Party’s signature to be effective as of the Effective Date.

 

TFF PHARMACEUTICALS, INC.

 

By: /S/ Glenn Mattes   By: /s/ James Brian Windsor
Name:   Glenn Mattes   Name:  James Brian Windsor
Title: President and CEO   Date: October 10, 2018
Date: October 10, 2018      

 

 

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Exhibit 10.9

 

CONSULTING AGREEMENT

 

THIS Consulting Agreement (this “Agreement”), is made by and between TFF Pharmaceuticals, Inc, a Delaware Corporation with its principal place of business at 2801 Via Fortuna, Suite 425, Austin, Texas 78746 (“Company”), and Glenn Mattes, an individual having an address of 4524 Everview Drive, Doylestown, PA 18902 (“Consultant”). Company and Consultant shall, at times throughout this Agreement, be referred to individually as a “Party” and collectively as the “Parties”.

 

1. Services

 

1.1 Consultant agrees to furnish such services related to the business of the Company, such as providing acting President and CEO services, and other services as further described in the Scope(s) of Services attached hereto and incorporated herein (the “Services”) as an exhibit. For purposes of this Agreement, reference to “Company” shall mean TFF Pharmaceuticals, Inc. or its subsidiary or affiliate issuing the Scope(s) of Services.

 

1.2 Consultant acknowledges and agrees that each Scope of Services shall be subject to the terms and conditions of this Agreement, in addition to the specific details set forth in the specific Scope of Services. To the extent any terms or provisions of a Scope of Services conflict with the terms and provisions of this Agreement, the terms and provisions of this Agreement shall control, except to the extent that the applicable Scope of Services expressly and specifically states an intent to supersede this Agreement on a specific matter.

 

1.3 Consultant represents and warrants that Consultant has the necessary skill, experience, and expertise to provide the Services and will provide the Services in accordance with the terms and conditions of this Agreement.

 

1.4 The Parties understand that Company does not have the exclusive right to Consultant’s services. Consultant’s services shall be rendered at mutually agreeable times and locations.

 

2. Compliance with Law and Company Policy; Conflict of Interest

 

2.1 Consultant represents and warrants that Consultant shall perform Consultant’s obligations under this Agreement in compliance with all Company instructions, policies or guidelines and with any and all applicable Federal, State, and local laws and regulations and industry and regulatory agency guidances and standards related to the Services, including but not limited to: the Federal anti-kickback statute, 42 U.S.C. § 1320a-7b(b); Federal Food, Drug and Cosmetic Act and relevant regulations, including Food and Drug Administration (“FDA”) promotional guidelines; all applicable U.S. securities laws and regulations; and U.S. Department of Health and Human Services Office of Inspector General’s (“OIG”) Compliance Program Guidance for Pharmaceutical Manufacturers. Consultant agrees to comply with Company’s reasonable requests for any information and documentation necessary to verify compliance with applicable laws, regulations and industry guidances and standards.

 

2.2 Consultant represents and warrants that neither the Consultant nor, to the Consultant’s knowledge, any of Consultant’s agents or affiliates (“Consultant’s Agents”):

 

(a) are presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from participation in this transaction by any Federal or State law or regulation, including but not limited to the Generic Drug Enforcement Act of 1992, 21 U.S.C. § 335a(a) and (b);
(b) have been convicted of a criminal offense related to healthcare; or
(c) have been listed by a Federal department or agency as debarred, excluded, or otherwise ineligible for participation in Federal healthcare programs as set forth in 42 U.S.C. § 1320a-7, or any similar state law or regulation.

 

In the event that Consultant or one of Consultant’s Agents becomes debarred in violation of this Section 2.2, Consultant shall notify Company immediately. Consultant acknowledges and agrees that, notwithstanding any provision to the contrary, such debarment constitutes grounds for Company to terminate this Agreement immediately.

 

 

 

 

2.3 Consultant represents and warrants that the performance of the Services hereunder and the acceptance of related compensation will not conflict with any other agreements or policies to which Consultant is subject or a party to, including those of an employer or affiliated institution, or any other lawful restriction of any kind. Further, if Consultant is or becomes an employee or affiliate of any foreign, federal, or state government, agency, or institution (collectively, the “Third-Party Institution”), Consultant represents and warrants that Consultant is not prohibited by any applicable laws, regulations, policies, or ethical guidelines from fulfilling any of Consultant’s obligations and responsibilities or accepting compensation hereunder and that Consultant has confirmed this in writing from the Third-Party Institution’s ethics or compliance officer. Consultant agrees to comply with Company’s requests for any documentation necessary to verify compliance with this Section 2.3.

 

2.4 In the event that any materials are created by Consultant under this Agreement for consumption by a third-party, Consultant agrees to present all such materials to Company. Consultant shall not produce, publish, distribute, or cause to be produced, published, or distributed, any materials related to the Services or information or materials that Consultant received under this Agreement without final approval and express written permission by Company.

 

2.5 Consultant represents and warrants that neither Consultant nor any individual or entity acting on Consultant’s behalf, nor any payee under this Agreement, will, directly or indirectly, offer, pay or accept, or authorize the offering, payment, or acceptance of, any money or anything of value to or from any third party, with the knowledge or intent that the payment, promise or gift, in whole or in part, will be made in order to improperly influence an act or decision that will assist Consultant, the Company or the third party in securing an improper advantage or in improperly obtaining or retaining business or in improperly directing business to any person or entity.

 

Consultant acknowledges and agrees that, notwithstanding any provision to the contrary, any violation of this section constitutes grounds for Company to terminate this Agreement immediately.

 

3. Term and Termination

 

3.1 The date this Agreement is by the last Party to sign it (as indicated by the date associated with that Party’s signature) but will be deemed as effective on May 1, 2018 (the “Effective Date”). If a Party fails to date a signature, the date that the other Party receives the signing Party’s signature will be deemed to be the date that the signing Party signed this Agreement, and the other Party may inscribe that date as the date associated with the signing Party’s signature. This Agreement will continue for a period of five (5) years from the Effective Date (the “Term”). Thereafter, this Agreement shall be subject to renewal for successive periods, upon the further written agreement of the Parties.

 

3.2 Company may terminate this Agreement immediately upon written notice to Consultant for any violation by Consultant of any provision of this Agreement or for cause.

 

3.3 Either Party may terminate this Agreement upon one hundred and twenty (120) days written notice to the other Party.

 

3.4 This Agreement will terminate immediately upon Consultant becoming a full time employee of the Company.

 

3.5 In the event of termination, Consultant shall be entitled to payment for services actually rendered prior to the effective date of termination. Such payments shall constitute full settlement of any and all claims of Consultant of every description against Company.

 

3.6 Sections 2, 3.4, and 5-9 of this Agreement shall survive the expiration and/or termination of this Agreement.

 

 

 

 

4. Compensation and Expense Reimbursement.

 

4.1 Subject to the conditions set forth in this Agreement, during the Term of this Agreement, Company will pay Consultant the fees set forth in the applicable Scope of Services. The total amount payable to Consultant for the Services under this Agreement shall not exceed USD$25,000 per month.

 

4.2 The Parties agree that as of the Effective Date, the compensation negotiated and agreed upon are fair market value for the Services and are consistent with the value of similar services. Furthermore, the Parties represent and warrant that the compensation is not and has not been determined in a manner that takes into account the volume or value of any referrals or business otherwise generated by Consultant for Company.

 

4.3 The Parties represent and warrant that no amount paid or reimbursed by or on behalf of Company, nor any services performed by Consultant are intended to be, nor shall they be construed as, an offer or payment made, whether directly or indirectly, to induce or reward the referral of patients, the purchase, lease or order of any item or service, or the recommendation or arranging for the purchase, lease or order of any item or service.

 

4.4 Company will reimburse Consultant for reasonable and customary, out-of-pocket expenses (including, but not limited to, as applicable telephone, facsimile, photocopying and reproduction, courier, postage, parking, mileage, airfare and other travel, lodging and meal costs) specifically agreed upon by the Parties and actually incurred by Consultant in connection with the Services, provided, further, that any expense over $500 shall require the approval of the Company. Consultant shall maintain copies of all documentation in support of any such expenses. Company reserves the right to audit the expenses claimed by Consultant during the Term of this Agreement at any time.

 

4.5 Unless otherwise agreed to in writing by the Parties, Consultant shall invoice Company on a monthly basis for fees and expenses for the Services performed. Such invoices shall include a detailed description of the Services rendered and the time spent in performance of those Services. Company agrees to pay Consultant invoices within fifteen (15) days of receipt. Unless indicated otherwise in a particular Scope of Services, Consultant shall submit such invoices for payment to the following address:

 

TFF Pharmaceuticals, Inc.

2801 Via Fortuna, Suite 425

Austin, Texas 78746

Attn:       Accounts Payable

 

5. Inventions and Proprietary Information

 

5.1 Inventions

 

5.1.1 The Parties agree that each Party’s inventions, technologies, and any other intellectual property existing as of the Effective Date are their separate property and are not affected by this Agreement

 

5.1.2 Consultant will make full and prompt disclosure to Company of all inventions, improvements, discoveries, methods, developments, software and works of authorship relating to Company’s business, whether patentable or not, which are created, made, conceived or reduced to practice by him or under his direction or jointly with others during the Term of this Agreement (all of which are collectively referred to in this Agreement as “Developments”).

 

5.1.3 Company shall own and have title to any Developments made during the Term of this Agreement. Consultant agrees to assign and does hereby assign to Company (or any person or entity designated by Company) all of Consultant’s right, title and interest, if any, in and to all Developments and all related patents, patent applications, copyrights and copyright applications.

 

 

 

 

5.1.4 Consultant agrees to cooperate fully with Company, both during and after the Term of this Agreement, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property rights (both in the United States and foreign countries) relating to Developments. Consultant shall, at Company’s expense, sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and powers of attorney, which Company may deem necessary or desirable in order to protect its rights and interests in any Developments.

 

5.2 Proprietary Information

 

5.2.1 Consultant agrees that all information, whether or not in writing, of a private, secret or confidential nature concerning Company’s products, business, business relationships or financial affairs (collectively, “Proprietary Information”) is and shall be the exclusive property of Company. By way of illustration, but not limitation, Proprietary Information may include inventions, products, processes, methods, techniques, formulas, compositions, compounds, projects, developments, plans, research data, clinical data, financial data, personnel data, computer programs, customer and supplier lists and contacts at or knowledge of customers or prospective customers of Company. Consultant will not disclose any Proprietary Information to any person or entity other than employees of Company or use the same for any purposes (other than in the performance of his duties as a consultant of Company) without written approval by an officer of Company, either during or after the Term of this Agreement.

 

5.2.2 Consultant agrees that all files, letters, memoranda, reports, records, data, sketches, drawings, laboratory notebooks, program listings or other written, photographic or other tangible material containing Proprietary Information, whether created by Consultant or others, which shall come into his custody or possession, shall be and are the exclusive property of Company to be used by Consultant only in the performance of his duties for Company.

 

5.2.3 Consultant’s obligations under this Section 5.2 shall not apply to any information that (i) is generally known to the public at the time of disclosure or becomes generally known without Consultant violating this Agreement, (ii) is in Consultant’s possession at the time of disclosure without Consultant violating this Agreement, (iii) becomes known to Consultant through disclosure by sources other than Company without such sources violating any confidentiality obligations to Company, or (iv) is independently developed by Consultant without reference to or reliance upon Company’s Proprietary Information.

 

5.2.4 Upon termination of this Agreement or at any other time upon request of Company, Consultant shall promptly deliver to Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, laboratory and research notebooks and other documents (and all copies or reproductions of such materials) containing or relating to Proprietary Information of Company. After such delivery, Consultant shall not retain any such materials or copies thereof.

 

 

 

 

5.2.5 Consultant shall immediately notify the Company of receipt by Consultant of any process, subpoena, demand, or request by any third party, requiring or requesting the production of Confidential Information, and shall, as soon as practicable but in no event later than three (3) business days from the date of such receipt, submit to the Company a copy of such process, subpoena, demand, or request and inform the Company of all circumstances relating thereto. Consultant shall take all reasonable steps to protect such Confidential Information, including, without limitation, making a motion to quash or seeking a protective order against the disclosure of such Confidential Information; provided , however , that (i) nothing in this Section 5.2.5 shall require Consultant to violate any law or court order, (ii) if a disclosure order is not quashed or a protective order is not obtained, then in response to such disclosure order, Consultant may disclose only such Confidential Information that, based upon the advice of Consultant’s counsel, is legally required to be disclosed, and (iii) Consultant shall use reasonable efforts to obtain reliable assurance that confidential treatment will be accorded by the third party to whom any Confidential Information is so disclosed.

 

5.3 Remedies

 

Consultant acknowledges that any breach of the provisions of this Section 5 shall result in serious and irreparable injury to Company for which Company cannot be adequately compensated by monetary damages alone. Consultant agrees, therefore, that, in addition to any other remedy it may have, Company shall be entitled to enforce the specific performance of the Agreement by Consultant and to seek both temporary and permanent injunctive relief (to the extent permitted by law). Company may terminate this Agreement, effective immediately upon the giving of written notice, if Consultant breaches or threatens to breach any provision of this Section 5.

 

6. Indemnification

 

Each party (the "indemnifying party") shall indemnify and hold harmless the other party (the "indemnified party") from and against any and all third party suits, claims, damages, losses and expenses (including but not limited to attorneys’ fees) (collectively, the "Claims") for bodily injury and tangible personal property damage arising directly out of indemnifying party's gross negligence or willful misconduct, or based on a breach of such party’s representations, warranties or covenants as provided in this Agreement, but not to the extent that any Claim is based upon or arises from any fault or responsibility of the indemnified party or any third party. The indemnified party shall (i) promptly notify the indemnifying party of any matters in respect of which the indemnity may apply and of which the indemnified party has knowledge; (ii) give the indemnifying party full opportunity to control the response thereto and the defense thereof, including any agreement relating to the settlement thereof, provided that the indemnifying party shall not settle any such claim or action without the prior written consent of the indemnified party (which shall not be unreasonably withheld or delayed); and (iii) cooperate with the indemnifying party, at the indemnifying party’s cost and expense in the defense or settlement thereof. The indemnified party may participate, at its own expense, in such defense and in any settlement discussions directly or through counsel of its choice on a monitoring and non-controlling basis. The obligations to indemnify, defend and hold harmless set forth above in this Section 6 will not be relieved for failure to comply with the provisions herein unless such failure materially prejudices the indemnifying party’s rights or ability to defend such Claim.

 

EXCEPT IN THE CASE OF WILLFUL MISCONDUCT, GROSS NEGLIGENCE OR FRAUDULENT BEHAVIOR OR AMOUNTS FOR WHICH A PARTY IS RESPONSIBLE TO PROVIDE INDEMNIFICATION PURSUANT TO THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY OR ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ITS RESPECTIVE AFFILIATES FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST SAVINGS, LOST PROFITS OR OTHER ECONOMIC LOSS, (OTHER THAN FEES PAYABLE TO CONSULTANT PURSUANT TO THIS AGREEMENT, WHICH THE PARTIES AGREE CONSTITUTES DIRECT DAMAGES)) OR LOSS OF RECORDS OR DATA, AS A RESULT OF OR ARISING OUT OF THIS AGREEMENT, THE PROVISION OF SERVICES HEREUNDER OR ANY OTHER MATTERS RELATING TO OR ARISING FROM THIS AGREEMENT, WHETHER SUCH CLAIM BE IN TORT, CONTRACT OR OTHERWISE, AND WHETHER OR NOT THE POSSIBILITY OF SUCH DAMAGES WAS REASONABLY FORESEEABLE OR DISCLOSED.

 

 

 

 

7. Publications

 

Consultant may not publish or publicize in any way without the prior written consent of Company, which consent Company may withhold in its sole discretion, any material or manuscript relating to the Services and/or any information or materials that Consultant received in connection with or pursuant to this Agreement or the relationship established between Consultant and Company.

 

8. Independent Contractor Status

 

Consultant shall perform all of his services under this Agreement as an “independent contractor” and not as an employee or agent of Company. Consultant is not authorized to assume or create any obligation or responsibility, express or implied, on behalf of, or in the name of, Company or to bind Company in any manner. Consultant shall not be entitled to any benefits, insurance coverage or privileges, including, without limitation, social security, unemployment, medical or pension benefits, made available to the employees of Company. Consultant agrees to take all action and comply with all applicable administrative regulations necessary for the payment by Consultant of taxes and contributions for unemployment insurance or pensions or annuities or social security payments which are measured by the wages, salaries or other remuneration paid to Consultant.

 

9. Notices

 

All notices required or permitted under this Agreement shall be in writing and shall be mailed, delivered, or faxed and confirmed in writing, addressed to the other Party at the address shown above, or at such other address or addresses as either Party shall designate to the other in accordance with this Section 8, and any such notices and other communications shall take effect at the time of receipt of the Notice.

 

10. Governing Law and Forum Selection

 

The laws of the State of Texas (without giving effect to its conflict and choice of law principles) govern all matters arising out of or relating to this Agreement, including, without limitation, its interpretation, construction, performance, and enforcement. Any dispute arising under or in connection with this Agreement or related to any matter which is the subject thereof shall be subject to the exclusive jurisdiction of the state and federal courts of Texas.

 

11. Entire Agreement; Amendment

 

This Agreement constitutes the entire agreement between the Parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. This Agreement may be amended only by a written instrument executed by Company and Consultant.

 

12. Equitable Remedies

 

Because the Services are personal and unique and because the Consultant will have access to Confidential Information of the Company, the Company will have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement.

 

13. Headings

 

The headings of sections in this Agreement are for convenience of reference only and do not affect or alter this Agreement’s construction or interpretation.

 

 

 

 

14. Successors and Assigns

 

This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors or heirs, distributees and personal representatives. Neither Company nor the Consultant may make any assignment or transfer of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; provided, however, that, upon thirty (30) days prior written notice to Consultant, the Company may assign or transfer its rights and obligations under this Agreement (i) in connection with any internal reorganization, or merger, sale or similar business combination involving all or substantially all of the Company’s assets or stock, or (ii) to an Affiliate of the Company, without obtaining the prior written consent of the Consultant. For purposes hereof, the term “Affiliate” means any person or entity which controls, is controlled by, or is under common control with the Company.

 

15. Counterparts

 

This Agreement, and any exhibits or subsequent amendment(s) attached hereto, may be executed in counterparts and the counterparts, together, shall constitute a single agreement. A facsimile transmission or electronic copy of this signed Agreement bearing a signature on behalf of a Party shall be legal and binding on such Party.

 

IN WITNESS WHEREOF, each Party is signing this Agreement on the date stated below that Party’s signature to be effective as of the Effective Date.

 

TFF PHARMACEUTICALS, INC.

 

By : /s/ Robert S. Mills   By: / s/ Glenn Mattes
Name: Robert S. Mills   Name: Glenn Mattes
Title: President   Date: April 24, 2018
Date: April 23, 2018      

 

 

 

 

Exhibit A

Scope of Services

for

Consulting

 

This Scope of Services is subject to the terms and conditions of the Consulting Agreement by and between TFF Pharmaceuticals, Inc., (“Company”), and Glenn Mattes, an individual having an address of 4524 Everview Drive, Doylestown, PA 18902, (“Consultant”), dated to be effective as of May 1, 2018 (the “Agreement”), and shall be attached to and incorporated into such Agreement as Exhibit A. This Scope of Services does not supersede the Agreement, which defines the terms and conditions of the business arrangement between Company and Consultant.

 

Consultant will be providing his services as acting CEO from the effective date until the earlier of termination of the Consulting Agreement or he becomes the permanent CEO of the Company, for $25,000 per month.  Consultant is not expecting to be provided with health benefits.  Also, Consultant will not be considered an employee of the Company while providing services under the Consulting Agreement.

 

Consultant will receive an initial option grant equal to 5% of the Company’s outstanding shares of common stock, with a strike price determined pursuant to the a valuation of the Company’s common stock performed by an independent third party valuation specialist for purposes of compliance with Internal Revenue Code Section 409A after the initial financing, and, subsequent to the IPO, will receive an additional grant to ensure that Consultant maintains at least 5% potential ownership of the Company at that time. Any subsequent sale of shares of the Company after the IPO will result in dilution of Consultant’s equity position with the Company’s other stockholders.

 

The Company will provide D&O insurance coverage for Consultant, and all Board members and Officers of the Company, of no less than $5 million.

 

ACCEPTED AND AGREED TO BY:

 

TFF PHARMACEUTICALS, INC.

 

By : /s/ Robert S. Mills   By : / s/ Glenn Mattes
Name: Robert S. Mills   Name: Glenn Mattes
Title: President & CEO   Date: April 24, 2018
Date: April 23, 2018      

 

 

Exhibit 10.10

 

COMMERCIAL LEASE

 

This form recommended and approved for, but not restricted to use by, the members of the Pennsylvania Association of Realtors ® (PAR).

 

PARTIES
TENANT(S):   TFF Pharmaceuticals, Inc. LANDLORD(S):   TanJon LLC

 

 

 

 

Authorized Signer Glenn Mattes, President & CEO Authorized Signer Jon Roberds
TENANT’S PRINCIPAL PLACE OF BUSINESS: LANDLORD’S PRINCIPAL PLACE OF BUSINESS

2801 Via Fortuna, Suite 425

Austin, TX 78746

c/o Jon Roberts

302 Sunrise Court

Chalfont, PA 18914

TENANT’S EMAIL ADDRESS:

 

LANDLORD’S EMAIL ADDRESS:

 

       

PREMISES
A portion of the real property known as Suite Number(s) 4        , Lower and First Level Office floor(s) consisting of approximately 1500 square feet and located at 20 E Court St and 2 private parking spaces . Unit(s) 4        Zip 18901 in the municipality of Doylestown Borough County of Bucks , in the Commonwealth of Pennsylvania, with improvements consisting of construction of half wall on first floor (paid by tenant); basement construction to include carpeting and three offices enclosed with dry wall and glass (paid by landlord) __________________________________________________________________________________ .

 

TENANT’S RELATIONSHIP WITH PA LICENSED BROKER

No Business Relationship (Tenant is not represented by a broker)

Broker (Company Keller Williams Real Estate - Doylestown Licensee(s) (Name) Kathleen Cranmer
Company Address

2003 S Easton Road, Ste 108

Doylestown, PA 18901

Direct Phone(s)   215-340-5700 .362
Cell Phone(s)   908-507-4049
Company Phone   215-340-5700 Fax:   215-340-6699
Company Fax   215-340-6699 Email   kdcranmer@kw.com

Broker is (check only one):

☐ Tenant Agent (Broker represents Landlord Only)

☒ Dual Agent (See Dual and/or Designated Agent box below)

Licensee(s) is (check only one):

☐ Tenant Agent (all company licensees represent Landlord)

☒ Tenant Agent with Designated Agency (only Licensee(s) named above represent Landlord)

☐ Dual Agent (See Dual and/or Designated Agent box below)

☐  Transaction Licensee (Broker and Licensee(s) provide real estate services but do not represent Landlord)
           

CL Page 1 of 21

 

 

LANDLORD’S RELATIONSHIP WITH PA LICENSED BROKER

No Business Relationship (Landlord is not represented by a broker)

Broker (Company Keller Williams Real Estate - Doylestown Licensee(s) (Name) Michael Cosdon
Company Address

2003 S Easton Road, Ste 108

Doylestown, PA 18901

Direct Phone(s) 215-340-5700
Cell Phone(s) 215-534-2873
Company Phone 215-340-5700 Fax: 215-340-6699
Company Fax 215-340-6699 Email mconsdon@kw.com

Broker is (check only one):

☐ Landlord Agent (Broker represents Landlord Only)

☒ Dual Agent (See Dual and/or Designated Agent box below)

Licensee(s) is (check only one):

☐ Landlord Agent (all company licensees represent Landlord)

☒ Landlord Agent with Designated Agency (only Licensee(s) named above represent Landlord)

☐ Dual Agent (See Dual and/or Designated Agent box below)

☐  Transaction Licensee (Broker and Licensee(s) provide real estate services but do not represent Landlord)
           

DUAL AND/OR DESIGNATED AGENCY
A Broker is a Dual Agent when a Broker represents both Tenant and Landlord in the same transaction. A licensee is a Dual Agent when a Licensee represents Tenant and Landlord in the same transaction.  All of Broker’s licensees are also Dual Agents UNLESS there are separate Designated Agents for Tenant and Landlord.  If the same Licensee is designate for Tenant and Landlord, the Licensee is a Dual Agent.
By signing this Agreement, Tenant and Landlord each acknowledge having been previously informed of, and consented to, dual agency, if applicable.

 

CL Page 2 of 21

 

 

1. LEASE DATE AND RESPONSIBILITIES

 

For and in consideration of the rents, covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, Landlord leases to Tenant, and Tenant accepts from Landlord, the Premises described above, and any riders, supplements, addenda and exhibits which are made a part of this Lease, dated 10/15/2018                  .

 

2. DEFINITIONS

 

  (A) “Additional Rent” shall mean all sums, charges or amounts of whatever nature (other than Base Rent) to be paid by Tenant to Landlord in accordance with the provisions of this Lease and any addenda including, but not limited to, taxes, water, electricity, security deposits, insurance premiums, repairs, and security services, whether or not such sums, charges or amounts are referred to as “Additional Rent.” Landlord shall have the same remedies for default in the payment for Additional Rent as for default in the payment of Base Rent.

 

  (B) “Base Rent” shall mean the minimum rent due as set forth in Paragraph 5.

 

  (C) “Common Area Maintenance” (CAM) shall mean Tenant’s pro rata share of the cost to maintain, clean or repair the common areas and amenities of the Premises as set forth in Paragraph 7.

 

  (D) “Improvements” shall mean any equipment, device, capital improvement or replacement to Landlord’s Premises (i) required to achieve economies in operating, maintaining and/or repairing the Premises; (ii) required by any governmental authority, board or agency having jurisdiction over Landlord’s Premises; or (iii) recommended or required by any insurance carrier in connection with provisions of insurance for Landlord’s Premises.

 

  (E) “Landlord” shall mean the party named above as Landlord and any subsequent person(s) who succeeds to the rights of Landlord herein, each of whom shall have the same rights and remedies as he would have possessed had he originally signed this Lease as Landlord.

 

  (F) “Operating Expenses” shall mean all expenses incurred in operating, maintaining, managing and repairing the building, land and all improvements, fixtures and equipment located thereon, including but not limited to sidewalks, parking areas, driveways and landscaping as set forth in Paragraph 7.

 

  (G) “Real Property Taxes” shall mean all ad valorem, real property, personal property or similar taxes, charges and assessments, whether general, special or otherwise, which are levied, assessed or imposed during the Term by any governmental authority upon Landlord’s Premises or any other property of Landlord, real or personal, located on Landlord’s Premises, and any increase or decrease thereof. “Real Property Taxes” shall also include any tax that shall be levied or assessed in addition to, or in lieu of, such real or personal property taxes. It shall not include federal, state or local income taxes, any franchise, estate or inheritance tax, or any real estate transfer, documentary or intangible tax imposed by reason of sale or financing on Landlord’s Premises.

 

  (H) “Rent” shall mean the total sums due and payable to Landlord.

 

  (I) “Tenant” shall mean the party named above as Tenant, as well as its or their respective heirs, personal representatives, successors and assigns, each of which shall be under the same obligations, liabilities and disabilities, and have only such rights, privileges and powers as he would have possessed had he originally signed this Lease as Tenant.

 

3. STARTING AND ENDING DATES OF LEASE (also called “Term”)

 

  (A) The Commencement Date shall be (select one):

 

☐  Substantial Completion: __________________________________________________________________
☒  Occupancy Date:   11/01/2018                                                                                                                                                  
☐  Signing Date:                                                                                                                                                                              
☐  Rent Commencement Date:  _______________________________________________________________  
☐  Other: ________________________________________________________________________________

 

CL Page 3 of 21

 

 

  (B) The Term of this Lease shall begin on the Commencement Date and expire on 10/31/2019 at midnight (“Expiration Date”). This date in subsequent years shall operate as the renewal date, if any.

 

  (C) As used in this Lease, Substantial Completion shall mean that Tenant May utilize the Premises for Tenant’s proposed use without material interference with Tenant’s business activities.

 

4. RENEWAL TERM

 

  (A) This lease will renew as indicated below unless proper notice to terminate is given. In the event that the Lease is not renewed for any reason whatsoever, and Tenant does not vacate the Premises as set forth herein, Tenant will be considered a “hold over Tenant” and the provisions of Paragraph 32 shall apply.

 

  (B) Option 1 – Automatic Termination

 

This Lease will automatically terminate at the expiration of the Term unless Landlord and Tenant enter into a written extension or renewal of the Lease prior to the last day of the Term (“Renewal Term”).

 

  (C) Option 2 – Automatic Renewal

 

  1. If neither party terminates this Lease as set forth herein, this Lease will automatically renew for ☐ _____ additional month(s) (3 if not specified) OR ☐ _____ additional year(s) (1 if not specified) (“Renewal Term”).

 

  2. It is hereby mutually agreed that either party may terminate this Lease by providing written notice to the other party no less than 90 days (90 if not specified) prior to the expiration of the Term or any subsequent Renewal Term.

 

  (D) Option 3 – Tenant’s Option to Renew

 

Landlord and Tenant agree that Tenant has the right to exercise 1 option(s) (1 if not specified) to extend the Lease, provided Tenant is not in continuing, material default or breach at the time the option is exercised. Each option shall be for a term identical to the Term identified in Paragraph 3 (“Renewal Term”). Tenant shall provide Landlord no less than 90 days (60 if not specified) written notice of Tenant’s intention to exercise its option to renew the Lease.

 

  (E) If notice of termination is given later than required, Rent is due for the entirety of the Renewal Term.

 

  (F) Any renewal will be according to the terms of this Lease unless otherwise modified in a writing signed by Landlord and Tenant.

 

  (G) At the Expiration Date or sooner termination of this Lease, Tenant shall peaceably surrender to Landlord possession of the Premises in the same condition as it is hereby required to be kept by Tenant, excepting reasonable wear and tear and changes in condition due to fire or other casualty.

 

  1. Tenant may remove its trade fixtures from the Premises and shall repair any damage to the Premises caused thereby. Tenant may not remove any alterations, additions or improvements other than trade fixtures. Such alterations, additions or improvements shall become the property of Landlord as of the Expiration Date or sooner termination of this Lease. Lighting fixtures, heating and air conditioning equipment, plumbing and electrical systems and fixtures, and floor coverings shall not be deemed to be trade fixtures whether installed by Tenant or by anyone else, and shall not be removed from the Premises by or on behalf of Tenant at any time.

 

CL Page 4 of 21

 

 

  2. Landlord may, in Landlord’s sole discretion, conduct an inspection of the Premises. Landlord shall provide written notice to Tenant of the date of the inspection so that representatives of both Landlord and Tenant may attend. Following such inspection, Landlord shall provide Tenant with written notice within _____ days (10 if not specified) of such inspection setting forth those conditions for which Tenant is responsible to repair or restore under the Lease.

 

  3. Tenant may, at Tenant’s election, either (i) make such repairs or restorations; or (ii) notify Landlord that Tenant desires Landlord to perform such repairs and restorations at Landlord’s actual, reasonable costs. If Tenant elects not to perform the repairs and restorations, Tenant shall pay Landlord’s actual, reasonable costs promptly after receiving notice that Landlord has completed the same. Such notice shall include an invoice or other record setting forth, in reasonable detail, Landlord’s actual costs of repairs and restorations.

 

5. BASE RENT

 

  (A) Rent is due without demand, abatement, deduction or set-off at the address set forth on Page 1 of this Lease, unless otherwise stated.

 

  (B) Base Rent shall be paid in ☒ monthly ☐ quarterly ☐ annual ☐ other: _________________________ installments of $ 3500 (Year One) on or before the 1st day of each ☒ month ☐ quarter ☐ other: _______________ (“Due Date”).

 

  (C) Base Rent shall be calculated as $_______________/sq. ft. OR $_______________ per month amounting to Base Rent of $ 42,000 (Year One)                     (U.S. Dollars) per year.

 

☐ If checked, Base Rent is subject to an incremental rent increase during the Term of this Lease. Each increase in Base Rent owed to Landlord will be no more than _______% or $_______________ in each instance and, following proper notice to Tenant, will take effect on the anniversary of the Commencement Date set forth in this Lease unless otherwise stated here: __________________________.

 

  (D) Any Base Rent installment, Additional Rent, or any other payment not received by Landlord within _______ days (5 if not specified) of the Due Date shall be subject to a late charge of _______% of the installment due or $_______ (“Late Charge”).

 

  (E) Tenant agrees that all payments will be applied against outstanding Additional Rent that is due before they will be applied against the current Base Rent due. When there is no outstanding Additional Rent, payment will be applied to the month’s Base Rent that is currently due.

 

  (F) Landlord will accept the following methods of payment: ☐ Cash ☐ Money Order ☐ Personal Check ☐ Credit Cards (additional fees may apply) ☐ Cashier’s Check ☒ Other: Wired Funds . Landlord, at Landlord’s sole discretion, reserves the right to change or modify the acceptable methods of payment if any method fails (a check is returned or not honored, credit card is declined, etc.), by providing Tenant with notice not less than ten (10) days before the next Base Rent installment is due.

 

  (G) Tenant will pay a fee of $ 100 for any payment that is returned or declined by any financial institution for any reason. Notwithstanding any other provisions in this Lease, if payment is returned or declined, Late Charges will be calculated from the Due Date. Any late charges will continue to apply until a valid payment is received.

 

CL Page 5 of 21

 

 

6. SECURITY DEPOSIT

 

  (A) A security deposit of $ 3500 will be paid in U.S. Dollars to Landlord or Landlord’s representative, and held in escrow by Landlord or Landlord’s representative as named here: ________________________.

 

  (B) The Security Deposit will be held for the performance by Tenant of all of its covenants, obligations and agreements set forth in this Lease, but in no event shall Landlord be obligated to apply the Security Deposit to Rent or other charges in arrears, or damages for Tenant’s default hereunder; however, Landlord may so apply the Security Deposit at its option. Landlord’s right to possess the Premises for Tenant’s default, or other such reason, shall not be affected by the fact that Landlord holds the Security Deposit.

 

  (C) The Security Deposit, if not so applied by Landlord, shall be returned to Tenant within 60 (60 if not specified) days after this Lease terminates, provided that Tenant has vacated the Premises and delivered the same to Landlord as herein provided.

 

  (D) In the event of any transfer of Landlord’s interests in the Premises, Landlord shall have the right to transfer its interest in the Security Deposit following proper notice to Tenant, whereupon Landlord shall be released of all liability with respect to such a Security Deposit, and Tenant shall look solely to such transferee for the return of the same in accordance with the terms of the Lease.

 

7. ADDITIONAL RENT

 

  (A) As Additional Rent and/or costs, Tenant agrees to timely pay all or Tenant’s proportionate share of the following:

 

☐  Common Area Maintenance (CAM)
☐  Improvements
☐  Real Property Taxes
☐  Operating Expenses

 

  (B) Tenant’s pro rata share of CAM expenses are 0.0 % (100 if not specified) of the total cost. Upon demand for payment, Landlord is required to submit to Tenant an accounting statement which documents the actual cost of the CAM expenses. Tenant is hereby notified that CAM expenses may fluctuate and are subject to modification based upon actual charges.

 

  (C) Unless otherwise indicated, Tenant agrees to pay all Operating Expenses, including but not limited to outdoor maintenance, utilities, service contracts, insurance, structural maintenance and repairs, and government assessments. Those Operating Expenses included in CAM will be paid by Tenant according to Paragraph 7(B), above.

 

8. PAYMENT SCHEDULE

 

      Total Due     Due Date   Paid     Balance Due
  (A)     First month’s Base Rent:   $ 3,500     10/22/2018   $                    $
  (B)     Security Deposit   $ 3,500     10/22/2018   $        $
  (C)     Additional Rent:   $ 3,500     10/22/2018   $        $
  (D)     Other   $             $        $
             TOTALS:   $ 10,500                  

 

CL Page 6 of 21

 

 

9. SIGNS

 

  (A) All signs are subject to approval of Landlord, in its sole discretion. In addition, all signs must be in accordance and comply with, and if needed, be approved by, Doylestown Borough (municipality) and any other necessary governmental authority, prior to installation. Upon request of Landlord, Tenant shall provide Landlord with a scaled drawing of the sign, including colors, for Landlord’s approval.

 

  (B) Tenant shall remove all signs upon the expiration or earlier termination of the Lease, and such removal shall be at Tenant’s sole cost and expense. Tenant shall repair any damage and fill any holes caused by such removal. In the event of a breach of this Lease, and in addition to all other remedies given to Landlord, Landlord shall have the privilege and right to remove any and all signs and restore the Premises to its prior condition, and Tenant shall be liable for any and all expenses so incurred by Landlord.

 

10. LANDLORD’S REPRESENTATIONS

 

Landlord warrants and represents that:

 

  (A) As of the date of execution and during the term of this Lease, and any extensions or renewals thereto, Landlord has the full power and authority to execute and deliver this Lease, and to perform its obligations under this Lease.

 

  (B) As of the date of execution and during the term of this Lease, and any extensions or renewals thereto, none of the terms, conditions or obligations of this Lease shall be precluded by or cause a breach of any other agreement, mortgage, contract or other instrument or document to which Landlord is a party.

 

  (C) Upon paying Rent and performing its obligations as required under this Lease, Tenant shall be permitted to peaceably and quietly have, hold and enjoy the Premises.

 

  (D) As of the Occupancy/Commencement Date, all exterior portions of the Premises, including any paved areas, parking areas and sidewalks, shall be in satisfactory condition and repair, and usable for the purposes intended.

 

11. ACCEPTANCE, POSSESSION

 

  (A) By taking possession of the Premises, Tenant affirms and represents that the Premises is in good and tenable condition, meets Tenant’s needs for the use set forth in Paragraph 13, and that all work that was to be performed by Landlord pursuant to the terms of this Lease, if any, has been substantially completed. By taking possession, Tenant is accepting the Premises in “as is” condition.

 

  (B) If Landlord is unable to give Tenant possession of the Premises on the Occupancy Date by reason of the holding over of a previous occupant or due to any cause beyond Landlord’s control, Landlord shall not be liable in damages to Tenant. During the period that Landlord is unable to give possession, all rights and remedies of both parties, including Tenant’s obligation to pay Rent, shall be suspended.

 

CL Page 7 of 21

 

 

  (C) If Tenant cannot take possession within 0 days (60 if not specified) of the Occupancy Date, Tenant’s exclusive rights are to:

 

  1. Change the Occupancy Date of the Lease to the day when Premises is available. Tenant will not owe or be charged Base Rent until Property is available; OR

 

  2. Terminate the Lease and have all money already paid as Rent, Additional Rent or Security Deposit returned, with no further liability on the part of Landlord or Tenant.

 

12. GOVERNMENTAL REGULATIONS

 

Tenant shall, in the use and occupancy of the Premises, comply with all applicable laws, ordinances, notices and regulations of all governmental and municipal authorities, and with the regulations of the insurers of the property. Tenant shall keep in force at all times all licenses, consents and permits necessary for the lawful conduct of Tenant’s business at the Premises. Nothing in the foregoing shall require Tenant to perform any work or make any improvements or repairs that Landlord is required to make pursuant to other provisions of this Lease.

 

13. TENANT’S USE AND COVENANTS

 

  (A) Tenant shall use the Premises only for  Commercial Office Space                                                                                           __                                                                                        and in accordance with the use permitted under all applicable Federal, State and municipal laws, ordianances and regulations. In the event Tenant should elect to change the use of the Premises from what is identified herein, Tenant shall be permitted to do so, subject to Landlord’s prior written consent.

 

  (B) Tenant shall not bring into, use or permit to be kept on the Premises any dangerous, explosive, toxic, hazardous or obnoxious substance. Tenant will not maintain any hazardous substance or pollutant or contaminate as defined in 42 U.S.C. § 9601, et seq., or any hazardous substance, material and/or waste, including solid, liquid or gaseous materials, which are defined to be hazardous under any applicable federal, state or local laws, regulations or administrative or judicial decisions. Tenant shall indemnify and hold harmless Landlord from any and all liability for costs of remediation resulting from Tenant’s violation of this Paragraph. This indemnification is intended to survive the expiration or other termination of this Lease.

 

  (C) Tenant agrees that it will comply with all laws, ordinances, codes, orders, rules and/or regulations, requirements of any governmental body, agency, department, board or similar organization that has jurisdiction over the Premises, arising out of or affecting Tenant’s use and occupancy of the Premises or the business conducted therein.

 

  (D) Tenant covenants and agrees that Tenant, its employees, agents, invitees, licensees and other visitors, as permitted under this Lease, shall observe faithfully and comply strictly with such reasonable Rules and Regulations as Landlord or Landlord’s agents may, after written notice to Tenant, from time-to-time adopt with respect to the building, property or Premises.

 

Rules and Regulations for use of the property and common areas are attached and made part of this Lease.

 

  (E) Tenant may not do or permit anything to be done in or about the Premises that will in any way obstruct or interfere with the rights of other tenants on the property, or injure or annoy them; use or allow the Premises to be used for any improper, illegal or objectionable purpose; cause, maintain, or permit any nuisances in, on or about the Premises; or commit or allow to be committed any waste in, on or about the Premises.

 

CL Page 8 of 21

 

 

14. ASSIGNMENT AND SUBLETTING

 

  (A) Tenant shall not assign, mortgage, pledge or otherwise transfer or encumber this Lease or the Premises, nor subject or permit any part of the Premises to be occupied by any other person, firm or corporation other than Tenant or its employees, invitees, agents and servants, without Landlord’s prior written approval, which approval shall be in Landlord’s sole but reasonable discretion.

 

  (B) In the event Landlord approves Tenant’s request for assignment and/or subletting, each assignee or sublessee of Tenant’s interest shall assume and be deemed to have assumed this Lease, and shall be and remain liable jointly and severally with Tenant for all payments, and for the due performance of all terms, covenants, conditions and provisions contained in this Lease.

 

  (C) No assignment or subletting shall be binding upon Landlord unless the assignee or subtenant shall deliver to Landlord an instrument in recordable form containing a covenant of assumption by the assignee or sublessee, but the failure or refusal of an assignee or sublessee to execute the same shall not release the assignee or sublessee from its liability as set forth herein.

 

15. TENANT’S ALTERATIONS AND REPAIRS

 

  (A) Tenant shall not, without first obtaining Landlord’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed) on each occasion, make any improvements or repairs to the Premises. Tenant may, without the consent of Landlord, make minor improvements or repairs to the interior of the Premises provided that:

 

  1. Each repair costs no more than $______________ ($1,000.00 if not specified),

 

  2. They do not impact the structural strength, integrity, operation or value of the building, AND

 

  3. Tenant shall take all steps required or permitted by law to avoid the imposition of any mechanics’ lien upon the property, improvements, or land.

 

  (B) Improvements consisting of equipment, devices or improvements required by a governmental authority, board or agency in connection with Tenant’s Permitted Use shall be at the sole cost and expense of Tenant, and Tenant shall remove same at the termination of the Lease.

 

  (C) All other alterations, improvements and additions, except for minor alterations and improvements, become part of the Premises and are the property of Landlord without payment therefor by Landlord, and shall be surrendered to Landlord at the end of the Term or any Renewal Term.

 

  (D) If, prior to the end of the Term or Renewal Term, Tenant provides written notice to Landlord that Tenant intends to remove all or any such alterations and improvements made by Tenant during its occupancy, or the parts thereof specified by Landlord, from the Premises, Tenant shall repair all damage caused by installation and removal.

 

  (E) All work shall be performed in a workmanlike manner.

 

CL Page 9 of 21

 

 

16. MECHANICS’ LIENS

 

  (A) Should any mechanics’ lien or other lien be filed against the property or any part thereof by reason of construction, alteration, addition, improvement or installation performed by or on behalf of Tenant, or is a result of Tenant’s acts or omissions, Tenant shall, within _______ days (30 if not specified) following receipt of notice of the existence of such lien, cause the same to be cancelled and discharged of record.

 

  (B) If Tenant has not paid or desires to contest any claim of lien, Tenant agrees to indemnify and hold Landlord harmless from, and defend Landlord against any liability, loss, damage, costs and all related expenses (including reasonable attorneys’ fees and costs) arising out of Tenant’s non-payment or contest of such liens. Tenant shall also execute such indemnity agreements as would be necessary to induce a title company to insure over any such lien. Tenant shall not be obligated to update Landlord’s title insurance policy at the time of the contest.

 

  (C) If final judgment establishing the validity or existence of any contested lien is entered, Tenant shall pay and satisfy the same at once.

 

17. LANDLORD’S RIGHT TO ACCESS

 

In addition to any other rights reserved to Landlord under this Lease, Landlord shall have the following rights to access the Premises.

 

  (A) With Landlord’s prior consent, Tenant shall have the right to install various locks on and within the Premises. Tenant shall furnish Landlord with copies of any such keys or combinations to provide access only in the event of an emergency or as otherwise set forth in this Lease. Tenant shall have a continuing obligation for the duration of the Lease, and any extensions thereto, to provide Landlord with any keys and/or passcodes necessary to enter the Premises.

 

  (B) Landlord and its agents, contractors and invitees shall have the right to enter the Premises any reasonable time and after reasonable notice (i) for inspection; (ii) to supply any service that Landlord is obligated to provide under the terms and conditions of this Lease; (iii) to show the Premises to prospective buyers, lenders or tenants; (iv) to affix and display “For Sale” or “For Rent” signs; and (v) to make repairs, alterations, additions or improvements to the Premises or other portion of Landlord’s Property, which the examination or exhibition in making of any repairs to the Premises shall not unreasonably interfere with Tenant’s use.

 

  (C) When possible, Landlord will give Tenant _______ hours (24 if not specified) notice of the date, time and reason for the visit. In emergencies, Landlord may enter the Premises without notice. If Tenant is not present, Landlord will notify Tenant who was there and for what purpose within _______ hours (24 if not specified) of the visit.

 

  (D) Landlord shall not be liable in any manner to Tenant by reason of such entry or performance of repairs, alterations and/or additions to the Premises, and the obligations of Tenant hereunder shall not be affected, absent grossly negligent or intentional actions or failures to act attributable to Landlord, or any person or entity engaged by or on behalf of Landlord to perform such work. Landlord agrees (except in the case of Tenant’s default hereunder) that all repairs, alterations and additions (excepting only emergency work or work that must, in Landlord’s judgment, be performed on an urgent basis) by Landlord shall be performed in a reasonable manner at reasonable times, subject to the limitations contained herein.

 

CL Page 10 of 21

 

 

  (E) Following notice from either Party of intention to terminate or not renew this Lease, or failure of Tenant to exercise its option to renew this Lease, Landlord may commence efforts to market the Premises which may include placing a “For Rent” sign on or near the Premises. All of said signs shall be placed upon such part of the Premises as Landlord may elect, and may contain such information as Landlord shall require. Landlord or Landlord’s representative may use lock boxes, and take pictures and video of the Premises. Prospective purchasers or tenants may inspect the Premises at such times as the parties may agree, so long as they are accompanied by Landlord or Landlord’s representative.

 

18. INDEMNIFICATION

 

  (A) Beginning on the Commencement Date and continuing throughout Tenant’s possession of the Premises, Tenant shall indemnify Landlord, its partners, directors, officers, agents and employees from and against any and all losses, whether or not based on negligence, costs (including reasonable attorneys’ fees), claims, damages, liabilities, suits, actions and causes of action, whether legal or equitable, sustained or arising by reason of Tenant’s default in any of its obligations under this Lease, or of the fault or neglect of Tenant or of the failure of Tenant or any of its officers, agents, employees or invitees, to fulfill any duty toward the public or to Landlord under this Lease, or to any person or persons whomever, that Tenant, by reason of its occupancy or use of the Premises may owe.

 

  (B) Beginning on the Commencement Date and continuing throughout Tenant’s possession of the Premises, Landlord shall indemnify, defend and hold Tenant harmless from and against any and all third-party claims, suits and causes of action, whether legal or equitable, and costs (including reasonable attorneys’ fees) sustained or arising by reason of the intentional or grossly negligent acts or omissions of Landlord, its employees, agents, licensees or contractors.

 

  (C) This Paragraph shall survive the expiration or earlier termination of this Lease with respect to any occurrence that occurs prior to the expiration or such earlier termination of the Term or exercised Renewal Term.

 

19. INSURANCE

 

  (A) Tenant, at Tenant’s expense, shall obtain comprehensive general liability insurance coverage against any and all claims for injuries to persons or property occurring on the Premises by reason of Tenant’s use, occupancy or operation in and on the Premises. No later than the Signing Date, Tenant will provide Landlord with written documentation of said insurance coverage showing that the Premises will be insured as of the Commencement Date set forth in Paragraph 3(A). Tenant shall maintain insurance coverage throughout the Term of this Lease, and any Renewal Term(s).

 

  (B) Such insurance shall include Landlord as an additional insured and shall require at least 30 days (30 if not specified) advance written notice of cancellation or nonrenewal be given to Landlord. Such insurance shall, at all times, provide coverage in an amount not less than $ 1,000,000.00 ($1,000,000.00 if not specified) in the aggregate. The policy or policies of Tenant’s liability insurance shall provide that a covered loss will be paid notwithstanding any act or negligence of Landlord or Tenant, and for payment of claims on an occurrence basis.

 

  (C) Tenant agrees to keep its property located on the Premises insured, including all floor and wall coverings, and Tenant’s trade fixtures, equipment and other personal property from time-to-time situated on the Premises. The amount of coverage shall be such as determined by Tenant to adequately compensate Tenant for its loss, and if the proceeds of such insurance are not used for repair or replacement of the property so insured, or if this Lease is terminated following a casualty, the proceeds applicable to the leasehold improvements shall be paid to Landlord and the proceeds applicable to Tenant’s personal property shall be paid to Tenant.

 

CL Page 11 of 21

 

 

  (D) Landlord will notify Tenant of any recommendations made by Landlord’s insurance carrier, as well as any codes or standards recommended by the National Fire Protection Association (“NFPA”) which, in Landlord’s sole but reasonable opinion, are relevant to the terms of the lease, and Tenant shall comply with any and all such reasonable recommendations. Landlord acknowledges that no NFPA codes or standards are currently recommended and Landlord is not aware of any imminent recommendations, unless set forth here: ____________________________

________________________________________________________________________________________________

________________________________________________________________________________________________

 

  (E) Tenant will comply with all reasonable recommendations made by Landlord’s insurance carrier, Tenant’s insurance carrier, or with NFPA codes or standards that have been reasonably recommended. Tenant will not do, nor permit anything to be done, or neglect to do anything, or prevent anything to be brought onto the Premises that will (i) cause an increase in the premium that may be charged during the Term of this Lease on any fire or extended coverage insurance carried on the structure, or (ii) cause any increase in the premiums that may be charged during the Term of this Lease on any fire and/or extended coverage insurance carried on the structure and exterior of the property. If, by any reason of any act or omission of Tenant, the fire and extended coverage insurance premiums are increased, Tenant shall pay, as Additional Rent hereunder, the amount by which the premiums are increased. Landlord will notify Tenant of any NFPA codes or standards that are recommended, and of any notices it received concerning changes in rates.

 

20. DESTRUCTION OR DAMAGE

 

  (A) If, during the Term of this Lease or any extension thereto, the Premises is damaged by fire or any other casualty, including, without limitation, natural disaster, and not occurring through the intentional or negligent acts or omissions of Tenant or those claiming under Tenant, or their employees respectively, Tenant shall promptly notify Landlord and Landlord shall repair the damaged portions of the Premises, including any improvements or alterations made by Landlord (but not any of Tenant’s property therein or improvements or alterations made by Tenant). If, however, in Landlord’s reasonable judgment, the damage would require more than _______ days (120 if not specified) of work to repair, or if the insurance proceeds (excluding rent insurance) that Landlord anticipates receiving must be applied to repay any mortgages encumbering the improvements, or are otherwise inadequate to pay the costs of such repair, Landlord shall have the right to terminate this Lease by so notifying Tenant. Such notice shall specify a termination date not less than _______ days (30 if not specified) after its receipt by Tenant.

 

  (B) If the damage to the Premises is only partial and such that the Premises can be restored to its former condition within a reasonable time, Landlord may enter and repair, and this Lease shall not be affected, except that Base Rent shall be apportioned and suspended while such repairs are being made. If the Premises is so slightly damaged by fire or other casualty as mentioned above so as not to render the Premises unfit for occupancy, Landlord agrees the same shall be promptly repaired.

 

  (C) Landlord shall not be liable for any damage, compensation or claim by reason of inconvenience or annoyance from the necessity of repairing any portion of the Premises, or improvements thereon, the interruption and the use of the Premises, or the termination of this Lease by reason of the destruction of the Premises.

 

CL Page 12 of 21

 

 

21. FORCE MAJEURE

 

If either Party should be delayed or hindered, or prevented from performing any of the acts required in this Lease by reason of war, fire or other casualty, acts of terrorism, natural or environmental disasters, strike, walk-out, labor trouble, shortage of materials or equipment, or the inability to procure the same, failure of power, restrictive government laws or regulations, riot, insurrection, declaration of martial law, or other causes beyond the reasonable control of the party delayed, the performance of such act shall be excused for the period of such delay. This Paragraph shall not excuse Tenant, after the Commencement Date, from a timely payment of Rent or any other amounts required under this Lease.

 

22. CONDEMNATION/EMINENT DOMAIN

 

  (A) In an instance of total condemnation, where all of the property is taken through an exercise of the power of eminent domain, this Lease shall terminate on the date when possession of the property was acquired by the condemning authority. The right to terminate this Lease under this Paragraph may be exercised by either party so notifying the other party in writing not later than _______ days (30 if not specified) prior to such date.

 

  (B) In an instance of partial condemnation, Landlord shall have the right to terminate this Lease on the date when the condemned portion of the Premises is to be delivered to the condemning authority and neither party shall have any further responsibility or liability under this Lease or to the other where only part of the Premises is taken and:

 

  1. The condemnation award is insufficient to restore the remaining portion of the Premises, or if such award must be applied to repay any mortgages encumbering improvements on the property, OR

 

  2. In addition to a portion of the Premises, a portion of the improvements or land is taken and Landlord deems it commercially unreasonable to continue leasing all or a portion of the remaining space and the improvements.

 

  (C) In an instance of partial condemnation, Tenant shall have the right to terminate this Lease on the date when the condemned portion of the Premises is to be delivered to the condemning authority and neither party shall have any further responsibility or liability under this Lease or to the other where a substantial portion of the Premises is so taken and it is commercially impossible for Tenant to continue its business within the Premises.

 

  (D) If this Lease is not terminated after a partial condemnation, then after the date when the condemned portion of the Premises is delivered to the condemning authority, the Rent shall be reduced in the proportion that the condemned area bears to the entire area of the Premises.

 

  (E) Tenant shall have the right to claim against the condemning authority only for removal and moving expenses and business relocation damages that may be separately payable to Tenant in general under Pennsylvania law, provided such payment does not reduce the award otherwise payable to Landlord. Subject to the foregoing, Tenant hereby waives all claims against Landlord with respect to a condemnation, and hereby assigns to Landlord all claims against the condemning authority including, without limitation, all claims for leasehold damages and diminution in value of Tenant’s leasehold estate.

 

CL Page 13 of 21

 

 

23. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT; ESTOPPEL CERTIFICATES

 

  (A) This Lease shall be subject and subordinate at all times to the lien of any mortgages and other encumbrances now or hereafter placed upon the Premises or property. Tenant shall execute and deliver to Landlord upon demand an instrument acceptable to Landlord subordinating this Lease to the lien of any present or future mortgage or encumbrance as may be requested by any mortgagee of the property. At the request of any holder of any such mortgage, or the purchase of such mortgage at any foreclosure sale, or at any sale under a power of sale contained in such mortgage, Tenant shall attorn to and recognize such mortgagee or purchaser as Landlord under this Lease for the balance of the Term, including any renewal or extensions hereof subject to all the terms of this Lease. Provided that Tenant is not in default of this Lease, its tenancy shall not be disturbed by Landlord, but shall continue in full force and effect. Landlord agrees to use reasonable efforts, but shall not be obligated to obtain from any future mortgagee a non-disturbance agreement for the benefit of Tenant on a form customarily issued by such mortgagee.

 

  (B) Tenant shall, from time-to-time, execute and deliver within _______ days (5 if not specified) following receipt of a request from Landlord or Landlord’s mortgagee, grantee or lessor, a recordable instrument evidencing such subordination and Tenant’s agreement to attorn to the holder of such prior right. Notwithstanding the foregoing, any mortgagee may, at any time, subordinate its mortgage to this Lease, without Tenant’s consent, but with notice in writing to Tenant, whereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates. The term “mortgage” includes mortgages, deeds of trust, or similar instruments, and all modifications, consolidations, extensions, renewals or replacements hereof, or substitutes therefor.

 

  (C) On or before the date Tenant first takes possession of the Premises, Tenant agrees to execute and cause all guarantors to execute, a tenant acceptance certificate and an estoppel letter in such form as Landlord may reasonably request.

 

24. DEFAULT

 

  (A) Any of the following events shall constitute a default under this Lease by Tenant:

 

  1. Failure by Tenant to pay, when due, any Rent or any other sum payable by Tenant under this Lease within _______ days (10 if not specified) after written notice by Landlord to Tenant that such sum is past due.

 

  2. Tenant vacates the Premises before the proper termination of this Lease, including any Renewal Term.

 

  3. Tenant fails to observe or perform any of Tenant’s other obligations as set forth in this Lease.

 

  4. Tenant commits an act of bankruptcy or files a petition, or commences any proceedings under any bankruptcy or insolvency law.

 

  5. A petition is filed or a proceeding is commenced against Tenant under any bankruptcy or insolvency law, and is not dismissed within sixty (60) days.

 

  6. Tenant is adjudicated bankrupt.

 

  7. A receiver or other official is appointed for Tenant, or for a substantial part of Tenant’s assets, or for Tenant’s interest in this Lease.

 

  8. Any attachment or execution is filed or levied against a substantial part of Tenant’s assets or Tenant’s interest in this Lease, or any of Tenant’s property on the Premises that is not insured.

 

  (B) If Landlord fails to observe or perform any of Landlord’s obligations as set forth in this Lease and Tenant has given Landlord not less than _______ days (30 if not specified) written notice of the default, or if the default is of a character so that more than _______ days (30 if not specified) to cure are required and Landlord fails to use its best efforts to cure the default after receiving notice from Tenant, then after such _______ days (30 if not specified) notice, Tenant shall have the right, but not the obligation, to cure the default on behalf of Landlord, at the expense of Landlord, and may seek reimbursement from Landlord by means of any available legal process.

 

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25. NOTICE OF DEFAULT

 

  (A) Notwithstanding anything to the contrary in this Lease, and except in connection with the provisions of Paragraph 24(A)(2), (4), (5), (6), (7), or (8) for which no notice or cure period shall be given or permitted, if Tenant has failed or refused to perform, or has violated any of the non-monetary terms, covenants, conditions or agreements contained in this Lease, Landlord shall so notify Tenant in writing.

 

  (B) Upon receiving such Notice of Default, Tenant shall correct the matter(s) complained of within _______ days (30 if not specified) after receipt of written notice, or if more than such ______ days (30 if not specified) are required to correct with reasonable diligence the matter(s) complained of in such notice, Tenant shall begin to correct them within such _______ days (30 if not specified) and pursue such corrective action with reasonable diligence thereafter, providing Landlord with timely written confirmation thereof Tenant shall diligently follow through with such correction(s) to conclusion.

 

  (C) In the event the default is a failure to pay Rent or other monetary obligations contained in this Lease, Landlord shall provide written notice within _______ business days (5 if not specified) of a right to cure, and Tenant’s right to cure shall exist no more than _______ times (2 if not specified) in any _______-month (12 if not specified) period, and such payment shall include the Late Charge(s).

 

26. WAIVER OF NOTICE

 

Tenant hereby waives all rights to legal notice, whether provided by statute or common law, and agrees that prior written notice delivered as provided herein with respect to proceedings to recover possession in the event of default, at any time shall be sufficient.

 

27. RIGHT TO CURE

 

If Tenant shall default in performing any of its obligations under this Lease, Landlord may (but shall not be obligated), in addition to Landlord’s other rights and remedies, and without waiver of such default, cure such default on behalf of Tenant, thereby entering and possessing the Premises if deemed necessary by Landlord, provided that Landlord shall have first given Tenant notice of such default and Tenant shall have failed within _______ days (30 if not specified) following receipt of said notice to cure or diligently pursue the cure of said default (which notice and opportunity to cure shall not be required in case of actual emergency). Tenant, upon demand of Landlord, shall reimburse Landlord for all actual costs (including reasonable attorneys’ fees) incurred by Landlord with respect to such default and, if Landlord so elects, Landlord’s efforts to cure the same.

 

28. ALTERNATIVE DISPUTE RESOLUTION

 

  (A) Landlord and Tenant agree to cooperate by supporting and fully participating in all efforts to resolve disputes, complaints, claims and other problems that arise or are related to this Lease through mediation and, if not successfully resolved, then through binding arbitration in accordance with the principles of the Uniform Arbitration Act, 42 Pa. C.S.A. §7301, et seq., and other related laws of the Commonwealth of Pennsylvania. The parties make the foregoing commitment with full knowledge that by agreeing to submit disputes to binding arbitration, the parties are agreeing not to resort to the courts or the judicial system, and are waiving their rights to do so.

 

  (B) When submitting a dispute to a mediator, the parties shall agree upon one mediator from a list of mediators available through the local court or local Federal district court or through such other agency as the parties may mutually agree. The parties agree to share all expenses of mediation equally.

 

  (C) Should the parties not be able to resolve their dispute through mediation, each party will voluntarily submit to binding arbitration and shall appoint their own arbitrator. These arbitrators shall select a mutual third arbitrator, thus forming an “Arbitration Panel” that will then proceed to schedule the matter for disposition. In the event that the individual arbitrators are unable to agree on a neutral arbitrator, either party shall have the right to petition the local Court of Common Pleas to appoint a neutral arbitrator. In order to initiate the binding arbitration process, either party will submit a written request for arbitration to the other party, within a reasonable time following the unsuccessful mediation of their dispute. If the parties are unable to agree upon a location for arbitration, then the arbitration will be held at the local courthouse.

 

CL Page 15 of 21

 

 

29. LANDLORD’S REMEDIES

 

  (A) CONFESSION OF JUDGMENT/EJECTMENT - IN THE EVENT THAT, AND WHEN THIS LEASE SHALL BE DETERMINED BY TERM, COVENANT, LIMITATION OR CONDITION BROKEN AS AFORESAID, DURING THE LEASE TERM, AND ALSO WHEN AND AS SOON AS THE LEASE TERM HEREBY CREATED SHALL HAVE EXPIRED, IT SHALL BE LAWFUL FOR ANY ATTORNEY, AS ATTORNEY FOR LANDLORD, TO CONFESS JUDGMENT AND EJECTMENT IN ANY COMPETENT COURT AGAINST TENANT AND ALL PERSONS CLAIMING UNDER TENANT FOR THE RECOVERY BY LANDLORD OF POSSESSION OF THE PREMISES, WITHOUT ANY LIABILITY ON THE PART OF THE SAID ATTORNEY, FOR WHICH THIS LEASE SHALL BE A SUFFICIENT WARRANT. WHEREUPON, IF LANDLORD SO DESIRES, A WRIT OF POSSESSION WITH CLAUSES FOR COSTS MAY ISSUE FORTHWITH, WITH OR WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER. IF FOR ANY REASON AFTER SUCH ACTION HAS BEEN COMMENCED, THE SAME SHALL BE DETERMINED AND THE POSSESSION OF THE PREMISES REMAINS IN OR RESTORES TO TENANT, LANDLORD SHALL HAVE THE RIGHT IN THE EVENT OF ANY SUBSEQUENT DEFAULTS TO CONFESS JUDGMENT IN EJECTMENT AGAINST TENANT IN THE MANNER AND FORM HEREIN AND BEFORE SET FORTH, TO RECOVER POSSESSION OF THE PREMISES FOR SUCH SUBSEQUENT DEFAULT. NO SUCH DETERMINATION OF THIS LEASE NOR RECOVERING POSSESSION OF THE PREMISES SHALL DEPRIVE LANDLORD OF ANY REMEDIES OR ACTION AGAINST TENANT FOR RENT OR FOR DAMAGES DUE OR TO BECOME DUE FOR THE BREACH OF ANY CONDITION OR COVENANT; NOR THE RESORTS TO ANY WAIVER OF THE RIGHT TO INSIST UPON THE FORFEITURE, AND TO OBTAIN POSSESSION IN THE MANNER PROVIDED HEREIN.

 

  (B) AFFIDAVIT REQUIRED - IN ANY ACTION IN EJECTMENT, LANDLORD SHALL FIRST CAUSE TO BE FILED IN SUCH ACTION AN AFFIDAVIT MADE BY IT OR SOMEONE ACTING FOR IT, SETTING FORTH THE FACTS NECESSARY TO AUTHORIZE THE ENTRY OF JUDGMENT OF WHICH FACTS SUCH AFFIDAVIT SHALL BE CONCLUSIVE EVIDENCE; AND IF A TRUE COPY OF THIS LEASE IS FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY, ANY RULE OF COURT, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING.

 

  (C) Tenant releases Landlord and to any and all who appear for Landlord, from all procedural errors in said proceedings. Except as set forth above, Tenant expressly waives the benefits of laws, now or hereinafter enforced, exempting any goods on the Premises, or elsewhere from distraint, levy, or sale in any legal proceeding taken by Landlord to enforce any rights under this Lease.

 

  (D) No act or forbearance by Landlord shall be deemed a waiver or election of any right or remedy by Landlord with respect to Tenant’s obligations hereunder, unless and to the extent that Landlord shall execute and deliver to Tenant a written instrument to such effect, and any such written waiver by Landlord shall not constitute a waiver or relinquishment for the future of any obligation of Tenant. Landlord’s acceptance of any payment from Tenant (regardless of any endorsement on any check or writing accompanying such payment) may be applied by Landlord to Tenant’s obligations then due hereunder in any priority as Landlord may elect, and such acceptance by Landlord shall not operate as an accord and satisfaction, or constitute a waiver of any right or remedy of Landlord with respect to Tenant’s obligations hereunder. All remedies provided to Landlord herein shall be cumulative.

 

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30. PAYMENT OF TENANTS OBLIGATIONS BY LANDLORD

 

All terms, covenants, agreements and conditions to be performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense. If Tenant fails to pay any sum of money, other than Rent, required to be paid by Tenant under this Lease, or if Tenant shall fail to perform any other act that it is obligated to perform under this Lease, and if such failure(s) shall continue beyond any grace period or cure period as set forth in this Lease, Landlord may, without waiving or releasing Tenant from any of Tenant’s obligations, make such payment or perform such task or other act on Tenant’s behalf. All sums paid or incurred by Landlord and all incidental costs thereto (including reasonable attorneys’ fees) shall be Tenant’s sole cost and responsibility, and shall be deemed Additional Rent.

 

31. ABANDONMENT

 

  (A) In the event of termination of this Lease in any manner whatsoever, Tenant shall immediately remove Tenant’s goods and effects, and those of any other person claiming under Tenant or subtenancies assigned to it, and quit and deliver the Premises to Landlord peacefully and quietly.

 

  (B) Goods and effects not removed by Tenant after termination of this Lease, or within _______ hours (72 if not specified) after a termination by reason of Tenant’s default, shall be considered abandoned.

 

  (C) Landlord shall give Tenant notice of right to reclaim abandoned property pursuant to applicable local law, and thereafter dispose of the same as it deems expedient, including in storage and public warehouse or elsewhere at the cost and for the account of Tenant. Tenant shall promptly upon demand reimburse Landlord for any expense incurred by Landlord in connection with storing or disposing of Tenant’s goods and effects, which obligation shall survive the termination or expiration of this Lease.

 

32. HOLDING OVER

 

  (A) This Lease shall expire absolutely and without notice on the last day of the Term or any renewal thereof. If Tenant, with the prior written consent of Landlord, retains possession of the Premises or any part thereof after the termination of this Lease by expiration of the Term or otherwise, a month-to-month tenancy shall be deemed to exist. Tenant shall continue to pay all Rent, plus ordinary maintenance, taxes, insurance and all other charges due under this Lease. Such holdover tenancy may be terminated by Landlord or Tenant upon _______ days (30 if not specified) written notice by either party to the other party.

 

  (B) If such holding over exists without Landlord’s prior written consent, Tenant shall pay Landlord, as partial compensation for such unlawful retention, an amount calculated on a per diem basis for each day of such continued unlawful retention equal to _______% (150 if not specified) of the Rent for the time Tenant remains in possession. Such payments for unlawful retention shall not limit any rights or remedies of Landlord resulting by reason of the wrongful holding over by Tenant, nor shall such unlawful retention create any right of Tenant to continue in possession of the Premises. All other terms and provisions of this Lease then in effect shall remain in effect.

 

33. PRESERVATION OF LANDLORD’S ENFORCEMENT RIGHTS

 

Landlord’s acceptance of Rent or any amount due and owing, or failure to enforce any right under this Lease shall not waive any other rights that Landlord may have hereunder. Any attempt to collect Rent and/or other amounts due and owing by one proceeding shall not waive Landlord’s right to collect the same by any other proceeding.

 

34. RECORDING

 

Neither this Lease, nor any assignment of this Lease, shall be recorded by Tenant.

 

35. TENANT’S JOINT AND SEVERAL LIABILITY

 

If two or more individuals, corporations, partnerships, or other business associations, or any combination of two or more, shall sign this Lease as Tenant(s), the liability of each such individual, corporation, partnership or other business association to pay Base Rent, pay Additional Rent, and to perform all other obligations hereunder to be performed by Tenant shall be deemed to be joint and several. If Tenant named in this Lease shall be a partnership or other business association, the members of which are, by virtue of statute or general law, subject to personal liability, the liability of each such member shall be joint and several.

 

CL Page 17 of 21

 

 

36. TRANSFER OF LANDLORD’S INTEREST; LIMITATION TO LIABILITY

 

  (A) Notwithstanding any provision of this Lease to the contrary, in the event of the sale or other transfer of Landlord’s interest in the property, Landlord shall immediately notify Tenant in writing at the address set forth in Paragraph 50. Upon the successful completion of the sale or other transfer of Landlord’s interest in the property, Landlord shall be released and discharged from all covenants, agreements and obligations of Landlord, whether previously accrued or thereafter accruing.

 

  (B) Liability of Landlord under this Lease shall be limited to its interest in Landlord’s property, and any judgment against Landlord shall be satisfied solely out of the proceeds of the sale of its interest in the property, and any judgment so rendered shall not give rise to any right of execution or levy against any of Landlord’s other assets.

 

  (C) Landlord shall have no personal liability to any successor in interest with respect to any of the provisions of this Lease or any obligation arising from this Lease. Tenant shall look solely to the equity of the then-owner of the property for satisfaction of remedies by Tenant in the event of a breach by Landlord of any of its covenants, agreements or obligations hereunder.

 

  (D) In no event shall Landlord be liable to Tenant for consequential or punitive damages for any reason whatsoever.

 

37. TIME IS OF THE ESSENCE

 

All times and dates identified for the performance of any obligations of this Lease are of the essence and are binding.

 

38. CHOICE OF LAW

 

This Lease shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania.

 

39. ATTORNEYS’ FEES

 

If either party institutes legal proceedings against the other to enforce any provision of this Lease, or otherwise with respect to any dispute arising out of this Lease, in any legal proceeding that is final and unappealable, the losing party shall, within thirty (30) days after receipt of a detailed statement, reimburse the prevailing party for their reasonable attorneys’ fees and legal costs incurred.

 

40. CONSTRUCTION

 

  (A) In construing this Lease, the terms “Lease,” “agreement” and “Agreement” shall be synonymous; the term “Lease” shall also include all exhibits, addenda and riders hereto. The singular shall be deemed to include the plural, and the plural the singular. All references to any specific party shall be gender neutral, and shall include their respective personal representatives, successors and permitted assigns.

 

  (B) Where the provisions of this Lease refer to the duties and/or responsibilities of Tenant, the term “Tenant” shall be construed, wherever reasonable, to include Tenant’s agents, employees, officers and assigns.

 

41. HEADINGS

 

The section and paragraph headings in this Lease are for convenience only and are not intended to indicate all of the matter in the sections that follow them. They shall have no effect whatsoever in determining the rights, obligations or intent of the parties.

 

42. SUCCESSORS AND ASSIGNS

 

Subject to the restrictions on transfer, assignment and subletting, the terms, conditions and covenants of this Lease shall be binding upon and shall inure to the benefit of each of the parties, their heirs, personal representatives, successors and/or permitted assigns. When more than one party shall be Tenant under this Lease, or “Tenant” wherever used in this Lease shall be deemed to include all Tenants, jointly and severally.

 

CL Page 18 of 21

 

 

43. BROKERS

 

It is expressly understood and agreed between the parties hereto that the herein named Broker(s), their licensees, employees and any officer or partner are acting only as agent for the party that hired them, and no other, and will in no case whatsoever be held liable, either jointly or severally, to either party for the performance of any term, covenant or condition of this Lease, or for any damages that arise from the breach, default or non-performance thereof.

 

44. LEASE INTERPRETATION; PRIOR REPRESENTATION

 

  (A) The parties acknowledge that each has been represented by legal counsel in negotiating this Lease, or has had the opportunity to be so represented, and that each intends that the provisions of this Lease not be interpreted or construed against either party due to the fact that such party may have been responsible for the drafting of this Lease. The parties acknowledge that in the course of negotiating this Lease, their representatives gradually reached agreement on the terms set forth in this Lease.

 

  (B) The parties acknowledge that none of the prior oral and written agreements between them, and none of the representations on which either of them has relied relating to the subject matter of this Lease, shall have any force or effect whatsoever, except as and to the extent that such agreements and representations have been incorporated into this Lease.

 

45. SEVERABILITY

 

If any term or provision of this Lease or the application of any term or provision of this Lease to any person or circumstance is finally judged to be invalid or unenforceable, the remainder of this Lease shall not be affected (including any attempted application of the invalid or unenforceable term or provision to the other person or circumstance). Landlord and Tenant hereby acknowledge and agree that they would have agreed upon each term and provision contained in this Lease irrespective of the fact that one or more term or pro-vision was contrary to the law, or during the Term or Renewal Term or extension thereof are found to be contrary to the law.

 

46. RIGHTS CUMULATIVE

 

Unless expressly provided to the contrary in this Lease, each and every one of the rights, remedies and benefits provided by this Lease shall be cumulative and shall not be exclusive of any other such right, remedy or benefit allowed at law or in equity.

 

47. EXECUTION AND COUNTERPARTS

 

This Lease may be executed in one or more counterparts, each of which shall be deemed to be an original, and all such counterparts together shall constitute one-in-the-same Lease of the parties. To facilitate execution of this Lease, the parties may initially execute and exchange by telephone, facsimile or email counterparts of the signature pages to be promptly supplemented by exchange of hardcopies.

 

48. ENTIRE AGREEMENT

 

This Lease and any attached exhibits and addenda constitute the entire agreement between Landlord and Tenant with respect to Landlord’s Premises, and there are no promises, agreements, conditions or understandings, whether oral, written or digital, between them other than as are herein set forth. Neither this Lease nor any of its provisions may be altered, amended, changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the parties.

 

49. AUTHORITY

 

  (A) The person(s) executing this Lease on behalf of Landlord do/does hereby represent and warrant that Landlord is a duly authorized and validly existing ______________ (nature of entity) under the laws of ______________ (state), that Landlord is authorized to do business in the Commonwealth of Pennsylvania, that Landlord has full rights, power and authority to enter into this Lease, and that each person signing on behalf of Landlord is authorized to do so.

 

  (B) The person(s) executing this Lease on behalf of Tenant do/does hereby represent and warrant that Tenant is a duly authorized and validly existing _____________ (nature of entity) under the laws of ______________ (state), that Tenant is authorized to do business in the Commonwealth of Pennsylvania, that Tenant has full rights, power and authority to enter into this Lease, and that each person signing on behalf of Tenant is authorized to do so.

 

CL Page 19 of 21

 

 

50. NOTICES

 

  (A) Notices shall be in writing and shall be deemed properly served three (3) business days after depositing in the United States postal service, as registered or certified mail, return receipt requested, postage prepaid, or upon receipt when sent by overnight express carrier with a request that the addressee sign a receipt evidencing delivery, and addressed as follows, or to any other address furnished in writing by any of the foregoing:

 

TO TENANT:

 

2806 Via Fortuna, Suite 425, Austin, TX 78746                                                                                                                              

_________________________________________________________________________________________

TO LANDLORD:

 

c/o Jon Roberts, 302 Sunrise Court, Chalfont, PA 18914                                                                                                              

_________________________________________________________________________________________

 

  (B) Any change of address furnished by either party shall comply with the notice requirements of this Paragraph, and shall include a complete outline of the current notice of addresses to be used for all parties, including electronic mail addresses.

 

51. SPECIAL CLAUSES

 

  (A) The following are part of this Lease if checked:

 

Change of Lease Terms Addendum (PAR Form CLT)

☐ Floorplan of Premises

☐ _______________________________________________________________________________________

☐ _______________________________________________________________________________________

 

(B) Additional Terms :

 

Tenant reserves the right to renew Lease with proper notice. Should Tenant renew Landlord agrees                    

to the following:                                                                                                                                                        

Rent in Year Two will equal $3,000 per month                                                                                                        

Rent in Year Three will remain $3,000 per month                                                                                                    

Should Tenant renew beyond Year Three Landlord reserves the right to increase rent not more than                      

3% per month.                                                                                                                                                             

Security Deposit will be held at Penn Community Bank.                                                                                           

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                       

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                      

                                                                                                                                                                                        

 

CL Page 20 of 21

 

 

NOTICE BEFORE SIGNING: If Tenant or Landlord has legal questions, Tenant or Landlord is advised to consult an attorney. Landlord and Tenant have negotiated the terms and conditions of this Lease, including any and all addenda hereto, and have initialed any and all changes made, and identify this Date as the “Signing Date” of this Lease.

 

TENANT/AUTHORIZED SIGNER /s/ Glenn Mattes DATE   10/15/18
Title   President and CEO
TENANT/AUTHORIZED SIGNER   DATE                  
Title                                   
TENANT/AUTHORIZED SIGNER   DATE                  
Title                                   
TENANT/AUTHORIZED SIGNER   DATE                  
Title                                   
CO-SIGNER   DATE                  
Title                                   
CO-SIGNER   DATE                  
Title                                   
LANDLORD/AUTHORIZED SIGNER /s/ Jonathan Roberds on behalf of TanJon LLC DATE   10/17/18
Title                                   
LANDLORD/AUTHORIZED SIGNER   DATE                  
Title                                   

 

LANDLORD TRANSFERS LEASE TO A NEW LANDLORD

 

As part of payment received by Landlord, ______________________________ (current Landlord) now transfers to ______________________________ (new landlord) his heirs and estate, this Lease and the right to receive the Rents and other benefits.

 

CURRENT LANDLORD   DATE                  
Title                                   
CURRENT LANDLORD   DATE                  
Title                                   
NEW LANDLORD   DATE                  
Title                                   
NEW LANDLORD   DATE                  
Title                                   

 

 

CL Page 21 of 21

 

 

Exhibit 10.11

 

TFF PHARMACEUTICALS, Inc.

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This Executive Employment Agreement (this “ Agreement ”) is entered into as of December 20, 2018, by and between TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), and Glenn Mattes (“ Executive ”).

 

R E C I T A L S

 

WHEREAS, Executive is currently providing consulting services to the Company pursuant to a Consulting Agreement by and between the Company and Executive (the “ Consulting Agreement ”);

 

WHEREAS, the Company considers it essential to its best interests and the best interests of its stockholders to employ Executive as its President and Chief Executive Officer, as an executive officer of the Company, during the Employment Term, as defined below; and

 

WHEREAS, Executive is willing to accept his employment on the terms hereinafter set forth in this Agreement.

 

A G R E E M E N T

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties agree as follows:

 

1. Duties and Scope of Employment .

 

(a) Positions and Duties . Executive is currently serving as an executive officer of the Company, with the title of President and Chief Executive Officer, pursuant to a consulting arrangement. Effective as of as of the closing of the first firm commitment underwritten initial public offering of shares of the Company’s common stock, par value $0.001 (the “ Common Stock ”), through a registered broker-dealer (the “ Effective Date ”), Executive will become an employee of the Company and will continue to serve as an executive officer of the Company, with the title of President and Chief Executive Officer. Executive will render such business and professional services in the performance of his duties as are customarily associated with Executive’s positions within the Company and Executive agrees to perform such other duties and functions as shall from time to time be reasonably assigned or delegated to Executive by the Company’s Board of Directors (the “ Board ”). The period of Executive’s employment under this Agreement is referred to herein as the “ Employment Term .” The Company and Executive agree that this Agreement replaces the Consulting Agreement in its entirety, beginning on the Effective Date.

 

 

 

 

(b) Obligations . During the Employment Term, Executive will perform his duties faithfully and to the best of his ability and will devote his full business efforts and time to the Company. Executive, if so requested by the Board, will also serve, without additional compensation, as an officer, director or manager of any subsidiary of the Company. For the duration of the Employment Term, Executive agrees not to engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the Board. Nothing in this Agreement, however, will prohibit Executive from engaging in trade association or charitable activities, including serving as a board member or committee member to trade associations or charities, or serve as a non-executive member of a board of directors; provided that , none of such activities interfere with the performance of Executive’s duties and responsibilities to the Company under this Agreement and any such organizations or activities compete with the business of the Company. Executive’s initial principal place of employment will be in Doylestown, Pennsylvania; provided, however , that Executive will travel to the extent reasonably requested by the Board for Executive to perform his duties as President and Chief Executive Officer of the Company.

 

(c) Board Membership . During the Employment Term, Executive will serve as a member of the Board, subject to any required Board and/or stockholder approval.

 

2. At-Will Employment . Subject to Sections 13 and 14 below, Executive and the Company agree and acknowledge that Executive’s employment with the Company constitutes “at-will” employment, which means that either the Company or Executive may terminate Executive’s employment with the Company at any time and for any or no reason, and with or without cause.

 

3. Compensation .

 

(a) Base Salary . During the Employment Term, beginning on the Effective Date, the Company will pay Executive as compensation for his services a base salary of $400,000 per annum (the “ Base Salary ”). The Base Salary will be paid in regular installments in accordance with the Company’s normal payroll practices (subject to required withholding). The first and last payment will be adjusted, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period. The Board will review the Executive’s performance, generally on an annual basis, with increases, if any, to the Base Salary, as determined by the Board in its sole discretion.

 

(b) Bonuses . Executive will be eligible to receive an annual incentive bonus for each calendar year, beginning with calendar year 2019, targeted at 50% of the prevailing Base Salary, based upon goals and objectives approved by the Board, each as determined by the Board in its sole discretion. When applicable, the Company shall pay all annual incentive bonuses for periods after the Effective Date referred to in this Agreement at the same time as bonuses are normally paid to senior management, but no later than the 15 th day of January in the following calendar year.

 

4. Stock Incentive Plan . Executive will be eligible to participate in the TFF Pharmaceuticals, Inc. 2018 Stock Incentive Plan (the “ LTIP ”). Executive was previously granted options to purchase 613,023 shares of the Common Stock. Upon the Effective Date, Executive will receive an additional grant under the LTIP that will allow Executive to maintain ownership of at least 5.0% of the then outstanding Common Stock, on a fully diluted basis. Such grant will be in the form of an Incentive Stock Option, with an exercise price equal to the offering price in the first firm commitment underwritten initial public offering of shares of the Common Stock. Executive may receive additional grants under the LTIP at the discretion of the Board. All grants to Executive under the LTIP will be subject to the terms and conditions set forth in the LTIP.

 

- 2 -

 

 

5. Employee Benefits . During the Employment Term, Executive will be entitled to participate in the employee benefit plans currently and hereafter maintained by the Company of general applicability to other senior executives of the Company, including, without limitation, the Company’s retirement, group medical, dental, vision, disability, life insurance and flexible-spending account plans, if applicable. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. After the Effective Date, the Company will provide directors’ and officers’ liability insurance coverage for Executive, the Board and the other executive officers of the Company in an amount of no less than $5,000,000.

 

6. Paid Time Off . Executive will be entitled to paid time off of twenty-five (25) days per year in accordance with the Company’s prevailing policy, with the timing and duration of specific periods mutually and reasonably agreed to by Executive and the Company.

 

7. Business Expenses . During the Employment Term, the Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.

 

8. Effect of Termination; Severance . In accordance with Section 2 above, the Company shall be entitled to terminate Executive with or without Cause (as defined below) and Executive shall be entitled to resign with or without Good Reason (as defined below), in each case at any time, subject to the following:

 

(a) For Cause by the Company; Voluntary Termination without Good Reason by Executive . If the Company terminates Executive’s employment for Cause or if Executive terminates Executive’s employment voluntarily or without Good Reason, then Executive will receive (i) the Base Salary through the effective date of termination; and (ii) not receive any other compensation or benefits from the Company except as may required by law or in accordance with established Company plans and policies.

 

(b) Without Cause by the Company; For Good Reason by Executive . If the Company terminates Executive’s employment without Cause or if Executive terminates Executive’s employment for Good Reason, then, (i) Executive shall be entitled to the Base Salary through the effective date of termination, and (ii) Executive shall be entitled to receive a cash severance amount equal to twelve (12) months of the then prevailing Base Salary after the effective date of such termination, payable in regular installments in accordance with the Company’s normal payroll practices (subject to required withholding); provided, however , that Executive’s right to receive (ii) above shall be conditioned upon Executive delivering prior to or contemporaneously with any such severance payments, and not revoking, a release of all claims relating to Executive’s employment and/or this Agreement against the Company or its successor, its subsidiaries and their respective directors, officers and stockholders in a form acceptable to the Company or its successor and his continuing to comply with the terms of this Agreement and the Confidential Information Agreement (discussed under Section 10).

 

- 3 -

 

 

(c) Death or Disability . The Employment Term and Executive’s employment shall terminate upon his death or Disability. Upon termination of Executive’s employment for either death or Disability, Executive or his estate, as the case may be, shall be entitled to receive any accrued and unpaid Base Salary and benefits. Upon termination of Executive’s employment due to death or Disability pursuant to this Section 8(c), Executive or his estate, as the case may be, shall have no further rights to any compensation or any other benefits under this Agreement. All other benefits, if any, due Executive following his termination for death or Disability shall be determined in accordance with established Company plans and practices. Executive hereby gives the Company permission to purchase “key man” Death and Disability insurance coverage on Executive, naming the Company as the beneficiary, as determined by the Board. Executive agrees, on behalf of himself, his estate, heirs, successors and assigns, that Executive and such related parties have no interest or rights to receive the benefits of any such insurance coverage covering the Executive that is purchased by the Company, and names the Company as the beneficiary under such policy.

 

9. Definitions .

 

(a) Cause . For purposes of this Agreement, “ Cause ” means:

 

(i) Executive’s continued substantial violations of his employment duties after Executive has received a written demand for performance from the Board expressly stating the specific violations of his employment duties and a reasonable opportunity (at least 30 days) for the Executive to cure the deficiencies;

 

(ii) Executive’s gross misconduct,

 

(iii) any act of personal dishonesty or fraud taken by Executive in connection with Executive’s duties as an employee,

 

(iv) Executive’s conviction of, or plea of nolo contendere or guilty to, a felony under the laws of the United States or any State or

 

(v) any material breach by Executive of any of the provisions of this Agreement or Executive’s Confidential Information Agreement (as defined in Section 10).

 

(b) Disability . For purposes of this Agreement, “ Disability ” means that Executive has been unable to substantially perform Executive’s duties under this Agreement for not less than sixty (60) work days within a six (6) consecutive month period as a result of Executive’s incapacity due to a physical or mental condition and, if reasonable accommodation is required by law, after any reasonable accommodation.

 

(c) Good Reason . For purposes of this Agreement, “ Good Reason ” means, without Executive’s prior written consent:

 

(i) a reduction in Executive’s Base Salary that is materially different from such reductions applicable to the Company’s other executive officers taken as a whole,

 

(ii) a change in Executive’s position with the Company (or, in the case of a Change of Control of the Company, the acquiring company) which materially reduces Executive’s duties, provided that in the case of a Change of Control of the Company, any such reduction resulting solely from the Company being acquired by and made a part of a larger entity (as, for example, when a chief executive officer becomes an employee of the acquiring company following a Change of Control but is not the chief executive officer of the acquiring company) shall not constitute Good Reason as long as Executive’s compensation, authority, and duties remain substantially similar,

 

- 4 -

 

 

(iii) a relocation of Executive’s principal place of employment by more than fifty (50) miles without Executive’s consent, or

 

(iv) a material breach by the Company of any of the material provisions of this Agreement.

 

Executive must provide the Company with: (A) thirty (30) days written notice of Executive’s intent to resign expressly stating the basis for Executive’s contention that such resignation qualifies as a resignation for Good Reason, and (B) a reasonable opportunity for the Company to cure the conditions giving rise to such Good Reason. If the Company cures the conditions giving rise to such Good Reason within thirty (30) days following the date of such notice, Executive will not be entitled to severance payments and/or other benefits contemplated by Section 8 above if Executive thereafter resigns from the Company.

 

10. Company; Matters; Confidential Information .

 

(a) Confidential and Proprietary Information . Concurrently with or prior to the execution of this Agreement, Executive shall have signed a copy of the Company’s standard Proprietary Information and Inventions Agreement (the “ Confidential Information Agreement ”). The Company agrees to provide Executive with confidential information, as defined in the Confidential Information Agreement, subsequent to his execution of the Confidential Information Agreement.

 

(b) Resignation on Termination . On termination of Executive’s employment, Executive shall immediately (and with contemporaneous effect) resign any directorships, offices or other positions that Executive may hold in the Company or any of its subsidiaries, unless otherwise agreed by the parties.

 

(c) Notification of New Employer . In the event that Executive leaves the employ of the Company, Executive grants consent to notification by the Company to Executive’s new employer about Executive’s rights and obligations under this Agreement and the Confidential Information Agreement.

 

(d) Return of Company Property . Executive agrees that, at the time of leaving the employ of the Company, Executive will deliver to the Company (and will not keep in Executive’s possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence (including emails), specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by Executive pursuant to Executive’s employment with the Company or otherwise belonging to the Company, its successors or assigns.

 

11. Assignment . This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive’s death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of Executive’s right to compensation or other benefits will be null and void, unless otherwise required by law.

 

- 5 -

 

 

12. Notices . All notices, requests, demands and other communications called for under this Agreement shall be in writing and shall be delivered personally by hand or by courier, mailed by United States first-class mail, postage prepaid, or sent by facsimile directed to the party to be notified at the address or facsimile number indicated for such party on the signature page to this Agreement, or at such other address or facsimile number as such party may designate by ten (10) days’ advance written notice to the other parties hereto. All such notices and other communications shall be deemed given upon personal delivery, three (3) days after the date of mailing, or upon confirmation of facsimile transfer.

 

13. Severability . In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision.

 

14. Arbitration .

 

(a) Except as provided in subsection (b) below, Executive agrees that any dispute, claim or controversy concerning his employment or the termination of his employment or any dispute, claim or controversy arising out of or relating to any interpretation, construction, performance or breach of this Agreement, shall be settled by arbitration to be held in New York, New York in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association. The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator’s decision in any court having jurisdiction. To the extent permitted by law, the Company shall pay the administrative fees associated with the arbitration, except for the first $300.00 in administrative fees for any arbitration that is initiated by Executive, and each party shall separately pay its respective counsel fees and expenses. Disputes which Executive agrees to arbitrate, and thereby agrees to waive any right to a trial by jury, include, to the extent permissible by law, any statutory claims under state or federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Texas Commission on Human Rights Act, claims of harassment, discrimination or wrongful termination and any statutory claims. Executive further understands that this Agreement to arbitrate also applies to any disputes that the Company may have with Executive.

 

(b) Any party may also petition the court for injunctive or other equitable relief where either party alleges or claims a violation of this Agreement or the Confidential Information Agreement. In the event that either party seeks such relief, no bond shall be required, and the prevailing party shall be entitled to recover reasonable costs and attorneys’ fees. Any such relief will be filed in any state or federal court serving New York County, New York.

 

- 6 -

 

 

(c) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES, SUBJECT TO SECTION 14(b), TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE’S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, DISCRIMINATION CLAIMS.

 

15. Integration . This Agreement and the Confidential Information Agreement, represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral.

 

16. Waiver; Amendment . No party shall be deemed to have waived any right, power or privilege under this Agreement or any provisions hereof unless such waiver shall have been duly executed in writing and acknowledged by the party to be charged with such waiver. The failure of any party at any time to insist on performance of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof. No waiver of any breach of this Agreement shall be held to be a waiver of any other subsequent breach. This Agreement may only be amended or otherwise modified in a writing signed by the parties hereto.

 

17. Effect of Headings . The section and subsection headings contained herein are for convenience only and shall not affect the construction hereof.

 

18. Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute but one instrument.

 

19. Tax Withholding . All payments made to Executive pursuant to this Agreement will be subject to withholding of applicable taxes.

 

20. Governing Law . This Agreement will be governed by the laws of the State of New York (with the exception of its conflict of laws provisions).

 

21. Construction of Agreement . This Agreement has been negotiated by the respective parties, and the language shall not be construed for or against either party.

 

22. Voluntary Nature of Agreement; Legal Rights . Executive is executing this Agreement voluntarily and without any duress or undue influence by the Company or anyone else. Executive acknowledges that Executive has had the opportunity to consult with an attorney regarding the provisions of this Agreement and has either obtained such advice of counsel or knowingly waived the opportunity to seek such advice. Executive has carefully read this Agreement and has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understand it, including that Executive is waiving Executive’s right to a jury trial.

 

23. Section 409A . Notwithstanding anything to the contrary in this Agreement,  if Executive is determined to be a “specified employee” as determined under Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”) at the time of any termination that would result in payment of any cash severance payments and/or benefits, then any such payments  that are considered to be deferred compensation within the meaning of Section 409A that would  otherwise  be due to Executive on or within the six (6) month period following Executive’s termination will accrue during such six (6) month period and will become payable in a lump sum payment on the date six (6) months and one (1) day following the date of Executive’s termination. Each individual severance payment to be paid in an installment or otherwise is hereby designated as a separate payment for purposes of Section 409A.    In addition, it is the intent of the parties that the provisions of this Agreement be structured in a manner to avoid the imposition of additional tax pursuant to Section 409A and this Agreement should be interpreted in such a manner and the parties agree to cooperate with each other and to take reasonably necessary steps in this regard.

 

[ Remainder of Page Intentionally Blank ]

 

- 7 -

 

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by their duly authorized officers, as of the day and year first above written.

 

  “COMPANY”
     
  TFF Pharmaceuticals, Inc.
     
  By: /s/ Robert S. Mills
    Robert S. Mills, Executive Chairman

 

  Address:
   
  2801 Via Fortuna, Suite 425
  Austin, Texas 78746
   
  “EXECUTIVE”
   
  /s/ Glenn Mattes
  Glenn Mattes
   
  Address:  

 

TFF PHARMACEUTICALS, inc.

EXECUTIVE EMPLOYMENT AGREEMENT

SIGNATURE PAGE

 

 

 

Exhibit 10.12

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “ Agreement ”), dated as of May 16, 2019 (the “ Effective Date ”), is by and among TFF Pharmaceuticals, Inc., a Delaware corporation (the “ Company ”), and the investors listed on the Schedule of Buyers, attached hereto as Exhibit A (individually, a “ Buyer ” and collectively, the “ Buyers ”).

 

RECITALS

 

A. The Company and each Buyer is 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 “ 1933 Act ”), and Rule 506 of Regulation D (“ Regulation D ”), as promulgated by the United States Securities and Exchange Commission (the “ SEC ”) under the 1933 Act.

 

B. The Company has authorized the issuance of Series A Convertible Preferred Stock, par value $0.001 (the “ Shares ”) in accordance with the form of the Second Amended and Restated Certificate of Incorporation attached hereto as Exhibit B (the “ Certificate ”), which Shares shall be convertible into shares of the Company’s common stock, par value $0.001 (the “ Common Stock ”) (as converted, collectively, the “ Conversion Shares ”), in accordance with the terms of the Certificate.

 

C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, the aggregate number of Shares set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers.

 

D. At each Closing (as defined below), the parties hereto shall execute and deliver an Amended and Restated Registration Rights Agreement, in the form attached hereto as Exhibit C (the “ Registration Rights Agreement ”), pursuant to which the Company has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

E. In connection with this offer and sale of the Shares (the “ Offering ”), the Company, together with National Securities Corporation (the “ Placement Agent ”), have entered into an escrow agreement, in the form attached hereto as Exhibit D (the “ Escrow Agreement ”), with Delaware Trust Company (the (“ Escrow Agent ”), to hold the Purchase Price (as hereinafter defined), to be released at each Closing to the Company, upon the written consent of the Company and the Placement Agent.

 

F. The Shares and the Conversion Shares are collectively referred to herein as the “ Securities .”

 

 

 

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Buyer hereby agree as follows:

  

1. AUTHORIZATION, SALE AND ISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK.

 

(a) Authorization . The Company will, prior to the Initial Closing Date (as defined below), authorize (a) the sale and issuance of the Shares, having the rights, privileges, preferences and restrictions set forth in the Certificate; and (b) the reservation of Conversion Shares for issuance upon conversion of the Shares.

 

(b) Series A Convertible Preferred Stock . Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, shall purchase from the Company on each Closing Date, the number of Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers.

 

(c) Closing . The closing of the purchase of the Shares by the Buyers shall occur at one or more closings (each of which is referred to as a “ Closing ” and the date of each is referred to as a “ Closing Date ”). Each Closing shall take place at the offices of Greenberg Traurig, LLP, 3161 Michelson Drive, Suite 1000, Irvine, CA 92612. The date and time of the initial Closing (the “ Initial Closing Date ”) shall be 11:00 a.m., New York time, on the first Business Day on which the conditions to the initial Closing (“ Initial Closing ”) set forth in Sections 6 and 7 below are satisfied or waived (or such later date as is mutually agreed to by the Company and each Buyer). As used herein “ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to remain closed.

 

(d) Purchase Price . The aggregate of all Shares purchased and sold shall be no less than Six Million Dollars ($6,000,000) at a cash purchase price of $2.50 per share (the “ Per Share Purchase Price ”). The aggregate purchase price for the Shares to be purchased by each Buyer (the “ Purchase Price ”) shall be the amount set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers.

 

(e) Payment of Purchase Price; Delivery of Shares . On each Closing Date, (i) each Buyer shall pay its respective Purchase Price to the Company through the Escrow Agent for their respective Shares to be issued and sold to such Buyer at such Closing, and (ii) the Company shall deliver to each Buyer either (A) a certificate registered in such Buyer’s name (representing the number of Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers) or (B) an irrevocable instruction letter to the Company’s transfer agent to issue a certificate registered in such Buyer’s name (representing the number of Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers) and deliver such certificate to the Buyer as soon thereafter as possible.

 

2. BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer represents and warrants to the Company with respect to only itself that:

 

(a) Organization; Authority . Such Buyer (i) if an entity, is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents (as defined below) to which it is a party and otherwise to carry out its obligations hereunder and thereunder, or (ii) if an individual, has the legal capacity to enter into and to consummate the transactions contemplated by the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder.

 

(b) No Public Sale or Distribution . Such Buyer (i) is acquiring its Shares, and (ii) upon conversion of its Shares will acquire the Conversion Shares issuable upon conversion thereof, in each case, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof in violation of applicable securities laws, except pursuant to sales registered or exempted under the 1933 Act; provided, however, by making the representations herein, such Buyer does not agree, or make any representation or warranty, to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. Such Buyer does not presently have any agreement or understanding, directly or indirectly, with any Person (as defined below) to distribute any of the Securities in violation of applicable securities laws.

 

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(c) Accredited Investor Status . Such Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.

 

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

 

(e) Information . Such Buyer and its advisors, if any, have been furnished with the Company’s private placement memorandum, dated March 14, 2019, (the “ Private Placement Memorandum ”), and all other materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Such Buyer understands that its investment in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities, and it is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by this Agreement. Such Buyer believes that it has received all the information such Buyer considers necessary or appropriate for deciding whether to purchase the Securities. Such Buyer understands that such discussions, as well as any information provided by the Company, including the Private Placement Memorandum, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The foregoing provisions of this Section 2(e), however, do not limit or modify the representations and warranties of the Company in Section 3 of this Agreement or the right of the Buyers to rely thereon.

 

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

 

(g) Transfer or Resale . Such Buyer understands that except as provided in the Registration Rights Agreement or Section 4(g) hereof: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company (if requested by the Company) an opinion of counsel to such Buyer, in a form reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance and documentation as may be requested by the Company or its legal counsel that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor rule thereto) (collectively, “ Rule 144 ”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144, and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC promulgated thereunder; and (iii) neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

 

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(h) Validity; Enforcement . This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and constitutes the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

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

 

(j) Buyer’s Principal Residence/Office . The address of Buyer’s principal residence, if Buyer is a natural Person, or principal office, if Buyer is a non-natural Person, such as a corporation, limited liability company or other entity, is set forth in column (2) of the Schedule of Buyers.

 

(k) No Engagements . Such Buyer has not engaged any brokers, finders or agents, and the Company has not, nor will, incur, directly or indirectly, as a result of any action taken by such Buyer, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the transactions consummated under this Agreement. Neither such Buyer, nor any of Buyer’s officers, directors, employees, agents, stockholders or partners has either directly or indirectly, including through a broker or finder: (i) engaged in or received any general solicitation or (ii) published or received any advertisement in connection with the offer or sale of the Securities.

 

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each Buyer as of the date of this Agreement and as of the Initial Closing Date and on each subsequent Closing Date (except for representations and warranties that speak as of a particular date, which shall be true and correct in all material respects as of such dates) that:

 

(a) Organization and Qualification . The Company is an entity duly organized and validly existing and in good standing under the laws of the jurisdiction in which it is formed, and has the requisite power and authorization to own its properties and to carry on its business as now being conducted and as presently proposed to be conducted. The Company is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not be reasonably expected to have a Material Adverse Effect. “ Material Adverse Effect ” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof) or condition (financial or otherwise) of the Company, either individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents, or (iii) the authority or ability of the Company to perform any of its obligations under any of the Transaction Documents. The Company has no Subsidiaries. “ Subsidiaries ” means any Person in which the Company, directly or indirectly, (I) owns any of the outstanding capital stock or holds any equity or similar interest of such Person or (II) controls or operates all or any part of the business, operations or administration of such Person, and each of the foregoing, is individually referred to herein as a “ Subsidiary .” Additionally, to the extent that any Subsidiary is hereafter created, and the context of the provision of this Agreement would ordinarily include a Subsidiary, then the term “Company” will be deemed to include such Subsidiary.

 

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(b) Authorization; Enforcement; Validity . The Company has the requisite power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the other Transaction Documents by the Company, and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Shares and the reservation for issuance and issuance of the Conversion Shares issuable upon conversion of the Shares) have been duly authorized by the Company’s board of directors or other governing body, as applicable, and (other than the filing with the SEC of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies) no further filing, consent or authorization is required by the Company, its respective boards of directors or the stockholders or other governing body. The Shares, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof under the terms thereof. This Agreement has been, and the other Transaction Documents will be prior to the Initial Closing, duly executed and delivered by the Company, and each constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law. “ Transaction Documents ” means, collectively, this Agreement, the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in the Registration Rights Agreement) and each of the other agreements and instruments entered into or delivered by any of the parties hereto in connection with the consummation of the transactions contemplated hereby and thereby, as may be amended from time to time.

 

(c) Issuance of Conversion Shares . The Conversion Shares, when issued in accordance with the terms of the Certificate, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof under the terms thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. The Company shall have reserved from its duly authorized capital stock not less than one hundred ten percent (110%) of the maximum number of Conversion Shares issuable upon conversion of the Shares in accordance with the terms of the Certificate. Subject to the accuracy of the representations and warranties of the Buyers in this Agreement, the offer and issuance by the Company of the Securities is exempt from registration under the 1933 Act.

 

(d) No Conflicts . The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Shares, the Conversion Shares upon conversion of the Shares, the reservation for issuance of the Conversion Shares) will not (i) result in a violation of the Certificate of Incorporation (as defined below) (including, without limitation, the Certificate or any other certificate of designation contained therein) or other organizational documents of the Company, any capital stock of the Company or Bylaws (as defined below) of the Company, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company is a party or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including, without limitation, foreign, federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected except, in the case of clause (ii) or (iii) above, to the extent such violations that could not reasonably be expected to have a Material Adverse Effect.

 

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(e) Consents . Other than the written consent of holders of Shares as of the date hereof representing the requisite number of Shares in accordance with the Company’s Amended and Restated Certificate of Incorporation (the “ Series A Approval ”), the Company is not required to obtain any consent from, authorization or order of, or make any filing or registration with (other than the filing with the SEC of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies), any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its respective obligations under, or contemplated by, the Transaction Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain at or prior to the Initial Closing have been obtained or made on or prior to the Initial Closing Date, and the Company is not aware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings contemplated by the Transaction Documents.

 

(f) Acknowledgment Regarding Buyer’s Purchase of Securities . The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is (i) an “affiliate” (as defined in Rule 144) of the Company or (ii) to its knowledge, a “beneficial owner” of more than ten percent (10%) of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities and Exchange Act of 1934 Act, as amended (“ 1934 Act ”)). The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities. The Company further represents to each Buyer that the Company’s decision to enter into the Transaction Documents to which it is a party has been based solely on the independent evaluation by the Company and its respective representatives.

 

(g) No General Solicitation; Placement Agent’s Fees . Except as set forth in Schedule 3(g) attached to the Disclosure Letter, neither the Company nor any Person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any Placement Agent’s fees, financial advisory fees, or brokers’ commissions (other than for Persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby. Other than the Placement Agent, the Company has not engaged any placement agent or other broker or dealer in connection with the offer or sale of the Securities.

 

(h) No Integrated Offering . None of the Company or, to the Company’s knowledge, any of its affiliates, nor any Person acting on its behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the issuance of any of the Securities under the 1933 Act, whether through integration with prior offerings or otherwise, or cause this offering of the Securities to require approval of stockholders of the Company (other than the Series A Approval or any required approval of holders of a majority of the outstanding common stock of the Company received before the Initial Closing) under any applicable stockholder approval provisions. None of the Company, nor its affiliates nor any Person acting on their behalf will take any action or steps that would require registration of the issuance of any of the Securities under the 1933 Act or cause the offering of any of the Securities to be integrated with other offerings of securities of the Company.

 

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(i) Dilutive Effect . The Company understands and acknowledges that the number of Conversion Shares may increase in certain circumstances. The Company further acknowledges that its obligation to issue the Conversion Shares upon conversion of the Shares in accordance with this Agreement and the Certificate is absolute and unconditional, regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

 

(j) Application of Takeover Protections; Rights Agreement . The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, interested stockholder, business combination, poison pill (including, without limitation, any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation, Bylaws or other organizational documents or the laws of the jurisdiction of its incorporation or otherwise which is or could become applicable to any Buyer as a result of the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of shares of Common Stock or a change in control of the Company.

 

(k) Placement Documents . The Private Placement Memorandum provided to the Buyers in connection with the sale of the Shares, at the time of the date thereon, as it may be amended from time to time, did not 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. No other information provided by or on behalf of the Company to any of the Buyers taken together with such Private Placement Memorandum contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein not misleading, in the light of the circumstance under which they are or were made.

 

(l) Absence of Certain Changes . Since the date of the Company’s Private Placement Memorandum, there has been no material adverse change and no material adverse development in the business, assets, liabilities, properties, operations (including results thereof), condition (financial or otherwise) or prospects of the Company. Since the date of the Company’s Private Placement Memorandum, the Company has not (i) declared or paid any dividends (whether by cash, property or securities), (ii) sold any assets, individually or in the aggregate, outside of the ordinary course of business or (iii) made any capital expenditures, individually or in the aggregate, outside of the ordinary course of business. The Company has not taken any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does the Company have any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company is not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at each Closing, will not be Insolvent (as defined below). “ Insolvent ” means (i) the present fair saleable value of the Company’s assets is less than the amount required to pay the Company’s total Indebtedness (as defined below), (ii) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (iii) the Company intends to incur or believe that it will incur debts that would be beyond its ability to pay as such debts mature.

 

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(m) No Undisclosed Events, Liabilities, Developments or Circumstances . The Company has no knowledge of any event, liability, development or circumstance that has occurred or exists, or that is reasonably expected to occur or exist with respect to the Company or any of its business, properties, liabilities, operations (including results thereof) or condition (financial or otherwise), that (i) could have a material adverse effect on any Buyer’s investment hereunder or (ii) could have a Material Adverse Effect.

 

(n) Conduct of Business; Regulatory Permits . The Company is not in violation of any term of or in default under its Certificate of Incorporation or Bylaws. The Company is not in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company, and the Company will not conduct its business in violation of any of the foregoing, except in all cases for possible violations which could not, individually or in the aggregate, have a Material Adverse Effect. The Company possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

 

(o) Foreign Corrupt Practices . The Company and, to its knowledge, none of its directors, officers, agents, employees or other Persons acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

(p) Sarbanes-Oxley Act . The Company is in compliance with all applicable requirements of the Sarbanes-Oxley Act of 2002 and all applicable rules and regulations promulgated by the SEC thereunder.

 

(q) Transactions With Affiliates . Except as set forth on Schedule 3(q) attached to the Disclosure Letter and in the Private Placement Memorandum, none of the officers, directors, employees, consultants or affiliates of the Company is presently a party to any transaction with the Company (other than for ordinary course services as employees, officers, consultants or directors and immaterial transactions), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director, employee or affiliate or, to the knowledge of the Company, any corporation, partnership, trust or other Person in which any such officer, director, employee or affiliate has a substantial interest or is an employee, officer, director, trustee or partner.

 

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(r) Equity Capitalization . As of the date hereof, the authorized capital stock of the Company consists solely of 45,000,000 shares of Common Stock, 4,000,000 of which are issued and outstanding, and 10,000,000 shares of Series A Preferred Stock, 5,662,000 of which are issued or outstanding as of the date of this Agreement. Except as disclosed on Schedule 3(r) , there are no Convertible Securities issued and outstanding. No approval of the shareholders is required for the issuance of the Shares or the Conversion Shares or any of the Convertible Securities. No shares of Common Stock are held in treasury. (i) None of the Company’s capital stock is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional capital stock of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company (except pursuant to the Plan, agreements to issue common stock to the Placement Agent described in Section 3(g) and an agreement to issue common stock in connection with certain patent and intellectual property services); (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or by which the Company is or may become bound; (iv) there are no financing statements securing obligations in any amounts filed in connection with the Company; (v) there are no agreements or arrangements under which the Company is obligated to register the sale of any of their securities under the 1933 Act (except pursuant to the Registration Rights Agreement and a warrant issued to the Placement Agent); (vi) except for the Series A Preferred Stock, there are no outstanding securities or instruments of the Company which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; and (viii) the Company has not issued any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. The Company has furnished to the Buyers true, correct and complete copies of the Certificate and the Company’s bylaws, as amended and as in effect on the date hereof (the “ Bylaws ”), and the terms of all securities convertible into, or exercisable or exchangeable for, shares of Common Stock and the material rights of the holders thereof in respect thereto. “ Convertible Securities ” means preferred stock, options, warrants or other securities directly or indirectly convertible into, exchangeable for or exercisable for Common Stock of the Company.

 

(s) Indebtedness and Other Contracts . The Company, except as disclosed on Schedule 3(s) attached to the Disclosure Letter or in the Private Placement Memorandum, (i) has no outstanding Indebtedness (as defined below), (ii) is not a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is not in violation of any term of, or in default under, any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is not a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect. “ Indebtedness ” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above. “ Contingent Obligation ” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto. “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

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(t) Absence of Litigation . Except as set forth on Schedule 3(t) attached to the Disclosure Letter, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company, the Common Stock or any of the Company’s officers or directors which is outside of the ordinary course of business or individually or in the aggregate material to the Company. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC or other United States governmental agency involving the Company or any current or former director or officer of the Company.

 

(u) Employee Relations . The Company is not a party to any collective bargaining agreement or employs any member of a union. The Company believes that its relations with their respective employees are good. No executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of the Company has notified the Company that such officer intends to leave the Company or otherwise terminate such officer’s employment with the Company. To the Company’s knowledge, no executive officer or other key employee of the Company is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer or other key employee (as the case may be) does not subject the Company to any liability with respect to any of the foregoing matters. The Company is in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

(v) Title . The Company has good and marketable title to all personal property owned by it which is material to the business of the Company, in each case, free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company.

 

(w) Intellectual Property Rights . To the Company’s knowledge, the Company owns or possesses adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, original works, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (“ Intellectual Property Rights ”) necessary to conduct is business as now conducted and as presently proposed to be conducted. None of the Company’s Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within three years from the date of this Agreement. The Company has no knowledge of any infringement by the Company of Intellectual Property Rights of others. There is no claim, action or proceeding being made or brought, or to the knowledge of the Company, being threatened, against the Company regarding their Intellectual Property Rights. The Company is not aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its Intellectual Property Rights.

 

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(x) Environmental Laws . The Company (i) is in compliance with all Environmental Laws (as defined below), (ii) has received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct its business, and (iii) is in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. “ Environmental Laws ” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “ Hazardous Materials ”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

 

(y) Tax Status . The Company (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

(z) Off Balance Sheet Arrangements . There is no transaction, arrangement, or other relationship involving the Company in respect of an off-balance sheet entity that would be required to be disclosed by the Company in a 1934 Act filing or that otherwise could be reasonably likely to have a Material Adverse Effect.

 

(aa) Investment Company Status . The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” or, to the knowledge of the Company, an affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

 

(bb) U.S. Real Property Holding Corporation . The Company is not, and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon any Buyer’s request.

 

(cc) Transfer Taxes . On each Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the issuance, sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.

 

(dd) Bank Holding Company Act . The Company is not subject to the Bank Holding Company Act of 1956, as amended (the “ BHCA ”) and to regulation by the Board of Governors of the Federal Reserve System (the “ Federal Reserve ”). Neither the Company nor, to its knowledge, any of its affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any equity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor, to its knowledge, any of its affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

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(ee) Shell Company Status . The Company is not, and has never been, an issuer identified in, or subject to, Rule 144(i).

 

(ff) Public Utility Holding Act . The Company is not a “holding company,” or an “affiliate” of a “holding company,” as such terms are defined in the Public Utility Holding Act of 2005.

 

(gg) Federal Power Act . The Company is not subject to regulation as a “public utility” under the Federal Power Act, as amended.

 

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

 

(ii) Real Property . The Company holds good title to all real property, leases in real property, or other interests in real property stated as owned or held by the Company (the “ Real Property ”). The Real Property is free and clear of all mortgages, defects, claims, liens, pledges, charges, taxes, rights of first refusal, encumbrances, security interests and other encumbrances (collectively “ Encumbrances ”) and is not subject to any rights of way, building use restrictions, exceptions, variances, reservations, or limitations of any nature except for (i) liens for current taxes not yet due, and (ii) zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto. Any Real Property held under lease by the Company is held under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company.

 

(jj) Fixtures and Equipment . The Company has good title to, or a valid leasehold interest in, the tangible personal property, equipment, improvements, fixtures, and other personal property and appurtenances that are used by the Company in connection with the conduct of its business (the “ Fixtures and Equipment ”). The Fixtures and Equipment are structurally sound, are in good operating condition and repair, are adequate for the uses to which they are being put, are not in need of maintenance or repairs except for ordinary, routine maintenance and repairs and are sufficient for the conduct of the Company’s business in the manner as conducted prior to each Closing. The Company owns all of its Fixtures and Equipment free and clear of all Encumbrances except for (i) liens for current taxes not yet due, and (ii) zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto.

 

(kk) Illegal or Unauthorized Payments; Political Contributions . The Company nor, to the best of the Company’s knowledge (after reasonable inquiry of its officers and directors), any of the officers, directors, employees, agents or other representatives of the Company or any other business entity or enterprise with which the Company is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (i) as a kickback or bribe to any Person or (ii) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company.

 

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(ll) Money Laundering . The Company is in compliance with, and has not previously violated, the USA Patriot Act of 2001 and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, without limitation, the laws, regulations and Executive Orders and sanctions programs administered by the U.S. Office of Foreign Assets Control, including, without limitation, (i) Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

 

(mm) Qualified Small Business Stock . As of and immediately following the Closing: (i) the Company will be an eligible corporation as defined in Section 1202(e)(4) of the Code, (ii) the Company will not have made purchases of its own stock described in Code Section 1202(c)(3)(B) during the one (1) year period preceding the Closing, except for purchases that are disregarded for such purposes under Treasury Regulation Section 1.1202-2, and (iii) the Company’s aggregate gross assets, as defined by Code Section 1202(d)(2), at no time between its incorporation and through the Closing have exceeded $50 million, taking into account the assets of any corporations required to be aggregated with the Company in accordance with Code Section 1202(d)(3); provided, however , that in no event shall the Company be liable to the Buyers or any other party for any damages arising from any subsequently proven or identified error in the Company’s determination with respect to the applicability or interpretation of Code Section 1202, unless such determination shall have been given by the Company in a manner either grossly negligent or fraudulent.

 

(nn) Disclosure . The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting the transactions consummated hereunder. All disclosure provided to the Buyers regarding the Company, its business and the transactions contemplated hereby, including the Private Placement Memorandum, the Disclosure Letter and the schedules to this Agreement, furnished by or on behalf of the Company does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.

 

4. COVENANTS.

 

(a) Best Efforts . Each Buyer shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Section 6 of this Agreement. The Company shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Section 7 of this Agreement.

 

(b) Form D and Blue Sky . The Company shall file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Placement Agent promptly after such filing. The Company shall, on or before the Initial Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to, qualify the Securities for sale to the Placement Agent at each 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), and shall provide evidence of any such action so taken to the Buyers on or prior to each Closing Date. Without limiting any other obligation of the Company under this Agreement, the Company shall timely make all filings and reports relating to the offer and sale of the Securities required in connection with the consummation of the transactions consummated hereunder under all applicable securities laws (including, without limitation, all applicable federal securities laws and all applicable “Blue Sky” laws), and the Company shall comply with all applicable federal, foreign, state and local laws, statutes, rules, regulations and the like relating to the offering and sale of the Securities to the Buyers.

 

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(c) Reporting Status . After the date the Company becomes subject to the periodic reporting requirements under Sections 13 or 15(d) of the 1934 Act, as amended from time to time, together with the regulations promulgated thereunder (a “ Reporting Company ”), and until the date on which the Buyers shall have sold all of the Registrable Securities (such period, to end in any event, whether or not such securities have been sold, not later than five years after such date, the “ Reporting Period ”), the Company shall use commercially reasonable efforts to timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would no longer require or otherwise permit such termination unless such termination is approved by the holders of a majority stockholders of the voting power of the Company, or unless no Buyer has demand registration rights under the Registration Rights Agreement or unless no Buyer is a holder of record of Conversion Shares (collectively, the “ Termination Conditions ”).

 

(d) Use of Proceeds . The Company shall use the proceeds from the sale of the Shares for general corporate purposes, as set forth in the Private Placement Memorandum; provided, however, that the Company shall not use any of the proceeds to make or repay loans to any officer or director of the Company.

 

(e) Listing . In connection with the Company becoming a Reporting Company, the Company shall in connection with any proper demand for registration of Registrable Securities under the Registration Rights Agreement (if the same has not previously occurred) promptly secure the listing or designation for quotation (as the case may be) of all of the Registrable Securities upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed or designated for quotation (as the case may be) (subject to official notice of issuance) and shall thereafter maintain such listing or designation for quotation (as the case may be) of all Registrable Securities from time to time issuable under the terms of the Transaction Documents on such national securities exchange or automated quotation system unless one of the Termination Conditions has occurred. During any period that the Common Stock is listed or designated, the Company shall use commercially reasonable efforts to maintain the Common Stock’s listing or designation for quotation (as the case may be) on The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (each, an “ Eligible Market ”). During the Reporting Period, the Company shall use commercially reasonable efforts not to take any action which could be reasonably expected to prevent a listing or result in the delisting or suspension of the Common Stock from an Eligible Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(e).

 

(f) Fees . The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby and resulting from the retention by the Company of any placement agent, financial advisor or broker (including, without limitation, any fees payable to the Placement Agent, who is the Company’s sole placement agent in connection with the transactions contemplated by this Agreement). Except when such Buyer has breached Section 2(k) hereof, the Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment. Except as otherwise set forth in the Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.

 

(g) Pledge of Securities . Notwithstanding anything to the contrary contained in this Agreement, the Company acknowledges and agrees that the Securities may be pledged by a Buyer in connection with a bona fide margin agreement or other bona fide loan or financing arrangement that is secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer making a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document. The Company hereby agrees to execute and deliver such documentation as a holder of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Buyer.

 

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(h) Reservation of Shares . The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than one hundred ten percent (110%) of the maximum number of Conversion Shares issuable upon conversion of the Shares.

 

(i) Conduct of Business . So long as any of the Securities are held by the Buyers and their successors in interest and assigns, the business of the Company shall not be conducted in violation of any law, ordinance or regulation of any governmental entity, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect.

 

(j) Subsequent Placements . So long as the Shares are outstanding, the Company shall, without the prior written consent (the “ Required Buyers Consent ”) of the Required Buyers (as defined below), be prohibited from effecting or entering into an agreement to effect any offering or placement of equity or equity linked securities of the Company, including without limitation any shares of Series A Preferred Stock that remain authorized and unissued following the termination of the offering pursuant to this Agreement (“ Subsequent Placement ”). The Required Buyers Consent may include the Required Buyers requiring the Company to provide additional rights to the Holders in connection with any Subsequent Placement including, without limitation, right of participation, increase in the amount of the Stated Value (as defined in the Certificate) and additional redemption rights. Notwithstanding anything to the contrary herein, the term “ Subsequent Placement ” shall not include (i) a firm commitment underwritten initial public offering through a registered broker-dealer (an “ IPO ”), (ii) with the prior written consent of Liquid Venture Partners, LLC, an affiliate of the Placement Agent (“ LVP ”), a placement (or series of placements), based on a pre-issuance valuation of the Company of at least the product of: (A) the total number of issued and outstanding Common Stock and Common Stock Equivalents (on a converted basis) immediately prior to the Subsequent Placement issuance, multiplied by (B) the product of: (x) the Per Share Purchase Price, multiplied by (y) two, and in which in the aggregate gross proceeds to the Company do not exceed $2 million, or (iii) the issuance of equity or equity linked securities, other than Series A Preferred Stock, based on a pre-issuance valuation of the Company of at least the product of: (A) the total number of issued and outstanding Common Stock and Common Stock Equivalents (on a converted basis) immediately prior to the Subsequent Placement issuance, multiplied by (B) the product of: (x) the Per Share Purchase Price, multiplied by (y) two, to one or more of the Company’s strategic partners and/or licensors in consideration of non-cash assets or license rights from the strategic partner or licensor, which issuances in the aggregate shall not exceed securities worth $5 million. All shares of Common Stock issued or issuable pursuant to the securities of the Company issued under this Section 4(j) shall be subject to the 12 month lock-up set forth in Section 4(t). " Common Stock Equivalents " means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

(k) Change of Control . Prior to an IPO, the Company may not effect a Change of Control without the prior written consent of the Required Buyers. “ Change of Control ” means (x) the acquisition of the Company by another entity by means of any transaction (including, without limitation, any stock acquisition, reorganization, merger or consolidation) that contemplates an enterprise value of the Company of less than the product of: (A) the total number of issued and outstanding Common Stock and Common Stock Equivalents (on a converted basis) immediately prior to the effective date of the Change of Control, multiplied by (B) the product of: (i) the Per Share Purchase Price, multiplied by (ii) two, or (y) a sale of all or substantially all of the assets of the Company (including, for purposes of this section, the sale or exclusive license of intellectual property rights which, in the aggregate, constitutes substantially all of the corporation’s material intellectual property assets for an aggregate purchase price of less than the product of: (A) the total number of issued and outstanding Common Stock and Common Stock Equivalents (on a converted basis) immediately prior to the effective date of the Change of Control, multiplied by (B) the product of: (i) the Per Share Purchase Price, multiplied by (ii) two.). In the event of a Change of Control, each Buyer shall have the right but not the obligation, by providing a written request to the Company prior to the effective date of the Change of Control event, to require the Company to purchase some or all of such Buyer’s Shares outstanding at a purchase price per Share equal to the product of: (A) two, multiplied by (B) the Per Share Purchase Price (the “ Put Option Right ”). The Company shall not enter into any Change of Control transaction pursuant to which it would be unable to purchase back all of the issued and outstanding Shares then held by the Buyers (including their assignees) at the time of proposed Change of Control event pursuant to a full exercise by all of the Buyers (including their assignees) of their Put Option Right.

 

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(l) Variable Rate Transaction . Notwithstanding anything in this Agreement to the contrary, until the later of none of the Shares not having been converted to Conversion Shares or three years after the Company becomes a Reporting Company, the Company shall be prohibited from effecting or entering into any Subsequent Placement involving a Variable Rate Transaction. “ Variable Rate Transaction ” means a transaction in which the Company (i) issues or sells any Convertible Securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time after the initial issuance of such Convertible Securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provision or (ii) enters into any agreement (including, without limitation, an “equity line of credit” or an “at the market offering”) whereby the Company may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights). Each Buyer shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages. Notwithstanding the foregoing, the offer or sale of the Series A Preferred Stock shall not be deemed to be a Variable Rate Transaction.

 

(m) Passive Foreign Investment Company . For the period ending on the third year anniversary after the Company becomes a Reporting Company, the Company shall conduct its business in such a manner as will ensure that the Company will not be deemed to constitute a passive foreign investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

(n) Restriction on Redemption and Cash Dividends . So long as any Shares are outstanding and have not been converted to Conversion Shares, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, any securities of the Company without the prior express written consent of the Required Buyers.

 

(o) Corporate Existence . So long as any Shares are outstanding and have not been converted to Conversion Shares, the Company shall maintain its corporate existence and shall not sell, assign or transfer all or substantially all of the Company’s assets.

 

(p) Board of Directors; Size . So long as any Shares are outstanding and have not been converted to Conversion Shares, the Company will, within one hundred twenty (120) days of the Effective Date, have a board of directors and committees thereof that conform to the requirements of Nasdaq Listing Rule 5605 applicable to smaller reporting companies. So long as the Shares are outstanding, LVP shall have the right to advise and require its written consent on all board of director nominees, provided however, such consent shall not be unreasonably withheld. Subject to any legal rights under Delaware law of the stockholders, the board of directors of the Company and committees thereof shall conform to Nasdaq Listing Rule 5605 and the foregoing sentence for so long as any Shares are outstanding and have not been converted to Conversion Shares, except as approved by LVP, which approval may be withheld in its discretion and subject to reasonable conditions, including the requirement of additional independent directors.

 

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(q) Incentive Equity . The Company has adopted an incentive stock or equity award plan (the “ Plan ”) that is attached hereto as Exhibit E and which provides for awards of up to 1,630,000 shares of Common Stock. As of the Effective Date, 1,630,000 shares of Common Stock remain eligible for issuance under the Plan for future issuance (the “ Reserved Shares ”). The Company hereby agrees that prior to the closing of the IPO, the Company shall only issue “Options” (as defined in the Plan) under the Plan and that the exercise price per share for any Options issued prior to the final Closing shall not be less than the Per Share Purchase Price. Following the completion of the Offering, up to and including the date of an IPO, the Reserved Shares shall not represent in excess of fifteen percent (15%) of the number of fully diluted shares of Common Stock. The Plan will not be amended to increase the number of shares subject thereto until the Company becomes a Reporting Company or with the approval of the Required Buyers. By each Buyer’s execution and delivery of this Agreement, each Buyer hereby consents to the adoption by the Company of the Plan attached hereto as Exhibit E as of the date each Buyer acquires the Shares purchased by each such Buyer.

 

(r) Independent Accountants . Within three months after the date of initial issuance of the Shares, the Company will engage independent certified public accountants, which firm is actively registered with the PCAOB, to perform an audit of the financial statements that would be necessary and sufficient to meet the filing requirements of a registration statement for the registration of securities of the Company either for issuance by the Company or resale of the Conversion Shares, which audit will be completed no later than nine (9) months after the date of the initial issuance of the Shares.

 

(s) Lock Up . In connection with the IPO, the Company will obtain lock-up agreements from all officers, directors and employees of the Company and Parent, any direct or beneficial owner of five percent (5%) or more of the Common Stock (excluding any Conversion Shares for purposes of calculating the five percent (5%)), and National Securities Corporation (“ NSC ”) and any beneficial holders of shares of Common Stock who are affiliates of NSC in respect of shares of Common Stock issued upon exercise of any warrants issued in connection with the offering by the Company of the Shares (the “ Financing Shares ”) (for clarity, the lock up for NSC and its affiliates will not apply to any other shares of Common Stock, including any shares of Common Stock acquired in the public markets); the foregoing lock up to extend for a period of 12 months after the effective date of the registration statement for the IPO.

 

(t) Investor Market Stand-Off . In connection with the IPO, if any, each Buyer hereby agrees that, for one hundred eighty (180) days from the effective date of such registration (the “ Restricted Period ”), it will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, whether now owned or hereafter acquired or with respect to which such Buyer has or hereafter acquires the power of disposition; or (ii) enter into any swap or other agreement, arrangement or transaction that transfers to another, in whole or in part, directly or indirectly, any of the economic consequence of ownership of any Common Stock or any securities convertible into or exercisable or exchangeable for any Common Stock, whether any transaction described in clause (i) or (ii) is to be settled by delivery of Common Stock, other securities, in cash or otherwise, without the prior written consent of the managing or lead underwriter of such offering. In order to enforce the restrictions agreed to by Buyer in this Section 4(u), the Company may impose stop-transfer instructions with respect to any security acquired under or subject to this Agreement until the end of the Restricted Period. The Company’s underwriters shall be third-party beneficiaries of the restrictions set forth in this Section 4(u).

 

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(u) IPO Commitment . The Company shall complete an IPO no later than June 30, 2020, subject to extension upon the prior written approval of the Required Holders.

 

5. REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.

 

(a) Register . The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to each holder of Securities), a register for the Shares and, if issued, the Conversion Shares in which the Company shall record the name and address of the Person in whose name the Shares and/or Conversion Shares have been issued (including the name and address of each transferee), the aggregate number of Shares or Conversion Shares held by such Person, and any tax related information required to be maintained. The Company shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives.

 

(b) Transfer Agent Instructions . If a Buyer effects a sale, assignment or transfer of the Conversion Shares, the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more certificates or credit shares to the applicable balance accounts at the Depository Trust Company (“ DTC ”) in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale, assignment or transfer involves Conversion Shares sold, assigned or transferred pursuant to an effective registration statement or in compliance with Rule 144, the transfer agent shall issue such shares to such Buyer, assignee or transferee (as the case may be) without any restrictive legend in accordance with Section 5(d) below. The Company acknowledges that a breach by it of its obligations under this Section 5(b) will cause irreparable harm to each Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that each Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. The Company shall cause its counsel to issue the legal opinion referred to in the Irrevocable Transfer Agent Instructions to the Company’s transfer agent on each Effective Date (as defined and provided in the Registration Rights Agreement), provided that the applicable Buyer(s) or its or their representatives and/or brokers have provided the documentation to counsel reasonably necessary or required for the basis of such legal opinion. Any fees (with respect to the transfer agent, counsel to the Company or otherwise) associated with the issuance of such opinion or the removal of any legends on any of the Securities shall be borne by the Company.

 

(c) Legends . Each Buyer understands that the Securities have been issued (or will be issued in the case of the Conversion Shares) pursuant to an exemption from registration or qualification under the 1933 Act and applicable state securities laws, and except as set forth below, the Securities shall bear any legend as required by the “Blue Sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN]/[THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

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(d) Removal of Legends . Certificates evidencing Securities shall not be required to contain the legend set forth in Section 5(c) above or any other legend (i) while a registration statement (including a Registration Statement) covering the resale of such Securities is effective under the 1933 Act, (ii) following any sale of such Securities pursuant to Rule 144 (assuming the transferor is not an affiliate of the Company), (iii) if such Securities are eligible to be sold, assigned or transferred under Rule 144 (provided that a Buyer provides the Company with reasonable assurances that such Securities are eligible and will remain for sale, assignment or transfer under Rule 144 which shall not include an opinion of counsel), (iv) in connection with a sale, assignment or other transfer (other than under Rule 144), provided that such Buyer provides the Company with an opinion of counsel to such Buyer, in a generally acceptable form, to the effect that such sale, assignment or transfer of the Securities may be made and thereafter made without registration under the applicable requirements of the 1933 Act, or (v) if such legend is not required under applicable requirements of the 1933 Act (including, without limitation, controlling judicial interpretations and pronouncements issued by the SEC, provided that Buyer provides the Company with a reasonable description of the authority Buyer is relying upon). If the Company is a Reporting Company and a legend is not required pursuant to the foregoing, the Company, at its expense, shall no later than two (2) Business Days following the delivery by a Buyer to the Company or the transfer agent (with notice to the Company) of a legended certificate representing such Securities (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer, if applicable), together with any other deliveries from such Buyer as may be required above in this Section 5(d), as directed by such Buyer, either: (A) provided that the Company’s transfer agent is participating in the DTC Fast Automated Securities Transfer Program and such Securities are Conversion Shares, credit the aggregate number of shares of Common Stock to which such Buyer shall be entitled to such Buyer’s or its designee’s balance account with the DTC through its Deposit/Withdrawal at Custodian system or (B) if the Company’s transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch for delivery (via reputable overnight courier) to such Buyer, a certificate representing such Securities that is free from all restrictive and other legends, registered in the name of such Buyer or its designee (the date by which such credit is so required to be made to the balance account of such Buyer’s or such Buyer’s nominee with DTC or such certificate is required to be delivered to such Buyer pursuant to the foregoing is referred to herein as the “ Required Delivery Date ”).

 

(e) Failure to Timely Deliver; Buy-In . If the Company is a Reporting Company and the Company improperly fails to (i) issue and dispatch for delivery (or cause to be so dispatched) to a Buyer by the Required Delivery Date a certificate representing the Securities so delivered to the Company by such Buyer that is free from all restrictive and other legends or (ii) credit the balance account of such Buyer’s or such Buyer’s nominee with DTC for such number of Conversion Shares so delivered to the Company, and if on or after the business day immediately following the Required Delivery Date such Buyer (or any other Person in respect, or on behalf, of such Buyer) purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Buyer of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, that such Buyer so anticipated receiving from the Company without any restrictive legend, then, in addition to all other remedies available to such Buyer, the Company shall, within five (5) Business Days after such Buyer’s request and in such Buyer’s sole discretion, either (x) pay cash to such Buyer in an amount equal to such Buyer’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including brokerage commissions and other out-of-pocket expenses, if any) (the “ Buy-In Price ”), at which point the Company’s obligation to so deliver such certificate or credit such Buyer’s balance account shall terminate and such shares shall be cancelled, or (y) promptly honor its obligation to so deliver to such Buyer a certificate or certificates or credit such Buyer’s DTC account representing such number of shares of Common Stock that would have been so delivered if the Company timely complied with its obligations hereunder and pay cash to such Buyer in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Conversion Shares that the Company was required to deliver to such Buyer by the Required Delivery Date multiplied by (B) the lowest closing sale price of the Common Stock on any Business Day during the period commencing on the date of the delivery by such Buyer to the Company of the applicable Conversion Shares and ending on the date of such delivery and payment under this clause (y).

 

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6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

(a) The obligation of the Company hereunder to issue and sell the Shares to each Buyer at a Closing is subject to the satisfaction, at or before the applicable Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof:

 

(i) Such Buyer shall have executed each of the other Transaction Documents to which it is a party and a Rule 506 “Bad Actor” Questionnaire, and delivered the same to the Company.

 

(ii) Such Buyer and each other Buyer shall have delivered to the Escrow Agent on behalf of the Company the Purchase Price for the Shares being purchased by such Buyer at such Closing by check in collected funds through the Escrow Agent or wire transfer of immediately available funds pursuant to the wire instructions provided by the Company.

 

(iii) The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of such Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to such Closing Date.

 

(iv) A minimum of 2,400,000 Shares, for the minimum gross proceeds of $6,000,000, are purchased by the Buyers at the Initial Closing.

 

7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

(a) The obligation of each Buyer hereunder to purchase its Shares at a Closing is subject to the satisfaction, at or before the applicable Closing Date, of each of the following conditions, provided that these conditions are for each Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:

 

(i) The Company shall have duly executed and delivered to such Buyer each of the Transaction Documents to which it is a party and the Company shall have duly executed and delivered to such Buyer either (A) a certificate registered in such Buyer’s name (representing the number of Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers) or (B) an irrevocable instruction letter to the Company’s transfer agent to issue a certificate registered in such Buyer’s name (representing the number of Shares as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers) and deliver such certificate to the Buyer as soon thereafter as possible.

 

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(ii) The Buyers shall have received an opinion of Greenberg Traurig, LLP, the Company’s counsel, dated the date of the Initial Closing, stating that the Company is duly incorporated, the Transaction Documents have been duly authorized, that the Shares are be duly authorized, fully paid and non-assessable and that the Conversion Shares, if and when issued will be duly authorized, fully paid and non-assessable, which opinion may be subject to such assumptions and conditions are normally set forth in opinions of legal counsel in respect of such matters.

 

(iii) The Company shall have delivered to such Buyer a certificate evidencing the formation and good standing of the Company in its jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction of formation as of a date within ten (10) days of such Closing Date.

 

(iv) The Company shall have delivered to such Buyer a certificate or other reasonably acceptable evidence evidencing the Company’s qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of each jurisdiction in which the Company conducts business and is required to so qualify, as of a date within ten (10) days of such Closing Date.

 

(v) The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of State of the Company’s jurisdiction of incorporation within ten (10) days of such Closing Date.

 

(vi) The Company shall have delivered to such Buyer a certificate, in the form acceptable to such Buyer, executed by the Secretary of the Company dated as of the Initial Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s board of directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation of the Company and (iii) the Bylaws of the Company as in effect at the Closing.

 

(vii) Each and every representation and warranty of the Company shall be true and correct as of the applicable Closing Date in all material respects (except for representations and warranties that include an express materiality qualification, which shall be true and correct in all respects and, except further, representations and warranties that speak as of a specific date, which shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company at or prior to the Closing Date (except for covenants, agreements and conditions that include an express materiality qualification, which shall performed, satisfied or complied in all respects. Such Buyer shall have received a certificate, executed by the President of the Company, dated as of the applicable Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form reasonably acceptable to such Buyer.

 

(viii) The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities.

 

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(ix) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

 

(x) Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably would have or result in a Material Adverse Effect.

 

(xi) The Company shall not have amended, modified, waived compliance with or terminated, revoked or rescinded in any manner or respect (and the Company shall not have taken any action, or permitted any action to be taken (whether through the Company’s inaction or otherwise), that has a similar effect to any of the foregoing) any provision of any of material agreements and all of such agreements shall be in full force and effect.

 

(xii) The Company shall have delivered to such Buyer a letter dated as of the Initial Closing Date, in a form reasonably acceptable to such Buyer, executed by the Company (the “ Disclosure Letter ”).

 

(xiii) The Company shall have delivered to such Buyer such other documents, instruments or certificates relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.

 

(xiv) A minimum of 2,400,000 Shares, for the minimum gross proceeds of $6,000,000, are purchased by the Buyers at the Initial Closing.

 

8. TERMINATION.

 

(a) This Agreement may be terminated prior to the Initial Closing:

 

(i) by written agreement of the Buyers and the Company; or

 

(ii) by either the Company or a Buyer (as to itself but no other Buyer) upon written notice to the other, if the Initial Closing shall not have taken place by 4:30 p.m. Eastern time on May 31, 2019, subject to extension to June 30, 2019 pursuant to the mutual agreement of the Company and the Placement Agent; provided, that the right to terminate this Agreement under this Section 8(a)(ii) shall not be available to any party 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.

 

(b) No termination of this Agreement shall affect any obligation of the Company under this Agreement to reimburse such Buyer for the expenses described in Section 4(f) above. Nothing contained in this Section 8 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.

 

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9. MISCELLANEOUS.

 

(a) Governing Law; Jurisdiction; Jury Trial . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such 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. Nothing contained herein shall be deemed or operate to preclude any Buyer from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to such Buyer or to enforce a judgment or other court ruling in favor of such Buyer. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b) Counterparts . This Agreement may be executed in two or more identical counterparts, all of which 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. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page 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 signature page were an original thereof.

 

(c) Headings; Gender . The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are found.

 

(d) Severability . If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). Notwithstanding anything to the contrary contained in this Agreement or any other Transaction Document (and without implication that the following is required or applicable), it is the intention of the parties that in no event shall amounts and value paid by the Company, or payable to or received by any of the Buyers, under the Transaction Documents (including without limitation, any amounts that would be characterized as “interest” under applicable law) exceed amounts permitted under any applicable law. Accordingly, if any obligation to pay, payment made to any Buyer, or collection by any Buyer pursuant the Transaction Documents is finally judicially determined to be contrary to any such applicable law, such obligation to pay, payment or collection shall be deemed to have been made by mutual mistake of such Buyer, and the Company and such amount shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by the applicable law. Such adjustment shall be effected, to the extent necessary, by reducing or refunding, at the option of such Buyer, the amount of interest or any other amounts which would constitute unlawful amounts required to be paid or actually paid to such Buyer under the Transaction Documents. For greater certainty, to the extent that any interest, charges, fees, expenses or other amounts required to be paid to or received by such Buyer under any of the Transaction Documents or related thereto are held to be within the meaning of “interest” or another applicable term to otherwise be violative of applicable law, such amounts shall be pro-rated over the period of time to which they relate.

 

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(e) Entire Agreement; Amendments . This Agreement, the other Transaction Documents and the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein supersede all other prior oral or written agreements between the Buyers, the Company, their affiliates and Persons acting on their behalf solely with respect to the matters contained herein and therein, and this Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein contain the entire understanding of the parties solely with respect to the matters covered herein and therein; provided, however, nothing contained in this Agreement or any other Transaction Document shall (or shall be deemed to) (i) have any effect on any agreements any Buyer has entered into with, or any instruments any Buyer has received from, the Company prior to the date hereof with respect to any prior investment made by such Buyer in the Company or (ii) waive, alter, modify or amend in any respect any obligations of the Company, or any rights of or benefits to any Buyer or any other Person, in any agreement entered into prior to the date hereof between or among the Company and any Buyer, or any instruments any Buyer received from the Company prior to the date hereof, and all such agreements and instruments shall continue in full force and effect. Except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. For clarification purposes, the Recitals are part of this Agreement. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Required Buyers, and any amendment to any provision of this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Securities, as applicable, provided that no such amendment shall be effective to the extent that it (1) applies to less than all of the holders of the Securities then outstanding or (2) imposes any obligation or liability on any Buyer without such Buyer’s prior written consent (which may be granted or withheld in such Buyer’s sole discretion). No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party, provided that the Required Buyers may waive any provision of this Agreement, and any waiver of any provision of this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Securities, as applicable, provided that no such waiver shall be effective to the extent that it (1) applies to less than all of the holders of the Securities then outstanding (unless a party gives a waiver as to itself only) or (2) imposes any obligation or liability on any Buyer without such Buyer’s prior written consent (which may be granted or withheld in such Buyer’s sole discretion). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents who are holders of Shares. The Company has not, directly or indirectly, made any agreements with any Buyers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other obligation to provide any financing to the Company or otherwise. As a material inducement for each Buyer to enter into this Agreement, the Company expressly acknowledges and agrees that no due diligence or other investigation or inquiry conducted by a Buyer, any of its advisors or any of its representatives shall affect such Buyer’s right to rely on, or shall modify or qualify in any manner or be an exception to any of, the Company’s representations and warranties contained in this Agreement or any other Transaction Document. “ Required Buyers ” means Buyers having Purchase Prices in the aggregate that are at least equal to a majority of the aggregate Purchase Price for all Buyers.

 

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(f) Notices . Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, if delivered personally; (ii) when sent, if sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (iii) when sent, if sent by e-mail (provided that such sent e-mail is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s e-mail server that such e-mail could not be delivered to such recipient) and (iv) if sent by overnight courier service, one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses, facsimile numbers and e-mail addresses for such communications shall be:

 

If to the Company:

 

TFF Pharmaceuticals, Inc.

2801 Via Fortuna

Suite 425

Austin, Texas 78746

E-mail: kcoleman@tffpharma.com
Attention: Kirk Coleman

 

with a copy (for informational purposes only) to:

 

Greenberg Traurig, LLP

3161 Michelson Drive, Suite 1000

Irvine, CA 92612

Facsimile: (949) 732-6501

E-mail: DonahueD@gtlaw.com
Attention: Daniel K. Donahue, Esq.

 

If to a Buyer, to its address, facsimile number or e-mail address set forth on the Schedule of Buyers, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers,

 

with a copy (for informational purposes only) to:

 

LKP Global Law, LLP

1901 Avenue of the Stars

Suite 480

Los Angeles, CA 90067

Facsimile: (424) 239-1882

E-mail: kleung@lkpgl.com
Attention: Kevin K. Leung, Esq.

 

or to such other address, facsimile number or e-mail address and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date and recipient facsimile number or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iv) above, respectively. A copy of the e-mail transmission containing the time, date and recipient e-mail address shall be rebuttable evidence of receipt by e-mail in accordance with clause (iii) above.

 

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(g) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including, as contemplated below, any assignee of any of the Securities. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Required Buyers, except in the event of a Change of Control. A Buyer may assign some or all of its rights hereunder in connection with any transfer of any of its Securities without the consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.

 

(h) No Third Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, other than the Indemnitees referred to in Section 9(k).

 

(i) Survival. The representations, warranties, agreements and covenants shall survive the Closing and shall expire on the conversion of the Shares into Conversion Shares. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

 

(j) Further Assurances . Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

(k) Indemnification . In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each holder of any Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “ Indemnitees ”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements for one (1) counsel to all the Buyers (the “ Indemnified Liabilities ”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in any of the Transaction Documents, (b) any breach of any covenant, agreement or obligation of the Company contained in any of the Transaction Documents or (c) any cause of action, suit, proceeding or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) or which otherwise involves such Indemnitee that arises out of or results from (i) the execution, delivery, performance or successful enforcement of any of the Transaction Documents, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of such Buyer or holder of the Securities either as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents or as a party to this Agreement (including, without limitation, as a party in interest or otherwise in any action or proceeding for injunctive or other equitable relief). To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 9(k) shall be the same as those set forth in Section 6 of the Registration Rights Agreement. No Indemnitee shall be entitled to indemnification under this Section 9(k) to the extent an Indemnified Liability arises out of the gross negligence or willful misconduct of such Indemnitee.

 

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(l) Construction . The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. No specific representation or warranty shall limit the generality or applicability of a more general representation or warranty. Each and every reference to share prices, shares of Common Stock and any other numbers in this Agreement that relate to the Common Stock shall be automatically adjusted for stock dividends, stock splits, stock combinations and other similar transactions that occur with respect to the Common Stock after the date of this Agreement.

 

(m) Remedies . Each Person having any rights under any provision of this Agreement shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security.

 

(n) Withdrawal Right . Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

(o) Payment Set Aside; Currency . To the extent that the Company makes a payment or payments to any Buyer hereunder or pursuant to any of the other Transaction Documents or any of the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. Unless otherwise expressly indicated, all dollar amounts referred to in this Agreement and the other Transaction Documents are in United States Dollars (“ U.S. Dollars ”), and all amounts owing under this Agreement and all other Transaction Documents shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “ Exchange Rate ” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Agreement, the U.S. Dollar exchange rate as published in The Wall Street Journal on the relevant date of calculation.

 

27

 

 

(p) Independent Nature of Buyers’ Obligations and Rights . The obligations of each Buyer under the Transaction Documents are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as, and the Company acknowledges that the Buyers do not so constitute, a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Buyers are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by the Transaction Documents or any matters, and the Company acknowledges that the Buyers are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or the transactions contemplated by the Transaction Documents. The decision of each Buyer to purchase Securities pursuant to the Transaction Documents has been made by such Buyer independently of any other Buyer. Each Buyer acknowledges that no other Buyer has acted as agent for such Buyer in connection with such Buyer making its investment hereunder and that no other Buyer will be acting as agent of such Buyer in connection with monitoring such Buyer’s investment in the Securities or enforcing its rights under the Transaction Documents. The Company and each Buyer confirms that each Buyer has independently participated with the Company in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose. The use of a single agreement to effectuate the purchase and sale of the Securities contemplated hereby was solely in the control of the Company, not the action or decision of any Buyer, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Buyer. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Buyer, solely, and not between the Company and the Buyers collectively and not between and among the Buyers.

 

[ Signature pages follow ]

 

28

 

 

IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above. 

 

  COMPANY:
   
  TFF PHARMACEUTICALS, Inc.
   
  By: /s/ Glenn Mattes
    Glenn Mattes,
    Chief Executive Officer

 

[ Buyer Signature Page Follows ]

 

 

 

 

BUYER SIGNATURE PAGE FOR SECURITIES PURCHASE AGREEMENT

 

TFF PHARMACEUTICALS, Inc .

 

[ Buyer’s signature to be provided by way of its execution of the Omnibus Signature Page to the Agent’s “Omnibus Signature Page and Investor Questionnaire” with respect to this Offering. ]

 

 

 

 

BUYER ADDENDUM RE ESCROW

 

( this information is required )

 

By signing above the above signed Buyer hereby certifies and confirms that: In the event that the Escrow Agent makes a disbursement to the above signed Buyer, which may or may not occur, such Buyer hereby confirms that such disbursement is to be made by wire transfer using the following wire transfer instructions. The Escrow Agent, the Company and the Placement Agent can rely on this confirmation and I will not revoke this confirmation unless I confirm to the Company on this form replacement wire transfer instructions at least two Business Days before revoking this confirmation. The Company may instruct the Escrow Agent to, or the Escrow Agent may on its own, withhold any such disbursement until the Company is reasonably satisfied and the Escrow Agent is satisfied in its sole discretion with the instructions and procedures for making such disbursement.

 

Bank Name: ____________________

 

Bank Address: ____________________

 

ABA Number: ____________________

 

Account Number: ____________________

 

Account Name: ____________________

 

Reference: ____________________

 

 

 

 

EXHIBIT A

 

SCHEDULE OF BUYERS

 

(1)   (2)   (3)   (4)

Buyer

 

Address, E-mail and/or Facsimile Number

 

Number of Shares

 

Purchase Price

             

 

 

 

 

EXHIBIT B

 

CERTIFICATE

 

 

 

 

EXHIBIT C

 

Registration Rights Agreement

 

 

 

 

EXHIBIT D

 

ESCROW AGREEMENT

 

 

 

 

EXHIBIT E

 

2018 stock incentive plan

 

 

 

 

 

Exhibit 10.13

 

AMENDMENT #1 TO PATENT LICENSE AGREEMENT

 

This Amendment #1 to the Patent License Agreement (“Amendment”) is made and entered into as of November 30, 2018 (“Amendment Effective Date”) by and between TFF Pharmaceuticals, Inc. (“Licensee”) and The University of Texas at Austin, on behalf of the Board of Regents of the University of Texas System (“Licensor”), an agency of the State of Texas.

 

Background

 

A. The Licensor and Lung Therapeutics, Inc. entered into a Patent License Agreement (UTA Agreement No. PM1504101-A) with an Effective Date of July 8 2015, (the “Patent License Agreement”). Capitalized terms used herein without definition shall have meanings given to them in the Patent License Agreement.

 

B. Lung Therapeutics, Inc. assigned the Patent License Agreement to TFF Pharmaceuticals, Inc. on January 24, 2018.

 

C. Licensor consented to said assignment on March 9, 2018.

 

D. As assignee of the Patent License Agreement No. PM1504101-A, and pursuant to Section 15(c) of the Patent License Agreement, Licensee hereby agrees to accept all interests, rights, duties and obligations of the Licensee under the Patent License Agreement, and agrees to comply with all terms and conditions of the Patent License Agreement.

 

E. The Licensor and Licensee now wish to amend the Patent License Agreement as set forth below.

 

CONFIDENTIAL

Page 1 of 17

 

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1. Section 1 of the Patent License Agreement (Definitions) shall be deleted and replaced with the following:

 

1. Definitions
  Effective Date Date of last signature
  Licensor The University of Texas at Austin, on behalf of the Board of Regents of the University of Texas System, an agency of the State of Texas, whose address is 3925 W. Braker Lane, Suite 1.9A (R3500), Austin, Texas 78759.
  Licensee TFF Pharmaceuticals, Inc., a Delaware Corporation, with its principal place of business at 2801 Via Fortuna, Suite 425, Austin, Texas 78746
  Contract Year and Contract Quarters

Check one box to correspond with Licensee fiscal year and quarters)

 

Contract Year is 12-month period ending on December 31 and Contract Quarters are 3-month periods ending on March 31, June 30, Sept. 30, Dec. 31

 

OR

 

Other: Contract Year is 12-month period ending on (specify): [month and day]; Contract Quarters are 3-month periods ending on (specify): [month and day, Q1], [month and day, Q2], [month and day, Q3], [month and day, Q4]

  Territory Worldwide
  Field

☒  All fields

 

OR

 

Limited fields

 

Field: [Describe field of use] Field: [Describe field of use]

If the Field is not “All Fields” and “Limited fields” is checked,

Excluded Fields include:

Excluded Field: [Describe excluded field of use]

Excluded Field: [Describe excluded field of use]

  Patent Rights (See Exhibit B)
  Mandatory Sublicensing None
  USPTO Entity Status as of Effective Date

Check one box:

Small

Large

 

CONFIDENTIAL

Page 2 of 17

 

 

2. Section 2.4 of the Patent License Agreement (Diligence Milestones) shall be deleted and replaced with the following:

 

2.4. Diligence Milestones
  Milestones and deadlines Milestone Events Deadlines
    1. Receive $14 million in aggregate financing Complete
    2. Enter into a sponsored research agreement with the lab of Dr. Robert O. Williams III for $129,000 Complete
    3. Enter into a sponsored research agreement with the lab of Dr. Robert O. Williams III for $200,000 , with a start date after May 1, 2019 May 31, 2019
    4. IND submission for TFF-VORI Licensed Product December 31, 2019
    5. Enter into a sponsored research agreement with the lab of Dr. Robert O. Williams III for $200,000, with a start date after May 1, 2020 May 31, 2020
    6. Final Phase II report submitted to Complete FDA for TFF-VORI Licensed Product $200,000 , with a start date after May 1, 2021 December 31, 2020
    7. Enter into a sponsored research agreement with the lab of Dr. Robert O. Williams III for $200,000 , with a start date after May 1, 2021 May 31, 2021
    8. Final Phase III report submitted to FDA for TFF-VORI Licensed Product December 31, 2021
    9. FDA regulatory approval for TFF- VORI Licensed Product December 31, 2022
    10. Final Phase I report submitted to FDA for TFF-TAC Licensed Product December 31, 2024

 

3. Section 3.1(a) of the Patent License Agreement (Compensation) shall be deleted and replaced with the following:

 

3. Compensation
3.1(a) Patent expenses Amount and due date based on invoices received as of:
    $22,350.56 due on December 18, 2018 December 7, 2018
    $47,089.55 due on July 8, 2019 December 7, 2018
    $47,089.55 due on January 8, 2020 December 7, 2018

 

CONFIDENTIAL

Page 3 of 17

 

 

4. Section 3.1(b) of the Patent License Agreement (Milestone fees) shall be deleted and replaced with the following:

 

       
3.1(b) Milestone Fees Milestone Events Milestone Fees
    IND Approval on first indication of Licensed Product $50,000
    Submission of final Phase II report for first Licensed Product (FDA or foreign equivalent) $100,000
    Submission of final Phase III report for first Licensed Product (FDA or foreign equivalent) $250,000
    Regulatory approval for first Licensed Product (FDA or foreign equivalent) $500,000
    Regulatory approval for second Licensed Product or second indication of first Licensed Product (FDA or foreign equivalent) $500,000

 

5. Section 3.1(d) of the Patent License Agreement (Sublicense Fees) shall be deleted and replaced with the following:

 

     
3.1(d) Sublicense Fees

15% of Non-Royalty Sublicense Consideration from a Sublicense Agreement executed before 1st human testing of Licensed Product in a clinical trial;

 

7.5% of Non-Royalty Sublicense Consideration from a Sublicense Agreement executed after 1st human testing of Licensed Product in a clinical trial.

 

5% of Non-Royalty Sublicense Consideration from a Sublicense Agreement executed after FDA Regulatory approval of Licensed Product.

 

CONFIDENTIAL

Page 4 of 17

 

 

6. Section 18 of the Patent License Agreement (Contact Information) shall be deleted and replaced with the following:

 

18. Contact Information
  Licensee Contacts Licensor Contacts
 

Contact for Notice:
Attn: Glenn Mattes
Fax: 2801 Via Fortuna, Suite 425,
Austin, Texas 78746
Phone: 215-880-2632
E-mail:gmattes@tffpharma.com &
glnmtts@aol.com

 

Accounting contact:
Attn: Kirk Coleman
2801 Via Fortuna, Suite 425,
Austin, Texas 78746
Fax: N/A
Phone: 817-989-6358
E-mail: kcoleman@tffpharma.com

 

Patent prosecution contact:
Attn: Kirk Coleman
2801 Via Fortuna, Suite 425,
Austin, Texas 78746
Fax: N/A
Phone: 817-989-6358
E-mail: kcoleman@tffpharma.com

Contact for Notice:
Attn: Contract Manager
3925 W. Braker Lane, Suite 1.9A (R3500)
Austin, TX 78759
Fax: 512.475.6894
Phone: 512.471.2995
E-mail: licensing@otc.utexas.edu

 

Payment and reporting contact:

Checks payable to “The University of Texas at Austin”
Attn: Accounting/Compliance
3925 W. Braker Lane, Suite 1.9A (R3500)
Austin, TX 78759
Fax: 512.475.6894
Phone: 512.471.2995
E-mail: accounting@otc.utexas.edu;
compliance@otc.utexas.edu

 

Patent prosecution contact:
Attn: Patents
3925 W. Braker Lane, Suite 1.9A (R3500)
Austin, TX 78759
Fax: 512.475.6894
Phone: 512.471.2995
E-mail: patents@otc.utexas.edu

 

7. Special Provision 20.1 of the Patent License Agreement shall be deleted in its entirety.

 

8. Special Provision 20.2 of the Patent License Agreement shall be deleted in its entirety.

 

9. Section 2.3(d) in the Terms and Conditions shall be deleted in its entirety.

 

10. Section 3.1 of the Terms and Conditions, shall be deleted and replaced with the following:

 

3.1 Non-Royalty Payments due from Licensee

 

(a) Patent Expenses . Licensee will reimburse Licensor for all past patent expenses stated in Section 3.1(a) of the Patent License Agreement within 15 days of the corresponding due date. The stated amount is the current estimate for past patent expenses based on invoices received by the Licensor through the stated date. Licensee’s obligations to pay all past and future patent expenses pursuant to Section 6 (Patent Expenses and Prosecution) will not be limited by such amount.

 

CONFIDENTIAL

Page 5 of 17

 

 

11. A new section 3.5 is added to the Terms and Conditions, which provides in full as follows:

 

3.5 Equity Consideration for License Grant

 

(a) In partial consideration of the rights granted to Licensee by Licensor in the Patent License Agreement, Licensee will issue to Licensor that number of shares (the “Shares”) of the common stock of the company, $0.001 par value per share (the “Common Stock”), of Licensee, representing 1% of Licensee’s outstanding shares of Common Stock, on a fully diluted basis, as of 30 days after IND approval for first Licensed Product.

 

(b) All Shares issued to Licensor under this Section 3.5 will be considered fully paid, non-assessable, and have no requirement of contribution of any kind to Licensee. Stock certificates representing such Shares shall be issued in the name of Licensor indicated in Section 1 of the Patent License Agreement. The address of record shall be the payment and reporting contact address set forth in Section 18 (Notices) of the Patent License Agreement, as amended by this Amendment.

 

(c) The Licensor agrees that, during the period beginning on and including the close of an initial public offering of the Common Stock (“IPO Effective Date”) through and including the twelve-month anniversary of the IPO Effective Date (the “Lock-Up Period”), the Licensor, or any affiliated party of the Licensor, will not, without the prior written consent of the Company, directly or indirectly: (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, whether now owned or hereafter acquired by the Licensor or with respect to which the Licensor has or hereafter acquires the power of disposition, or (ii) enter into any swap or other agreement, arrangement or transaction that transfers to another, in whole or in part, directly or indirectly, any of the economic consequence of ownership of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for any Common Stock, whether any such transaction is to be settled by delivery of Common Stock, other securities, in cash or otherwise. Notwithstanding the provisions set forth in this Section 3.5(c), the Licensor may, without the prior written consent of the Company, transfer any shares of Common Stock acquired in an open market purchase following the IPO Effective Date.

 

CONFIDENTIAL

Page 6 of 17

 

 

(d) Prior to the effective date of the first registration statement filed by Licensee for the offering of its securities to the general public, (i) Licensor shall be entitled to receive all financial statements, budgets and business plans of Licensee that Licensee provides to any other shareholder, lender or prospective investor of Licensee, at the same time and in the same format as provided to such other parties, and (ii) Licensor shall be entitled to access to such other financial information and books and records of Licensee as Licensor may reasonably request from time to time and in any event, annually.

  

12. Exhibits B and C shall be deleted in their entirety and replaced with Exhibit B in this Amendment.

 

13. Agreement in Full Force and Effect . Except as expressly provided in this Amendment, all other terms, conditions and provisions of the Patent License Agreement shall continue in full force and effect as provided therein.

 

[SIGNATURE PAGE TO FOLLOW]

 

CONFIDENTIAL

Page 7 of 17

 

 

IN WITNESS WHEREOF, the Licensor and Licensee have entered into this Agreement effective as of the date fist set forth above.

 

THE UNIVERSITY OF TEXAS AS AUSTIN ON BEHALF OF THE BOARD OF REGENTS OF THE UNIVERSITY OF TEXAS SYSTEM   TFF Pharmaceuticals, Inc.
     
By: /s/ Les Nichols   By: /s/ Kirk Coleman
Les Nichols   Name: Kirk Coleman
Interim Director   Title: Chief Financial Officer
Office of Technology Commercialization  
   
Date: 12/18/2018   Date: 12/21/2018

 

CONFIDENTIAL

Page 8 of 17

 

 

EXHIBIT B
Patient Rights

 

App. No./
Date of
Filing
Title Inventor(s) Jointly Owned?
(Y/N; if Y, with
whom?)
Prosecution
Counsel

Canada Serial No. 2,678,455

Filed on 08/14/2009

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L. Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

Yes, w/ UT Health San Antonio

No

Parker Highlander

US Serial No. 12/522,774, Issued US Patent No. 9,044,391

Filed on

07/10/2009

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L. Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

☒ Yes, w/ UT Health San Antonio

No

Parker Highlander

US Provisional Serial No. 60/884,383

Filed on

1/10/2007

Enhanced Delivery of Immunosuppressive Drug Compositions For Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

Prapasri Sinswat

Robert L. Talbert Jr.

Robert O. Williams III

☒ Yes, w/ UT Health San Antonio

No

Parker Highlander

US Serial No. 14/621,337

Continuation of 12/522,774

Filed on

02/12/2015

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L. Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

☒ Yes, w/ UT Health San Antonio

No

Parker Highlander
European Issued Patent No. 2124898 Validated in in France, Spain, Germany, and Great Britain Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L. Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

☒ Yes, w/ UT Health San Antonio

☐ No

Parker Highlander

 

CONFIDENTIAL

Page 9 of 17

 

 

App. No./
Date of
Filing
Title Inventor(s) Jointly Owned?
(Y/N; if Y, with
whom?)
Prosecution
Counsel

PCT/US2008 /050795

Filed on 01/10/2008

Enhanced Delivery of Immunosuppressive Drug Compositions for Pulmonary Delivery (5175 WIL)

Keith P. Johnston

Jason T. McConville

Jay I. Peters

True L. Rogers

Prapasri Sinswat

Robert L. Talbert Jr.

Alan B. Watts

Robert O. Williams III

☒ Yes, w/ UT Health San Antonio

No

Parker Highlander

US Serial No. 11/660,012, Issued US Patent 9,061,027

Filed on

08/15/2007

Enhanced Delivery of Drug Compositions to Treat Life Threatening Infections (2802 WIL)

Robert O. Williams III

Keith P. Johnston

Jason T. McConville

Robert L. Talbert Jr.

David S. Burgess

Jay I. Peters

Brian D. Scherzer

Christopher J. Tucker

David A. Hayes

Ian B. Gillespie

James E. Hitt

Nicholas S. Beck

Paula C. Garcia

True L. Rogers

Timothy J. Young

☒ Yes, w/ UT Health San Antonio

Also subject to INT-27237603 with Dow

No

Parker Highlander

US Serial No. 14/713,156, Issued US Patent No. 9,724,344

Continuation of 11/660,012

Filed on 05/15/2015

Enhanced Delivery Of Drug Compositions To Treat Life Threatening Infections (2802 WIL)

James E. Hitt

True L. Rogers

Brian D. Scherzer

Ian B. Gillespie

Paula C. Garcia

Nicholas S. Beck

Christopher J. Tucker

Timothy J. Young

David A. Hayes

Robert O. Williams III

Keith P. Johnston

Jason T. McConville

Jay I. Peters

Robert L. Talbert Jr.

David S. Burgess

Yes, w/ UT Health San Antonio

Also subject to INT-27237603 with Dow

No

Parker Highlander

 

CONFIDENTIAL

Page 10 of 17

 

 

App. No./
Date of
Filing
Title Inventor(s) Jointly Owned?
(Y/N; if Y, with
whom?)
Prosecution
Counsel
PCT/US2005 /030543 Enhanced Delivery of Drug Compositions to Treat Life Threatening Infections (2802 WIL)

Robert O. Williams III

Keith P. Johnston

Jason T. McConville

Robert L. Talbert Jr.

David S. Burgess

Jay I. Peters

Brian D. Scherzer

Christopher J. Tucker

David A. Hayes

Ian B. Gillespie

James E. Hitt

Nicholas S. Beck

Paula C. Garcia

True L. Rogers

Timothy J. Young

Yes, w/ UT Health San Antonio

Also subject to INT-27237603 with Dow

No

Parker Highlander

US Provisional Serial No. 60/605,179

Filed on 8/27/2004

Enhanced Delivery of Drug Compositions to Treat Life Threatening Infections (2802 WIL)

Robert O. Williams III

Keith P. Johnston

Jason T. McConville

James E. Hitt

True L. Rogers

Ian B. Gillespie

Brian D. Scherzer

Paula C. Garcia

Nicholas S. Beck

Christopher J. Tucker

Timothy J. Young

David A. Hayes

Jay I. Peters

Robert Talbert

David Burgess

No

Also subject to with INT-27237603 with Dow

Parker Highlander

US Serial No. 12/778,795 Issued as US Patent 10,092,512

Continuation in Part of US Serial No. 12/371,573

Filed on

02/13/2009

Compositions and Methods of Making Brittle-Matrix Particles Through Blister Pack Freezing (5408 JOH)

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams III

Alan B. Watts

Joshua Engstrom

Yes,

No

Parker Highlander

 

CONFIDENTIAL

Page 11 of 17

 

 

App. No./
Date of
Filing
Title Inventor(s) Jointly Owned?
(Y/N; if Y, with
whom?)
Prosecution
Counsel
16/115,888
Filed on 08/29/2018
Compositions and Methods of Making Brittle-Matrix Particles Through Blister Pack Freezing (5408 JOH)

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams III

Alan B. Watts

Joshua Engstrom

☐ Yes,

No

Parker Highlander

US Serial No. 10/639,361, Issued US Patent No. 9,175,906

Filed on 08/12/2003

Process for Production of Nanoparticles and Microparticles by Spray Freezing Into Liquid (5612 DOW)

Brian D. Scherzer

James E. Hitt

Jonathan C. Evans

☐ Yes,

No, IP was assigned from Dow to The Board of Regents of The University of Texas per INT-27237603

Parker Highlander

US Serial No. 14/861,046.

Divisional of 10/639,361

Filed on 08/12/2003

Process for Production of Nanoparticles and Microparticles by Spray Freezing Into Liquid (5612 DOW)

Brian D. Scherzer

James E. Hitt

Jonthan C. Evans

Yes,

☒ No, IP was assigned from Dow to The Board of Regents of The University of Texas per INT-27237603

Parker Highlander

Japanese Serial No. 2004- 566896, Issued Patent No. 4933732

Filed on

08/12/2003

Drug Particles From Freezing onto a Surface (5612 DOW)

Brian D. Scherzer

James E. Hitt

Jonathan C. Evans

☐Yes,

No, IP was assigned from Dow to The Board of Regents of The University of Texas per INT-27237603

Parker Highlander

 

CONFIDENTIAL

Page 12 of 17

 

 

App. No./
Date of
Filing
Title Inventor(s) Jointly Owned?
(Y/N; if Y, with
whom?)
Prosecution
Counsel

Singaporean Serial No. 200504247.8, Issued Patent No. 112782

Filed on 08/12/2003

Drug Particles From Freezing onto a Surface (5612 DOW)

Brian D. Scherzer

James E. Hitt

Jonthan C. Evans

Yes,

No, IP was assigned from Dow to The Board of Regents of The University of Texas per INT-27237603

Parker Highlander

US Serial No. 15/570,828

Filed on 10/31/17

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

Yes, w/ UT Health San Antonio

Parker Highlander

US Serial No. 62/156,052

Filed on 09/02/2015

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

Yes, w/ UT Health San Antonio

Parker Highlander
PCT/US15/4 8093

Multidrug Brittle
Matrix

Compositions (6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

☒ Yes, w/ UT Health San Antonio

Parker Highlander

Australian Serial No. 2015393953

Filed on: 10/16/17

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

☒ Yes, w/ UT Health San Antonio

Parker Highlander

Brazilian Serial No. 1120170233 517

Filed on: 10/30/17

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

Yes, w/ UT Health San Antonio

Parker Highlander

Canadian Serial No. 2,983,427

Filed on: 10/20/17

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

Yes, w/ UT Health San Antonio

Parker Highlander

 

CONFIDENTIAL

Page 13 of 17

 

 

App. No./
Date of
Filing
Title Inventor(s) Jointly Owned?
(Y/N; if Y, with
whom?)
Prosecution
Counsel

Chinese Serial No. 2015008051 7.9

Filed on: 11/29/17

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

☒ Yes, w/ UT Health San Antonio

Parker Highlander

European Serial No. 15766292.5

Filed on: 11/16/17

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

Yes, w/ UT Health San Antonio

Parker Highlander

Indian Serial No. 2017170402 47

Filed on: 11/10/17

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

☒ Yes, w/ UT Health San Antonio

Parker Highlander

Japanese Serial No. 2017-557057

Filed on: 10/31/17

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

☒ Yes, w/ UT Health San Antonio

Parker Highlander

Korean Serial No. 10-2017- 7034565

Filed on: 11/29/17

Multidrug Brittle Matrix Compositions

(6677 WIL and 6678 WIL)

Robert O. Williams III

Alan B. Watts

Jay I. Peters

Yes, w/ UT Health San Antonio

Parker Highlander

US Serial No. 12/371,573

Filed on 2/13/2009

Templated Open Flocs of Anisotropic Particles for Enhanced Pulmonary Delivery (5312 JOH)

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams III

Alan B. Watts

Joshua D. Engstrom

Yes,

No

Parker Highlander

Canada Issued Patent No. 2,723,314

Filed on 2/13/2009

Templated Open Flocs of Anisotropic Particles for Enhanced Pulmonary Delivery (5312 JOH)

Joshua D. Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams III

Yes,

No

Parker Highlander

 

CONFIDENTIAL

Page 14 of 17

 

 

App. No./
Date of
Filing
Title Inventor(s) Jointly Owned?
(Y/N; if Y, with
whom?)
Prosecution
Counsel

Australia Issued Patent No. 2009214443

Filed on 2/13/2009

Templated Open Flocs of Anisotropic Particles for Enhanced Pulmonary Delivery (5312 JOH)

Joshua D. Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams III

Yes,

No

Parker Highlander

European Serial No. 09709833.9, Issued Patent No. 2252275

Validated in Belgium, Denmark, Finland, France, Germany, Ireland, Luxembourg, Monaco, Netherlands, Norway, Sweden, Switzerland, and Great Britain

Filed on 9/13/2010

Templated Open Flocs of Anisotropic Particles for Enhanced Pulmonary Delivery (5312 JOH)

Joshua D. Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Robert O. Williams III

Yes,

No

Parker Highlander

US Serial No. 61/028,218

Filed on 2/13/2008

Non-Settling Flocs for Surfactant-Free Enhanced Pulmonary Delivery with Pressurized Metered Dose Inhalers (5312 JOH)

Joshua D. Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Yes,

No

Parker Highlander

PCT/US2009 /034162

Filed on 2/13/2009

Templated Open Flocs of Anisotropic Particles for Enhanced Pulmonary Delivery (5312 JOH)

Joshua D. Engstrom

Keith P. Johnston

Jasmine Tam (Rowe)

Yes,

No

Parker Highlander

 

CONFIDENTIAL

Page 15 of 17

 

 

App. No./
Date of
Filing
Title Inventor(s) Jointly Owned?
(Y/N; if Y, with
whom?)
Prosecution
Counsel

US Serial No. 14/603,211, Issued US Patent 9,622,974

Division of 12/665,308 Filed on 01/22/15

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua D. Engstrom

Robert O. Williams III

Yes,

No

Parker Highlander

US Serial No. 15/479,137

Continuation of 14/603,211.

Filed on 04/04/17

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua D. Engstrom

Robert O. Williams III

Yes,

No

Parker Highlander

Europe Serial No. 08771657.7, Issued Patent No. 2170283

Filed on 01/22/2010

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua D. Engstrom

Robert O. Williams III

Yes,

No

Parker Highlander

US Serial No. 12/665,386, Issued US Patent No. 8,968,786

Filed on 12/18/2009

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua D. Engstrom

Robert O. Williams III

Yes,

No

Parker Highlander

US Provisional Serial No. 60/945,737

Filed on 6/22/2007

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua D. Engstrom

Yes,

No

Parker Highlander

Canada Issued Patent No. 2,691,531

Filed on 12/22/2009

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua D. Engstrom

Robert O. Williams III

Yes,

No

Parker Highlander

 

CONFIDENTIAL

Page 16 of 17

 

 

App. No./
Date of
Filing
Title Inventor(s) Jointly Owned?
(Y/N; if Y, with
whom?)
Prosecution
Counsel

Japan Serial No. 2010- 513468, Issued Patent No. 5658031

Filed on 02/19/2010

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua D. Engstrom

Robert O. Williams III

Yes,

No

Parker Highlander

PCT/US2008 /067766

Filed on 06/20/2008

Formation of Stable Submicron Peptide or Protein Particles by Thin Film Freezing (5254 JOH)

Keith P. Johnston

Joshua D. Engstrom

Yes,

No

Parker Highlander

62/702,674

Filed on 07/24/2018

Compositions of surface-modified therapeutically active particles by ultra-rapid freezing (7314 WIL)

Robert O. Williams III

Alan B. Watts

Chaeho Moon

Yes,

No

Parker Highlander

 

 

CONFIDENTIAL

Page 17 of 17

 

 

 

Exhibit 10.14

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “ Agreement ”) is made and entered into as of February 15, 2019 (the “ Effective Date ”) by and between TFF Pharmaceuticals., Inc., a Delaware corporation (the “ Company ”), and Kirk Coleman, an individual (“ Executive ”).

 

RECITALS

 

WHEREAS, the Company now desires to hire Executive as its Chief Financial Officer and Executive desires to become so employed by the Company; and

 

WHEREAS, the Company and Executive have determined that it is in their respective best interests to enter into this Agreement on the terms and conditions as set forth herein.

 

NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

AGREEMENT

 

1.  EMPLOYMENT TERMS AND DUTIES

 

1.1.  Employment . The Company hereby employs Executive, and Executive hereby accepts employment by the Company, effective as of the Effective Date, upon the terms and conditions set forth in this Agreement.

 

1.2.  Duties and Reporting . Executive shall serve as Chief Financial Officer of the Company, reporting to the Chief Executive Officer. Executive shall perform all reasonable duties and have such authority as assigned by the Chief Executive Officer .

 

1.2.1.  Full Working Time . Executive shall devote his full working time and efforts to the performance of his duties and the furtherance of the interests of the Company and shall not engage in any other business activity or serve in any industry, trade, professional, governmental or academic position during the term of this Agreement, except as may be expressly approved in advance by the Company’s Board of Directors (the “ Board ”) in writing, provided that Executive may (i) engage in activities that involve a de minimis amount of time or that are conducted on non-business time, in each case, without the prior written approval of the Board, (ii) make and manage personal investments of his choice without the prior written approval of the Board, and (iii) serve on the board of directors of one (1) for profit enterprise with the prior written approval of the Board, which approval shall not be unreasonably withheld, so long as such activities listed in clauses (i), (ii), and (iii), either separately or collectively, do not materially interfere with Executive’s duties and responsibilities hereunder and are not inconsistent with the terms of any conflict of interest, securities trading or similar material written policies of the Company applicable to Executive.

 

 

 

 

1.2.2.  Compliance With Policies . Executive shall comply with all policies, practices and procedures, and all codes of ethics or business conduct of the Company applicable to Executive’s position, as in effect from time to time.

 

1.2.3.  Duty of Loyalty . Executive acknowledges that Executive owes a duty of care and loyalty to the Company, as well as a duty to perform Executive’s duties in a manner that is in the best interests of the Company. Executive owes such duties to the Company in addition to duties imposed upon Executive under applicable law.

 

1.3.  Term . Subject to earlier termination as set forth herein, Executive’s employment hereunder shall be for a term of three (3) years, commencing on the Effective Date. Beginning on the third (3rd) anniversary of the Effective Date, and on each subsequent anniversary of the Effective Date, the term shall automatically, without further action by Executive or the Company, be extended for one (1) year; provided, however, that either Executive or the Company may, by notice to the other given not less than ninety (90) days prior to the scheduled expiration of the term, cause the term to cease to extend automatically. The term of this Agreement is hereafter referred to as the “ Employment Term .”

 

1.4.  Compensation and Benefits .

 

1.4.1.  Base Salary . In consideration of the services rendered to the Company hereunder by Executive and Executive’s covenants hereunder and in the Company’s Proprietary Information and Inventions Agreement (the “ PIIA ”), the Company shall, during the Employment Term, pay Executive a base salary (the “ Base Salary ”) of Sixteen Thousand Six Hundred and Sixty-Six Dollars and 67 cents ($16,666.67) per month, less statutory deductions and withholdings, payable in accordance with the Company’s regular payroll practices.

 

1.4.2.  Annual Bonus . For each full fiscal year completed during the Employment Term, Executive shall be eligible to earn a discretionary annual bonus (the “ Annual Bonus ”). The target for the Annual Bonus awarded to Executive will be 30% of the Base Salary in effect for the applicable year, and if Executive’s salary varies during a fiscal year, the applicable Base Salary shall be the average Base Salary during that year. The Annual Bonus shall be based upon Executive’s individual performance and the performance of the Company, with reference to performance goals to be provided at the beginning of each fiscal year by the Company’s Chief Executive Officer or the Board, as the case may be. In order to earn the Annual Bonus under this Section for any fiscal year, Executive must be employed by the Company, and not have provided notice of resignation, as of the date payment of the Annual Bonus is made. Any Annual Bonus due to Executive hereunder will be payable at the time bonuses, if any, are paid to other executives, but in all events not later than the March 15th following the end of the fiscal year for which any such Annual Bonus is awarded.

 

1.4.3.  Employee Benefits . During the Employment Term, Executive will be entitled to participate in the employee benefit plans currently and hereafter maintained by the Company of general applicability to other senior executives of the Company, including, without limitation, the Company's group medical, dental, vision, disability, life insurance and flexible-spending account plans. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time.

 

2

 

 

1.4.4.  Vacation . Executive shall be entitled to paid vacation in accordance with the Company’s vacation policy, with the timing and duration of specific vacations mutually and reasonably agreed to by Executive and the Company.

 

1.4.5.  Business Expenses . During the Employment Term, the Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time.

 

1.5.  Stock Options . Subject to approval of the Board, Executive will be granted a non-statutory stock option to purchase 150,000 shares of the common stock of the Company, in consideration of his continued services to the Company under this Agreement. The stock option will be granted under, and is subject to the terms of, the Company’s 2018 Stock Incentive Plan and a stock option agreement between Executive and the Company. Executive will be eligible to participate in and receive stock option or equity award grants under the Company’s equity incentive plans from time to time in the discretion of the Board, and in accordance with the terms and conditions of such plans.

 

1.6.  Termination . Executive’s employment and this Agreement (except as otherwise provided hereunder) shall terminate upon the occurrence of any of the following, at the time set forth therefor (the “ Termination Date ”):

 

1.6.1.  Death or Disability . Immediately upon the death of Executive or a determination by the Company that Executive has ceased to be able to perform the essential functions of his duties, with or without reasonable accommodation, for a period of not less than one hundred and twenty (120 ) days in the aggregate within a one-year period, due to a mental or physical illness or incapacity (“ Disability ”) (termination pursuant to this Section 1.6.1 being referred to herein as termination for “ Death or Disability ”); or

 

1.6.2.  Voluntary Termination . Ninety (90) days following Executive’s written notice to the Company of termination of employment; provided, however , that the Company may waive all or a portion of the ninety (90) days’ notice and accelerate the effective date of such termination (and the Termination Date) (termination pursuant to this Section 1.6.2 being referred to herein as “ Voluntary Termination ”); or

 

1.6.3.  Termination For Cause . Immediately following notice of termination for “Cause” (as defined below), specifying such Cause, given by the Company (termination pursuant to this Section 1.6.3 being referred to herein as “ Termination for Cause ”). As used herein, “ Cause ” means (i) termination based on Executive’s conviction or plea of “guilty” or “no contest” to any crime constituting a felony in the jurisdiction in which committed, any crime involving moral turpitude (whether or not a felony), or any other violation of criminal law involving dishonesty or willful misconduct that injures the Company’s interests or reputation (whether or not a felony); (ii) Executive’s substance abuse that in any manner interferes with the performance of his duties; (iii) Executive’s failure or refusal to perform his duties at all or in an acceptable manner in the reasonable judgment of the Board of Directors or to follow the lawful and proper directives of the Board of Directors that are within the scope of Executive’s duties; (iv) Executive’s material breach of this Agreement which, if curable, is not cured within fifteen (15) days after receipt of written notice of such material breach ; (v) Executive’s material breach of the PIIA; (vi) misconduct by Executive that has or could discredit or damage the Company; (vii) Executive’s indictment for a felony violation of the federal securities laws; or (viii) Executive’s chronic absence from work for reasons other than illness.

 

3

 

 

1.6.4.  Termination Without Cause . Notwithstanding any other provisions contained herein, including, but not limited to Section 1.3[?] above, the Company may terminate Executive’s employment thirty (30) days following notice of termination without Cause given by the Company; provided, however, that during any such thirty (30) day notice period, the Company may suspend, with no reduction in pay or benefits, Executive from his duties as set forth herein (including, without limitation, Executive’s position as a representative and agent of the Company) (termination pursuant to this Section 1.6.4 being referred to herein as “ Termination Without Cause ”).

 

1.6.5.  Resignation for “Good Reason” . Notwithstanding any other provisions contained herein, Executive may resign his position for good reason if any one of the following occurs, without Executive’s consent: (i) material diminution of Executive’s role and/or responsibilities, (ii) a reduction in Executive’s Base Salary greater than 10% and material or significant reduction in benefits from those in effect at the time the change is indicated, other than reductions in salary and/or benefits that are applied to all executive officers of the Company, or (iii) relocation of Executive’s office farther than 50 miles from Executive’s office location at the commencement of this Agreement; provided, however, that with respect to any of the foregoing clauses (i) – (iii), Executive has provided written notice to the Company of the existence of the condition or conditions constituting Good Reason within ninety (90) days of the condition or conditions first occurring, and the Company has failed to cure the condition or conditions specified in such notice despite having been given at least thirty (30) days after receipt of such notice to cure such condition or conditions (termination pursuant to this Section 1.6.5 being referred herein to “ Resignation for Good Reason ”).

 

1.6.6.  Other Remedies . Termination pursuant to this section above shall be in addition to and without prejudice to any other right or remedy to which the Company may be entitled at law, in equity, or under this Agreement.

 

1.7.  Severance and Termination .

 

1.7.1.  Voluntary Termination, Termination for Cause, Termination for Death or Disability . In the case of a termination of Executive’s employment hereunder for Death or Disability in accordance with Section 1.6.1 above, or Executive’s Voluntary Termination in accordance with Section 1.6.2 above, or a termination of Executive’s employment hereunder for Cause in accordance with Section 1.6.3 above, (i) Executive shall not be entitled to receive payment of, and the Company shall have no obligation to pay, any severance or similar compensation attributable to such termination, other than base salary earned but unpaid, vested benefits under any employee benefit plan, and any unreimbursed expenses pursuant to Section 1.5.5 hereof incurred by Executive as of the termination date, and (ii) the Company’s obligations under this Agreement shall immediately cease.

 

4

 

 

1.7.2.  Termination Without Cause and Resignation for Good Reason . Subject to the provisions set forth in this Agreement, in the case of a Termination Without Cause of Executive’s employment hereunder in accordance with Section 1.6.4 or Resignation for Good Reason in accordance with Section 1.6.5 above, the Company shall pay Executive twelve (12) months’ base salary then in effect (hereinafter the “ Severance Payments ”), less statutory deductions and withholdings, payable in the form of salary continuation and pursuant to the Company’s normal payroll cycle. The Company’s obligation to make Severance Payments is conditioned upon Executive timely signing and returning to the Company (and not revoking) a release agreement in a form satisfactory to the Company (which shall include, but not be limited to, a full release of claims) and on Executive’s continued compliance with Executive’s obligations to the Company that survive termination of his employment in this Agreement in and in the PIIA.

 

1.8.  Timing of Payments and Section 409A .

 

1.8.1. Notwithstanding anything to the contrary in this Agreement, if at the time of Executive’s termination of employment, Executive is a “specified employee,” as defined below, any and all amounts payable under this Section 1 on account of such separation from service, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code (“Section 409A”) that constitute deferred compensation and would (but for this provision) be payable within six (6) months following the date of termination, shall instead be paid on the next business day following the expiration of such six (6) month period or, if earlier, upon Executive’s death.

 

1.8.2. For purposes of this Agreement, all references to “termination of employment” and correlative phrases shall be construed to require a “separation from service” (as defined in Section 1.409A-1(h) of the Treasury regulations after giving effect to the presumptions contained therein), and the term “specified employee” means an individual determined by the Company to be a specified employee under Treasury regulation Section 1.409A-1(i).

 

1.8.3. Each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement is to be treated as a right to a series of separate payments.

 

1.8.4. Any reimbursement for expenses or provision of in-kind benefits that would constitute nonqualified deferred compensation subject to Section 409A shall be subject to the following additional rules: (i) the amount of expenses eligible for reimbursement, or the in-kind benefits to be provided, during any taxable year shall not affect the amount of expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year; (ii) reimbursement of the expense shall be made, if at all, promptly, but not later than the end of the calendar year following the calendar year in which the expense was incurred; and (iii) the right to reimbursement or to in-kind benefits shall not be subject to liquidation or exchange for any other benefit.

 

5

 

 

1.8.5. The parties hereto agree that their intent is that payments and benefits under this Agreement comply with or be exempt from Section 409A to the extent applicable. This Agreement shall be interpreted to comply with or be exempt from Section 409A, and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.

 

2.  PROTECTION OF COMPANY’S PROPRIETARY INFORMATION AND INVENTIONS

 

This Agreement, and Executive’s employment hereunder, is contingent upon Executive’s execution of the PIIA, attached hereto as Exhibit 1 and incorporated herein by this reference. The PIIA survives the termination of this Agreement, the Employment Term and/or Executive’s employment with the Company.

 

3.  REPRESENTATIONS AND WARRANTIES BY EXECUTIVE

 

3.4.  No Contrary Agreements or Claims . Executive represents and warrants to the Company that (i) unless otherwise provided in writing prior to signing this Agreement , Executive is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition or non-solicitation agreement presently in effect, and (ii) Executive is not subject to any pending or, to Executive’s knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the business reputation of the Company. Executive has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith.

 

3.5.  Cooperation . Executive agrees to cooperate with the Company in connection with matters arising out of Executive’s service to the Company and assist the Company and its attorneys in the prosecution or defense of any litigation or similar proceedings to which the Company is a party, or matters concerning which litigation or similar proceedings subsequently arise, relating to any matter falling within Executive’s knowledge or former area of responsibility. Executive agrees to provide reasonable assistance and completely truthful testimony in such matters, including, without limitation, consulting on matters relating to Executive’s service to the Company, facilitating and assisting in the preparation of any underlying defense, responding to discovery requests, preparing for and attending deposition(s), as well as appearing in court to provide truthful testimony. The Company shall reimburse Executive any reasonable out-of-pocket expenses necessary for Executive to comply with the obligations under this Section 3.2 (including, without limitation, reasonable travel expenses, lodging and meals) in accordance with the Company’s expense reimbursement policies and, if such policies only permit reimbursement of expenses for active employees, to the same extent Executive would have been reimbursed if he were an active employee at the time such expenses were incurred.

 

3.6.  Non-Disparagement . Executive shall not, at any time during or following his employment, make statements or representations, or otherwise communicate, directly or, if undertaken at the direction of Executive, indirectly, in writing, orally, or otherwise, or take any action which, directly or indirectly, disparages any member of the Company, or their respective officers, equityholders, general partners, limited partners, members, managers, directors, employees, or advisors, or the businesses or reputations of any of the foregoing.

 

6

 

 

4.  MISCELLANEOUS

 

4.4.  Notices . Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be deemed given (a) upon actual receipt by the party to which such notice shall be directed if delivered by hand or electronic mail; (b) three (3) business days after the date of deposit in the U.S. mail, postage prepaid, registered or certified; or (c) on the next business day, if sent by prepaid reputable national overnight courier service, in each case addressed to Executive at his last known address on the books of the Company or, in the case of the Company, as provided below, or to such other address as either party hereto may specify by notice to the other in the manner set forth above:

 

If to the Company, to:

TFF Pharmaceuticals, Inc.

2801 Via Fortuna, Suite 425

Austin, Texas, Suite 78746

Email: _______________

 

With a copy (which shall not constitute notice) to:

 

J. William Wilson

6805 Capital of Texas Hwy. N., Suite 318

Austin, Texas 78731

Email: bwilson@outsourcegc.com

 

4.5.  Authorization to be Employed . This Agreement, and Executive’s employment hereunder, is subject to Executive providing the Company with legally required proof of Executive’s authorization to be employed in the United States of America within three days of the commencement of Executive’s employment.

 

4.6.  Entire Agreement . This Agreement, and the attached Exhibit 1, together with any equity-based written agreements between Executive and the Company, supersede all prior discussions and agreements among the parties with respect to the subject matter hereof and contain the sole and entire agreement between the parties hereto with respect thereto. The Consulting Agreement is hereby terminated, with the post-termination provisions expressly surviving as set forth in Section 1(c) therein.

 

4.7.  Survival . The respective rights and obligations of the parties in this Agreement and Exhibit 1 that are designed to last beyond the employment relationship hereto shall survive the termination of this Agreement, the Employment Term and/or Executive ’s employment with the Company.

 

4.8.  Waiver . Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative.

 

7

 

 

4.9.  Amendment . This Agreement may be amended, supplemented, or modified only by a written instrument duly executed by or on behalf of each party hereto.

 

4.10.  Recovery of Attorney’s Fees . In the event of any litigation arising from or relating to this Agreement, the prevailing party in such litigation proceedings shall be entitled to recover, from the non-prevailing party, the prevailing party’s reasonable costs and attorney’s fees, in addition to all other legal or equitable remedies to which it may otherwise be entitled.

 

4.11.  No Assignment; Binding Effect . This Agreement shall inure to the benefit of any successors or assigns of the Company. Executive shall not be entitled to assign his obligations under this Agreement. The Company shall have the right at any time to assign this Agreement to its successors and assigns; provided, however, that the assignee or transferee is the successor to all or substantially all of the business assets of the Company and such assignee or transferee expressly assumes all of the obligations, duties, and liabilities of the company set forth in this Agreement.

 

4.12.  Headings . The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

 

4.13.  Severability . The Company and Executive intend all provisions of this Agreement to be enforced to the fullest extent permitted by law. Accordingly, if a court of competent jurisdiction determines that the scope and/or operation of any provision of this Agreement is too broad to be enforced as written, the Company and Executive intend that the court should reform such provision to such narrower scope and/or operation as it determines to be enforceable. If, however, any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future law, and not subject to reformation, then (i) such provision shall be fully severable, (ii) this Agreement shall be construed and enforced as if such provision was never a part of this Agreement, and (iii) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by illegal, invalid, or unenforceable provisions or by their severance.

 

4.14.  Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED AND PERFORMED IN SUCH STATE WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES.

 

4.15.  Jurisdiction and Venue . With respect to any suit, action, or other proceeding arising from (or relating to) this Agreement, the Company and Executive hereby irrevocably agree to the exclusive personal jurisdiction and venue of the United States District Court for the Western District of Texas, Austin Division (and any Texas State Court within Travis County, Texas).

 

4.16.  Counterparts . This Agreement may be executed in any number of counterparts and by facsimile, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

 

4.17.  Construction . The parties acknowledge that this Agreement is the result of arm’s length negotiations between sophisticated parties each afforded representation by legal counsel. Each and every provision of this Agreement shall be construed as though both parties participated equally in the drafting of same, and any rule of construction that a document shall be construed against the drafting party shall not be applicable to this Agreement.

 

[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS]

 

8

 

 

IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed on the date first written above.

 

“COMPANY”
   
  TFF PHARMACEUTICALS, INC.
   
 

/s/ Glenn Mattes

  Signature
   
  Glenn Mattes
  Printed Name
   
  President and Chief Executive Officer
  Title

 

“EXECUTIVE”
   
  KIRK COLEMAN

 

  /s/ Kirk Coleman
  Executive’s Signature
   
   
  Address
   
   
  Address

 

EXHIBIT 1: Proprietary Information and Inventions Agreement

 

[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

 

 

 

 

 

Exhibit 21.1

 

TFF Pharmaceuticals, Inc., a Delaware corporation, has no subsidiaries.

Exhibit 23.1

 

Independent Registered Public Accounting Firm’s Consent

 

We consent to the inclusion in this Registration Statement of TFF Pharmaceuticals, Inc. on Form S-1 of our report dated February 15, 2019, with respect to our audits of the financial statements of TFF Pharmaceuticals, Inc. as of December 31, 2018 and 2017 (Predecessor) and for the period from January 24, 2018 to December 31, 2018, period from January 1, 2018 to January 23, 2018 (Predecessor) and year ended December 31, 2017 (Predecessor) which report appears in the Prospectus, which is part of this Registration Statement. We also consent to the reference to our Firm under the heading “Experts” in such Prospectus.

 

 

/s/ Marcum llp

 

Marcum llp

New York, NY

August 20, 2019